After decades of global poverty reduction, the past five years has seen progress towards lower poverty reduction rate stagnate — and the number of people living in poverty has increased. Covid-19 severely impacted developing economies, many of which have yet to fully recover. Meanwhile, growth rates in developing countries have stopped catching-up with the developed world, with interest rates and resulting debt servicing costs rising to crippling levels. Following a “year of elections” in 2024, the political landscape has become less certain and more polarized, adding to the existing instability caused by the ongoing war in Ukraine and escalating conflict levels in the Middle East. Furthermore, the second Trump administration has dramatically rolled back most development aid, focusing the remainder on US national interests. Aid budgets are also facing severe cuts and steering towards national interests in many European countries.
Against this backdrop, an estimated 700 million people (8.5% of the world’s population) still live in extreme poverty. Key figures clearly show the need for creating jobs, improving access to energy and finance as well as strengthening infrastructure:
- The ILO estimates a global jobs gap of 402 million (the jobs gap includes unemployed, the potential labor force, and those who would like to work but who have obligations, such as care, that hinder them from taking up employment)
- 600 million people in sub-Saharan Africa lack access to electricity
- 1.4 billion adults do not have a financial account
- 2 billion people lack access to safely managed drinking water and 3.5 billion people lack access to safely managed sanitation
The UN estimates the current funding gap to reach the Sustainable Development Goals for developing countries to be 4.0 trillion USD annually, up from 2.5 trillion USD in 2015. A significant increase in private capital inflows is required to bridge the shortfall. Norfund is the Norwegian government’s main instrument for strengthening the private sector in developing countries, and therefore an important tool to help close this gap.
Strategy
The strategy towards 2026 is anchored in Norfund’s mandate, informed by the Sustainable Development Goals, and reflective of the priorities of the Norwegian government’s development assistance policy.
Additionality and impact remain the backbone of our strategy. Being additional means investing where capital is scarce and where other investors are reluctant to invest because of high risk. It also means adding non-financial value in the form of expertise and responsible ownership to the investments we make. Through our value-additionality, we can improve both the profitability and the development impact of the companies. Norfund believes that targeted asset allocation is the best way to deliver impact, and the strategy underpins this.
Norfund has an ambition to seek exit of mature or de-risked investments to recycle capital and multiply the impact per dollar committed.
Investment areas
Norfund invests in four areas with substantial potential for impact: Renewable Energy, Financial Inclusion, Scalable Enterprises and Green Infrastructure. Access to electricity and finance are crucial for growing businesses. Scalable enterprises are companies with significant potential for growth and job creation, while essential infrastructure is key to the development of sustainable cities.
Investments in these sectors contribute to job creation and improved lives in developing countries. At the start of the strategy period impact ambitions were set for each investment area to reflect accumulated growth (that is, development in the companies after Norfund has invested) on sector-relevant parameters. Progress towards these is tracked every year and the status as of end of 2024 is presented in the table below.
Note: For Green Infrastructure, we have data for too few companies to report and disclose aggregate figures. Ambitions are set on organic growth and not growth through new investments. The achievements are calculated as the sum of two years of year-on-year change, per year, for companies reporting two consecutive years.
Norfund has a KPI set out in the statutes that approximately 60% of allocated capital from the government over time should be invested in renewable energy. At year-end 2024, this metric stood at 77.5%. All numbers for development effects are unattributed, meaning they show the total effect of Norfund’s portfolio companies and do not account for Norfund’s ownership stake.
Priority countries
Norfund targets 30 core countries that were selected based on three criteria:
- Additionality – there is considerable investment needs but few alternative investors
- Competence – Norfund has solid market knowledge of and expertise in these countries
- Feasibility – there are sufficient investment opportunities within Norfund’s investment areas
Norfund’s strategy gives priority to investments in Least Developed Countries (LDC) and Sub-Saharan Africa (SSA), with targets of at least 33% and 50% of the total portfolio in LDCs and SSA respectively. By the end of 2024, 34% of total commitments were in LDCs, while 63% were in SSA. It is increasingly important to be countercyclical in a world where investors are becoming more risk averse because of the uncertainty of the macroeconomic outlook.
Priority instruments
Norfund provides capital in the form of equity, debt and fund investments. Preference is given to equity investments, as this remains the scarcest form of capital in developing countries. Provision of debt to financial institutions increases the ability of companies to provide loans to clients. Debt investments also diversify Norfund’s portfolio, both in terms of risk and capital reflows. Investing in funds via trusted and skilled partners is a way to channel capital to companies that may be difficult to invest in directly, for example due to size, sector or market. Norfund targets a minimum of 70% equity. By year-end 2024, 72.6% of commitments were equity investments.