DFID has made a major shift in recent years to deploy more development funding through the CDC. Your remit is about creating transformative impact as well as generating returns. What are your impact investment criteria?
CDC Group is an impact investor with over 70 years’ experience supporting the sustainable, long-term growth of businesses in South Asia and Africa. We’re the largest private equity investor in Africa, where we are currently invested in over 700 businesses. In 2018 we announced a £3.5bn commitment as part of the UK’s ambition to become the largest G7 investor in Africa, with a focus on fighting climate change, empowering women and creating new jobs and opportunities for millions of people. We design our investment strategy and portfolio to advance the UN’s Sustainable Development Goals and prioritise these key investment criteria including development impact (reducing poverty, creating jobs and driving sustainable economic transformation), commercial viability and improving business practices in environmental, social and governance matters.
What asset classes are you looking at in terms of investment? Is it debt, equity and what sectors and ticket size?
We are a long-term, patient investor and provide capital flexibly to reflect the needs of the investment. We invest from our own balance sheet in different ways: direct equity, where ticket sizes range from $10m to over $150m – last year we invested $180m in Liquid Telecom to help the company bring broadband to the most underserved markets such as the Democratic Republic of the Congo and Sudan. We offer direct debt, where we can provide long-term debt to both corporates and projects, as well as trade finance and financial institution lending, typically between $20m and $100m per transaction. We’re also Africa’s largest limited partner, supporting 70 funds (nearly 90% of the total) in over 30 countries, typically committing $5m to $150m, often backing first time teams. CDC can invest across all sectors, but we prioritise those that will help further development such as healthcare, infrastructure, manufacturing and financial services.
Multilateral organisations and private sector players are often accused of not taking on enough risk. Is it viable for an organisation like CDC to take on more risk?
We fully recognise the transformative role impact investment can play when taking a more flexible approach to risk. We have been incubating a really exciting higher-risk approach to investment – Catalyst Strategies – to deepen and accelerate impact, with a commitment to allocate up to $1.6bn.
Our Catalyst Strategies are a way of introducing innovative, higher-risk investment approaches to solve stubborn, seemingly intractable structural challenges in markets that need a bold new approach to drive systemic change. Through our use of catalytic capital, we can seed the establishment of new industries or techniques that aren’t yet commercially viable but have the potential to transform people’s quality of life.
For example, to increase patient access to life-changing medical supplies in Africa we established the innovative financing company, MedAccess, in 2017 to create volume guarantees that lower prices. Its latest agreement, announced late last year, will nearly halve the price of next generation bed nets.
In terms of investment models for Africa, is the current system working or do we need to be more creative and innovative to help close the gap?
It’s clear more effort is needed. We’re doing more by ramping up our own commitment to the continent and by helping to create the conditions for commercial and institutional investors to participate at an unprecedented scale. Some of this is through creating partnerships with businesses, including in the City of London, to enable them to enter a market either for the first time or at a greater scale than they’d envisioned. We’ve done this successfully in the past, and as we move into the decade of action for the UN Sustainable Development Goals our door is firmly open to talking to potential partners about how we could support them to embrace the opportunity that Africa represents.