Investing for development Presentation at the Symposium on SDG 7 (Energy) in preparation for the 2018 High-Level Political Forum on Sustainable Development Oslo - October 19th, 2017
OUTLINE About Norfund What we have achieved Financing energy in developing markets 2
ABOUT NORFUND
Billion NOK NORFUND AT A GLANCE (AS OF 30.06.2017) Committed portfolio USD ~2 billion Value adjusted equity as of 31.12.2016 USD 2.4 billion 25 New commitments USD 53 million Direct investments 129 IRR since inception 6% in investment currency 9% in NOK Number of companies 750 20 15 10 5 - Value adjustments USD 500 million Retained earnings USD 430 million Capital allocated by owner USD 1470 million 4
CATALYTIC AND ADDITIONAL Mobilizing private capital and expertise that would not otherwise have been available in poor countries Making more capital available because we are willing to assume more risk than many other private investors. Contributing to better investments through active ownership and business development support.
FOCUS WHERE WE CAN SUCCEED AND MAKE A DIFFERENCE Geography: Sector focus: Instruments: Five regions, priority to Africa and LDCs, local presence Clean energy, financial institutions, food and agribusiness, and SMEs Preference for equity/ direct investments where we have direct influence and responsibility MNOK 3 931 MNOK 8 930 San José, Costa Rica MNOK 866 MNOK 3 892 Bangkok, Thailand 2006 2017 Accra, Ghana Nairobi, Kenya MNOK 800 MNOK 562 Maputo, Mozambique 2006 2017 As of 30.06.2017 2006 2017 Strategic investment areas Norfund regional offices 6
INVESTMENT AREAS CLEAN ENERGY FINANCIAL INSTITUTIONS FOOD AND AGRIBUSINESS SME FUNDS Reliable electricity supply is a precondition for economic growth and poverty alleviation An effective financial sector underpins investment and growth for both enterprises and individuals Agriculture is fundamental to economic transformation and a major source of employment in developing countries SMEs employ a large share of the workforce and contribute to economic diversification 8.4 NOK bn. invested 4.9 NOK bn. invested 1.6 NOK bn. invested 1.9 NOK bn. invested As of 30.06.2017 7
WHAT WE HAVE ACHIEVED
KEY PERFORMANCE INDICATORS AS OF 30.06.2017 PORTFOLIO Least Developed Countries (LDC) 33% 33% Greenfield 28% Equity 20% 84% 70% Africa 53% 50% Renewable energy 1 62% 50% 1 Share of allocated capital 2016 X% Target 9
COMMITTED INVESTMENTS PER YEAR MNOK 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 2.4 bn. NOK 2.8 bn. NOK SME Funds Food and agribusiness Financial Institutions Clean Energy - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 10
CLEAN ENERGY HALF OF NORFUND S PORTFOLIO MUSD 184 2010 MUSD 295 2016 MUSD 170 2020 Latin America MUSD 326 MUSD 720 MUSD 107 MUSD 440 MUSD 337 MUSD 17 2010 2016 Africa 2020 2010 2016 Asia 2020 COMMITMENT 960 MUSD in equity, loans and fund structures CAPACITY 4,960 MW installed + 600 MW under construction Natural gas 19% Wind 5% Solar 6% TECHNOLOGIES Other 3% Hydro 67%
FINANCING ENERGY IN DEVELOPING MARKETS
DFIs CAN SCALE AT LOW COST TO ODA Total EDFI Portfolio: 36 billion Funding sources, 2005-2015 36 billion New investments 2015: 6 billion Staff: 1,800 42 overseas offices in Shareholders equity 20+ developing countries Average annual growth: 11.4% 11 billion Loans etc. Shareholders equity Increase in loans etc. Retained profits Capital replenishments Loans from institutional investors and other liabilities / 17 billion Capital replenishments = ~0.7% of net Shareholders equity / 19 ODA billion 2005 2015 13
FDI FLOWS SHIFTING TO HIGHER INCOME COUNTRIES Share of investments by income group 80% 70% 70% 60% 50% 40% 30% 20% 10% 0% 23% FDI flows 6% 1% Low income Lower middle income Upper middle income High income Source: World Bank Group 14
BLENDING Source: EDFI 15
BNOK BNOK BNOK BUMPY ROAD - IMPACT ON PORTFOLIO Norfund portfolio Political stability 2010-2016 Government debt 2010-2016 Ease of doing business 2010 2016 18 16 14 12 10 8 6 4 2 - Deteriorated Stable Improved 18 16 14 12 10 8 6 4 2 - Increased Stable Decreased 18 16 14 12 10 8 6 4 2 - Deteriorated Stable Improved Source: Business Monitor International Source: Business Monitor International Source: World Bank Group 16
People (millions) Population (millions) OFF GRID SEGMENT STILL LARGE Off grid population by region Urban and rural population of African countries 1600 1400 1200 1000 800 600 400 200 0 1409 1341 1258 92 1213 74 51 44 930 783 626 571 387 484 581 598 1990 2000 2010 2012 3000 2500 2000 1500 1000 500 0 351 433 530 636 753 864 970 1055 1980 1990 2000 2010 2020 2030 2040 2050 Africa Asia Other Rural Urban Source(s): Bloomberg New Energy Finance Off-grid solar market trends report 2016; United Nations Department of Economic and Social Affairs 17
USD millions CAN RECENT INVESTMENTS CONTINUE TO GROW? SHS funding 2011-2016 SHS units sold major players 350 300 250 200 89 15 Lumos Mobisol BBOXX Azuri 30,000 70,000 85,000 100,000 150 309 Fenix 100,000 100 50 0 205 Equity Debt Grant Total D.light Off-grid electric M-Kopa 114,000 190,000 450,000 0 100,000 200,000 300,000 400,000 500,000 Challenges: Returns, pricing issues and hype Profitability vs. growth Demand and scalability why has no company succeeded? Grid expectations, free systems and soft(er) money Source(s): Power Africa, Kenya off-grid power accelerator program Innovation Lab; Bloomberg New Energy Finance Off-grid solar market trends report 2016; company websites, Board packs from D.light and M-Kopa 18
UTILITY SCALE PROJECTS IPPs and China are now fastest growing sources of funding for power projects But still insufficient to meet power demand Grid connected renewable energy markets taking off Experiences from Uganda and South Africa Investor challenges: Market reforms (unbundling, privatisation, competition, independent regulation) Bankability of projects Planning, competitive procurement and contracting 19