Nick O’Donohoe, CEO, CDC Group
Where can development finance be most effectively deployed in emerging economies?
NICK O’DONOHOE: Agriculture will always be a critically important sector for development finance institutions. In the countries that we serve, and indeed in most emerging markets, agriculture still employs a significant proportion of the population. From a development perspective, one of the great challenges is improving the living standards of people in rural areas, particularly through increased productivity.
There are a number of different ways in which development finance institutions can successfully approach agriculture investment. One core focus is to develop supply chains. This can be achieved by shortening supply routes to local consumers, and by initiating grower schemes that link smallholder farmers with international trade. Another priority is investing in primary agriculture. In this regard, our goal is to increase productivity, whether this be through training programmes or through technological development.
How can risk be mitigated when working with firms that have a lack of credit and accounting history?
O’DONOHOE: The aim for any development finance institution is to invest in repayable capital, meaning that companies that received investment have to repay funds at some point, or provide a form of exit for the shareholder. To do this with confidence, there must be a financial framework in place, which is a challenge when you start looking at smaller markets that might not have the experience or financial systems needed.
To answer this challenge, we looked further into the needs of the companies with which we have relationships. Although we invest in private companies, we also recognize that in some of the areas where we work, companies need support over and above equity investment or a loan. This led us to create CDC Plus, a technical assistance and support facility through which we can contribute to building a company’s human capital, or perhaps provide assistance in building better finance capabilities through a range of training. This can help to alleviate some investment risk, while also facilitating the development of a stronger private sector.
Which financing tools can work most effectively for frontier economies such as Myanmar?
O’DONOHOE: Myanmar, like many other countries at a similar stage of development, has a huge need for infrastructure development – including power, roads and telecoms. These types of projects typically need long-term loans. The problem with banking systems in most frontier economies is that they tend to not provide long tenors; banks in these contexts lend on a short-term basis. This can lead to financing shortfalls and inertia. With infrastructure projects, for instance, the building of power stations requires financing of a minimum of 20 years. Hence, this is a key area in which development finance institutions and multilateral or bilateral organisations make long-term commitments.
What developmental role can the UK play in Myanmar, and where do you see potential for investment? O’DONOHOE: The UK has an important role to play in Myanmar. It is one of the largest aid providers in the country, with which it holds a long-lasting historical connection. This has created a certain level of comfort when dealing with the UK that may not always exist with other powers in the region. Together, these factors definitely create opportunities for the UK to play an even larger role than it does now.
We have already made considerable investments in the microfinance space, and we are looking at much bigger ones with partners in the same area that focus on financial inclusion. Additionally, we are exploring potential investments in the burgeoning manufacturing sector. Given Myanmar’s regional competitive advantage, there is still much room for this sector to grow and help bring more wealth to the nation as a whole.
