Blog post written for Business Fights Poverty by Rod Evison, Acting CEO, CDC Group plc
CDC is the world’s oldest development finance institution (DFI), having been established in 1948. Since then it has evolved and operated in a number of different ways, but its fundamental purpose has remained unchanged: to invest in promising business in poor countries in order to stimulate the private sector.
Since 2004 CDC has successfully implemented a strategy of investing through local fund managers. Having taken no new money from government since 1995, we have been self-sustaining and have substantially grown our pot of capital. This capital is currently at work in some 930 businesses.
Recently, however, as some poorer countries have prospered so others have not. And some markets and sectors have attracted foreign and commercial investment, while others have not.
Therefore last year the Secretary of State for International Development, Rt Hon Andrew Mitchell MP undertook a wide-ranging review of CDC with the intention of reform that would make us more able to tackle the development challenges of the world today. Following the review CDC has been working with the Department for International Development (DFID) to develop a new high level business plan for CDC.
This new business plan has now been published and it sets out how CDC will evolve into a more flexible, transparent and distinctive DFI. The reforms ensure CDC will deliver the greatest possible demonstrable development impact by deepening the reach of CDC’s capital to back promising businesses in the poorest parts of the world.
The main changes introduced by the new business plan are:
- We can now use more investment tools to get capital where it’s most needed, including direct investments, debt investments and guarantees;
- Our new investment universe is more focused on the low and lower-middle income countries in sub-Saharan Africa and South Asia where 70% of the world’s poor live. Furthermore, in lower-middle income countries, CDC will focus on regions and sectors of need where capital is scarce, and in India, CDC will move over time to concentrate on the eight poorer states;
- There are new targets for improvements to environmental, social and governance (ESG) standards at investee businesses and independent evaluations of the development impact of funds. CDC will also aim to attract a further £1 in third-party capital for every £1 it invests;
- We are introducing a new disclosure policy and more information will be published on CDC’s website about the organisation, our investee businesses and partners;
- Our Investment Code will be regularly updated to incorporate the latest international standards and particular attention will be paid to businesses rated as high-risk from the ESG perspective. This will ensure that CDC’s capital continues to be invested responsibly and sustainably; and
- Finally, we are also setting up a new innovative finance division to explore opportunities in exceptionally challenging investment circumstances where new and different ways of financing are required.
Together these reforms will make CDC a more versatile and pioneering DFI capable of making the maximum possible difference to lasting development. With more instruments at our disposal and a tighter geographic focus we are ready to tackle the challenges of driving private sector development with renewed vigour.
Work is already underway to implement the terms of the new business plan:
- Earlier this year CDC invested US$20m in funds helping provide long-term loans and guarantees to address an acute shortage of capital for green energy in developing countries;
- In Africa CDC is investing US$20m in a new agribusiness fund focusing on Zambia, Tanzania, Malawi and Mozambique; and
- In India, CDC is also looking at two investments, one focused on rural businesses and the second in the country’s eight poorer states.
Together these investments provide a good illustration of the company’s future concentration on frontier markets.
