Norfunds strategy for investments in agribussiness.

Agenda

About Norfund Agriculture in Africa – great potential and high development effects Norfund’s agribusiness as of today

- Examples of projects Norfunds investments in agribusiness going forward

Norfund

Instrument in development aid policy:

Profitable investment to alleviate poverty through economic growth

Financial instruments:

Equity and loans

Operation:

Investment on commercial terms, always with partner(s) and normally with a 20-30% stake, never a majority holding

Capital:

Equity NOK 7.5 bn (USD 1.4 bn)

as of 30 June 2011

Important sectors: Renewable energy, banking and microfinance, agribusiness.

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Mandate: ”….reduce poverty and create

sustainable economic growth by investing risk

capital in profitable businesses in developing

countries….”

Why• High development

effects from startup and high-risk projects

• Attract expertise and technology to LDCs in Sub-Saharan Africa

How• Identify high quality

industrial partners• Be a long-term and

active owner

Why• Access to electricity

is a precondition for economic growth

How• Set up well-run

companies that can supply renewable energy to households and businesses

• Mobilize Norwegian capital and expertise

Why•Many people and small businesses lack access to financial services

How•Invest in SME banks, funds, and microfinance•Partnership with Norwegian Microfinance Initiative (NMI)

Financial Institutions

SME FundsRenewable

EnergyIndustrial

Partnerships

Why• Local PE funds are

good sources of capital for SMEs

• Local capital markets need to be strengthened

• Weak formal economies

How• Invest through PE

funds, or set up new funds where none are currently available

• Mobilise Norwegian capital

Strengthensmall and

medium sizedenterprises

Risk capital where the development effect is particu-

larly strong

Build energy infrastructure

Norfund’s investment areas

Build financial infrastructure

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Building a convincing track record!

Financial Institutions

Industrial Partnerships

Renewable Energy

SME Funds Norfund total

Committed 1 179 551 2 649 1 464 5 844

Exposure 929 296 2 258 744 4 227

Portfolio 31-12-2010 (NOK m)

IRR in investment currency

  2002 2003 2004 2005 2006 2007 2008 2009 2010Since

inceptionSME Funds -5 -15 -4 17 1 32 4 5 10 6Financial Institutions 19 4 18 10 9 27 9 6 10 10Renewable Energy 0 17 1 -3 44 14 25 3 11 13

Industrial Partnerships -9 -22 -28 2 -19 16 10 12 7 -1Total -4 7 -1 4 24 17 21 4 10 11

Agriculture in Africa – great potential

There is extensive underinvestment in agriculture and the value chain for food products in sub-Saharan Africa following a lengthy period of neglect and extremely low interest in investmentLarge areas of arable land remain unexploited – 60 per cent of the world totalLow productivity – can be significantly increased through irrigation, chemical fertilizers, improved plant materials, etc.Low production costsStrong growth in demand and prices as a result of increased urbanization and a sharp rise in population and income growth – particularly in developing countries

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Use of chemical fertilizers (100 g per hectare fully cultivated land)

Production –

Agriculture in Africa – high development effects

Increased agricultural productivity is an important step along the road to an industrial societyHigh employment effect – a labour intensive and comprehensive sector

- 2/3 of Africa’s population dependent on direct or indirect income from agriculture

Large ripple effect benefits for business – creates growth outside the urban areasIncreases food security and strengthens the balance of trade

Norfund’s current work with agribusiness

Total agriculture portfolio of NOK 323 million:– NOK 201 million in direct equity

investments: Matanuska, Casquip, Africado and Agrica

– Loans to the agricultural bank LAAD– Equity in the Agrie-Vie PE fund

Organization:

Investments are made by the Industrial Partnerships Department. Staff of 7 in Oslo and 6 employees at regional offices.

Experience thus far:- Direct investments in start-up projects are

high risk and require close follow-up- Good management is crucial for success- High return on investment when

successful

Contractual investment in agriculture

MNOK

Social standards, environment and corporate governance

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1 Social and environmental impact analyses required

2 Employee rights and working conditions

3 Pollution and environmental impact

4 Local community interests

5 Land rights and the issue of population resettlement

6 Biodiversity and management of natural resources

7 Indigenous people’s rights

8 Protection of cultural heritage

Agriculture has particularly high development effects – but important to be a responsible investor:

Norfund’s investments must comply with the global standard of sustainability for project financing

Major investments in agriculture require having conducted social and environmental impact assessments

Particular focus on:- Working rights issue –challenging having many

employees with low skills- Agrichemicals, employee health and potentially

negative effects on local community- Proper management, internal procedures and

authorization structures as well as general corporate governance – Norfund appoints board members who can assist

Land rights and population resettlement

Norfund does not make agri-investments that entail transformation of large small-scale farming areas into large-scale agriculture

Clears land that has lain fallow and cultivates new land

But land in Africa is frequently in use by someone

Cases where the local inhabitants have started subsistence farming or built homes on land earmarked for the project

Norfund requires a Resettlement Action Plan in compliance with IFC standards

- Replacement dwellings- Compensation for loss of crops, fruit trees,

etc.- Help to find a new livelihood (replacement

land)

Agrica, Tanzania

Rice Farm in Kilombero Valley. 5000 ha of rice growing. Increased food self-sufficiency for Tanzania Cooperation with small scale rice growers on improved rice seed and improved

cultivation. (CSR) High mechanization, 80 employees + seasonal workers

Matanuska: Bananas for the international market

Key facts Start-up project Nampula province in northern Mosambique Phase 1: 3 000 ha (2014) 12-year agreement on cooperation and delivery

with Chiquita Bananas Partners: Rift Valley Holding (33.3%), Matanuska

Mauritius (33.3%), Norfund (33.3%) Investment in equity capital: USD 3.7 mill.

Loans: USD 4 million Approx. 2650 ansatte

Development effects Labour-intensive Important export revenues for Mozambique Important tax revenues Additional benefits for local community, new jobs

in connection with the plantation

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Matanuska: Bananas for the international market

ChallengesEmployees unaccustomed to permanent employment, high degree of absenteeismTraining importantAbsence due to illness, especially malariaLogistics for export shipments from the harbourAdjustment of growth/ production methods to local conditions (soil, climate, etc.)

Success factorsSeparate clinic for employees; vaccination programmesSolid co-investors with regional experienceGood contact with local and national authoritiesGood geographical location in terms of markets and growing seasonsSubsidies given to

- Local school- Local clinic for the people- Health and safety training

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Casquip: Starch for the southern African marketKey factsStart-up projectProduct: Starch from cassavaCountry: SwazilandArea: 4000-acre farm unit (+ 1250 acres leased land)Norfund’s investment: approx. NOK 48 m (2008-2011)Number of employees: about 300

ChallengesEfficient land-clearing and planting more difficult than anticipatedStart-up of regular sales to waiting customers postponedUnskilled workers lacking experience of doing paid workChallenging relationship with employees/unionWorkers are competent, but more difficult to recruit middle and top management

Success factorsMotivated and technically competent managementGood agronomic conditions SwazilandCommitted financial partners (Norfund and IDC)Technology for starch production from cassava is well-known, but no production in AfricaProximity to a strong market

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Africado: Avocados for the international market

Key factsHass africado fruit grown for export to Europe including Norway (2011)Located near Kilimanjaro in Tanzania127 ha irrigated nucleus estate and outgrowersNorfund investment $3m for 40% stake + $1m loan45 permanent employees plus seasonal labourApprox 50% female workforce

ChallengesWorkforce not unionised – training of worker representatives important.Low tech, labour intensive, so large developmental impact but training to reduce harvesting losses criticalLow incidence of pests and diseases. Irrigation reduces reliance on seasonal rainfall …. But yields very sensitive to irrigation – have to get it right!

Success factorsGF financing creche facility to allow mothers to work thus increasing female % of workforceOther principal investor is founder and managing director. Highly incentivised to succeedOff-take agreement with international avocado exporter in South Africa

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Norfunds future investments i agribusiness

Develop a portfolio of direct investments

Investment size normally 3 -10 MUSD

Equity Startups and early stage Expertise in Johannesburg and

Nairobi with ability to actively follow up

Experienced and skilled board members