In March 2020, the East African flower producer Marginpar lost all business overnight. The COVID crisis had led to the collapse of both the Amsterdam flower market and the air freight out of Africa, so flowers could neither be sold nor exported.
With 3,000 employees and no one to buy its flowers, Marginpar was in a crisis. The management of Marginpar and Norfund as investor faced an exceptionally difficult situation. The company was adamant that laying off its employees to face an uncertain future in the midst of a crisis was not an option.
Instead, all employees voluntarily took a 50% pay cut and Norfund stepped in with an emergency loan to keep people employed and the company going. Six months later, the flower demand picked up and people came back to work with 100% pay and compensation for the 50% pay reduction that they had contributed with.
Investing for impact – responsibly
The Marginpar-story above is one example of the challenging and often unpredictable situations we face in Norfund. Another is when we invest in areas of conflict such as Somalia, South Sudan or Myanmar.
We have been investing in Myanmar to create jobs and improve lives in a country with immense development needs. This is especially true now in the wake of the coup of early 2021 and COVID, which the UNDP estimates could plunge almost half of Myanmar’s population into poverty. A prerequisite is that we invest responsibly and in accordance with recognised ethical standards. This entails supporting our investees in strengthening business integrity and compliance systems and understanding “where to draw the line”.
The latter is not easy and has no obvious answer. Our investee Yoma Bank draws the line at banking military or military owned entities. Even this is difficult in a country where the military is pervasive. Here, we must carefully and continuously balance the positive impact we have as an investor against the risk that we and our investees do not live up to our ethical standards.
Go where others hesitate – together
A second balancing act is the dual task of being both additional and catalytic. Norfund is set up to be additional – to invest where others hesitate due to the high risk involved. This is especially true for the least developed countries (LDCs), home to 39% of our investments. These are countries that are poor, often with weak governance systems and high risk – financial, social, environmental and reputational. These are also countries where private sector investments are essential for economic development and job creation. In addition to being additional, we are also set up to be a minority investor and tasked with being catalytic – that is to mobilise capital from other investors. This brings with it a constant tension – going where risk keeps many investors away, but mobilising others to invest with us.
We will do our bit, investing where we are needed the most, mobilising others to invest with us and maximising the positive impact that we have on the economies, businesses and societies in developing countries.Tellef Thorleifsson (Picture from Juba, South Sudan, January 2020)
Reporting our impact – effectively
We face a third challenge in our efforts to measure the impact of our investments. On the one hand, we must systematically understand and report the development effects of our portfolio companies, such as jobs created, taxes paid, how many new households have access to energy and how many new clients have received loans. This requires collecting data from each of our portfolio companies, a record 98% of which reported for 2020. It is not a simple process. Most companies in developing countries do not have advanced systems or teams dedicated to reporting. They are busy building a business that can survive and thrive, often in a difficult environment. We therefore tailor our data demands to their realities. If we do not have sufficient data, we cannot document the impact of our investments, but if we ask for too much data, we will stifle the companies and their ability to succeed in building sustainable businesses.
The road ahead
2020 was a year of extremes for Norfund. A highlight was the sale of the hydropower company SN Power to Scatec, the largest transaction in Norfund’s history, freeing up more than 10 billion NOK for new investments, primarily in renewable energy. At the other end of the scale, we faced our most difficult situation when Norfund fell victim to a serious case of digital fraud. In the wake of the fraud we have significantly strengthened our systems and been open about the incident to reduce risk of this happening again to us or to others.
For the world, the pandemic erased the equivalent of 255 million jobs and an additional 95 million people are estimated to have slipped into poverty – an unprecedented set-back. In Norfund we did our best to support our investees to protect jobs, and to keep investing despite the challenges in a world of shutdowns and insecurity. We are proud to have increased our investments by 20% to a record 4,8 billion NOK, as flows of FDI to our markets plummeted. Even before COVID, the gap to finance the UN Sustainable Development Goals in developing countries was formidable, at around 2.5 trillion USD. Some estimates now put this gap at 4.5 trillion USD.
Private sector investments will of course not alone solve the challenges faced by developing countries.
But we will do our bit, investing where we are needed the most, mobilising others to invest with us and maximising the positive impact that we have on the economies, businesses and societies in developing countries.
Economic development, job protection and job creation will be even more important. And we will play our part, delivering on our mission to invest to create jobs and improve lives.
Chief Executive Officer
June 3, 2021