International Development Committee - The Development Situation in Malawi Further written evidence submitted by CDC Group

During the 13 June oral evidence session, CDC’s Chief Executive Diana Noble committed to answer in writing two additional questions put to her by the Committee.

Question 1

Can you commit to give us a written response on whether Malawi Mangoes’ bid for (equity investment) support has been supported or not, and can you provide in writing the reasons why a decision has been taken either way?

CDC Response:

CDC met executives from Malawi Mangoes some months ago to discuss the possibility of equity investment in the company. We explained to the management of the company the background to the changes we’re currently undertaking at CDC and the implications this has for investing in companies such as theirs.

While we are unable to make a direct investment in Malawi Mangoes, we have referred this deal to a specialist agricultural fund manager that CDC has backed in the past. They spent a considerable amount of time assessing the opportunity before deciding not to proceed with it.

The Committee will recall that in her oral evidence Diana Noble explained how CDC is rebuilding from scratch its direct investment capacity—the key points being that we will only start investing directly in two ways; either through co-investments alongside other DFIs and funds; or directly through a “corporate pioneering” approach in larger businesses that have the potential to scale up very significantly and have a major impact across a number of countries or regions.

We currently have a team of 3 people in London dedicated to direct investments, and hope to build this team steadily to 6–7 by the end of the year. But there are no local offices to manage investments. We are focusing largely on our strategy to co-invest alongside funds and DFIs who have the resources to originate, execute and manage deals and this means that we cannot currently begin to invest in and give the necessary close management required to a large volume of relatively small deals such as Malawi Mangoes.

Question 2

The Africa Enterprise Challenge Fund, which is invested in substantially by DFID, helps set up or grow a lot of businesses around Africa. It is purely grant driven. DFID retains no equity stake, which I think is a mistake. I have said in the past that CDC would be a very good organisation to run these stakes once the investment had been made through AECF. Is that being looked at since we have raised it in the past?

CDC Response:

At present, AECF only makes grants or loans to SMEs in Africa. We understand that the AECF team are currently undertaking research into the medium to long-term financing needs of the types of businesses they have previously supported. The decision to make direct equity investments lies with DFID and AECF.

Should AECF consider making equity investments in the future then CDC would, of course, be keen to keep in contact and hear more about their plans as well as offer advice on any new approach. However, CDC’s new direct investment strategy for the next five years (outlined in the answer above) means that we won’t operate in a way that is compatible with managing small-scale direct investments selected by other parties. The way we will reach SMEs will be through our fund investments and in the provision of debt finance through our support for local banks.

July 4 2012

Prepared 23rd July 2012