Green Infrastructure

Green Infrastructure is a new investment area for Norfund. The goal is to develop projects and companies by investing with partners to improve water and waste management – challenging investment areas, but vital parts of the infrastructure of our target countries.

450

million NOK

To be committed in 3-7 investments by the end of 2022

Development rationale

Today, for the first time in history, more people live in urban than in rural areas. The total number of people living in cities is expected to grow from approximately 4.4 billion today to 6.7 billion in 2050. The cities need to grow in a way that creates economic growth, jobs and prosperity without putting a strain on land and resources.

While 93% of waste is dumped in low-income countries, waste management has the potential to be profitable, create many new jobs and build local supply of recycled raw material. Waste also contributes with 20% of global methane gas emissions, fuelling climate change.

In Sub-Saharan Africa alone, 315 million people lack access to safe drinking water and a 300% increase in demand is projected between 2005 and 2030. Contaminated water has enormous consequences on health, causing 6% of deaths in low-income countries. Fetching water is also a barrier towards school attendance. In all, every 1 USD invested in water is considered to return 4 USD on a societal level by countering these issues.

By investing in urban infrastructure, such as the safe removal and management of waste as well as increased access to clean water and sanitation, we can help address urbanisation challenges while improving resource use, reducing pollution and contributing to job creation.

Investment needs

35 billion USD of investments are needed annually in Sub-Saharan Africa to reach SDGs 6.1 and 6.2. Green infrastructure-related areas have achieved increased global attention and funding. Several major funds are turning their attention to investments in waste, water and oceans. Still, the difficulty to secure funding to provide basic services and necessary water- and waste-infrastructure is a major challenge in Africa.

The African infrastructure paradox

While many projects are in search for financing and investor interest is high, it is difficult to find commercially sustainable and bankable projects. This is Africa’s infrastructure paradox.

Operational challenges and risks often lead projects to collapse before they can reach financial close. Only very few projects manage to get passed the feasibility stage and to financial close. Out of 30 water projects the team has reviewed, only two have turned out to been at an investable stage. Within Waste to energy projects, the ratio is nine out of a hundred.

Where Norfund can play a role

Water and waste management are especially challenging sectors given the limited willingness to pay for the services offered.

In developing countries, people are often not used to paying for access to clean water, and the responsibility for and ownership of waste collection is often lacking. This leads to complex projects with high inherent ESG and business integrity risks and therefore start-ups struggle with profitability and growth.

While commercial investors shy away from immature opportunities where risk adjusted returns become unattractive, Norfund can fill a gap by taking higher (but thoroughly considered) risks to validate nascent business models and pave the way for commercial investors.

Norfund strategy:

Green Infrastructure’s aim is to improve essential infrastructure services in:

Waste management, including waste-to-energy
Water supply and sanitation, including waste-water treatment

The priority is direct investments in Sub-Saharan Africa. Our focus so far has been to carefully assess and understand market dynamics and business models to pinpoint commercially sustainable business opportunities. As described above, investments in this sector will require strong technology and market knowledge to identify commercially viable projects early on.

Norfund prefers to invest in collaboration with experienced industry partners who are able to transfer best practices to investee companies. Local or regional smaller players will also be considered.

Strategic ambitions

Norfund has defined the following ambitions:

Improve essential infrastructure, primarily in Sub-Saharan Africa
Establish partnerships and make investments in waste management and water
Invest NOK 0.5 billion annually

Highlights

First investment for Green Infrastructure

After being established in 2020, Green Infrastructure made its first investment in 2021. A convertible loan of 2 million USD was provided to TransAfrica Water Systems, a water solutions company involved in the distribution of equipment and services related to water pumping solutions, water treatment, wastewater management solutions, swimming pool equipment, solar powered water borehole rigs, solar powered water heating systems and generators. The company is one of the recognised distributors of world-renowned water and solar systems in East Africa.

The company was incorporated in the year 2011 and has presence in Kenya and Tanzania with focus on regional expansion. Norfund has provided the company with a loan in 2021 to aid its expansion strategy.

The loan will accelerate access to clean and affordable water to households and institutions in East Africa, deepen the water sector, and facilitate jobs creation directly through the company’s expansion and indirectly through improved economic activities, for example, use of water for irrigation. In addition, TransAfrica is a family-owned business and remains so, while Norfund assists in institutionalising the business with proper governance and structures.

Norfund’s investment in the company will enable it to achieve its full growth potential and further develop the water industry in East Africa.

Special Ice Company Limited produces bottles for carbonated beverages. Norfund set up business support to finance plastic waste collection.

Potential in plastic recycling

An area of great potential is plastic recycling. We see a clear demand from multinational companies that want to take responsibility for the waste they are generating, and in March 2022 the UN Environment Assembly adopted a resolution addressing plastics through the entire lifecycle, including reuse and recycling of plastics.

In 2021 Scalable Enterprises – Agri and Manufacturing made a 61.7 million NOK commitment to Special Ice Company Limited, an indigenous -owned mineral water and carbonated soft drinks production company established in 2011 in Ghana.

The company’s portfolio of products includes mineral water in bottles and sachets of various sizes ranging from 500 ml to 18.5 litre jar bottles and carbonated soft drinks in 500- and 350-ml PET bottles. As part of the deal Norfund set up business support to finance plastic waste collection. This was led by Agri and Manufacturing, but Green Infrastructure contributed with input. Some manufacturers of plastic have backward integrated into recycling, and there is not always a sharp line between manufacturing and waste management. In the future we may look at helping to build the ecosystem between manufacturing and recycling.