• World Biz Magazine

DENMARK'S IFU IS AN EXCEPTIONAL INVESTMENT PARTNER IN DEVELOPING COUNTRIES



IFU provides risk capital for companies wishing to do business in developing countries and emerging markets in Asia, Africa, Latin America and parts of Europe. Our investments are made on a commercial basis, and we offer funding in the form of:

  • equity

  • mezzanine financing (equity-like loans)

  • loans

  • guarantees

IFU is an active investor. We have a long-term investment horizon and invest directly in the company that is established in the investment country. Consequently, we share the financial risk with our partner. ​Experience from almost 1,300 direct investments in 100 countries. IFU offers professional advice all the way from the initial idea, through the establishment phase and until a project is economically viable. Our advisory services include evaluation of the business plan, financing, legal issues, negotiating with partners, access to local authorities and localization, etc. Usually, IFU is also represented on the board of the project company that is established in the investment country. Accordingly, IFU can continuously contribute with knowledge and experience regarding business operations in developing countries. IFU also contributes with knowledge and advice on sustainability issues and answers the questions that companies and investors are confronted with. This applies for example for questions regarding the environment, employee relations, corruption and supply chains. ​Risk capital for project development Generally, there are good business opportunities in developing countries and emerging markets. However, very often interesting business ideas are not developed because projects in developing countries are associated with high risks resulting from political instability, uncertain market conditions, legislative and regulatory as well as technical challenges. On this background, IFU and Danida have established a project development facility of DKK 50m that can co-finance the costs of developing projects. The aim is to reduce the financial risk for IFU partners and developers who want to launch commercial projects in developing countries and emerging markets. ​ DKK 5m per project The prerequisite for IFU’s financial participation in the development of a project is that it is estimated that it can become economically viable and bankable in the future and that IFU can expect a return. If so, IFU can contribute 50 per cent of the development costs up to a maximum of DKK 5m per project. ​With whom can IFU invest? IFU can invest with all companies that meet our conditions. All companies can benefit from IFU’s services. However, at least four conditions must be met:

  • The business operation must be deemed to be commercially viable;

  • Projects must have a positive development impact in the host country;

  • The host country must be on the list of developing countries eligible for IFU investments.

Furthermore, IFU does not finance projects within certain product areas. See the list here. ​IFU and IFU managed funds can invest in more than 140 countries in Asia, Africa, Latin America and parts of Europe. IFU can invest in all countries on the OECD’s DAC list of development aid recipients. At least 50 per cent of IFU’s investments, measured over a rolling three year period, must be made in host countries with a GNI per capita income below 80% of the upper limit for LMIC (Lower Middle Income Countries), according to the World Bank’s classification. In 2019 this limit is USD 3,116 (2017 level). In 2016, 67 per cent of the investments were below the limit and over a rolling three year period the figure is 56 per cent. Find our more about IFU by visiting: www.ifu.dk Below are examples of some recent investments:

REUSE OF WASTEWATER MAKES INDIA GREENER

  • 75 per cent of wastewater to be recycled

  • 30 wastewater plants in operation

  • 65 jobs to be created

​More and more cities in India are facing acute water shortage, leading to increased supply restrictions for industrial users. The Indian company Rochem Separation Systems has developed a concept for cleaning and recycling wastewater to be rolled out to Indian businesses with financing from the Danish Climate Investment Fund. Lack of fresh water and polluted wastewater is a huge and growing challenge across the world, not least in developing countries and emerging market. This is also the case in India, which has led the national authorities to tighten the wastewater regulations and introduce guidelines for Zero Liquid Discharge (ZLD) for major water consuming industries like paper and pulp, pharmaceuticals, chemicals refineries, textile, tanneries, food and beverage, etc. To comply with the new regulations and ensure consistent water availability for their production facilities, the companies within these sectors need to clean their wastewater and recycle as much as possible in their production. This has opened a new market for developing, installing and servicing industrial effluent treatment plants as turnkey solutions. The Indian company Rochem Separation Systems has developed modern and energy-efficient wastewater recycling and ZLD solutions that can recover 75 to 80 per cent of the water from wastewater. The plants use energy efficient pumps and components from proven suppliers like the Danish companies Grundfos and Danfoss, which reduces the energy consumption further. Danish risk capital to scale up business To scale up sales and fast-track the adoption of wastewater recycling solutions by the industry, Rochem Separation Systems needs capital-strong partners, who can finance the procurement of plants that can be provided on operating lease/BOOT basis to individual companies. Consequently, the Danish Climate Investment Fund, managed by IFU, has entered into a joint venture with Rochem to establish the company Roserve, which will contribute to the expansion of wastewater recycling solutions in India and reduce the use of fresh water, energy consumption and cost for industrial companies. – We are very pleased with our investment because it greatly benefits the environment and can provide a fair return to the investors, said Deepa Hingorani, Vice President for South Asia at IFU. “The economic advantages of reclaimed water as a climate-proof source of water supply across industries is becoming increasingly compelling. On the back of local financial institutions’ reluctance to finance innovative business models, we are pleased to team up with DCIF to drive our expansion.” Prayas Goel, Managing Director of Rochem The lease/BOOT model is based on Roserve handling the operation as well as the maintenance of the individual plants. The user industry typically pays a fixed and variable monthly charge based on volume of water recycled to cover the capex cost and operations cost, respectively. ​ International sales ahead Roserve has started operations in India and has to date set up over 30 plants within the country. But the potential of the business goes beyond India, because more and more developing countries and emerging markets will gradually tighten their regulation on wastewater and increase the follow-up on compliance. Consequently, Roserve will start looking to expand its business to other countries.

​THE WORLD’S LARGEST SOLAR PARK IS LOCATED IN EGYPT

  • 20 per cent of Egypt’s power must be green by 2022

  • 70 people, primarily locals, will be employed

  • 1.8 gigawatt makes Benban the largest solar park in the world

Benban Solar Power is the world’s largest solar park with a total capacity of 1.8 GW. The park is divided into 41 plots, and IFU has contributed with financing of three plots of 50 MW each. Egypt has the world’s oldest preserved pyramids, and now they also have the largest solar park. With a total capacity of 1.8 GW, Benban Solar Power will contribute to Egypt reaching its strategic target that 20 per cent of the country’s energy supply must be based on renewables in 2022. Benban covers 37 square kilometres. The solar park is located in southern Egypt where sun conditions are optimal and provide the most effective utilisation of the installed solar panels. Benban Solar Power is divided into 41 plots developed and financed by a number of joint ventures. IFU has invested in three plots of 50 MW each. The investment was made in cooperation with IFC, the World Bank’s private sector programme, Swicorp, which delivers financial services to the Middle East and North Africa, and Acciona, a Spanish conglomerate within renewables, infrastructure and water. The total financing of this part of Benban solar park amounts to approximately DKK 1.2bn, of which IFU has contributed DKK 80m in equity and loan. “Benban Solar Park is a unique project, which will contribute to meeting the increasing demand for power and reduce the number of power cuts, which have affected Egypt severely over the years. Therefore, the solar park is also significant for Egypt to continue its sustainable development.” Anders Paludan-Müller, Investment Director, IFU

Renewable energy on commercial terms A report from the International Renewable Energy Agency (IRENA) estimates that by 2030 Egypt will be able to cover half of its energy consumption with renewable energy, because the country holds large unutilized resources within solar, wind and hydro power, among other things. It requires large investments, however, to be made by private investors, which is also the case with Benban Solar Power. The solar plants, which are part of the Egyptian FIT programme, have entered into a 20-year power purchase agreement to ensure that the energy produced by the facilities can be sold to the public Egyptian Electricity Transmission Company. In that way the project can be implemented on market terms and provide a return on the investment to its investors. ​ Green electricity and local jobs The three solar plots have created about 1,000 jobs during the construction phase. In future they will produce 300,000 MWh a year on average and employ about 70 people, primarily locals, who will be in charge of the daily operations.​

INCREASING ACCESS TO UNIVERSITY EDUCATION IN AFRICA

  • 10 per cent of young Africans get a higher education

  • 150 million DKK for education

  • 250 scholarships

In Africa less than 10 per cent of young people get a university degree. This is the lowest global average and a big constraint for young Africans to improve their livelihood and for African countries to develop. By investing DKK 47m in a new education platform the Danish SDG Investment Fund will contribute to increasing the student volume and the quality within university education in East and West Africa. According to UNESCO, only 10 per cent of young people in Sub-Saharan Africa gain access to vocational training or a university education, and two thirds of the applicants for public universities are rejected. The low acceptance rate has a negative effect on the economic development, and the limited capacity prevents many young Africans from improving their livelihood. Against this background, IFU, through the Danish SDG Investment Fund, has invested in an education platform, which currently operates two universities in Zambia and Uganda, respectively, and will invest in and develop several universities in Africa. “Today, there is a huge lack of university seats in Africa and less than 10 per cent of young people get a university degree, which is the lowest global average. Our intention with the investment in Africa Education Holding Ltd. is to bridge the education gap and contribute to improving livelihood and stronger economic development in Africa” Torben Huss, CEO of IFU.

Creating quality education Africa Education Holding owns and operates two universities; Cavendish University Uganda and Cavendish University Zambia. Going forward, the company will increase its portfolio of universities in East and West Africa, improve volume as well as quality thereby complementing public universities that can only admit around one third of all applicants. In recent years, the Cavendish universities in Uganda and Zambia have been upgraded through investments in facilities as well as staff. Moreover, the number of educations has been reduced and made more labour market relevant through public accreditation and by endorsement from e.g. the domestic law and medical associations. The number of students has increased, and the two universities have doubled and quadrupled scholarships to a total of 250. In Uganda, the university has special focus on students from post conflict areas as one third of the students are from South Sudan and almost one tenth from DR Congo. Investment of close to DKK 50m The investment by the Danish SDG Investment fund is made in cooperation with IFU’s sister organisations Finnfund from Finland and Proparco from France. Total investment is DKK 150m, of which the SDG Fund has invested DKK 47m. ​ “The new capital from the European development finance institutions will enable us to continue enhancing the quality of academic programs and student services at our existing universities and to acquire additional universities in Africa. The vision is to be the premier pan-African tertiary education company that provides high quality, market-relevant education. Moreover, we are committed to increasing access to high quality education by offering scholarships and reaching students in underserved countries.” Peter Kagunye, CEO of Africa Education Holding Ltd.

LEADING PERU’S EXPORT OF AGRICULTURAL CROPS Danper is a Danish-Peruvian joint venture, which in the course of 25 years has developed into one of Peru’s largest exporter of fruit and vegetables. The company has won several awards for good and responsible corporate governance. Danper produces asparagus, artichokes, peppers, grapes and avocados for export. The company was established in 1991 as a joint venture between Danish and Peruvian shareholders and has continuously expanded its business. Today it is one of the three largest agricultural companies in Peru. It was a difficult start, and as so often before the Danish investor faced significant challenges. One was hiring the wrong local manager. In addition to being incompetent, he also turned out to be rather tarnished. For instance a large part of the concrete to be used for the asparagus factory ended up in the foundation of the local manager’s new home. However, the company overcame the problems. They employed an accomplished female manager, who is still with the company and a co-owner. The factory as well as the sales organisation was established, and in 1994 everything was completed.

Production in former desert The first production site was near Trujillo, 550 km north of Lima in one of the less developed areas of Peru. The production is based partly on Danper’s own production, partly on vegetable deliveries from approximately 240 local farmers. The crops are produced on more than 5,000 hectares of land – much of which is former desert. The products are exported either fresh, frozen or canned to the large markets in the US and Europe. Consequently, Danper contributes to Peru’s foreign exchange earnings. “It was a difficult start, but today we have a really good grip on it, and we have a very well-run company, which continues to expand” Arne Berg, chairman of Danper Expansion with new crops In recent years, the company has expanded its production both in the southern and northern part of Peru. In 2011, the company began the cultivation of just under 200 hectares with grapes and avocado in the Chepen area about 200 km north of Trujillo. Additionally, in 2012 a new project with grapes and asparagus was established in Olmos – a 1,000 hectare desert area about 400 km north of Trujillo. One of the challenges facing Olmos was the establishment of infrastructure and irrigation. In this case, the Peruvian authorities have established irrigation canals of several kilometres and tunnels that can transport river and melting water from the eastern side of the Andes out to the fields. Employs 11,000 people The company that started 25 years ago with a small production site and 80 employees today employs around 11,000 people, half of whom are women, and it has a three-digit million turnover in US dollars. Focus on CSR Danper has a high focus on CSR. The company continuously educates its employees, works strategically to ensure a healthy and safe working environment and contributes to the development of local communities with water, electricity and health programmes. Danper has won several national and international awards for good and responsible corporate governance. In Peru, the company is mentioned as an example of good corporate governance. ​ IFU is an important partner IFU first invested with Danper in 1991. Since then, IFU has contributed with share capital and loans to several of the expansions. IFU has also provided share capital through IFU Investment Partners, which is funded by the two Danish pension funds PKA and PBU. – IFU is an important partner that has contributed with knowledge and risk capital on an on-going basis, said Arne Berg.

SECURING THE RIGHTS OF HERDERS IN MONGOLIA As part of the construction of a new wind power plant in the Gobi Desert, special attention was paid to improve the living conditions of a number of nomadic people and their animals located in the area. The wind power plant Sainshand Salkhin Park LLC is located in the Gobi Desert 460 km southeast of Ulaanbaatar and will consist of 25 wind turbine generators (WTGs). The area where the wind turbines are being erected is partly used by a limited number of Mongolian herders, either for their summer or winter camp respectively. During the investment process, a comprehensive consultation process was conducted to meet international standards, including a description of the procedure for compensation of land and other assets affected by the project. “It is important for IFU to use our leverage to ensure that our investments comply with international standards and practices, and that our investments do not violate human rights. Together with our partners and a number of specialised consultants, IFU has managed to create a project in the Gobi Desert that is commercially viable and at the same time safeguards the rights of the indigenous people in the area where we will operate.” Rikke Carlsen, Sustainability Director in IFU.

Identifying the affected herders The Mongolian herders live in their own felt tents called “gers”. A ger is the universal traditional dwelling that has been adapted over the centuries to the realities of nomadic life in the harsh desert steppes. It weighs from 150 to 300 kg and is easily dismountable and transportable. To secure adequate grazing for their animals, the herders move their camp according to the season. The locations of the winter and summer camps, which have been identified in proximity to the project area, have been identified through direct engagement with herders, field investigation, registry investigations with representatives from the local administrative unit, and by cross-checking with other herders. Engaging the affected families in the compensation process The families who were identified as potentially using the project area across the year were engaged in a hearing process to secure a proper compensation process, including a grievance mechanism. The purpose of this process was to gain an in-depth understanding of the livelihood of the involved families, including their livestock (goats, sheep, cows, horses and camels) to assess the adequate compensation either as in-kind or cash. All compensation agreements have been signed by the involved herders. The compensation is a combination of different measures, including a cash compensation of 75 per cent of annual income derived from livestock grazing, animals, animal feed; support to identification of new camp sites and/or construction of a deep well to secure water supply. ​ To follow up on the compensation process, monitoring of the livelihood of the affected herders will be conducted on an on-going basis.​

INVESTING TO REDUCE MASSIVE FOOD LOSS IN INDIA ​In India, inadequate storage facilities cause substantial grain losses and contribute to continued undernourishment, even though grain production is sufficient to feed all Indians. Through the Danish SDG Investment Fund, IFU is investing DKK 95m in Leap India Food & Logistics that will erect 700,000 tons grain storage facilities. The investment combines attractive economic returns and high impact supporting the Sustainable Development Goals.In India, some estimates suggest that around 40 per cent of the country’s grain production is lost every year. The grain is often stored at open-air sites, leaving it unprotected against the weather and animals. The lack of quality storage facilities is a key contributing factor to what some have coined India’s ‘paradox of plenty’ – insufficient availability of food grain despite sufficient annual production in the country, which is home to over 190 million undernourished people. Tenders for 200 new storage facilities The huge food loss also impacts the government-initiated food programme, which is buying one third of all grain produced in India and distributing it to low income families at subsidised prices. To address this challenge, the Indian government has initiated a programme that invites private companies to finance, build and operate new storage facilities across the country. The government-owned Food Corporation of India (FCI) is tendering the construction of over 200 modern storage sites with a capacity of 10 million metric tonnes. The total expected investment is around USD 1.5 billion. Investing DKK 95 million Through the Danish SDG Investment Fund, IFU is investing DKK 95m in Leap India Food & Logistics, a market leader, which has already won seven concessions from FCI totalling 350,000 tons capacity. The overall target is 700,000 tons. – By investing in Leap, we are addressing one of India’s most pressing challenges, namely helping to improve food storage efficiency and reduce undernourishment, said Deepa Hingorani, VP South Asia at IFU, and continues: – We are partnering with a strong local team with a proven track record and a like-minded investor and have secured an attractive risk vs. return profile in the deal. The developmental impact and the strategic fit of this investment are evident for us. The investment is made in cooperation with the Neev Fund, a partnership between the State Bank of India and the UK Government’s Department for International Development (DFID) functioning as an infrastructure private equity fund focused on sustainable development. "We welcome IFU as a partner and co-investor in Leap India. This fructifies our fidelity to the Sustainable Development Goals of poverty alleviation by doubling farmer income through food security in India. The investment positions Leap India as a trailblazer in defining the food infrastructure industry, which is the next sunrise industry of Asia." Manav Bansal, CIO of Neev Fund. Building steel silos and infrastructure Leap India’s first facility will become operational later this year. IFU’s investment will support Leap in winning further tenders and building additional storage sites. The individual storage sites will consist of modern steel silos and adjacent infrastructure, such as road and rail. Each silo will have a sophisticated monitoring system installed allowing close quality control of the stored grain. Each site will have a capacity of 50,000 tons and will be operated on a 30-year take-or-pay contract with the FCI. – At Leap, our aim is to build a large platform of grain storage sites, which can help FCI and the private sector make grain storage more efficient. The new investments from IFU and the Neev Fund will allow us to expand and reach a critical size, while we at the same time team up with strong foreign institutional investors, said the founders of Leap in a joint statement. Supporting the Global Goals The investments support the UN Sustainable Development Goal 12.3 setting the target to halve per capita global food waste at the retail and consumer levels and reduce food loss along production and supply chains, including post-harvest losses, by 2030. – This investment is in line with our business model, where we target projects that have a high impact, support the UN Sustainable Development Goals and can provide a return for the investors, said Deepa Hingorani. For more information: www.ifu.dk