The future of CDC

Evidence from CDC Group plc

We welcome the opportunity to brief the Committee on CDC’s work as part of the Inquiry process.

Our submission focuses on the first area of the Inquiry, namely CDC’s effectiveness. We have not attempted to address additional areas of the Inquiry, namely the reforms proposed by the Secretary of State on 12 October 2010. We believe it would be premature to comment until the DFID–led consultation is completed and detail on the reforms is provided.

Section 1 is an executive summary.

Section 2 is an introduction to CDC.

Section 3 looks at our effectiveness.

Section 4 is a brief conclusion.

The submission also includes case studies which we hope the Committee may find useful.

A set of appendices is attached providing additional information:

Appendix A CDC’s Investment Code

Appendix B CDC’s indicators for monitoring and evaluation

Appendix C CDC’s performance history

Appendix D CDC mobilising third party capital

Appendix E List of first­time fund managers

Appendix F Triple Value’s external perspective on CDC’s development impact measurement

Appendix G KPMG’s independent assessment report to CDC Group plc

Appendix H CDC’s monitoring and evaluation framework and summary of the evaluation results CDC Group plc


Executive summary

1.1 CDC’s role is tackling poverty in the developing world by investing vitally needed capital in promising private sector businesses. No country has reduced poverty in the absence of economic growth and it is the private sector that drives economic growth. Businesses create jobs, train people and invest in research and development of new products and services. The private sector provides the taxes for governments to invest in public services, health and education.

1.2 Although successive governments have asked CDC to achieve this using different methods and strategies, CDC’s mission has not changed in its 62 years of existence. The company’s purpose has always been to contribute to sustainable economic development in poor countries by stimulating and investing in the private sector.

1.3 Along with our shareholder, DFID, CDC believes that growing the private sector is the single most important contributor to the economic growth upon which the developing world’s prosperity depends. Without a thriving, responsible and profitable private sector the poor countries of the world will continue to struggle with poverty.

1.4 The most serious impediment to economic development is that international commercial investors are still reluctant to invest in poor countries. They see these places as risky, difficult and unpredictable. They continue to shy away from backing businesses with great potential but limited access to finance. Without substantially higher levels of investment, enterprises in poor countries are struggling to expand. This is a major issue for development.

1.5 This is why CDC’s capital, like that of other development finance institutions (DFIs), is so important. We play a vital role in putting essential capital to work in businesses located in countries that have extremely challenging investment environments. So CDC’s role is to do the hardest things in the hardest places.

1.6 But our capital on its own is a drop in the ocean. The amount of investment needed across the poor countries of Africa alone can be reckoned in the trillions of dollars. The key to attracting this capital is persuading and encouraging private and commercial investors to make commitments of capital in poor countries. In order to attract this capital it is essential to demonstrate that good risk adjusted returns can be made. Without those returns, investors will shy away from these markets.

1.7 CDC’s task therefore is twofold: first to back businesses with potential and second to do so in a way that encourages others to invest.

1.8 Our capital is "patient capital": we are not looking for quick "in and out" returns and we are always prepared to take the long term view.

1.9 The current fund­of­funds model was introduced by the last administration in 2004. The model means that we place our capital with fund managers who in turn raise capital from other investors and invest that larger pool of capital in businesses on the ground.

1.10 This model has been implemented by CDC with many significant achievements:

- currently invested in nearly 900 businesses in 73 developing countries;

- 3 million lives supported;

- nearly US$3bn of local business taxes paid by businesses in 2009;

- over US$23bn in third party capital invested alongside CDC in funds;

- more capital invested in sub­Saharan Africa and in Asia than any other European DFI; and

- local financial capacity­building in at least 37 countries.

1.11 All of this has happened with no fresh capital from the UK Government for over 15 years.

1.12 Although it has the important advantage of helping to attract vital capital from other investors, the model has drawbacks. CDC is, in legal and practical terms, one step removed from the businesses. This limits the level of information we have access to, the control we can exercise and the degree of influence we are able to exert over the investee companies. The fund­of­funds model, therefore, brings complex contractual and practical challenges.

1.13 CDC has worked energetically to mitigate these challenges. Our Investment Code, which our fund managers are required to follow, covers environmental, social and governance (ESG) issues (see Appendix A), together with our monitoring and evaluation systems, are seen by many other DFIs as leading­edge and innovative. Nonetheless, with 70 fund managers and nearly 900 investee businesses in some of the world’s most difficult investment environments, problems will inevitably arise. CDC is not complacent about this and we accept that difficulties have been encountered.

1.14 That said, much has been achieved under the fund­of­funds model. The progress we have been able to make to stimulate the private sector and develop capital markets in poor countries is set out later in this submission.

1.15 CDC is discussing with our shareholder how we can expand the range of investment tools we use to achieve greater developmental impact through supporting the private sector. This will include, for example, direct investments which are a highly effective way of targeting specific sectors, countries and businesses. It will also include the provision of debt and guarantees because not all businesses in the developing world need equity investment, and some require other forms of finance. These are all important ways of ensuring that CDC’s capital continues to be at the forefront of developmental thinking and is as developmentally effective as possible.

1.16 But whatever our precise investment model, our focus will continue to be on ensuring long­term profitability in the portfolio companies because it is financial performance that is widely recognised as the vital bedrock for sustainable economic development.

1.17 Lasting development impact is the goal of all who work at CDC. The organisation cannot stand still and as knowledge and understanding about sustainable economic development grows and adapts, we must do the same. CDC recognises this and is open and receptive to change.

1.18 A key objective of any DFI should be the ability to mobilise capital from responsible commercial investors. This is because developing economies’ growth depends on the availability of a much larger pool of capital than DFIs alone can provide.

1.19 The public consultation taking place will be an important element in framing CDC’s future activities. We are enthusiastically committed to achieving the highest possible impact and welcome new and creative ways of ensuring that the potential of the developing world’s entrepreneurs is unlocked to bring about a thriving private sector to benefit all.


CDC’s current way of working

2.1 CDC exists to improve people’s lives in developing countries by helping businesses to grow. Set up over 60 years ago, the Colonial Development Corporation was established to "investigate, formulate and carry out projects for developing Colonial Resources". CDC has changed its name and adapted its investment model over the years to suit changing economic and investment climates and modes of development thinking, but its central mission has remained constant: to foster growth in sustainable businesses and, in doing so, help to raise living standards in developing countries. We remain committed to adapting to the demands and challenges that our mission places upon us.

2.2 Originally focusing its efforts on agricultural production, CDC’s investments were by the mid­1990s mostly debt­based and were sourced and monitored by CDC staff from offices in the United Kingdom, Africa, Asia, Central and South America. In the late 1990s, driven by a well­documented shortage of equity capital in many developing countries, a decision was taken to focus on equity investment.

2.3 In 1997 the then Prime Minister announced that CDC should become a Public Private Partnership. Plans were therefore put in place to privatise CDC. This proved not to be possible as there was insufficient interest from private sector investors.

2.4 In the early 2000s, in an effort to encourage additional equity capital for investment in private sector companies in developing countries, the decision was taken by Government to spin out CDC’s direct investment teams into what became Actis and Aureos, two leading emerging market private equity fund managers. CDC began operating through an intermediated business model focused on the world’s poorer countries with DFID remaining CDC’s sole shareholder. Our new role as a fund­of­funds investor meant that we were no longer a direct investor in companies in emerging markets. Instead we now deploy our capital through private equity funds, such as those managed by Actis and Aureos, which in turn invest in companies in developing countries. These private equity funds thereby provide CDC with an indirect share in the businesses in which the fund manager invests. Through these investments the fund managers provide companies with access to the capital and advice that allows them to expand and improve their businesses. Other investors, both public and private, invest alongside CDC in the funds. This further expands the access to capital for fund managers to invest in businesses in emerging markets.The spin­out of Actis and Aureos enabled the amount of capital invested in developing countries to multiply considerably, while avoiding a situation where CDC would be in direct competition with its fund managers.

As Professor Ajay Shah of the Indian National Institute of Public Finance and Policy in Delhi and former Indian Government economics adviser has said:

"Private equity in India is actually very different to what is known in the mainstream western discourse as private equity. Private equity is much more like venture capital, in that it’s about putting large amounts of capital and professional management inputs into relatively smallish projects, bringing them up to scale, and then putting them out into the public markets … So you start with a team that has some very good ideas but just does not have the capital to pull it off. And for whatever reasons the domestic financial system is malfunctioning, and the standard banks and the other sources of capital don’t take the risks and don’t put their money into some of these extremely nice projects…so there could not be anything more developmental in India than private equity investment."

2.5 CDC is not designed to solve all development challenges. It is one part of the UK Government’s armoury to combat poverty. We are asked by Government to contribute to poverty reduction in two ways, by:

- investing responsibly in the creation and growth of viable private businesses in poorer developing countries to contribute to the economic growth that is central to reducing poverty; and

- mobilising private investment in these markets both directly and by demonstrating a profitable and responsible track record. CDC does this because many commercial investors still shy away from poor countries, particularly in sub­Saharan Africa, which are seen as risky, unknown and problematic.

What is CDC seeking to redress?

2.6 Through investment in private businesses, CDC contributes to economic development and poverty reduction. Its investment increases jobs, income, productivity, goods, services and tax revenues. CDC aims to invest its capital in countries, regions, businesses and sectors in which private investors are currently reluctant to invest. This means that CDC investment aims to be financially additional, i.e. it should avoid crowding­out private investors.

2.7 In addition, CDC acts as a catalyst, attracting (crowding­in) private investors by demonstrating that profitable and responsible investments can be made in difficult business environments in developing countries.

2.8 In poor countries, DFIs are performing a vital role in providing the capital businesses need to expand. Although all DFIs share the same goal of supporting the private sector in poor countries, they carry this out in varying ways. Some focus on debt. Others undertake direct investment in businesses. Some DFIs invest only the capital of their own government and others manage and invest commercial capital as well. The range of approaches means it is difficult to compare DFIs on a like­for­like basis. CDC and SIFEM, the Swiss DFI, for example, are the only DFIs to operate fully as fund­of­funds private equity investors. Nonetheless, all DFIs work to back promising businesses in poor countries and to do so in a way that encourages more capital into the developing world.

2.9 This shortage of capital remains a significant and primary impediment to economic growth in poor countries. Other challenges to economic growth exist but the shortage of capital remains a central barrier to long­term poverty reduction. For example, almost 50% of African companies identify lack of access to finance as a major constraint to doing business1. The cost of finance, including investment finance, is higher in Africa than any other part of the world and the access for small and medium enterprises (SMEs) is particularly limited. Estimates vary, but a UN policy brief in October 2010 suggests that Africa as a whole receives only 5% of foreign direct investment, while its population accounts for more than 15% of the world’s total. Similar challenges exist in South Asia too. On 18 November 2010, Duvvuri Subbarao, the Governor of the Reserve Bank of India, a country that has more people living on less than US$2 a day than the whole of Africa, said:

"India needs to raise its investment by a quantum step if it is to realise its aspiration of double digit growth. We certainly need to augment our domestic resources with foreign savings. For obvious reasons, we have a preference for long­term funds over short­term funds, for equity over debt and for FDI over portfolio flows."

2.10 The focus of CDC’s investments is on the low­income countries of sub­Saharan Africa and Asia. Our investment policy for 2009­13 means that of all our new commitments:

- 75% must be based in low­income countries;

- 50% must be in sub­Saharan Africa; and

- up to £25m per annum can be invested in SMEs funds in other developing countries.

2.11 CDC has, as the table below indicates, more capital invested in sub­Saharan Africa and in Asia than any other major2 European DFI. CDC’s portfolio also has the highest percentage focus on Asia and the highest on sub­Saharan Africa.

CDC’s current way of working

Source: Dalberg Development Advisers

Size of portfolio on 1 Jan 2009 (US$m)

Share of portfolio on 1 Jan 2009

New 2009 commitments







































































2.12 Currently, CDC catalyses private investment at three levels:

- fund level: CDC can help persuade other investors to commit capital alongside it into the funds that it backs. From 2005 to 2010, over US$23bn of third party capital has been invested alongside CDC. Some of this capital would not be there were it not for the "stamp of approval" signified by CDC’s investment. CDC has developed a methodology which gives an approximate indicator as to how much third party capital is mobilised by CDC’s presence. On a three year rolling basis, third party capital mobilised currently stands at 346% of invested CDC capital, with the trends since 2005 shown below:


- co­investment: when these funds invest in companies, this may persuade other investors to invest additional capital in these companies;

- wider country level: if CDC achieves commercially attractive returns by investing in companies in the poorer developing countries, this can persuade other, unrelated investors, that these countries are worth investing in.

Why isn’t enough investment going into the world’s poorer countries?

2.13 Despite some limited increased interest in the developing world from commercial investors, businesses in poor countries still struggle to secure the finance they need to grow. The table below shows that many of the countries where CDC invests are some of the lowest ranking in the world when it comes to corruption. This is a serious barrier for other investors. Investors need reassurance about returns. Issues around corruption, transparency and ease of doing business mean that many investors are reluctant to enter emerging markets.

2.14 The current, relatively small level of DFI capital going to businesses in emerging economies will have to be dwarfed by significantly larger levels of private, commercial capital if the developing world is to win the fight against poverty. The influx of private capital into China in the last decade is testament to this effect. CDC considers its role as a catalyst for increased private capital as central to its purpose and its effectiveness. In poor countries DFIs are performing a vital role in providing the capital businesses need to expand but it is a drop in the ocean compared to what is needed for long-term sustainable growth.

Ranking’s of CDC’s largest investment destinations in sub­Saharan Africa in Transparency International’s Corruption Perceptions Index for 2009 (rank out of 180 countries):




Democratic Republic of Congo


Côte d’Ivoire










South Africa

The CDC business model

2.15 Given the challenges outlined above, CDC’s model was devised by DFID and CDC to make a distinct and tangible development impact. Through its intermediated investment model, CDC no longer invests directly. Instead it invests in locally­based fund managers’ funds, which in turn invest risk capital in businesses. The intermediated approach enables CDC to be developmental in several ways:

A wider investment footprint: The intermediated model means CDC benefits from a much broader investment footprint, with our fund managers channeling CDC capital and good business practices into nearly 900 businesses in 73 countries, many more than would be possible than under other investment models. The model also offers a good spread of risk across sectors, countries and fund managers.

Supporting local entrepreneurs and investors: The intermediated business model enables decisions to be made locally by fund managers with experience on the ground which is essential when dealing with portfolio companies on a regular basis. CDC supports and creates capacity building through both the emergence of new and typically locally­based fund managers (thereby deepening local capital markets) and more established international managers with local offices. Enabling local management of companies leads to better performance – both financially and against other development indicators

Brookside Dairies

Many Kenyans live in remote areas of the country with few basic services. One problem for farmers is that they have limited ability to sell their produce to national suppliers. Over the past 12 years, CDC’s investment in Brookside Dairies has helped tackle this problem.

CDC’s capital has helped Brookside to expand its production capacity and develop a highly effective collection and distribution system across the Eastern Province to the Central Province and the Rift Valley. This means that all milk collected is quality­tested and reaches the dairy within three hours.

Over 150,000 Kenyan small dairy farmers, distributors and retailers now work with Brookside Dairies to bring high quality fresh milk to market. The milk is available in traditional outlets such as shops and supermarkets, but also in small kiosks in remote areas. Brookside Dairies is a successful and growing company. It has diversified its product range to include yoghurt and butter and is helping dairy farmers to access credit facilities so they in turn can buy new equipment and livestock.

Building sustainable business practices: CDC ensures its capital is invested in a sustainable manner, embedding international standards for ESG issues within fund managers’ practices and processes. Emerging market private equity remains a relatively new industry and CDC, along with other DFIs, has been instrumental in shaping the ESG policies under which many emerging markets funds now operate. As a consequence, emerging market private equity fund managers often operate with more stringent ESG policies than managers operating in Europe and North America.

Mobilising third party capital: CDC’s model mobilises capital for the world’s poorest countries and CDC’s catalytic effect has been dramatic. Since 2004, CDC has committed more than US$5bn to over 70 fund managers. Alongside or subsequent to CDC’s commitments, other investors have committed approximately US$23bn to these fund managers. Private equity direct investment into portfolio companies also creates a multiplier effect as new capital attracts additional investment and financing in those companies. CDC has demonstrated to private sector investors that it is possible to earn market returns in the poorest countries while promoting the sustainable growth of businesses in emerging markets.

2.16 In the six years since 2004, CDC has created £1.5bn of value, bringing it from a value of £1.2bn to £2.7bn today. It has received no funding from HM Government since 1995.

2.17 The investee companies employ over a million people and pay taxes in excess of US$3bn to their own governments.

Umeme: Safe and reliable power for Uganda

Millions of Africans do not have access to safe and reliable power. This means enormous hardship for families, communities, schools, hospitals and businesses throughout the continent.

Over the last five years CDC’s investment in Umeme, an electricity distribution company in Uganda, has helped bring safe and reliable electricity to 88,000 new customers. The distribution network has been extensively overhauled, 30 rural electrification schemes have been connected to the Umeme grid and an efficient customer service system has been introduced.

The US$60m investment programme has created 1,000 jobs and Umeme paid local taxes of US$4m in 2009 alone. US$100m will be invested in the network over the next four years and a public safety awareness campaign set up in 2005 will continue throughout the country.

Umeme is helping Uganda develop a modern electricity network supplying safe and reliable power to people in remote rural areas as well as towns and cities. This is making significant improvements to the quality of people’s lives. Expanding access to power also helps run essential services and supports businesses.

Accra Mail

The retail sector in Africa is becoming more important to economic development, particularly as African countries continue to urbanise and disposable incomes begin to rise. Retail outlets such as shops, supermarkets and malls have a significant contribution to make to development because they create employment, build supply chains, create markets for local producers and suppliers and stimulate economic activity. Access for local people to a wider and cheaper range of goods is also improved.

CDC’s capital has helped develop Ghana’s first and only A­grade shopping mall. With 19,000 square meters of retail space on an eleven acre site, Accra Mall has brought consumer products and services to the local people which were previously unavailable or prohibitively expensive. Contracts for cleaning, maintenance and security have also been awarded to local people. The mall is hugely popular with the local population.

Extensive supply chains for local products, often displacing imports, have been introduced.

Accra Mall has created over 1,000 jobs. Sales taxes of US$4.3m were generated in 2009 and plans are now being developed to expand the mall, introducing new companies to Ghana’s expanding retail sector.

2.18 While the intermediated business model offers many tangible benefits, the model also presents challenges and brings with it inherent limitations. Some of the criticism we have faced from our detractors has focused on what they see as the drawbacks of the intermediated nature of our business, in particular the perceived lack of oversight and direct influence on the activities of some of investee companies.

2.19 CDC’s intermediated model means that it is the fund managers who are responsible for specific investment decisions and for the day­to­day oversight of the businesses in which CDC’s money is invested. CDC relies on carefully selected fund managers to demonstrate evidence of improvement in standards across their portfolio of investments. While this process does take time and an immediate turnaround of standards cannot always be guaranteed, the systems that CDC has put in place are designed to ensure that there are medium and long­term improvements and that over time the relevant international standards are reached, as set out in our Investment Code (Appendix A).

2.20 CDC’s investments are in some of the world’s most difficult business environments, so our strategy focuses on implementing robust measures including strict requirements for fund managers and portfolio companies, as well as effective monitoring. This monitoring takes the form of quarterly financial reports, company visits, annual ESG reporting and a development impact evaluation at the midpoint and end of a fund’s life. This approach is a highly effective way to prevent taxpayer’s money being involved in businesses that are unable to manage the ESG risks they face. More importantly, our systems ensure that CDC’s own commitment to high standards is shared and spread to funds and portfolio companies in the countries where CDC is focused. When problems do surface with its fund managers or their portfolio companies, CDC works directly with those fund managers to resolve the issues.


CDC’s effectiveness and how it compares with others

CDC is proud of the achievements it has made since 2004:

- currently invested in nearly 900 businesses in 73 developing countries;

- over 3 million lives supported;

- Nearly US$3bn local business taxes paid by investee companies in 2009;

- over US$23bn in third party capital invested alongside CDC in funds;

- more invested in sub­Saharan Africa and Asia than any other European DFI;

- currently has investments in 139 funds with 70 fund managers;

- invested over £400m in infrastructure and power since 2004; and

- major impact on locally­based investment capability in 37 countries (number of countries where our fund managers have offices).

Understanding development effectiveness

3.1 Measuring development is complex and many institutions, including DFIs, have approached the matter in a range of ways. CDC’s framework for monitoring and evaluating the developmental effects of its investments was created after extensive benchmarking with other DFIs. This benchmarking included comparison with other European DFI’s systems and the IFC’s DOTS (Development Impact Tracking System). Following careful deliberation, CDC chose indicators closely modelled on IFC’s DOTS system, but also adapted to be more relevant to CDC’s intermediated model. See Appendix B for a full list of indicators and when these are collected.

3.2 In June 2010, CDC updated its monitoring and evaluation ratings to take into account lessons learnt from the 43 fund evaluations to date. CDC also recognises the importance of independent evaluations and a third party consultant was employed to this end in 2009. So far, 12 fund evaluations have been completed by an independent third party. Out of the seven funds evaluated, six were considered to have a satisfactory or better development outcome. CDC’s effectiveness was rated at least satisfactory for all seven funds. At least 50% of the fund evaluations in 2010 onwards will be carried out by independent consultants to provide an external benchmark against which to compare CDC’s own fund evaluation ratings, to ensure the robustness and adequacy of the evaluation framework and to benefit from the additional insights and observations of an external party.

3.3 When discussion around development effectiveness takes place, the creation of jobs is often cited as an important indicator. However, even this can be a misleading and coarse metric. For example, an investment in an infrastructure project such as a bridge will create fewer direct jobs than an investment in a factory. Yet the construction and operation of the bridge will certainly allow the increased trade, mobility and transport links that are vital to local economic growth and employment.

3.4 Similarly, many commentators favour investment in small businesses over larger enterprises believing this kind of investment to be particularly developmental. SMEs are an important part of the mix and CDC is one of the largest investors in SMEs of any bilateral DFI. However, sustainable economic growth requires larger businesses too, particularly where international trade prospects and investment in research and development are part of their contribution to the economy.

3.5 The question of which sectors are especially developmental is another area of discussion. Some believe, for example, that agriculture has a particularly important role to play, while others see infrastructure as a priority. All have their merits. But the reality is that sustained economic growth of the kind developing countries need to prosper has to be founded on a mixed economy playing to the comparative advantages of that economy: businesses of all sizes and in all sectors, providing employment and training, with improving standards in ESG matters and generating tax revenues for local governments to fund public services.

3.6 There is no "one size fits all" investment – there is always a hard choice between different development impact outcomes. Goals such as job creation, good ESG performance and reaching rural poor areas can and do conflict with each other. Mining creates a lot of jobs in rural areas but represents a high risk from a health, safety and environmental perspective. Agribusinesses reach rural areas and are lower risk, but do not always generate as many jobs as other sectors. Financial services companies can generate a lot of jobs and are relatively safe but are usually not based in rural areas. Regardless of your choice, you can never tick all the boxes and reach all the development impact goals. But what is clear is that the critical element missing in emerging economies is sufficient capital investment for businesses to grow. Tackling this issue is fundamental to all economic development.

CDC’s effectiveness

3.7 As previously emphasised in this submission, one of CDC’s most important functions is to mobilise additional investment in poor countries. Capital flows to the developing world, particularly sub­Saharan Africa, need to increase significantly. For example, it is estimated that there is a US$60bn shortfall in investment for infrastructure in Lagos State alone for the next ten years (Nigerian Public and Private Partnership Agency 2010).

3.8 In 2006, India’s then Finance Minister Palaniappan Chidambaram identified India’s infrastructure deficit as its greatest challenge announcing that US$500bn in investment would be needed, a third of which would need to come from the private sector. Encouraging large scale commercial capital investment, therefore, is crucial. If the private sector is to grow, commercial investors must put much higher levels of their capital to work in poor countries. DFIs have a limited pool of capital. This capital must be used effectively and imaginatively in a way that acts as a magnet for what is really needed ­international capital on a massive scale.

3.9 CDC has met this challenge in three ways:

- by achieving successful and profitable investments in the hardest placed

- by demonstrating this track record to other investors thereby encouraging them to invest in turn in poor countries; and

- ensuring that fund managers improve their understanding of how to control and manage ESG risks and opportunities that result from their investment strategies.

3.10 The key to CDC’s investment is to demonstrate to commercial investors that it is possible to make good returns by investing responsibly in businesses in poor countries. Profit is essential. Investors need to see a return on their capital. Without the prospect of profits, commercial investors will shy away from any market, developed or developing.

3.11 Over the past six years CDC has performed well and has delivered good returns. In 2004 CDC’s net worth was £1.2bn. That figure now stands at £2.7bn despite the turmoil of the global downturn. A detailed breakdown of CDC’s returns and key performance data over the past six years is included in Appendix C. This has acted as an endorsement to other investors.

CDC’s reputation for commercial rigour and our commitment to responsible investment has demonstrated to commercial investors that doing business in poor countries can be profitable, ethical and worthwhile.

3.12 Over the past six years more than US$23bn in additional capital has been invested alongside CDC in funds. More detailed information about CDC’s performance in mobilising additional capital is included in Appendix D. Throughout CDC’s portfolio of investments there are many examples of funds where CDC has played a crucial role in mobilising third party capital. Recent analysis of our portfolio shows that in the 19 funds where we made commitments in 2009 and 2010 to date, CDC played a leading catalytic role in 15. This involved issues such as significant financial commitments, input into the strategy of the funds, the way in which they were structured and guidance on ESG and other matters. These funds attracted US$3bn of third party capital. Many of these funds would not have existed without CDC or would have appeared in a materially different form.

3.13 Many fund managers will testify to CDC’s catalytic effect in attracting other investors to a fund. As an example, Mr Okey Enelemah, Chief Executive of African Capital Alliance has said:

"CDC’s commitment to African Capital Alliance’s (ACA) first fund in the late 1990s, a time when private equity in Nigeria was still virtually nonexistent, acted as a ‘stamp of approval’ for ACA, reassuring and attracting investors to the manager and to the asset class as a whole. ACA is currently raising its third private equity fund, targeted at US$350m. ACA’s success can be partly attributed to the pioneering investment of CDC in the early years of the manager’s life."

3.14 The investment profession in poor countries, particularly in sub­Saharan Africa, is significantly under­developed. One important piece of the jigsaw in developing capital markets is to harness the skills that currently exist and to Nurture firms and individuals so that local investment professionals are empowered to drive the sustainable business growth on which economic development depends. Building local capacity and financial infrastructure is a key objective for sustainable development.

3.15 One of CDC’s most important contributions to sustainable development has been our work with local investment professionals and in particular with African and Asian professionals raising funds for the first time. Traditionally, commercial investors make investment decisions based on the all­important previous track record of a fund manager. Without this track record, the task of attracting investors can be a great challenge. It is even more of a challenge in developing countries where commercial investors are still reluctant.

Athi River Steel

Since 1998 CDC’s capital has been supporting Athi River Steel, a steel smelting company in Kenya. The country’s steel industry was still in its infancy at the time of CDC’s initial investment. 50% of the country’s steel was imported at high cost and the little scrap metal collected was exported at low prices.

Athi River Steel’s business model has proved successful. It produces hot rolled steel products such as fasteners and building materials using scrap metal. The plant is based in the Mavoko township 30 km from Nairobi. It provides jobs and training for 900 people in this poor area where there are few employment opportunities outside agriculture.

The plant has stimulated economic activity in the region more broadly. Increased demand for transport and other services has had a positive impact on the local economy and some small enterprises have grown to serve the workforce. For example, a group of women has set up a small catering business supplying traditional food to the company’s employees. Safety standards have been improved across the business.

The company has also helped create a flourishing scrap metal industry. By 2004 over 1,000 collection businesses had been registered and Athi River Steel estimates that 150,000 Kenyans now receive income from scrap metal sales.

3.16 Almost all CDC’s fund managers are locally based. From Accra to Lagos, Nairobi to Johannesburg, Colombo to Karachi and across India, CDC’s fund managers have local offices that understand and serve the immediate and wider regions.

3.17 60% of CDC’s fund managers are managing capital on behalf of investors for the first time. Most of these fund managers would not have got off the ground without CDC’s support. One of many examples of CDC’s pivotal role is the GEF Africa Sustainable Forestry Fund. In this case CDC identified the sustainable forestry sector as an area of opportunity for Africa. We invited potential fund managers to put their proposals to us and as a result of that process we selected a fund manager and committed US$50m to the fund. Subsequently other investors have committed over US$50m to this new fund alongside CDC. We are proud of this achievement which represents a tangible contribution to development. Frequently CDC will work with new managers over a long period of time to help them establish themselves. We provide support and advice on setting up the fund, attracting additional investors, monitoring the portfolio, reporting to investors and structuring the fund itself to deliver greatest possible value. This fund and all the subsequent jobs, investment and growth that will come out of it would not exist without CDC.

3.18 A list of CDC’s first­time fund managers is included in Appendix E.

3.19 CDC’s success depends on selecting good fund managers who support CDC’s developmental objectives and who know and understand their local business environment. Fund managers must also abide by our Investment Code which sets out our approach to ESG matters at the funds and portfolio company level. The Investment Code is included in Appendix A.

3.20 When DFID asked CDC to operate as a fund­of­funds in 2004, emerging markets were even less developed than they are currently. Private equity was virtually unknown in sub­Saharan Africa and investment levels in India were much lower than is presently the case. In 2004 CDC had investments with just three fund managers. That figure is currently 70. CDC is the largest provider of capital for private equity in India and sub­Saharan Africa, and is seen as the pioneer in these arenas, something of which the UK can be justifiably proud.

CDC and value for money

3.21 CDC has always been mindful of the need to deliver value for money to DFID and the UK taxpayer.

3.22 CDC’s achievements in terms of capital deployed, additional investments mobilised, jobs and livelihoods supported and tax revenues generated, have not required any new funding from DFID for over 15 years.

3.23 The UK government does not require CDC to pay tax and so the profits the company has made are re­invested each year in promising businesses in the developing world where a severe shortage of capital is holding those businesses back.

3.24 CDC’s success has enabled the company to continue investing in poor countries throughout the global economic downturn at a time when commercial investors were withdrawing their already low exposure to emerging markets.

3.25 All this has been achieved with a total staff of fewer than 50. The company’s operating costs in 2009 were 0.5% of net asset value. This compares favourably with the fund­of­funds industry benchmarks up of to 1%.

Measuring impact and the evaluation process

3.26 CDC’s evaluation framework, benchmarked against those of other DFIs, is similar to and based on the system developed and used by the IFC for investments through financial intermediaries. The system, which was also developed with the support of DFID, is intended to be practical, simple and focused on investigating key information to assess development impact.

3.27 Funds are evaluated at the midpoint and at the end of the fund’s life. In 2009 seven of the 20 development impact evaluations were conducted by an independent assessor, Steward Redqueen (formerly Triple Value), a renowned emerging markets consultancy specialising in assessing and evaluating investment effectiveness. In line with industry best practice, CDC has increased the number of independent evaluations of funds to 50% in 2010.

3.28 Steward Redqueen’s (formerly Triple Value) findings and perspective on CDC’s development impact are included in Appendix F.

3.29 In 2009, CDC’s systems and processes to implement its Investment Code were also independently assured by KPMG. KPMG’s report is included in Appendix G.

Financial performance

Profitability of businesses and the consequent returns made by funds are vital indicators of success. There can be no sustainable development without financial success.

Financial success is also a key consideration for commercial investors. By demonstrating profitability, CDC is better able to attract crucial third party capital to poor countries.

CDC’s own financial returns ensure that we are able to continue investing much needed capital in developing economies without seeking additional funding from the UK Government.

Spandana Sphoorty Finanicial Services

Around one third of the world’s poor live in India with millions of the poorest having little access to financial services to help improve their lives. Microfinance, with its emphasis on very small scale entrepreneurship, plays a vital role in development.

In 2007 CDC’s capital was invested in Spandana Sphoorty, an Indian microfinance institution helping 2.4 million poor people borrow small amounts of money to start their own small scale enterprises. The company has over 1,300 branches spanning 12 provinces across India. Over half of the borrowers live in remote rural areas and nearly all ­94% ­are women.

The average micro­loan made by the company is US$237. Loans range from a few dollars for daily wage labourers and traders to larger sums for micro­businesses often in agriculture. New products are also being pioneered and the company recently launched a maternity hospital for low­income women.

Spandana Sphoorty has 900 employees and paid US$14m in local taxes to the Indian government in 2009. It is a profitable institution, which means the company is sustainable and can therefore continue to help poor people at the very bottom ‘of the pyramid’ find a way out of poverty in the longer term.

Economic performance

This dimension of our impact assessment looks at how investments have generated benefits for the local economies in terms of commercially successful and growing businesses that provide jobs and generate taxes.


This dimension examines the adherence of fund managers and their portfolio companies to CDC’s Investment Code. It also covers the improvements portfolio companies are making, with the assistance of fund managers, to their practices and standards on ESG matters.

Private sector development

CDC wants to play a role in developing the private sector in poorer economies by investing in funds which in turn invest capital in promising businesses. Understanding the extent to which we are achieving this aim is an important element of assessing our impact. We look for broader private sector development effects including:

- increased investment of commercial capital alongside CDC;

- more efficient capital markets; and

- improvements to the regulatory environment as a result of contributions from fund managers.

3.30 Finally we evaluate CDC’s specific impact against two further considerations. The first is CDC’s added value to fund managers such as in helping to shape their investment thesis, upgrading their professional skills and helping them to improve their ESG management. The second is CDC’s impact in terms of attracting third party capital into funds.

Development impact evaluation results for 2009

3.31 The results of 2009’s evaluation process, along with a summary of CDC’s monitoring and evaluation framework and indicators, are included in Appendix H. Out of the seven funds evaluated, six were considered to have a satisfactory or better development outcome. CDC’s effectiveness was rated at least satisfactory for all seven funds.

Sierra Investment Fund, Sierra Leone

Sierra Leone has made real economic and political progress since the end of the civil war in 2002 and its democratic government is keen to attract foreign investment.

The country has been heavily reliant on donor funding and until recently has been ignored by investors because of its perceived problems. But Sierra Leone has experienced strong economic growth, averaging about 7% annually since 2005.

In 2009, CDC became the first DFI to make a private equity investment focused solely on Sierra Leone since the end of the civil war. CDC’s US$5m investment in the locally run Sierra Investment Fund is the first of its kind in the country.

Sierra Investment Fund provides financial backing to entrepreneurs and has already made investments in local businesses including Ice Ice Baby, a local ice producer, and Sierra Fishing Company which is the largest fishing business in the country. The investment will provide new jobs and services for the country’s people. CDC anticipates that its commitment to the fund will reap profits that can be re­invested in other businesses in the years ahead.


4.1 CDC is a highly successful DFI, with more investments in the poorest countries of the world than any other bilateral DFI. Its development impact is high and at the same time it is financially successful – thereby creating even more resources for investing in those poor countries.

4.2 The task of assessing development impact is complex and challenging. Nonetheless, it is essential. CDC is investing public money and the organisation must account for the difference it is making in supporting the private sector in the developing world.

4.3 Since 2004 and the introduction of the fund­of­funds model, much has been achieved. Although the scale of investment needed in poor countries is still immense, progress is being made and CDC has played a part in that.

4.4 However, we recognise the limitations of the model. We acknowledge the need for change and are open to new and creative ideas. The consultation process recently announced by DFID will help to inform how CDC should adapt its model.

Initial ideas include:

- providing debt and guarantees, where there is still a need for capital;

- investing directly with carefully selected partners, enabling a more focused approach on sectors and geographies that are of priority; and

- exploring new innovative ways of investing, providing these have the long term potential to attract third party capital.

4.5 CDC is a developmentally ambitious organisation. We welcome the opportunity to explore effective and imaginative ways of putting UK government capital to work in promising businesses in the poor countries of the world to help them grow, create jobs and contribute to lasting prosperity for all.


CDC’s mission is to generate wealth in emerging markets, particularly in poorer countries, by providing capital for investment in sustainable and responsibly managed private sector businesses.

CDC invests in the creation and growth of commercially viable private businesses in poor countries. Commercially sustainable businesses, supported by CDC, play a vital part in economic development: they employ and train people, pay taxes, invest in research and development, and build and operate infrastructure and services. This contributes to economic growth, which benefits poor people. CDC also mobilises private investment in these markets both directly and by demonstrating profitable investments.

Sustainable private sector development requires responsible business management of environmental, social and governance ("ESG") matters. This Investment Code defines CDC’s principles, objectives, policies and management systems for sustainable and responsible investment with respect to ESG. [1] It also includes an Exclusion List, which specifies businesses and activities in which CDC

will not invest. [2]

1. Principles

CDC, and the businesses in which its capital is invested, will:

• comply with all applicable laws;

• as appropriate, minimise adverse impacts and enhance positive effects on the environment, workers, and all


• commit to continuous improvements with respect to management of the environment, social matters and


• work over time to apply relevant international best practice standards, [3] with appropriate targets and

timetables for achieving them;


• employ management systems which effectively address ESG risks and realise ESG opportunities as a

fundamental part of a company’s value.

2. Objectives and policies

2a. The environment


• To minimise adverse impacts and enhance positive effects on the environment, as relevant and appropriate,

from the businesses in which CDC’s capital is invested.

• To encourage the businesses in which CDC’s capital is invested to make efficient use of natural resources

and to protect the environment wherever possible.

• To support the reduction of greenhouse gas emissions which contribute to climate change from the

businesses in which CDC’s

capital is invested. [4]


Businesses in which CDC’s capital is invested will:

• operate in compliance with applicable local and national laws (as a minimum);

• assess the environmental impact of their operations as follows:

> identify potential risks and appropriate mitigating measures through an environmental impact assessment

where business operations could involve loss of biodiversity or habitat, emission of significant quantities of

greenhouse gases, severe degradation of water or air quality, substantial solid waste or other significant

negative environmental impacts; [5] and

> consider the potential for positive environmental impacts from business activities; and

• take appropriate actions to mitigate environmental risks, ameliorate environmental damage, and enhance

positive effects as follows:

> where an activity is assessed to present significant environmental risks, work over time to apply the

relevant IFC policies and guidelines, [6] if these are more stringent than local legislation, with appropriate

targets and timetable for improvements; and

> as appropriate, work over time towards international environmental best practice standards. [7]

2b. Social matters

2b.i. Labour and working conditions


• To require the businesses in which CDC’s capital is invested to treat all their employees and contractor

fairly and to respect their dignity, well-being and diversity.

• To encourage the businesses in which CDC’s capital is invested to work over time towards full compliance

with the International Labour Organization ("ILO") Fundamental Conventions [8] and with the United Nations

("UN") Universal Declaration of Human Rights. [9]


Businesses in which CDC’s capital is invested will:

• comply with applicable local and national laws (as a minimum);

• not employ or make use of forced labour of any kind;

• not employ or make use of harmful child labour; [10]

• pay wages which meet or exceed industry or legal national minima;

• treat their employees fairly in terms of recruitment, progression, terms and conditions of work and

representation, irrespective of gender, race, colour, disability, political opinion, sexual orientation, age,

religion, social or ethnic origin, or HIV status;

• allow consultative work-place structures and associations which provide employees with an opportunity to

present their views to management; and

• for remote operations involving the relocation of employees for extended periods of time, ensure that such

employees have access to adequate housing and basic services.

2b.ii. Health and safety


• To attain safe and healthy working conditions for employees and contractors of the businesses in which

CDC’s capital is invested.

• To safeguard the health and safety of all those affected by the businesses in which CDC’s capital is invested.


Businesses in which CDC’s capital is invested will:

• comply with applicable local and national laws (as a minimum);

• assess the health and safety risks arising from work activities; and

• take appropriate actions to eliminate or reduce risks to health and safety as follows:

> where an activity is assessed to present significant health and safety risks, [11] work over time to apply the

relevant IFC policies and guidelines, [12] if these are more stringent than local legislation, with appropriate

targets and timetable for improvements; and

> as appropriate, work over time towards international best practice standards for health and safety. [13]

2b.iii. Other social matters


• To be objective, consistent and fair with all stakeholders of the businesses in which CDC’s capital is


• To recognise and, as appropriate, promote the social development impact from the businesses in which

CDC’s capital is invested.


Businesses in which CDC’s capital is invested will:

• take account of their impact on employees, contractors, the local community and all others affected by their

operations as follows:

> identify potential adverse effects and appropriate mitigating measures through a social impact assessment

in cases involving resettlement, critical cultural heritage, indigenous peoples, non-local labour or other

issues where the negative impact could be significant; [14] and

> consider social development contributions; and

• take appropriate actions to mitigate risks, ameliorate negative impacts, and enhance positive effects [15]

2c. Governance: Business integrity and good corporate governance


• To ensure that CDC, and the businesses in which CDC’s capital is invested, exhibit honesty, integrity,

fairness, diligence and respect in all business dealings.

To enhance the good reputation of CDC.

• To promote international best practice in relation to corporate governance in the businesses in which CDC’s

capital is invested. [16]


CDC, and the businesses in which CDC’s capital is invested, will:

• comply with all applicable laws and promote international best practice, [17] including those laws and

international best practice standards intended to prevent extortion, bribery and financial crime;

• uphold high standards of business integrity and honesty;

• deal with regulators in an open and co-operative manner;

• prohibit all employees from making or receiving gifts of substance in the course of business;

• prohibit the making of payments as improper inducement to confer preferential treatment;

• prohibit contributions to political parties or political candidates, where these could constitute conflicts of


• properly record, report and review financial and tax information; [18]

• promote transparency and accountability grounded in sound business ethics;

• use information received from its partners only in the best interests of the business relationship and not for

personal financial gain by any employee;

• clearly define responsibilities, procedures and controls with appropriate checks and balances in company

management structures; and

• use effective systems of internal control and risk management covering all significant issues, including

environmental, social and ethical issues.

3. Exclusions

CDC’s capital will not be invested in the following businesses or activities:

• production of or trade in any product or activity deemed illegal under applicable local or national laws or

regulations, or banned by global conventions and agreements, such as certain:

> hazardous chemicals, pesticides and wastes; [19]

> ozone depleting substances; [20] and

> endangered or protected wildlife or wildlife products; [21]

• production of or trade in arms, i.e., weapons, munitions or nuclear products, primarily designed or primarily

designated for military purposes; or

• production of, use of or trade in unbonded asbestos fibres. [22]

CDC’s capital will not be invested in businesses for which the following activities or products are, or are intended to be, a significant source of revenue:

• gambling;

• pornography; or

• tobacco or tobacco related products. [23]

4. Management systems for CDC’s fund managers [24]

In order to implement CDC’s Investment Code effectively, CDC requires its Fund Managers to enter into a formal agreement pursuant to which each Fund Manager commits to an investment undertaking similar in substance to sections 1 – 4 of this Investment Code. [25]

Where Fund Managers have effective control or significant influence over portfolio companies, [26] CDC requires its Fund Managers to procure that such portfolio companies sign an undertaking confirming that they will operate in line with sections 1 – 3 of this Investment Code.

CDC also requires its Fund Managers to establish and maintain ESG management systems [27] which:

• assess the impact of all new investments on ESG matters as an integral part of the investment appraisal


• give new investments a risk rating on ESG issues to determine the appropriate level of management and


• if an investment is made despite identified shortcomings in relation to ESG issues, or if any issues would

arise during the investment period, assist the portfolio company concerned to develop an action plan to

address such issues, with appropriate targets and timetable for improvements;

• encourage the managers of portfolio companies to work towards continuous improvements in these areas,

with targets for improvements as appropriate;

• encourage the managers of portfolio companies to adopt and implement policies relating to ESG matters,

particularly where businesses entail significant risks;

• monitor portfolio companies’ performance on ESG matters and their progress towards relevant action plans

and targets for improvements;

• monitor and record incidents involving portfolio companies that result in loss of life, material effect on the

environment, or material breach of law, and promote appropriate corrective actions; and

• consider sections 1 – 3 of this Investment Code in all investment and divestment activities.

To demonstrate the implementation of this Investment Code, CDC requires its Fund Managers to:

• report annually on the implementation of their ESG management systems and on the performance of

portfolio companies against sections 1 – 3 of this Investment Code in a format acceptable to CDC; [28]

• set targets for improvements where appropriate; and

• as soon as possible inform CDC about incidents involving portfolio companies that result in loss of life,

material effect on the environment, or material breach of law, and any corrective actions taken.

5. Management systems for CDC

CDC will:

• assist its Fund Managers as appropriate to establish and maintain ESG management systems;

• monitor the implementation of the Investment Code through its Fund Managers’ annual reports, with

verifications as appropriate;

• evaluate its Fund Managers’ implementation of the Investment Code periodically, using internal and external

sources as appropriate, usually:

> at the end of a fund’s investment period or the half-way point of the duration of a fund, which would

typically be five years after a standard fund has commenced; and

> at the end of the duration of a fund, which would typically be 10 years after a standard fund has


• in instances where CDC invests directly and independently, establish and maintain ESG management

systems substantially similar to those described above for its Fund Managers;

• consider the cumulative effects of CDC’s investments with respect to the Investment Code and:

> minimise adverse effects;

> maximise development impact; and

> promote synergies;

• identify major risks and opportunities associated with climate change in investments and potential

investments made by its Fund Managers and proactively promote through those Fund Managers the

application of international best practice standards in the reduction of emissions of greenhouse gases; [29]

• incorporate lessons learned into CDC’s future investment strategy;

• keep up-to-date on new developments with respect to relevant international agreements and best practice

standards; and

• review this Investment Code periodically to ensure its continuing suitability and effectiveness.

Appendix B – CDC’s Indicators for Monitoring and Evaluation

CDC Indicators for Monitoring and Evaluation (M&E)


As relevant/appropriate










Performance area



When to record


At investment

Annual monitoring





1 Development Outcome

Financial performance

Fund managers’ ability to attract commercial capital to poor country markets
> financial return to investors

Net IRR of fund *





Fund level





IRR for each realized exit (%)






Total investment ($)






Total commitment ($)






Investment period (yrs)





Economic performance
Investee company level***

Contributions to economic growth
> commercially viable and growing businesses that generate employment and pay taxes

% of portfolio companies with EBITDA increases





% of portfolio companies with increase in turnover





% of portfolio companies with increase in employment






% of portfolio companies with increase in taxes paid






% total portfolio increase: EBITDA






% total portfolio increase: Turnover






% total portfolio increase: Employment






% total portfolio increase: Taxes paid






% of portfolio companies with SME classification at time of acquisition (if relevant)






% of portfolio companies which serve low-income markets / populations (if relevant)





ESG performance
Investee company level***

Responsible investment and business practices with respect to the environment, social matters and governance (ESG)
> fund managers’ ESG management systems and the ESG performance of portfolio companies

Environment: Portfolio companies addressing environmental and climate related risks and opportunities

Risks and targets





Social: Labour and working conditions, health and safety performance record and other social matters

Risks and targets







Governance: Quality of portfolio companies' governance structure, track record of governance issues

Risks and targets




For fund manager

Quality of and improvements to GPs ESG management system






ESG serious incidents performance record





Private sector development

Broader private sector development effects:
> more efficient capital markets
> regulatory improvements
> benefits to customers from increased availability of goods, services and infrastructure

Third party capital from DFIs and/or non-DFIs being invested other funds/fund managers











Local capacity building





Directly related to the investment

Frontier fund manager? (Y/N; change in status)






Local fund manager? (Y/N; change in status)






Raising of successor fund?






Non-DFI financing in successor fund ($; %)






Debt or other external financing raised by investee companies ($)






Average holding period for investee companies (yrs)






Multi-country investments/operations (LICs, SSA; % capital)






Type of investment (growth, privatization; expansion; VC; etc.)






Type of realised exits (IPO, trade sale, MBO, sale to investor(s))





Investment context

Change in no. of PE firms in the market

Updated annually in CDC's knowledge management system


% increase in PE investment as share of GDP

Contextual or directly related

Enhancements to investment environment (regulations, etc.)






Enhancements to sectors where portfolio companies operate (if available)****





2 CDC Effectiveness

Catalytic effects

CDC’s direct role in bringing in other investors
> focus on commercial capital

Third party capital from DFIs and/or non-DFIs being invested other funds/fund managers, with evidence of attribution to CDC









Frontier fund manager whose establishment can be attributed with evidence to CDC? (Y/N; change in status)





Local fund manager whose establishment can be attributed with evidence to CDC? (Y/N; change in status)





Raising of successor fund, with evidence of attribution to CDC





Other factors, e.g. increase in market liquidity for distressed assets funds





Examples of CDC helping GPs with fund raising (qualitative; $)





Added value

CDC’s direct contributions to improve the way fund managers invest CDC’s capital, for example:
> to shape a fund’s investment thesis or terms
> to improve fund managers’ ESG management systems
> to recruit or contract key technical expertise for responsible and successful investment management

Examples of CDC qualitative assistance to GP (e.g. shaping terms, fostering alignment, improving strategy, enhancing carry structure or other matters)





CDC support to improve fund ESG performance (e.g. ESG management systems, corporate governance structure or other matters)





Note: ESG management systems and performance will be assessed relative to CDC's Investment Code and the risk level of portfolio companies. Improvements over time will be valued in the evaluation. The investment portfolio of each fund manager will be risk rated based on its portfolio companies and the inherent risk levels of the sectors / geographies where they operate.

* For that asset class, type of fund manager, and / or geography


** Including labour and working conditions, health and safety, and other social matters


*** ESG issues and improvements should be reviewed for all portfolio companies in high-risk sectors and for others as appropriate. The mid-point evaluation covers available information at that time.


**** If any and as per available information, e.g., infrastructure development (e.g., power, roads, water); availability of products or services (e.g., telecom penetration); new technologies or other inventions


Appendix C – CDC’s Performance History













Total return after tax







New investments







Proportion in Africa







Portfolio cash generated







Value of investment portfolio







Proportion in Africa







Proportion in Infrastructure and power







Outstanding commitments







Underlying portfolio companies







Number of funds







Number of fund managers







New fund managers in the year







Appendix D – CDC Mobilising Third Party Capital













CDC new commitments







Other investors’ commitments alongside CDC







Third party mobilised on three year rolling basis*

2008 – 2010 (to date)


2007 – 2009


2006 – 2008


2005 – 2007


* new basis since 1 January 2009 based on target markets and including tapering for later series of funds

Appendix E – List of First-Time Fund Managers

Access Holdings

Actis Capital

Adlevo Capital

Advanced Finance and Investment Group

African Capital Alliance

African Lion

Altra Investments

Ambit Pragma Ventures


Aureos Capital

Avigo Capital Partners

Berkeley Partners

BTS Investment Advisors

Business Partners

Capital Today

CITIC Capital

Citigroup Venture Capital International


Development Partners International

Equator Capital Partners

Fountainvest Partners (Asia)

Frontier GP Pte Ltd


Helios Investment Partners

Horus Development Finance

JS Private Equity

Kendall Court

Keytone Capital Partners

Kotak Mahindra Group

Lok Capital


Minlam Asset Management

Multiples Investment Advisers

New Silk Route Advisors

Rabo Equity Advisors

Saratoga Capital

Sphere Holdings

Travant Capital

Tripod Capital International

Vantage Capital


Zana Capital

Appendix F – Triple Value’s External Perspective on CDC’s Development Impact Measurement

An external party, Triple Value has evaluated the performance of seven funds and also added a new component: an assessment of the socio-economic impact of a fund.

Triple Value: Our insights into CDC’s evaluation process

Triple Value’s work for CDC

In 2009, Triple Value evaluated the performance of seven funds on behalf of CDC. Four evaluations concerned midterm evaluations of African funds while three evaluations were final evaluations of Asian funds. As described earlier in this report, our evaluation approach consisted of a combination of CDC’s evaluation methodology and Triple Value’s Socio- Economic Impact Assessment (SEIA) model.

Each fund evaluation was based on an analysis of relevant information and documents and a judgement of a fund’s performance. Subsequently, interviews were conducted with people involved in the fund (including CDC staff, fund managers and representatives of portfolio companies). In addition, site visits to local fund management offices and portfolio companies were organised.

In total, Triple Value visited eight fund management offices and 14 portfolio companies in six African countries.

As almost all Asian investments had been exited a long time ago, no visits were made in Asia. These evaluations were completed based on desk research and in-depth interviews with fund management and CDC staff.

The value add of an external view

The purpose of an external evaluation exercise is threefold.

Firstly, it provides an external judgement of a fund’s performance and thus enhances the independence of the evaluation. Secondly, it tests the effectiveness and robustness of CDC’s evaluation methodology. And thirdly, external evaluations enable CDC to compare the results with those of internally performed evaluations and judges whether these suffer from internal bias.

Main findings

Out of the seven funds evaluated by Triple Value, six were considered to have a satisfactory or better development outcome. And CDC’s effectiveness was rated at least satisfactory for all seven funds.

As the ratings of the 13 internal evaluations show very similar ratios (85% of funds have a satisfactory or better development outcome and 100% rate CDC’s effectiveness as more than satisfactory), this suggests that CDC’s evaluation methodology serves as a framework to assess a fund’s performance in an objective way.

While working with CDC’s methodology, we found that it is a thorough approach to perform an evaluation. Naturally, we also came across some aspects where we think that the methodology needs to be modified or sharpened and CDC is currently working on this.


We think that external evaluations contribute to a transparent and accountable fund evaluation process. By producing external evaluations side by side with those produced internally, a strong combination is built based on in-depth knowledge of the fund’s details and an outside perspective on fund performance and CDC investment decisions. The assessment of the wider socio-economic impact of a fund provides information on the development impact of supply chains that was not previously available, although it does not include all aspects of development.

Compared to CDC staff who live with the funds every day, for external evaluators it can be a challenge to acquire sufficient knowledge of a fund’s details in order to form a robust opinion on its performance. However, by working closely with CDC staff and fund managers this issue is substantially alleviated. Moreover, starting with a completely fresh mind has the advantage that new insights can be identified. Evaluating CDC’s own effectiveness is naturally more objectively done by an outsider.

Given the different character and dynamics of internal and external evaluations and the strong combination they make towards an overall evaluation approach, we agree with CDC that outsourcing approximately half of its fund evaluations contributes to a strong approach.

Appendix G – KPMG’s Independent Assurance Report to CDC Group plc


KPMG LLP was engaged by CDC Group plc (‘CDC’) to provide limited assurance over CDC’s description of its processes to implement its Investment Code in pages 64 to 67 of the CDC Development Review 2009 (‘the Development Review’).


The preparation, maintenance and integrity of CDC’s Development Review, including the pages over which we provide this opinion, are the sole responsibility of the directors of CDC.

Our responsibility is to express our conclusions in relation to the above scope and in accordance with the terms of our engagement letter dated 26 January 2010.

This report is made solely to CDC in accordance with the terms of our engagement. Our work has been undertaken so that we might state to CDC those matters we have been engaged to state in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than CDC for our work, for this report, or for the conclusions we have reached.

Which assurance standards and criteria did we use?

We conducted our work in accordance with International Standard on Assurance Engagements 3000 (ISAE 3000): Assurance engagements other than Audits or reviews of Historical information, issued by the International Auditing and Accounting Standards Board. We conducted our engagement in compliance with the requirements of the IFAC Code of Ethics for Professional Accountants, which requires, among other requirements, that the members of the assurance team (practitioners) as well as the assurance firm (assurance provider) be independent of the assurance client. The IFAC Code also includes detailed requirements for practitioners regarding integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. KPMG LLP has systems and processes in place to monitor compliance with the IFAC Code and to prevent conflicts regarding independence

Section five of CDC’s Investment Code, as set out in Appendix 1 (pages 80 to 84) of the Development Review, describes CDC’s responsibilities and management system for implementing the Investment

Code, and we have used that description as the basis of our evaluation.

What did we do to reach our conclusions?

We planned and performed our work to obtain all the evidence, information and explanations that we considered necessary to understand and review CDC’s processes to implement its Investment Code. Our work included the following procedures and evidence-gathering activities:

· Interviews with the CEO, Board members, senior management, and relevant staff at CDC to assess the

approach to handling material issues, controls in place, incentives and penalties, and escalation procedures;

· interviews with 12 out of 16 investment professionals to discuss their roles in implementing the Investment Code and the activities they carried out as part of screening, due diligence, monitoring and evaluation procedures of selected funds and portfolio companies;

· Interviews with the ESG team to discuss work plans, training, internal controls and guidance documents;

· Examination of the documentation produced at different points in the investment lifecycle, for a risk-based selection of funds (21 funds out of 134 funds);

· Examination of internal and external documentation including correspondence, minutes of meetings, reports and presentations relating to the implementation of the Investment Code;

· Examination of training and guidance documentation, including the Toolkit for fund managers, and attended an internal training session for CDC staff; and

· Examination of other relevant sections of the Development Review to evaluate whether any disclosures are inconsistent with our findings.

Inherent limitations

As outlined on page 8 and 9 of the Development Review, CDC operates as a fund of funds in the Private Equity industry, in which relationships are generally trust-based and therefore the nature and number of checks between parties may vary significantly. As CDC is one step removed from the companies which ultimately receive its funds, CDC is inherently limited in its ability to perform compliance checks of these companies’ performance against minimum requirements of the Investment Code.

Emphasis of matter

Our work covered the design of the processes for implementation of the Investment Code and the extent to which those processes have been implemented in relation to a selection of funds. Our work did not include an assessment or test of adherence of individual funds and portfolio companies to all the principles of the Investment Code.

In the course of our work we noted that CDC’s processes have been evolving over time. Therefore whilst CDC has made efforts to apply additional reporting requirements to older funds this has not always been possible or appropriate, for example, in the case of legacy assets as described on page 67.

All of our work was carried out at CDC, not at fund managers or portfolio companies, and included examination of evaluation reports carried out by CDC and Triple Value. We also draw your attention to the process improvements planned by CDC in their description of the implementation of the Investment Code.

Our conclusion

Based on the scope of our engagement and the work described above, nothing has come to our attention to suggest that CDC’s description on pages 64 to 67 of the processes to implement the Investment Code is not fairly stated.

Vincent Neate


For and on behalf of KPMG LLP

23 April 2010

Appendix H – CDC’s Monitoring and Evaluation Framework and Summary of the Evaluation Results

CDC’s monitoring and evaluation framework and indicators

Development outcome


Typical performance indicators

Financial performance

* Fund Managers’ ability to attract commercial capital to poor country markets

> financial return to investors

* Net IRR of funds versus investment targets

* IRR for each exit

Economic performance

* Contributions to economic growth

> commercially viable and growing businesses that generate employment and pay taxes

* Employment

* Taxes paid

* EBITDA and turnover (increase over time)

* SMEs and low income reach (if relevant)

ESG performance

* Responsible investment and business practices with respect to the environment, social matters and governance (ESG)

> fund managers’ ESG management systems and the ESG performance of portfolio companies

* ESG issues and improvements over time

* Development outlays (if available)

* Environmental products/services (if relevant)

Private sector development

* Broader private sector development effects:

> more efficient capital markets

> regulatory improvements

> benefits to customers from increased availability of goods, services and infrastructure

* Third party capital

* Local capacity building

* Enhancements to sectors and benefits for

consumers e.g., increase in telecom penetration, new infrastructure, increased access to power and financial services

CDC effectiveness


Catalytic effects

* CDC’s direct role in bringing in other investors

> focus on commercial capital

Added value

* CDC’s direct contributions to improve the way fund managers invest CDC’s capital, for example:

> to shape a fund’s investment thesis or terms

> to improve fund managers’ ESG management systems

> to recruit or contract key technical expertise for responsible and successful investment management

2009 evaluations in summary

§ 20 funds

§ 11 fund managers

§ 313 companies

§ 15 mid-point evaluations, 5 final evaluations

§ CDC’s evaluation work in 2009 covered funds investing in companies of all sizes and in all sectors

§ 10 funds investing in Africa, 8 funds investing in Asia

§ 13 evaluations conducted by CDC

§ 7 conducted by external consultants

[1] CDC’s Investment Code is compatible with the 2006 International Finance Corporation (“IFC”) Policy and Performance Standards on Social and Environmental Sustainability (“IFC Performance Standards”).

[1] See A Fund Manager that follows the IFC Performance Standards fulfils the requirements on the Environment and Social Matters set out in this Investment Code. The Investment Code is also compatible with the 2007 agreement for common environmental and social standards among the European Development Finance Institutions (“EDFI Rome Consensus”).


[2] CDC’s Exclusion List is compatible with those of the IFC and the EDFI Rome Consensus.


[3] As referenced in this Investment Code and as may develop over time.


[4] In line with the 1994 United Nation Framework Convention on Climate Change and the associated 2005 Kyoto Protocol (“UN Framework Convention”), see as may be amended from time to time.


[5] Activities with potential significant adverse environmental impacts that are diverse, irreversible or unprecedented; mindful of potential cumulative, secondary or synergistic impacts that may occur as a consequence.


[6] The IFC Performance Standards and the 2007 IFC Environmental, Health and Safety Guidelines (“IFC EHS Guidelines”), as may be amended from time to time and adopted by CDC. IFC EHS Guidelines include general guidelines and industry sector guidelines for forestry, agribusiness/food production (including fisheries), general manufacturing, oil and gas, infrastructure, chemicals

[6] (including pharmaceuticals), mining and power. See and



[7] Including the range of internationally certifiable environmental standards issued by the International Organization for Standardization (“ISO”), the ISO 14000 series, notably including standards for environmental management systems (ISO 14001) and greenhouse gas emissions (ISO 14064-65), as may be amended from time to time. See


[8] The ILO Fundamental Conventions are the Conventions on Freedom of Association and Collective Bargaining; Forced Labour; Child Labour; and Non-Discrimination, as may be amended from time to time.

[8] See for the texts of these Conventions and a list of the countries that have ratified each of them.

[9] See


[10] As defined by the ILO C138 Minimum Age Convention from 1973 and the ILO C182 Worst Forms of Child Labour Convention from 1999. See

[11] Activities that could have a severe health or safety impact for workers or affected communities.


[12] The IFC Performance Standards and the IFC EHS Guidelines, as may be amended from time to time and adopted by CDC. See PerformanceStandards and EHSGuidelinesUpdate.


[13] Including OHSAS 18001, the international occupational health and safety management system specification, and industry specific international good practice standards related to the safety of product use, e.g. the international Good Manufacturing Practice (“GMP”) standards for food and pharmaceutical products promoted by the World Health Organization (“WHO”), see .



[14] Activities with potential significant adverse social impacts that are diverse, irreversible or unprecedented.


[15] As relevant, by applying IFC Performance Standards on Land Acquisition and Involuntary Resettlement; Indigenous Peoples; and Cultural Heritage; as may be amended from time to time and adopted by CDC.

[15] See


[16] Including the 2004 Organisation for Economic Cooperation and Development (“OECD”) Principles of Corporate Governance, as may be amended from time to time. See

[17] Including the 2005 UN Anti-Corruption Convention, see; the 1997 OECD Anti-Bribery Convention, see; and, as relevant, the 2005 Extractive Industries Transparency Initiative (“EITI”), see; as may be amended from time to time.


[18] CDC promotes the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), see; and the International Private Equity and Venture

[18] Capital Valuation Guidelines (“IPEVC”), see

[19] Including those specified in the 2004 Stockholm Convention on Persistent Organic Pollutants (“POPs”), see; the 2004 Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade, see; and the 1992 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal,

[19] see; as may be amended from time to time.


[20] As covered in the 1999 Montreal Protocol on Substances that Deplete the Ozone Layer, see, as may be amended from time to time.

[21] As covered in the 1975 Convention on International Trade in Endangered Species or Wild Flora and Fauna (“CITES”), see, as may be amended from time to time.


[22] This does not apply to purchase and use of bonded asbestos cement sheeting where the asbestos content is less than 20%.



[23] Except, in the case of tobacco production only, with an appropriate timeframe for phase-out.

[24] For the purposes of the Investment Code, “Fund Manager” means (i) investment fund managers managing capital on behalf of CDC; (ii) financial institutions managing and/or investing capital on behalf of

[24] CDC; and (iii) other intermediated institutions managing and/or investing capital on behalf of CDC

[25] By side letter or equivalent agreement.


[26] A Fund Manager will be deemed to have significant influence over a portfolio company where its fund has (i) an ownership interest in the portfolio company in excess of 20%, which is presumed to be a level that allows for participation in the financial and operating policies of a portfolio company (if the percentage is lower but gives rise to the same participation, this will also meet the definition of significant influence); or (ii) board representation to a level that allows for participation in determining the financial and operating policies of the portfolio company; or (iii) rights to influence the financial and operating

[26] policy decisions of the portfolio company pursuant to a shareholders’ or similar agreement.

[27] Further guidance on ESG management systems and assessments is provided in CDC’s Toolkit for Fund Managers, see www. cdcgroup .com. Guidance on environmental and social management systems and assessments is provided in IFC Performance Standard 1, see PerformanceStandards. ISO 14001 is a certifiable international standard to help organisations minimise how their operations negatively affect the environment, see


[28] A suggested format for ESG reporting is available on CDC’s website, while other reporting formats could be acceptable. See www. cdcgroup .com.


[29] In line with the UN Framework Convention, as may be amended from time to time, and including IFC Performance Standards, IFC EHS Guidelines, and ISO 14064-65, as may be amended from time to time and adopted by CDC. See,, and