A radical new business plan for CDC, the UK’s development finance institution (DFI), has been announced today following the review of the organisation and its activities undertaken last year by the Secretary of State for International Development, Rt Hon Andrew Mitchell MP.
Under the new business plan, CDC evolves into a more flexible, transparent and distinctive development finance institution focused on the poorest parts of the world. The reforms will deliver the greatest possible demonstrable development impact by deepening the reach of CDC’s capital to back promising businesses which drive a thriving private sector.
The main changes introduced by the new business plan are:
1. New ways of investing:
CDC can now use more investment tools to get capital to where it is most needed.
- Direct investments, which will represent up to 20% of CDC’s portfolio by 2015, allow CDC to target businesses with high potential development impact. The hands-on management of these investments will deepen CDC’s development expertise.
- Debt investments will also represent up to 20% of CDC’s total portfolio by 2015, so that CDC can target frontier markets where investment infrastructure is under- developed. This change will be particularly helpful to small and medium size enterprises.
- Guarantees will enable lenders to provide capital to businesses previously unable to secure funds and will enable CDC to improve the availability of credit for small and medium size enterprises, commercial bonds and trade finance.
- CDC will also explore the role of technical assistance in getting capital to work in the most developmentally effective way.
2. A new investment universe for CDC:
- CDC will now concentrate exclusively on the low and lower-middle income countries in sub-Saharan Africa and South Asia where 70% of the world’s poor live.
- In lower middle income countries, CDC will focus on regions and sectors of need where capital is scarce.
- CDC will avoid sectors which are already attracting capital from other investors.
- In India, CDC will move over time to concentrate solely on the eight poorer states.
3. New development objectives:
- Environment, social and governance (ESG) standards at investee businesses will be improved and there will be independent evaluations of the developmentimpact of funds.
- CDC will attract a further £1 in third-party capital for every £1 it invests.
4. Greater transparency:
As a publicly-owned body CDC must adhere to high standards of transparency.
- The company’s disclosure policy will be updated and more information will be published on CDC’s website about the organisation, its investee businesses and its partners.
- CDC will now lead the way among DFIs on openness and accountability.
5. Updated Investment Code:
- The Investment Code, which drives improvements in ESG standards in businesses where CDC’s capital is invested, will be regularly updated to incorporate the latest international standards.
- Particular attention will be paid to businesses rated as high-risk from the ESG perspective.
- This will ensure that CDC’s capital is invested responsibly and sustainably.
6. A new Innovation Division:
- CDC will set up a new innovative finance division to explore opportunities in exceptionally challenging investment circumstances where innovation in deal origination and the ability to draw on a wide range of financing approaches are required.
New guiding principles for a revised remuneration framework have been introduced:
- Remuneration will be appropriate for a publicly-owned body whose purpose is poverty reduction.
- CDC must be able to recruit and retain people with the right approach and skills to deliver the company’s development mission.
- CDC will follow applicable FSA guidance and EU legislation so that variable performance pay will be largely deferred and based on long-term performance.
A new framework will be developed by the CDC Board when the new CEO is in place. This new framework will require government approval before being implemented. The new CEO will play a key role in shaping the detailed implementation of the new business plan and the recruitment process has already begun.
Commenting on the announcement,said:
“These reforms deliver a more versatile and pioneering CDC. Our ambition is make the biggest difference possible to lasting development. Today’s announcement puts CDC in the best possible position to achieve that ambition. We will achieve the highest development impact by targeting our capital and expertise where it is most needed in the poorer countries and regions of sub- Saharan Africa and South Asia. We relish the challenge of this new direction and will implement the business plan with all of CDC’s energy and passion for development.”
“This is a bold and exciting new departure for CDC. The reforms will help them direct their capital better, fostering economic growth in countries which need it most.
“CDC will be better able to drive investment into areas currently starved of capital. It will become more nimble, flexible and transparent, able to influence and control the impact of their capital and measure its success in reducing poverty, notsimply in turning a corporate profit.
“I will continue to work with CDC’s Board as they embrace the Coalition Government’s agenda in this important endeavour of the work of the private sector in international development.”
Work is already underway to implement the terms of the new business plan. Earlier this year CDC invested US30m in funds helping provide long-term loans and guarantees to address an acute shortage of capital for green energy in developing countries. In Africa CDC is investing US$30m in a new agribusiness fund focusing on Zambia, Tanzania, Malawi and Mozambique. A further US$30m has been invested in basic African infrastructure such as toll roads, ports, railways and energy. In India, CDC is also looking at two investments, one focused on rural businesses and the second in the country’s eight poorer states. These investments demonstrate the company’s future concentration on frontier markets.