World’s biggest development fund urges partnerships for frontier market investments
The world’s largest sovereign development fund urged closer cooperation among development funds, governments, banks and other investors to maximise the social and environmental benefit of their allocations to the world’s least developed markets, said its chief operating officer.
“A lot of these markets don’t offer a lot of investible opportunities, so instead of competing for that one [opportunity], we must share the knowledge and [access to] the investment pipeline,” said Agnes Dasewicz, COO of the US International Development Finance Corporation (DFC).
The involvement of development funds was crucial in supporting investor confidence in economies that were politically unstable or undergoing conflict, Dasewicz said.
The senior executive was speaking at the annual conference of Norfund, Norway’s $4 billion development finance fund, in Oslo in late May.
DFC is the world’s biggest sovereign development bank, which has $8.5 billion of its total $40 billion invested in Asia.
BOOSTING ASIA ALLOCATIONS
The fund is currently increasing its Asian allocations.
On May 22, it announced a $126 million commitment to PT Medco Cahaya Geothermal, an Indonesian power company, intended to strengthen the country’s energy security and cement economic ties with the US.
On a visit to Jakarta and Manila following the deal, the fund’s deputy chief financial officer Nisha Biswal met government and private sector leaders to discuss additional deal-making.
The fund’s current allocations were split roughly 50-50 by dollar amount between middle- and low-income countries, according to COO Dasewicz.
Emphasising that political instability did not always compromise investors’ long-term investment objectives, she pointed to a green bond issued by Gabon, and underwritten by DFC last summer, to illustrate the potential for financial markets to function in order to support investors even during political instability.
Last August, two weeks after DFC had provided $500 million in political risk insurance to support a bond to help finance marine conservation in the country.
A few days later, incumbent president Ali Bongo Ondimba won Gabon’s general election, the army seized power in a coup d'état.
“We all just sat back and didn’t react. And the new government continued the payments on the bond. We didn’t pull out risk insurance and private investors were happy,” she said.
DFC’s Indo-Pacific investments include some of the region’s largest infrastructure deals, including a $553 million commitment to support a deepwater shipping terminal in Sri Lanka, and a $425 million loan to TP Solar Limited, to finance a solar cell factory in India.
The fund also has $700 million invested in Vietnam, its largest Southeast Asian country allocation.
Total new investments by the fund in 2023 were $9 billion and the fund, which launched in 2018, has the option to increase its total invested allocation from the current $40 billion to $60 billion.
POVERTY REDUCTION
Speaking at the same conference, Paddy Carter, head of development economics at British International Investment (BII), the $8.2 billion UK development fund, presented recent research he had conducted that illustrated the complex relationship between growth, poverty reduction and the mix of industries that comprise developing economies.
BII
“When most people are working in agriculture, then agriculture sector growth [supports] the poor.
"But over the long-run, sustained poverty reduction involves fewer farmers as [economies industrialise and] more people work in larger companies for a wage,” he said, adding that an inclusive financial sector was a crucial element in the type of economic development that supported poverty reduction.
Maria Håkansson, CEO of Swedfund, Sweden’s $1 billion development fund emphasised the need to consider the sustainability impact of investments intended to generate growth.
“Growth needs to be inclusive. It’s about where we invest – so, helping a government invest in infrastructure projects to improve irrigation. But also, about how we do it, to ensure decent working conditions, addressing inequality and [managing] climate risk,” Håkansson said at the same conference.
She highlighted the wide range of areas the fund would invest in to reduce poverty by creating jobs, expanding access to financing, healthcare, and energy, as well as developing markets and businesses, with the goal of alleviating poverty in the long run through sustainable economic growth.
“We want to create an impact and need to take risks, it will never be a perfect investment environment, but it is important that something happens.”