Imagine a public sector limited partner that has not received a dime of funding since 1995 and can only make fresh investments by recycling profits. Now, imagine that limited partner’s model is to restrict itself to only making a return from ‘impactful investing’, measured mainly by employment creation, and also must be hot on health and safety regulation as well as environmental standards. To top it off, imagine that investor is owned by a government and subject to scrutiny by politicians and newspapers.
Welcome to the world of CDC, a £3 billion (€3.6 billion; $5 billion) investment firm owned by the UK’s Department for International Development, which came under fire last month from The Guardian newspaper in an article headlined, “British aid money invested in gated communities and shopping centers.” The central criticism of the article was that, contrary to its objective, CDC seemed to be failing in its duty to create jobs for poorer people by participating in luxury or high-end real estate projects. Examples include a $25 million investment in 2013 in the 32-acre Nairobi Garden City development in Kenya and a $24 million investment with the developer behind a luxury beachfront project in Mauritius.
Speaking to PERE at the firm’s headquarters in London, Alex MacGillivray, CDC’s development impact director, and Kabir Chal, investment executive, understandably are wary of speaking to another journalist after CDC’s last experience. Nevertheless, they carefully explain the mission.
“Our role is to support private enterprise off our own balance sheet,” MacGillivray said. “The focus is on investments that we know will be developmentally impactful, and the way we measure that is primarily through the creation of jobs but also geographies.”
Africa, of course, has a huge, young workforce, and CDC views construction as a huge employment generator. That is not only in terms of providing jobs to construction workers but also those involved in the supply chain to developments, such as the retailers that are expanding aggressively across Africa. “Retailers need commercial space to occupy and access to a regular local supply chain,” said Chal. “There are supply chain benefits to developing malls.”
In Nairobi Garden City, for example, there will be more than 420 apartments and townhouses, a business hotel plus commercial offices and a 3-acre park open to the public. “We like projects like this because they provide construction and retail jobs,” MacGillivray added. “Our estimate is that as many retail jobs as construction positions can be created on an ongoing basis. For us, that is very important as it provides two different pathways to development.”
MacGillivray continued: “A criticism of the article was that CDC has made an investment in Kenya, where there is a lot of money. Actually, that is not the case in the real estate sector for commercial development of this size and complexity. CDC’s investment nowadays is more and more focused on countries where the investment environment is particularly challenging and businesses struggle to raise the capital they need.”
The other aspect that was downplayed in the article was the fact that CDC is far from just an investor in the construction sector. The Guardian did acknowledge that construction accounted for 6.8 percent of the portfolio, but it neglected to report investments made in other sectors. The firm also targets agriculture, infrastructure, financial services, manufacturing, education and healthcare.
Some of the investments that CDC has been criticized over are for investments in funds that have gone on to develop projects in places such as Mauritius. A legitimate accusation might be that, as a limited partner, CDC lacks control over its investments. In 2012, however, a strategic shift took place allowing it to make direct investments and better target its money.
The first such direct deal was agreed in 2013, when it invested alongside The Carlyle Group in Export Trading Group, a pan-African commodities trader that sources from millions of smallholder farmers. In that instance, CDC provided mezzanine finance to the founders. The Nairobi Garden City project also is an example of a direct investment, and others include investments in a low-cost education provider in Kenya called Bridge Academies, a wind power development company and a brownfield palm oil plantation that employs about 3,500 people in rural Congo.
Furthermore, two years ago, CDC introduced a ‘screening process’, where the key questions became: ‘Is this investment in an area likely to generate more jobs than average, and is the country or state poorer and harder to do business in than the average?’ MacGillivray added: “An investment theme is helping businesses expand their operations into poorer countries.”
In total, CDC made $600 million of new investments last year and, if it finds the right opportunities, expects to invest roughly the same amount this year. This time, it hopes the reporting will be more balanced.
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