Board of Directors’ report

Following the global economic downturn in the wake of the COVID-19 pandemic in 2020, the world economy rebounded in 2021 with GDP growth of 5.5 per cent[1] and strong growth in foreign direct investment. The upturn is expected to be of limited duration, however, and it will be many years before developing countries, particularly the poorest ones, again reach their income levels prior to the outbreak of the pandemic. The differences within and across countries are wide and have increased. Low-income groups have been disproportionately impacted, and the pandemic has inflicted extreme poverty on large groups, also in medium-income countries where extreme poverty was virtually eradicated prior to the outbreak of the pandemic. Investment is important for employment and economic growth, but in 2021 only 1.7 per cent[2] of global direct investment found its way to the least developed countries (LDCs). Increased poverty and an inequitable distribution of global investment heightens the need for Norfund’s activity. Norfund’s exit from SN Power, which was announced in 2020, was completed in 2021 and released capital for new investments. This, coupled with annual allocation of capital from the Norwegian government, puts Norfund in a position to maintain a high level of investment in the years ahead. In 2021 the Fund increased its investment in developing countries by 10 per cent, to a record-high NOK 5.3 billion. Clean Energy was the largest investment area, with NOK 2.7 billion in new investments.

1. About Norfund

1.1 Norfund’s mandate and strategy

Norfund was founded in 1997 as Norway’s key instrument for promoting investment in developing countries. The Fund’s mission is to share risk with commercial actors by investing in challenging markets. The Fund’s mandate is to contribute to the development of sustainable business and industry in developing countries by providing equity and other risk capital and 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 has four investment areas, the largest being Clean Energy. The next largest is Financial Institutions, which invests in banks, microfinance, insurance and other financial institutions. Scalable Enterprises covers investment in the agricultural value chain, manufacturing industry and funds. The area Green Infrastructure covers investment in water supply and waste management. Each of the four investment areas has ambitions that contribute directly and in a measurable way to the achievement of the UN Sustainable Development Goals.

Norfund prioritises investing in Least Developed Countries (LDCs) and Sub-Saharan Africa. Investment in LDCs accounted for 40 per cent of the portfolio at the end of 2021, while investment in Sub-Saharan African accounted for 65 per cent of the portfolio. The Fund is primarily an equity investor. Equity investment accounted for 75 per cent of the portfolio at the end of the year. Norfund’s portfolio is thus well within the key indicators set by the Board, which stipulate that at least 33 per cent of the portfolio must be in LDCs and 50 per cent must be in Sub-Saharan Africa.

With effect from 2022, Norfund has been commissioned to manage the new Climate Investment Fund, which is to provide risk management capital for investment in renewable energy in developing countries, as decided by the Storting in its consideration of the budget for 2022. NOK 1 billion was appropriated over the central government budget for 2022. The fund is to be built up to NOK 10 billion over a five-year period, with Norfund financing half from its surplus and the government contributing the other half in the form of annual grants. Under this new mandate, Norfund will further increase its investment in renewable energy, largely in medium-income countries where there is a considerable potential for supplanting investment in coal power.

[1] Source: World Bank, Global Economic Prospects, January 2022. Washington, DC

[2] Source: UNCTAD, Global Investment Trends Monitor, No. 40

1.2 Financing

Norfund is financed through annual capital allocations from the Norwegian government and the surplus generated by its investment activities. In 2021, government allocations amounted to NOK 1,678.2 million. Norfund was allocated an additional NOK 32 million for its Business Support Programme. As of 31 December 2021, Norfund’s committed portfolio amounted to NOK 26.9 billion. The return in the form of interest and return on investment, repayment of loans and realisation of earlier investments makes up a growing share of the Fund’s available investment capital and enables Norfund to increase the volume of its investment and contribute to even stronger development effects going forward.

1.3 Additionality and development effects

Additionality is a key part of Norfund’s mandate. The Fund invests in markets and activities characterised by high risk and lack of capital. The Fund is financially additional in that it supplies capital that businesses would otherwise have difficulty securing because of a shortage of capital and high risk. In terms of value, the Fund is additional in that it adds value over and above the value of the capital through active ownership, promoting environmental and social standards, and business improvements. The Fund must always be a minority investor and thereby also contribute to mobilising capital from other investors, both in Norway and worldwide. Norfund’s additionality ambitions for the individual investments are registered and reported to the OECD Development Assistance Committee.

Most countries in which Norfund invests hold little attraction for international investors because the risk associated with them is considered too high. Norfund’s expertise, willingness and ability to manage high risk are therefore important for succeeding in these countries.

Norfund’s investments contribute directly to the attainment of the UN Sustainable Development Goals – particularly the goals of eradication of poverty, sustainable growth and job creation, equal opportunities, access to energy, industry, innovation and infrastructure, and climate action. The development effects of the investments in the form of jobs, increased access to energy, avoided greenhouse gas emissions, credits for companies and microfinance clients etc. are measured annually and the results presented in the 2021 Report on Operations. In 2021, Norfund also estimated the indirect effects of investments for the first time.

1.4 Developments in Norfund’s markets

The global economy and Norfund’s markets were severely impacted by the economic downturn caused by the COVID-19 pandemic in 2020. In 2021 GDP rose again in a number of economies, but at very different paces. Norfund invests mainly in three areas: Sub-Saharan Africa, Central America and South and South-East Asia.

Sub-Saharan Africa: The World Bank estimates that following a fall of 2.2 per cent in 2020, GDP growth in Sub-Saharan Africa was 3.5 per cent in 2021, and that the growth rate will increase somewhat going forward. GDP per capita increased by 0.8 per cent in 2021, but per capita incomes in some countries, including Angola, Nigeria and South Africa, have fallen in 2022 and are now at a lower level than they were ten years ago. Other countries have not been so hard hit and have maintained or increased their per capita income levels. In general, economic activity picked up somewhat more than expected in 2021, partly driven by increased export revenue as a consequence of higher commodity prices worldwide. The largest economy in the region, Nigeria, had a relatively weak growth rate of 2.4 per cent in 2021 as a consequence of falling petroleum production and low investment levels, while the next largest, South Africa, reported considerably stronger growth of 4.6 per cent, driven by stronger developments in the mining, manufacturing and service sectors.

Increasing social unrest in a number of countries contributed to weak economic growth, including in some West African countries and in Ethiopia, where developments have been particularly challenging. A number of countries in both West and East Africa, including Senegal, the Ivory Coast, Ghana, Kenya, Tanzania and Rwanda have seen growth rates well over the average for Sub-Saharan Africa. However, some sectors, such as tourism, are still hard hit by the pandemic. High commodity prices, a gradual upswing in tourism and higher vaccination figures are expected to lead to stronger growth in Sub-Saharan Africa. The World Bank forecasts average growth rates of 3.6–3.8 per cent annually in 2022 and 2023. Social unrest and weak investment may constrain growth in a number of countries, however.

Central America: The countries in the region had average GDP growth of 7.1 per cent in 2021, after a somewhat larger decline the previous year. Of Norfund’s investment countries, Panama, Honduras and Nicaragua were hard hit in 2020. Despite the upturn in 2021 and expected continued growth in 2022, several countries will still have a lower income level than before the pandemic. Others, such as the Dominican Republic, Guatemala and El Salvador had growth rates of 7.5–11 per cent in 2021, and expect continued growth. Higher vaccination rates, strong consumer demand and public investment are expected to contribute to relatively strong economic development in the region. The World Bank expects growth rates of from 3 to 5 per cent in 2022 and 2023 in the majority of Norfund’s core countries in the region.

South and South-East Asia: There are large differences between Norfund’s core countries in the region. Bangladesh got through the pandemic with a growth rate of 3.5 per cent in the crisis year of 2020 and 5 per cent in 2021, and with expectations that growth will continue to gather pace. Vietnam also reported strongly positive figures through the pandemic relative to other countries in the region. The pandemic did lead to lower growth rates for both countries than before the outbreak of the pandemic. Cambodia and Laos were hard hit, and with GDP growth of 2.2 per cent, their economic development in 2021 was also weak compared with other countries in the region. Myanmar’s economy was severely impacted by the military takeover in February 2021. GDP fell by 18 per cent, and the situation going forward is very uncertain. The World Bank expects growth rates of from 5 to 8 per cent in 2022 and 2023 in Norfund’s core countries in the region, with the exception of Myanmar.

2. Investments and results in 2021

2.2 Investments in 2021

Norfund’s investment level in 2021 was historically high in terms of both the total committed amount of NOK 5.3 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 2.7 billion. Investment in Financial Institutions amounted to NOK 1.2 billion and NOK 1 billion was invested in Scalable Enterprises through funds. Direct investment in Scalable Enterprises in manufacturing and the agricultural value chain amounted to NOK 342 million, and the Fund made its first investment of NOK 17 million in Green Infrastructure. In 2021, investment in the least developed countries (LDCs) accounted for 23 per cent of new investment agreements.

2.2 Review of the financial statements

The financial statements for 2021 show a record high after-tax result of NOK 5 815 billion. The main reason for the high result is that the gain on sale of SN Power was recorded in 2021, boosting the result by NOK 4.8 billion. In addition, Norfund received a dividend of NOK 799 million from the company. In 2020 Norfund entered into an agreement to sell SN Power to Scatec Solar. The purchase price for the shares was USD 966 million in cash and USD 200 million in seller credit. The agreement was signed in 2020, and the financial risk was transferred to Scatec with effect from 31.12.2020, but the settlement and transfer of shares took place in January 2021, and both are therefore recorded in 2021. The freed-up capital is being reinvested in new projects. Surplus liquidity is being invested temporarily as a combination of loans to banks in the Fund’s markets, development bank bonds, financial institutions and companies focusing on sustainability, and deposits in banks in Norway and in banks with exposure to Norfund’s markets.

In general, a number of companies in the portfolio have shown positive development through the year, and have rebounded after relatively large write-downs and negative developments in value as a consequence of COVID-19 in 2020. As a result of the coup in Myanmar and current situation in the country, the values of all investments in Myanmar have been written down by 50 per cent on average. In all, Norfund had net write-downs in 2021 of NOK 230 million, with NOK 167 million due to the write-downs in Myanmar.

In 2021, Norfund’s portfolio delivered an estimated return, measured as IRR, of 1.5 per cent measured in the investment currency and 3.8 per cent measured in NOK. Since its inception, the portfolio has had an IRR of 4.9 per cent measured in investment currencies and 7.4 per cent measured in NOK. The profitability of the portfolio was in line with expectations. The after-effects of the COVID crisis and the commodity crisis are likely to have a negative impact on results in the years ahead.

Last year overall labour costs rose by 17 per cent, to NOK 158.1 million, after substantial strengthening of both the administration and the investment departments. This also means increases in the other cost areas, but on balance within the expectations for 2021. A substantial part of Norfund’s project development costs for hydropower projects were previously associated with the subsidiary SN Power. Following the exit from SN Power, these costs will have to be assumed directly by Norfund.

Norfund’s overall balance at the end of 2021 was NOK 32.5 billion, an increase of NOK 7.5 billion on 31.12.2020. The allocation from Owner in 2021 was NOK 1.68 billion, and earnings added to earned equity amounted to NOK 5.82 billion. As of 31.12.2021 the net asset value, based on the estimated market value of Norfund’s portfolio, was NOK 34.7 billion. A total reconciliation of the recorded investment portfolio as of 31.12.2021 detected historical errors totalling NOK 161 million on the balance sheet. The error was classified as an extraordinary write-down in 2021.

At the end of 2021, Norfund had outstanding, unpaid commitments totalling NOK 7 123 billion. Cash holdings at the same time were NOK 4.3 billion, in addition to current assets of NOK 6.1 million. The Board regards liquidity as sound and confirms that the going concern assumption applies. In the opinion of the Board of Directors, the financial statements for 2021 provide a true and fair view of Norfund’s financial position.

3. Organisation, environment and corporate social responsibility

3.1 Corporate governance

The General Meeting is Norfund’s supreme body. Corporate governance is exercised through decisions taken by the General Meeting, including the adoption of Articles of Association. In 2021 the General Meeting passed a resolution to change Norfund’s Articles of Association in order to align Norfund with the rules regarding salaries for senior employees in the Public Limited Liability Companies Act. The Norwegian Ministry of Foreign Affairs receives quarterly reports, and regular meetings are held through the year. Norfund’s Board of Directors is elected by the General Meeting, two members are elected by and from among the Fund’s employees. The Board consists of nine members. In 2021, the Board held a total of nine Board meetings, of which one was an extraordinary meeting. In addition, because of the COVID-19 restrictions, the Board conducted a virtual tour to meet a selection of Norfund’s investments and partners. New and updated rules of procedure for the Board and for the CEO were also adopted by the Board in 2021. Norfund has subscribed to Directors and Officers Liability Insurance with AIG.

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 evolving, 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. As a consequence of increased investment activity, the Board decided in 2021 to establish a dedicated Credit Committee, and to increase the decision-making limits of both committees. The Credit Committee considers and approves loans to financial institutions and consists of five members, one of them an external member with relevant expertise. Both committees are authorised to approve individual investments of between USD 4 million and USD 20 million. Both committees must also submit their recommendations for investments of over USD 20 million, but it is the Board that approves them. Investments of less than USD 4 million are considered and approved by the administration.

3.2 Risk management and internal control

In recent years the Board and administration have launched several initiatives to strengthen risk management work in Norfund. The Fund has prioritised data security, but other areas of Norfund have also been strengthened in terms of risk management and internal control.

Norfund as an institution normally takes more risk than commercial investors. This is a necessity for being able to create jobs and reduce poverty in the world’s least developed countries. Norfund’s mandate nonetheless entails various risk aspects that it is important to understand how to identify, manage and report.

In recent years the Board, Risk and Audit Committee and administration of Norfund have been implementing a comprehensive framework for identifying and monitoring the company’s relevant risk categories, and the results of semi-annual reviews of these activities are reported to the Board. In 2021, Norfund adopted a document that describes the Fund’s appetite for risk. The document defines both the risks Norfund should and is willing to take, and the area in which efforts are made to minimise risk through risk-mitigating measures. The document is published on Norfund’s website.

The risk spectrum Norfund has to manage includes country, exchange and market risk, but also risk associated with choosing the right countries and management teams. The environmental and social risk factors of the companies in which investment takes place must be managed. Risk is reduced by measures like local presence through Norfund’s regional offices, market insight and holding a diversified portfolio.

In 2021 Norfund developed a country risk tool which assists the investment departments in identifying the risk factors in a particular country on the basis of external sources, and the tool also provides information about Norfund’s exposure, broken down according to the risk classifications of the different countries.

As a consequence of the exit from SN Power, Norfund now has a more diversified portfolio than previously, as
the Fund had relatively high exposure to the Philippines as a country, and to hydropower as a technology. At the end of 2021, Norfund’s highest exposure was to Kenya, and accounted for 10.1 per cent of total committed capital, followed by Uganda with 8 per cent of the total portfolio. The Fund’s exposure to these countries is distributed among a number of investments across all investment areas. At the end of 2021, the highest exposure to an individual company accounted for 10.5 per cent of the total portfolio, and the next highest 8.7 per cent. Both the companies in question, which are the platform companies Arise and Globeleq, are diversified into a number of different investments in several countries.

Norfund has zero tolerance for corruption, and seeks to minimise risk through sound, effective processes. Any suspicion of corruption demands an immediate response and reporting.

The Board’s risk management work is supported by the Risk and Audit Committee and the Fund’s external internal auditor, which is the assurance company EY. Annual internal audit plans are approved by the Board using a risk-based approach. In 2021 four audits were conducted in the following areas: overarching management principles, financial control, information security and business integrity. In 2022 data security will also be covered by external internal audit, and parts of the investment process will be reviewed by the internal auditor in light of the fact that Norfund’s investment manual was reviewed and updated in 2021.

3.3 Personnel, organisation and gender equality

As both the annual investment level and the Fund’s total portfolio are growing, it was necessary to strengthen several parts of the organisation also in 2021. Norfund has conducted targeted recruitment to boost the organisation’s ability to deliver on the Fund’s strategy, and there is ongoing work on building skills and on internal employee development programmes. The internal training platform Norfund Academy underwent further development through the year, and the Fund placed special emphasis on skills building in the area of environmental and social responsibility and a corporate review in connection with the implementation of a new environmental and social management system (ESMS). Norfund arranged a “business integrity” week for all employees in 2021 for the first time. It included sessions with external and internal specialists who shared their experiences in the course of the week.

In 2021 Norfund’s staff consisted of 106 full-time equivalents. As of 31 December 2021 there were 119 employees, 52 of them with a background from countries other than Norway. Twenty-four different nationalities are represented. Norfund currently has five regional offices, in Accra, Cape Town and Nairobi in Africa, Bangkok in Asia and San José in Central America. In 2021, 36 of the employees were working at regional offices. Where possible, personnel for regional offices are recruited from the countries in which Norfund is investing.

Norfund has guidelines for recruitment, competencies and gender equality and procedures for employee follow-up and remuneration. Diversity and equal opportunities are important, both in the organisation itself and in the companies in which Norfund invests. Further information is provided 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 sound decisions.

All employees gather annually for the Norfund Week, for updating on strategy, status and plans, and for training and discussions on important and relevant topics. One of the main events in Norfund Week 2021 was a session on the freedom of expression climate, which is very important for increasing understanding of different personalities, cultures and problem-solving methods in an international enterprise such as Norfund.

In recent years Norfund has hired more young employees than previously, and the average age in the company is falling. The share of women in the organisation remains steady at 52 per cent. On the Fund’s investment side there is a smaller share of women than men, especially in senior positions. With a view to changing this situation over time, the Fund is seeking both to attract more women to these job categories, but also to retain and develop younger employees. In 2021, Norfund hired 24 new employees, 50 per cent of them women. Seventeen positions were announced through Norfund’s internal systems, and 33 per cent of the applicants for these jobs were women. The internal network “Young Norfund” was launched in 2021 to work with relevant topics such as self-leadership, network building and professional development. The forum was also a sparring partner with the management in connection with the question of how Norfund should work after the COVID-19 pandemic.

In 2021 Norfund also continued the Norfund internship programme, which was established in 2019, and five 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, with the interns mentoring members of the management group The interns also carried out a project to see how Norfund can be more sustainable internally.

At the 2021 annual wage settlement, Norfund placed special emphasis on levelling any differences in pay for comparable positions. An external review has previously been performed to classify the various positions in the investment departments into job categories, and in 2021 the same was done for staff functions. As a result, salary per job category can now be compared across the organisation. The review that was conducted did not reveal systematic differences between the genders, but some adjustments were made to level differences at the same position level.

Table 1 Gender balance in different job categories

Board of Directors56%44%
Management team43%57%
Head of regional office40%60%
New employees50%50%

In 2021, working from home was again a requirement for much of the year, and despite difficult working conditions and travel restrictions the Fund delivered a record-high level of investment commitments for the second consecutive year, and the portfolio showed positive developments. The Board was impressed to see the employees’ teamwork on digital platforms, and how the management, employees and Social Committee managed to create both digital meeting places and social arrangements to maintain the well-being and working morale of the employees during the pandemic.

Sickness absence in 2021 amounted to 3 per cent of total working hours. This is 0.7 percentage point higher than in 2020. 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 percentage of all employees [3]Parental leave, average number of weeksPart-time as a persentage of all employees [4]

[3]Five temporary employees, three men and two women, are participating in an internship programme. In addition some resources were hired as substitutes for personnel on leave or for temporary projects/periods involving an increased amount of work.

[4] 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 development policy – human rights, gender equality, anti-corruption, climate and environment – all form part of these efforts.

Fundamental to Norfund’s climate position, adopted in 2020, is that the Fund must contribute to avoiding greenhouse gas emissions, reducing climate risk in our portfolio and promoting climate resilience in our markets. In practice this means i) increasing investment in climate-friendly solutions, in particular renewable energy, ii) excluding direct investment in fossil energy except gas-fired power where this supports an energy transition aligned with the Paris agreement, iii) surveying and managing climate risk in all new investments and iv) continuing to prioritise the least developed countries and Sub-Saharan 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 professional communities and environmental organisations. In 2021 climate risk was incorporated into Norfund’s general risk framework, and it is additionally assessed at investment level. In 2020, Norfund pledged to abide by the EDFI Statement on Climate and Energy Finance, with ambitions that the investment folio should have net zero greenhouse gas emissions by 2050 and that all new investments should be in line with the goals of the Paris agreement.

As a small, knowledge-based enterprise, Norfund has limited direct environmental impact, associated largely with air travel that is necessary for business operations. Norfund has been preparing the way over time for increased use of digital meetings rather than travel, where this serves the purpose. The amount of air travel in 2021 was very limited because of travel restrictions.

Norfund works systematically with ESG throughout the investment process, applying the environmental and social standards of the International Finance Corporation (IFC). The IFC standards are tailored to Norfund’s activities and special nature. Their use contributes to meeting the expectations of responsible business conduct in Meld. St. 8 (2019–2020) (The state’s direct ownership of companies) including expectations that due diligence be performed to avoid harm to humans, society or 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. In 2021 Norfund regrettably experienced ten deaths related to Norfund’s direct investment. Four of the deaths were a result of traffic accidents. These incidents are reported to the Board, and in special cases also to the Ministry of Foreign Affairs. Norfund follows up all project-related fatalities associated with our 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.

Norfund’s ethical guidelines were reviewed in 2021 with a view to possible updating and improvement. Four cases of financial irregularities were reported in 2021 through Norfund’s established systems for dealing with irregularities in its portfolio. One of these was reported further to the Ministry of Foreign Affairs.

Norfund has a clear policy on responsible tax. The guidelines were reviewed in 2021 with a view to updating and adjusting them where necessary. In connection with the review, an external investigation was conducted of Norfund’s use of third party countries. The report was published and discussed with civil society representatives. The review, including the dialogue with civil society, revealed that the existing guidelines were satisfactory, but that certain operational adjustments would be appropriate with respect to investment through third countries, to increase awareness of the corporate structures used. Norfund’s responsible tax guidelines describe seven principles, including a requirement of transparency, that companies in which Norfund invests must pay tax to the countries in which they have operations and in which their revenue is created, and that third countries should only be used when it is necessary for attaining the company’s development goals. There was substantial investment in funds in 2021, and hence extensive use of third countries also in 2021.

Norfund decided in 2021 to take part in the international collaboration “2xChallenge”, designed to promote investors’ work for equal opportunities in their investment activities.

Norfund regularly engages in dialogue with different interest groups, including civil society organisations and other partners. In the course of 2021, this involved meetings on topics such as responsible tax and the use of third countries, Norfund’s results and and development effects.

Norfund has a special 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, skills building and operational improvements. In 2021 seventeen projects received support from this scheme, and consisted overall of an active portfolio of 45 grant-financed projects.

The Storting has established a special 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 2021, NOK 28.52 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 agreement provide important guidelines for development going forward. The funding gap hindering the attainment of the sustainable development goals was formidable in developing countries before the pandemic. The investment gap has now widened even more.

The economic outlook for developing countries features increased food and energy prices and uncertainty as to whether and how rapidly the countries will again reach the growth paths that were ruptured by the outbreak of the pandemic. These factors, along with uncertainty about vaccination rates, possible new virus outbreaks, fear of inflation and limited fiscal freedom of manoeuvre in many countries, imply risk for production and investment in developing countries.

An important event since balance sheet date which will also have consequences for Norfund’s activities, is Russia’s attack on Ukraine in February 2022. The war may create food shortages and lead to a scarcity of goods and higher prices for grain, energy, fertiliser and other important imported goods. This in turn may exacerbate balance of payments problems for many countries, with repercussions for exchange rates and companies’ access to foreign exchange. The crisis may entail new challenges for companies in Norfund’s portfolio, but at the same time increase the need for investing to improve the efficiency of agricultural value chains in many countries, not least Sub-Saharan Africa, a region which at the outset is a large net importer of food.

The market cannot resolve the business sector’s challenges alone. Development finance institutions such as Norfund 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, with plans for the Fund to grow – in terms of both invested capital and number of employees. Norfund has lived up to this in 2021, and aims to continue along the same path in 2022, when this strategy will be revised for the period up to 2026. The Fund is in position to keep its level of investment high in the years ahead, but maintaining the investment level is contingent on continued annual injections of capital from the Norwegian government.

Given the new climate investment mandate in addition to its traditional development mandate, Norfund now has an even more important part to play in the work to attain the sustainable development goals. Norfund will utilise important synergies in the Fund’s existing activities to fulfil its new mandate, including investment and market expertise, acquired by Norfund over time in renewable energy. The first investments under the new mandate will take place in 2022 already. The Fund must anticipate some costs in connection with the administration of the climate investment mandate. The new mandate will enable Norfund to strengthen its presence in investment in renewable energy in coal-intensive medium-income countries. At the same time it will maintain a high level of investment in LDCs, Sub-Saharan Africa and sectors where the development effects are especially high, including in the value chains associated with agriculture and fish farming.

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. Norfund will continue to make an important contribution to the success of an ambitious development policy and contribute to creating jobs and improved living conditions in the developing countries of the world.

Oslo, 29 March 2022

Olaug Johanne Svarva, Chair

Vibeke Hammer Madsen              Tove Stuhr Sjøblom        
Brit Kristin Sæbø Rugland        Martin Skancke
Vidar Helgesen Finn Marum Jebsen                    
Karoline Teien Blystad        Lasse David Nergaard