It’s all change at CDC, the UK development finance institution (DFI). Last week it was announced it will be renamed British International Investment (BII) with a new strategy to deliver jobs and clean growth.
“BII will prioritise sustainable infrastructure investment to provide a clean, honest and reliable financing and avoid low and middle-income countries being left with bad and unsustainable debt,” the UK government’s announcement on the changes said.
The DFI operates in five-year strategy periods, which are agreed and ratified by its shareholder, the UK Foreign Commonwealth and Development Office. Its next strategy period begins on 1 January 2022 and runs until the end of 2026. The aim is to invest £1.5 - £2 billion (€1.8bn -€2.4bn) per annum over the period.
CEO Nick O’Donohoe tells Impact Investor that this amount “does not represent new capital but is the amount which annually we expect to invest largely through recycling capital.” It means over the next five years BII will be investing £7.5 to £10bn (€8.9bn – 11.9bn).
“We do expect to receive some new capital, though obviously limited by budgetary constraints. The amount we will receive will become clear in the new year,” O’Donohoe says.
Even more investments in green infrastructure
The bank will have an increased focus on infrastructure, a hot topic in development finance. “When UK political leaders talk about infrastructure, they are using it in a broad sense like President Biden,” stresses O’Donohoe.
In his view infrastructure includes “power, renewables, ports, roads, telecom infrastructure, mobile infrastructure and even the financial system, as well-capitalised banking is so important in developing markets.”
Green infrastructure will be to the fore, and the bank is already well positioned here, having significant investments in renewables. It owns one of the largest solar developments in India and also recently announced a major partnership with DP World to transform African ports.
O’Donohoe: “Already a third of our investments would constitute ‘pure infrastructure’ plays. The proportion that is infrastructure in the broader sense is much greater – indeed you could say in many ways it is virtually our entire portfolio.”
He sees the G7 coming together to build more green infrastructure in Africa and Asia. There will be “a clear focus on climate resilience and finding nature-based solutions.”
Growing investments in digital infrastructure
Digitalisation will also be a top priority. O’Donohoe says in the last three years CDC has been increasing its investments in this area because “you don't have to go very far to see how developing countries are being transformed massively by digitalisation. This is particularly true in India. The digitalisation of the Indian economy is proceeding at an absolutely furious pace.”
The development bank believes digitalisation offers radical solutions to the problems facing developing economies and all DFIs are trying to increase their exposure to this trend.
Fortunately for BII “our appetite for risk is greater than some others given that we are 100% equity funded and do not use leverage,” the CEO says.
BII will have an expanded geographical remit to include the Indo-Pacific and the Caribbean. In the Indo-Pacific region, specifically in the larger economies of the Philippines, Indonesia, and the Mekong region (Vietnam, Cambodia, and Laos), the focus will be on climate investment, particularly the renewables sector.
O’Donohoe says the pivot to South East Asia was “well telegraphed” and certainly fits in with a broader UK strategic shift in that direction.
“The Foreign Secretary has very much decided she does not want CDC to be a global business but to concentrate on those areas of UK strategic importance such as South East Asia, and areas where there are particular challenges around climate change adaptation and resilience.”
At the same time, The UK has also a commitment to “make the country the development finance hub of the world.” This is something O’Donohoe very much supports.
“London is already the world’s largest international finance centre and as climate financing develops rapidly, we see huge opportunities for the City of London. I expect it to be at the forefront of funding the energy transition, which will require enormous amounts of capital.”
There is also an intention to use the financial muscle of the City of London to encourage further investment in biodiversity with a particular focus on forestry. “Following Cop26 I hope that there will be a significant carbon offset market developed here to fund this.”
Name change to British International Investment
O’Donohoe shared his thinking on the name change with Impact Investor. Firstly, he says “there's something as simple as trying to avoid confusion with the Centre for Disease Control (CDC) in the United States and other similar African organisations with that name.”
In addition, “The original name of CDC included the word ‘Colonial’ and the substitution of ‘Commonwealth’ was an attempt to get away from that. O'Donohoe feels a name change was necessary to demonstrate a change in mindset.
“The new strategy we are following is also more broad-based geographically which means that we will be investing in many countries which are not part of the Commonwealth.”
Most importantly “it is the British taxpayers who fund CDC and since most countries’ DFI’s include their countries’ name somewhere in the title it seemed appropriate for the same to happen with the UK.”
First female Chair
The British Foreign Secretary Liz Truss has appointed a woman, Diana Layfield, as the first female Chair in its 73-year history. She will succeed Sir Graham Wrigley who was appointed in 2013 and will be stepping down, as previously announced, early in 2022.
Nick O’Donohoe says: “I believe Diana will be an exceptional chair and her experience as a senior consultant at McKinsey, in international banking and at Google gives her a significant knowledge of emerging markets.”
Ms Layfield is currently Google President, EMEA Partnerships and a Non-executive Director at AstraZeneca. She was formerly the Chief Executive of Standard Chartered, Africa.
“Whilst it didn't have to be a woman, of course the choice of our first female chair is very important to us given our emphasis on gender lens investing and our involvement with the 2X Challenge initiative,” O’Donohoe says.
“It sends an important message about our commitment to diversity. Being led by a woman, indeed now having a board with a majority of women, gives us more credibility in pushing that agenda.”