After many years of steadily decreasing world poverty, this positive trend came to an abrupt halt in 2020. The COVID-19 pandemic hit developing countries hard, not least economically. While global direct investment in developing countries fell by 12% in 2020 as a result of the pandemic1, Norfund’s investment increased by 20% compared with the previous year to a record high NOK 4.8 billion. Norfund has thereby demonstrated its ability to maintain a high investment level and contribute to economic development in a demanding situation, and to help companies in its portfolio to stay afloat through the pandemic. An agreement for the sale of SN Power was also concluded in 2020. This means some NOK 10 billion will be released for reinvestment in new development-promoting activities in the years ahead.
1. Norfund and its mandate
Norfund was founded by the Storting (Norwegian parliament) in 1997. Its mission is to contribute to the development of sustainable business and industry in developing countries by providing equity capital and other risk capital and by furnishing loans and guarantees. The aim is to establish viable, profitable activities that would not otherwise be initiated because of the high risk involved.
Norfund’s investments make a direct contribution to the achievement of the UN sustainable development goals – especially the goals of eradicating poverty, achieving sustainable economic growth, gender equality, access to energy, industry, innovation and infrastructure and climate action. The development effects are measured annually, and the results for 2020 are published in the Report on Operations 2020.
Norfund has four investment areas, with Clean Energy accounting for almost half of its portfolio. Financial Institutions covers investment in banks, microfinance, insurance and other financial institutions. The area Scalable Enterprises is concerned with investment in the agricultural value chain, manufacturing industry and private equity funds. Through its new investment area, Green Infrastructure, Norfund will also be investing in water and waste management, but as yet no investments have been made. Each of the four investment areas has set ambitions that contribute directly and in a measurable way to the achievement of the UN Sustainable Development Goals.
Norfund receives annual capital allocations from the Norwegian government amounting in 2020 to NOK 1 820 million. Norfund was additionally allocated NOK 25 million in fresh capital for a Project Development and Risk Mitigation facility and NOK 25 million for its Business Support Programme. As of 31 December 2020, Norfund’s committed portfolio amounted to NOK 28.4 billion.
The fund’s investment is intended to be additional; in other words, the Fund supplies capital and expertise that enterprises would otherwise have difficult in accessing. The Fund is also intended to mobilise capital from other investors, both in Norway and abroad.
Most countries in which Norfund invests hold little attraction for international investors because the risk associated is considered too high. Norfund’s expertise, willingness and ability to manage high risk is therefore important for success in these countries.
Developing countries are dependent on access to more energy to enable them to eradicate poverty, so half of the capital allocated to Norfund over time is to be invested in renewable energy. After building up SN Power as a leading hydropower company in developing countries, Norfund sold SN Power to Scatec for NOK 10.9 billion in October 2020. As part of the transaction, Norfund retains its investments in Zambia and Panama, and a joint venture is being established for other activities in Africa, with Scatec owning 51% and Norfund 49% of the shares.
The facilities that were owned by SN Power now produce power equivalent to the electricity consumption of 7 million people, and avoid 3 million tons of greenhouse gas emissions annually. The exit is an example of Norfund’s efforts to be a predictable, long-term investor that does not retain ownership for longer than necessary. Norfund creates the greatest development effects by ensuring that its capital is constantly deployed where it contributes most.
1.2. Developments in Norfund’s markets
The global economy and Norfund’s markets were severely impacted by the economic slowdown due to the COVID-19 pandemic. The World Bank2 indicates negative global economic growth of -4.3 per cent in 2020.
Latin America was among the Norfund markets that were hardest hit, with an estimated fall in GDP of -6.9 per cent in 2020. Women, young people and low-income households were hit particularly hard, as they are disproportionately represented in lines of business where most jobs were lost. The outlook for 2021 is brighter. According to the World Bank, most of Norfund’s prioritised countries in the region, with the exception of Nicaragua, can expect growth of 2.6 to 5.1 per cent.
COVID-19 has also set its stamp on economic growth in Sub-Saharan Africa. Whereas large economies such as Nigeria and South Africa experienced significant negative growth of -4.1 per cent and -7.8 per cent in 2020, several smaller economies such as Ethiopia and Côte d’Ivoire maintained positive growth in 2020. However, this part of the world has a rapidly growing population, and per capita income fell for the region as a whole. The economic slowdown could potentially drive tens of millions of people into extreme poverty. According to the World Bank, most countries in the region can expect growth of 3–4 per cent in 2021.
Norfund’s core markets in Asia are also affected by COVID-19. Some countries experienced a fall in output in 2020, with the Philippines at the forefront (estimated at -8.1% of GDP), while countries such as Myanmar, Vietnam and Bangladesh got through the year with weak positive growth.
 World Bank Global Economic Prospects, January 2021
2. Investments and results in 2020
2.1. Investments in 2020
Norfund’s investment level in 2020 was historically high in terms of both the total committed amount of NOK 4.8 billion and the number of investments. Investments were broadly distributed within Norfund’s investment areas, with Clean Energy accounting for the largest portion, at NOK 1.65 billion. Financial Institutions accounted for NOK 1.35 billion and NOK 1.2 billion was invested via funds. NOK 670 million was invested in the area Scalable Enterprises in the manufacturing and agricultural value chains. In 2020, investments in the Least Developed Countries (LDCs) accounted for 31% of new commitments. At portfolio level, 39 per cent is now invested in these countries. Sub-Saharan Africa received 51per cent of new investments, while 54per cent of the whole portfolio is invested in this region. Norfund’s portfolio is therefore well within the key indicators stipulated by the Board that at least 33 per cent of the portfolio must be in LDCs and 50 per cent must be in Sub-Saharan Africa.
As a consequence of the pandemic and subsequent reticence of market lenders, Norfund capital has been sorely needed. The Fund made COVID-19-related investments amounting to over NOK 800 million in 2020. This includes Norfund’s contribution to an earmarked COVID-19 loan facility for developing countries of EUR 280 million which was established through the co-financing mechanism European Financing Partners (EFP) and the European Investment Bank (EIB).
2.2. Review of the financial statements
The financial statements for 2020 show a negative loss after tax of NOK 128 million. The negative result is due to larger write-downs on the investment portfolio than in previous years, mainly due to the impact of COVID-19 in Norfund’s markets. The pandemic has affected results in 2020 both through write-down of values in the existing portfolio but also in the form of lower dividends and realisation of equity instruments and funds. Turbulence in the foreign exchange market through the early phase of the pandemic and subsequent strengthening of the Norwegian krone against our investment currencies also resulted in substantial foreign exchange losses.
In 2020, Norfund’s portfolio delivered an estimated internal rate of return (IRR), of -0.1% measured in investment currencies and -3.6% measured in NOK. Since its inception, the portfolio has had an IRR of 5.2% measured in investment currencies and 7.7% measured in NOK, and the portfolio has thus exhibited solid profitability over time.
Norfund’s overall balance at the end of 2020 was NOK 25 billion. This is an increase of NOK 1.8 billion from 31 December 2019, the same allocation from the Owner as in 2020. New commitments have gone to equity investments, funds and loans, despite substantial write-downs. The net asset value, based on estimated market values in Norfund’s portfolio, is NOK 31.7 billion.
At the end of 2020, Norfund had outstanding, unpaid commitments totalling NOK 5.7 billion. Cash holdings at the same time were NOK 2.9 billion, in addition to current assets of NOK 884 million. Although the outstanding commitments are higher than the cash holdings, the Board regards liquidity as sound and confirms that the going concern assumption applies. In 2020, Norfund entered into an agreement to sell SN Power to Scatec Solar (see section 1). The purchase sum for the shares was estimated at USD 966 million in cash and USD 200 million as a seller’s credit. The agreement was concluded in 2020 and financial risk was transferred to Scatec with effect from 31 December 2020. Settlement and transfer of shares took place in January 2021, and the realised gain – estimated at NOK 6 billion – will therefore be recorded in 2021. The transaction therefore does not appear in the financial statements for 2020. Norfund is now preparing a strategy for reinvesting the capital from the exit from SN Power where it is most needed to combat poverty and promote sustainable economic development. In 2020, Norfund also exited from three funds and four loans were repaid in their entirety.
In the opinion of the Board of Directors, the financial statements for 2020 provide a true and fair view of Norfund’s financial position.
3. Organisation, environment and corporate social respnsibility
3.1. Corporate governance
The General Meeting is Norfund’s supreme body, and Norfund’s corporate governance is exercised through Articles of Association adopted by the General Meeting. The Norwegian Ministry of Foreign Affairs receives quarterly reports, and regular meetings are held throughout the year. Norfund’s Board of Directors is elected by the General Meeting, and two members are elected by and from among Norfund employees. The Board consists of nine members. In 2020, the Board held a total of 12 board meetings, of which three were extraordinary. The Board also travelled to Tanzania to visit a selection of Norfund’s investments.
2020 was a demanding year. Managing and following up the fraud case (see 3.2), reinforcing Norfund’s risk management and internal control, following up Norfund’s handling of COVID-19 and the exit from SN Power were particularly important cases for the Board.
Norfund has a framework of governing documents ranging from acts and statutes, via guidelines for important areas, to procedures for the conduct and follow-up of investment activities. The structure is geared to Norfund’s activities. It is constantly developing and makes measurement and verification possible. The Investment Committee considers investment proposals and contributes to quality assurance. The committee consists of eight persons, two of whom are external, and is authorised to approve individual investments in the range USD 4–15 million. The Investment Committee also makes recommendations about investments in excess of USD 15 million, but these are approved by the Board. Investments of less than USD 4 million are considered and approved by the administration.
Norfund invests in high risk markets. This risk is mitigated by thorough analyses and investigation in the investment phase of commercial, financial, legal and environmental, social and governance (ESG) factors. During Norfund’s ownership period, assessments of the risk in each investment are carried out twice annually, and risk-mitigating measures are implemented as needed.
3.2. Fortifying risk management and internal control
In the spring of 2020, Norfund was to the victim of a serious IT-related fraud and defrauded of USD 10 million. A number of measures were implemented immediately to strengthen IT security and risk management, and Norfund had PwC conduct an independent review of the incident. The review showed that a chain of factors combined to make Norfund vulnerable to fraud. Norfund accordingly made concerted efforts to close the gap and strengthen the organisation’s security and expertise.
In December, the Office of the Auditor General published its report Revisjonens kontroll med forvaltningen av statens interesser i selskaper – 2019 [Monitoring of the administration of state interests in companies – 2019] in which they concluded that Norfund had underestimated data security as a risk, did not have adequate follow-up of the supplier of ICT services, and that the implementation of decisions taken in previous years to strengthen data security took too long. This was consistent with Norfund’s own evaluation and the findings in the PwC report, and the report provided a good basis for the Fund’s continuing work to strengthen IT security.
Norfund has implemented a number of measures, both before and after the Auditor General’s review, to strengthen the organisation’s IT security. The Board has boosted risk management by appointing a risk and audit committee consisting of three Board members, engaged EY as external internal auditor and established a separate Enterprise Risk Management position.
3.3. Personnel, organisation and gender equality
Norfund has guidelines for recruitment, competencies and gender equality and procedures for employee follow-up and remuneration. Targeted recruitment takes place to enhance the organisation’s ability to deliver on Norfund’s strategy, and there is continuous work to build and develop employee competencies internally. As Norfund’s portfolio grows, so also does the need to strengthen several parts of the organisation, including Environmental, Social and Governance (ESG) work. Three new permanent ESG positions were established in 2020: one in Oslo, one in Nairobi and one in Costa Rica. The work of further developing financial reporting and internal control continued in 2020, and an internal IT department was established.
In 2020, Norfund’s staff consisted of 94 full-time equivalents. As of 31 December 2020, Norfund had 96 employees, 41 of them with backgrounds from countries other than Norway. Norfund currently has five regional offices: in Accra, Cape Town and Nairobi in Africa, Bangkok in Asia, and San José in Central America. In 2020, 30 of the employees were working at regional offices. Where possible, personnel for regional offices are recruited from the countries in which Norfund is investing.
Diversity and equal opportunities are important, both in the organisation itself and in the companies in which Norfund invests. This is described in the Gender Position Paper and in the annual Report on Operations, both available on Norfund’s website. In an international operation like Norfund, diversity of gender, nationality, age, background and competencies is vital for ensuring that the company makes good decisions. At the 2020 annual wage settlement, Norfund’s focus was on evening out any differences in pay for comparable positions. Planned for 2021 is an analysis of the wage gap between men and women for comparable positions, and an external review across staff functions.
Table 1 Gender balance in different position categories
|Board of Directors||55%||45%|
|Head of regional office||40%||60%|
In 2020, Norfund continued the intern programme that was established in 2019, and four students/newly qualified persons were engaged in different departments to enhance diversity, profile Norfund as an attractive workplace and challenge managers and other company employees. Among other things, this involved a reverse mentor scheme, where the four interns mentored members of the management group.
Norfund’s management, together with the Working Environment Committee and Social Affairs Committee, has supported the establishment of home offices, digital meeting places and social arrangements to maintain the employees’ health, well-being and work motivation during the pandemic. The internal training platform Norfund Academy was established in 2020 to strengthen skills development. The capacity to adjust demonstrated by the organisation during this period has been impressive, as has its ability to maintain a high pace of work.
Sickness absence in 2020 amounted to 2.3 per cent of total working hours. This is 0.3 percentage point higher than in 2019. The Board of Directors does not find it necessary to implement any special measures relating to the working environment or designed to promote the aims of the Norwegian Anti-Discrimination Act and Anti-Discrimination and Accessibility Act.
Table 2 Temporary employees, parental leave and voluntary part-time work for Oslo employees
|Temporary employees as a persentage of all employees ||Parental leave, average number of weeks||Part-time as a persentage of all employees |
 Four temporary employees, two men and two women, are participating in an intern programme. In addition, some resources were hired as substitutes for personnel on leave or for temporary projects/periods with an increased amount of work.  No non-voluntary part-time
 No non-voluntary part-time
3.4. Corporate social responsibility
Social responsibility lies at the heart of Norfund’s activities and is discharged through requirements set for both Norfund’s own activities and those of the companies in the portfolio. The cross-cutting considerations of Norwegian development policy – human rights, gender equality, anti-corruption, climate and environment – all form part of these efforts.
In 2020, Norfund adopted a new climate position, which entails our contributing to reducing greenhouse gas emissions, managing climate risk in our portfolio and promoting climate resilience in our markets. In practice this means: i) increasing investment in climate solutions, in particular renewable energy ii) excluding direct investment in fossil fuels except gas-fired power where this supports an energy transition aligned with the Paris agreement, iii) mapping and managing climate risk in all new investments and iv) continuing to prioritise the Least Developed Countries and Africa, which are expected to be hardest hit by climate change. In its work on the position, the Fund has drawn on analyses of climate-related work by other development finance institutions and investment funds, relevant guidelines and legislation, such as the Report on Diverse and Value-creating Ownership, Task Force on Climate-related Financial Disclosures (TCFD) and Principles for Responsible Investment (PRI) and discussions with experts and environmental organisations. In 2020, Norfund analysed, for the first time, the climate effect of the Fund’s total investments in building and expansion of renewable energy, including investments from which the Fund has exited. The analysis shows that the investments avoid 8 million tons annually of emissions – equivalent to a sixth of Norway’s annual emissions.
As a small, knowledge-based enterprise, Norfund has limited direct environmental impact, associated largely with air travel which is necessary for business operations. Norfund has been shifting over time to increased use of digital meetings rather than travel, where this serves the purpose. The amount of air travel in 2020 was very limited because of travel restrictions.
Norfund’s Board of Directors adopted a new ESG policy in 2020 and Norfund works systematically with ESG throughout the investment process. The IFC Performance Standards for Environmental and Social Sustainability provide the basis for our assessments. The IFC standards are tailored to Norfund’s activities. This approach contributes to meeting the government’s expectations of responsible business conduct described in Meld. St. 8 (2019–2020) Report to the Storting (white paper) including the expectation of conducting due diligence to avoid harm to society, people and the environment described in the OECD Guidelines for Multinational Enterprises, and the UN Guiding Principles on Business and Human Rights (UNGP).
Good working conditions are a fundamental objective. Norfund monitors HSE in all its investments, with a particular focus on training and compliance with HSE procedures. The investment agreements contain a requirement that serious accidents and fatalities must be reported. Sadly, in 2020 there were six deaths related to Norfund’s direct investments, five of them a result of traffic accidents. These incidents are reported to the Board, and in special cases also to Norfund’s owner, the Ministry of Foreign Affairs. Information about any project-related fatalities in Norfund’s indirect investments is collected and reported annually. Norfund follows up fatalities associated with operations in our direct investments to ensure that they are investigated, that safety procedures are modified if necessary, and that the next of kin receive the compensation to which they are entitled.
In 2020, Norfund’s Board adopted a revised Business Integrity Policy which sets out requirements and expectations of employees, partners and portfolio companies in a number of areas, including zero tolerance for corruption, money laundering and financing of terrorism. Systems have also been established for dealing with matters that are not in line with Norfund’s requirements. One case of financial irregularity was reported in 2020 and reported on to the Ministry of Foreign Affairs.
Norfund has a clear responsible tax policy. The guidelines were drawn up with input from civil society and consist of seven fundamental principles. They include requirements regarding transparency; Norfund’s investees shall pay taxes to the countries in which they operate and where the income occurs, and that third countries must only be used when necessary to meet the fund’s development priority of investing in high risk markets and to protect the fund’s capital. In 2020, the investments in funds increased appreciably, and hence so did the use of third countries.
Norfund engages regularly in dialogue with different stakeholder groups, including civil society organisations and other partners. Some of these meetings in 2020 concerned Norfund’s positions on gender equality and climate.
Norfund has a dedicated Business Support Programme funded by the Ministry of Foreign Affairs that is intended to be used to enhance the development effects of our investments, including intensifying work on the four cross-cutting issues: human rights, gender equality, anti-corruption and health, safety and environment. For example, Norfund can provide assistance for project development, local community development, building of skills and operational improvements. Of the thirteen projects that received support from this scheme in 2020, four were related to COVID-19.
The Storting has established a dedicated project development and risk mitigation scheme which enables Norfund to make risk capital available in the most demanding markets when access to early stage risk capital is limited. The scheme has two aims: early stage project development in Norfund’s priority investment areas, and risk mitigation for commercial investors who invest in Norfund-financed projects. The scheme is to be used for projects with higher risk than the investments in Norfund’s ordinary portfolio and is to be managed separately. In 2020, NOK 34.91 million was committed to two projects under this scheme.
4. Outlook for the future
The UN Sustainable Development Goals and the climate ambitions set out in the Paris Climate Agreement provide important guidelines for development going forward. The fact that the world has been hit by a pandemic has set back development. The funding gap hindering the attainment of the Sustainable Development Goals was formidable in developing countries even before the pandemic. Now it yawns even wider. The market cannot solve the investment challenges alone, and development finance institutions will be even more important going forward. Norfund is the Norwegian government’s most important tool for private sector investment in developing countries, and therefore has a key part to play.
Norfund’s strategy for 2019–2022 is ambitious, and based on the Fund growing, in terms of both invested capital and number of employees. The Fund has achieved this goal in 2020 and aims to follow the same path in 2021.
Norfund’s investment in energy has been an important contributor to returns in recent years. The exit from SN Power has released NOK 10.9 billion, which is to be deployed in the years ahead in new, development-promoting investments, with the emphasis on investment in renewable energy. In the short term, this liquidity will mean lower expected returns. In the longer term, the increased level of investment may result in a substantial change in the composition of the portfolio, with associated new risk and return properties.
There is still great uncertainty associated with the effects of COVID-19. This will significantly influence Norfund’s markets and operations, also in 2021. The economic downturn ensuing from the pandemic will have a strong negative impact on a number of portfolio companies, which may depress the return on the Fund’s investments.
The military coup in Myanmar has created a critical situation in the country, and also poses challenges for Norfund’s portfolio companies. Norfund has committed investments in Myanmar for a total of NOK 927 million, and has a current portfolio of NOK 585 million. The risk this implies, and the potential reduction in the value of the portfolio companies, is not reflected in the accounts and return figures for 2020, but value may be impacted in the future if the situation does not stabilise.
The Board regards Norfund as well equipped to deliver on the goals that have been set, and thanks the management and employees for their work in in a demanding year. Despite the negative result for 2020, returns measured over time have been satisfactory. Norfund will continue to make an important contribution to the success of an ambitious development policy and contribute to creating jobs and improving lives in the developing countries of the world.
Oslo, 23 March 2021
Olaug Svarva, Chair
Vibeke Hammer Madsen Tove Stuhr Sjøblom
Brit K. S. Rugland Martin Skancke
Vidar Helgesen Finn Marum Jebsen
Marianne Halvorsen Lasse David Nergaard