Norway Development Fund Bets Big on African Finance

Norway’s state-run development fund, Norfund, is finding the fattest returns in Africa are in the financial industry.

The $2 billion fund, which is more and more concentrating its investments in sub-Saharan Africa, placed more than half its new capital last year in financial institutions. That focus helped salvage returns last year. 

At the end of 2016, the fund had invested 16.8 billion kroner ($2 billion) in 124 companies, with renewable energy infrastructure investments the largest component. Financial institutions yielded 7.3 percent last year, while the fund saw an annual return of 2.9 percent.

"The financial sector has been the most profitable and has remained the best, even through difficult periods," Kjell Roland, chief executive officer at Norfund, said in an interview last week.

The fund is becoming a growing power as annual contributions from the government are set to increase by 50 percent over the next four years. The capital and the returns are being plowed into the least developed countries in an effort to promote economic growth. By contrast, Norway’s much larger sovereign wealth fund, now at more than $900 billion, largely invests in developed markets.

Last year it formed Arise BV with the Netherlands’ FMO and Rabobank Groep to invest in the African financial industry. Its first acquisition was a 27.7 percent stake in CAL Bank Ltd. in Ghana. It hopes to grow Arise to more than $1 billion over the next five years.

Norfund is limiting its geographical reach to get more bang for the buck and increase local influence. It invests in joint ventures only, and has teamed up with Norwegian solar producer Scatec Solar ASA in Mozambique and also set up a microfinance alliance with the biggest banks and insurance companies in Norway.  

“There aren’t many places where you are able to pick up 5-7 percent returns over a long period of time," Roland said. “This is because the sector is well organized, pays a reasonable return on equity, and it’s diversified.”

(Fund corrects return figures in third paragraph in story that ran on May 16.)
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