Green Infrastructure is Norfund’s newest investment area. The goal is to develop projects and companies by investing with partners to improve water, wastewater and waste management. These are challenging investment areas, but vital parts of the infrastructure in our target countries.
Today, more people live in urban than in rural areas and the total number of people living in cities is expected to grow from approximately 4.5 billion in 2023 to 6.7 billion in 2050. A city such as Lagos in Nigeria is forecasted to grow from approximately 20 to 70 million inhabitants during the same time frame. The development of economic growth, jobs, and prosperity requires investments in green infrastructure to alleviate an added strain on the environment and human well-being.
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 urbanization challenges while improving resource use, reducing pollution and contributing to job creation.
Waste management
As much as 93% of waste in low-income countries is thrown away without proper consideration for environmental impact. Yet, waste management has the potential to be profitable, create many new jobs, build local supply of recycled raw material and offer access to hard currency through exports. Waste also contributes 20% of global methane gas emissions, a gas which is up to 86 times more potent than CO2 and has caused a third of historical global warming.
Water access
2 billion people globally and almost half of all in Sub-Saharan Africa lack safe water at home. A million people die every year from drinking unsafe water. Every dollar invested in water and sanitation is estimated to yield 15 dollars in indirect economic returns.
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 for many projects.
The African infrastructure paradox
While many projects are in search of 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 past the feasibility stage and to financial close. Out of 130 reviewed water projects, 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 water, and the responsibility for and funding 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.
Green Infrastructure’s aim is to improve essential infrastructure services in:
– Waste management, including recycling and waste-to-energy
– Water supply and sanitation, including wastewater treatment
The priority is direct investments in Sub-Saharan Africa. However, projects have also been explored in South East Asia and India where more mature regulatory environments allow for projects to collect revenues for e.g. waste treatment, thus making those projects investable.
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 are also considered. During the year several such collaborations have been matured towards investment with world leading companies in waste and water.
Strategic ambitions
Norfund has defined the following ambitions for Green Infrastructure in the 2023-2026 strategy period:
- Enable 50 million m3 water and wastewater treatment capacity
- Enable 20,000 tons of waste treatment capacity enabled
Portfolio highlights
In Green Infrastructure, four commitments have been made since the inception in 2020; TransAfrica Water Systems, The Water Access Accelaration fund, InfraImpact Mid-market Infrastructure fund and Wecyclers.
TransAfrica Water Systems
During its first year of operation, Green Infrastructure provided a loan of 2 million USD to TransAfrica Water Systems, a Kenyan water solutions company engaging in the production and distribution of equipment and services related to water pumping solutions, water treatment, wastewater management solutions, solar powered water borehole rigs and solar powered water heating systems. The company is one of the recognised distributors of world-renowned water and solar systems in East Africa.
The loan has accelerated access to clean and affordable water to households and institutions in East Africa, deepened the water sector, and facilitated jobs creation directly through the company’s expansion and indirectly through improved economic activities, for example, use of water for irrigation. The company has managed to expand its sales significantly following Norfund’s financing and raised further equity financing.
During 2023 the company was faced with a challenging market. The Kenyan shilling depreciated by 22% against the USD during the year, increasing the company’s cost for imports and borrowing equally. Changed weather patterns with prolonged rain seasons have also decreased the need for pumped water. Despite these challenges the company managed to increase its sales and performed well under the circumstances.
Water Access Acceleration Fund
As part of Green Infrastructure’s strategy of investing in specialized funds within water and waste, a commitment of 5 million EUR was made to the Water Access Acceleration Fund (W2AF) in 2022, managed by the fund manager Incofin. Norfund’s early contribution contributed to unlocking an additional 30 million EUR in commitments from IFU, DFC and others.
W2AF invests in innovative water businesses that provide affordable, safe drinking water to underserved populations. W2AF is the first private equity initiative in a sector that traditionally gets its financing from governments, donors and foundations. The fund aims to demonstrate the financial viability of the safe drinking water market worldwide. It rests on a unique blended finance structure – an approach to use part of the public financing from governmental agencies to lower the risk for private investors to come in.
W2AF aims to provide safe drinking to 30 million people, mainly in Africa and Asia.
Rite Water
In late 2023, W2AF made its first investment (7.5 million EUR) into the drinking water sector in India’s rural affordable drinking water and tech backed company Rite Water Solutions (India) Pvt. Ltd. Rite Water specializes in potable water and water quality improvements solutions by providing comprehensive, cost effective and sustainable solutions for safe drinking water to rural areas where water sources are contaminated. Rite Water has deployed over 2,500 purification units and treatment plants equipped with tailored technologies and impacted more than 2 million people in 12 states of India.
InfraImpact Mid-Market Infrastructure Fund
As part of our ongoing commitment to supporting sustainable development, we completed an investment of 150 million ZAR into InfraImpact Investment Managers’ Mid-Market Infrastructure Fund. This fund, with a total fund size of over 2000 million ZAR, aims to provide growth capital for mid-market infrastructure businesses in Southern Africa. These businesses own real assets that are essential in providing vital services, particularly in the water and waste sectors.
Infra Impact boasts a team of local specialist investors, who have expert knowledge and experience in navigating the unique challenges faced by the infrastructure segment in South Africa. With a staggering 1.7 trillion ZAR funding shortfall, there is immense potential for value creation and positive impact.
The primary objectives of this fund are to create 2,200 jobs and contribute to the supply of one billion liters of water, serving the needs of 88 million people. Additionally, the fund aims to divert 3.7 million tons of waste from landfills, promoting a sustainable approach to waste management.
As a Limited Partner, Norfund will actively collaborate with the fund manager, acting as a direct parallel co-investor in suitable deals. During the year, InfraImpact has made two investments: Sustainable Heating and Rhino Energy/Hyperion RE.
Sustainable heating
In December 2023 the Fund reached financial close to provide a 30 million ZAR facility to Sustainable Heating 9 (SH). SH operates at the intersection between waste management and renewable energy, using wood waste products to produce industrial process heat (steam, hot air, hot water, and thermal oil) from largely waste biomass feedstock. The adoption of sustainable biomass in industry not only contributes to environmental sustainability by reducing reliance on fossil fuels but also fosters job creation, economic development, and innovation, aligning with the goals of a circular economy. The Sustainable Heating group employs 115 Employees.
Rhino Energy and HyperionRE
In March 2023 the Fund invested a total of 35 million ZAR in Rhino Energy Holdings and HyperionRE. These energy companies are well positioned to become a leading EPC and PPA asset owner in the Southern African commercial and industrial market, an important sector in SA which is grappling with power outages. Rhino is a preferred EPC contractor for blue chip corporates in South Africa, with a proven track record of commissioning and operating commercial and industrial solar plants within South Africa in excess of 40MW since 2010. The business employs 50 staff.
Wecyclers
A 2 million USD commitment was made during 2023 to the Nigerian plastic recycling company Wecyclers, using Norfund’s Frontier Facility. The company is working toward fulfilling obligations to reach financial close.
| Investment | Country | Investment year | Sector | Instrument | Ownership share | Domicile | Committed (MNOK) |
|---|---|---|---|---|---|---|---|
| InfraImpact Mid-Market Infrastructure Fund 1 | South Africa | 2022 | Waste/water fund | Funds | 7% | South Africa | 83.1 |
| Transafrica Water Systems Limited | Regional | 2021 | Water supply, sewerage, waste management and remediation activities | Loans | 0% | Kenya | 20.3 |
| Water Access Accelerator Fund | Global | 2022 | Waste/water fund | Funds | 14% | France | 56.2 |
| WeCyclers | Africa | 2023 | Waste | Convertible loan | 0% | Nigeria | 23 |