The DFIs are one of the main channels for the commercial investment part of the ODA strategy for all three countries. The DFIs are usually fully government owned. Although we have seen in a previous section that the size and focus areas of the three vary, their roles are similar. 50
4.2.1 Norfund
The Norwegian Investment Fund for Developing Countries, Norfund, is Norway’s main instrument for leveraging commercial investments into renewable energy. Norfund’s purpose is to contribute to building sustainable commercial businesses in developing countries.
Clean energy is one of Norfund’s three focus sectors. The strategy is to invest as “strategic minority investor” with or through partners like Scatec Solar, SN Power and KLP. Norfund’s investment instruments are:
Direct equity (up to 35 % equity financing)
Loans to companies and financial institutions
Indirect equity through funds
Guarantees
The distribution of the portfolio is 70 % direct equity, 15 % loans and 15 % indirect equity (funds). Most of Norfund’s direct investments are large-scale projects (with Norfund’s equity being from 4 million USD and up), while the funds focus on smaller business projects and entrepreneurs.
50 The information about the DFIs is mainly based on their web sites and recent annual reports.
Figure 19 Representation of Danida Business Finance.
Source: dbf.ifu.dk
4 Publicly financed support mechanisms and instruments Norfund can also issue guarantees and has used the instrument in some renewable energy projects.
Norfund is a limited company, thus guarantees issued by Norfund do not have the advantages of sovereign guarantees with regard to scaling up banks’ lending.
4.2.2 Swedfund – Swedish Development Fund
Swedfund is the DFI of Sweden, owned by the Ministry of Enterprise and Innovation and funded by the Ministry of Foreign Affairs. Its goal is to “fight poverty by investing in sustainable companies”51. Swedfund provides 3 main types of services:
Risk capital (equity & loans)
Financial support through Swedpartnership (loans, convertible to grants)
Project development support (financing preliminary studies)
The portfolio is divided into 23 % equity, 46 % in loans and 31 % in funds as of the end of 2017. More than 60% of the portfolio is in Sub-Saharan Africa.
Swedfund requires commercial return and does not provide soft money, i.e. pillar financial viability.
1) Risk Capital
Risk capital, or impact capital as they term it, is available for well-established businesses with a business ideas that have potential to be contribute to Swedfund’s overall mission. Swedfund’s investments are made alongside other development finance institutions and strategic investors.
Instruments include direct equity, funds and loans.
Swedfund partakes as a minority owner, and does not take operational responsibility in projects, but actively follows the development of the project and often has a representative on the board of directors.
2) Swedpartnership
The financing program Swedpartnership supports small and medium-sized Swedish companies transferring know-how and investments in machinery and equipment through business partnerships with local companies in emerging markets. All funding is targeted at employees or operations of the local businesses. Loans are convertible to grants when the project has been completed. In 2017, 30 million SEK was allocated for new applications.
3) Project Development
Since 2016 Swedfund can finance early stage project preparation and development in more than 100 developing countries (DAC52 list). The efforts aim at helping project owners develop projects that can lead to financing and implementation of sustainable solutions applying Swedish solutions and technology.
51 Swedfund operates in accordance with its three pillars, impact on society, sustainability and financial viability. A number of indicators are listed under each pillar, i.e.
number of jobs, number of women in management, CO2 emission etc. The pillars are equally considered before a decision to invest is taken, during the value creation phase and when exiting.
52 OECD’s Development Assistance Committee
4 Publicly financed support mechanisms and instruments 4.2.3 The Investment Fund for Developing Countries (IFU)
The Danish DFI, IFU, finances projects in developing countries as a minority investor (usually about 30 % of total investment; up to around 15-16 million USD). The remaining investment comes from Danish or local company or regional development bank.
Capital is provided as:
Equity (around 30 % of total as a rule of thumb. 49 % max of any single project’s equity)
Mezzanine financing (equity-like loans)
Loans
Guarantees
IFU projects must be ‘in Danish interest’ – i.e. Danish investor, exporter, Danish job creation, use of Danish technology etc., and contribute to development in the target countries. IFU offers advice throughout the investment process and often sits in the board of the project company.
IFU invests directly in projects/companies but is also fund manager for several special purpose funds that are public private partnerships between private investors, often institutional investors, and the state.
Danish Climate Investment Fund
IFU manages the Danish Climate Investment Fund, a climate and clean energy fund, established along with the Danish state, Danish pension funds and other private investors. The DCIF offers risk capital for projects that contribute to solving climate-related issues in developing countries and emerging markets. Established in 2014, commitments amount to a total of 1.3 billion DKK, including Danish state (525 MDKK) and the private sector53. The DCIF participates as a minority investor, alongside other financing for projects/companies that is provided through local investors and financial institutions.
Generally projects shall be commercially viable and attractive for investors, and in “Danish economic interest”. The fund invests in renewable energy projects (mostly wind and solar) that contribute to reducing greenhouse gas emissions. The fund’s private investors are granted first rights (“preferred return”) up to a certain level. Any losses are split equally among investors; losses for the Danish state can be written off as ODA.54
53 General Partners (IFU, DKK 250 M; Danish state DKK 225 M) and Private Limited partners (PLPs) (PensionDanmark, DKK 200 M; PKA, DKK 200M; PBU, DKK 175M; Aage V Jensen Charity Foundation, DKK 50M)
54 Norwea. (2018). Gjennomgang av Norges eksportstøtte, låne- og garantiordninger rettet mote fornybarinvesteringer i utviklingsøkonomier, sett i lys av andre lands ordninger. Norwep/NHO/ZERO.
Figure 20 Illustration of IFU’s role in investments. Source: ifu.dk
4 Publicly financed support mechanisms and instruments Also in partnership with the Danish state,
Danish pension funds and other private investors, IFU launched a new SDG fund in 2018, targeting 5 billion DKK. Sustainable energy is one of the prioritized sectors. 4.1 billion DKK was committed in the first closing, distributed 60/40 between private investors and IFU. The fund shall contribute to reaching the SDGs through commercial private sector investments in developing countries, but also has an objective of promoting Danish technology and competence.
4.3 Export Credit and Guarantee Agencies