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Mega Investments: One-on-One with CDC’s Egypt Coverage Director

Mega Investments: One-on-One with CDC’s Egypt Coverage Director

Arabfinance: UK’s development finance institution and impact investor, CDC Group, recently expanded their investments in Egypt by $100 million, investing Alfa Medical Group. The move which was widely covered is considered one of the strongest investments in the country’s private medical sector.

CDC entered Egypt in 2003 and since then the value of its investments grew to over $266 million, working with 35 companies in the country that collectively employ close to 29,000 people.

To get a better view of the company’s plans for Egypt and their evaluation of the market, Arab Finance interviewed Sherine Shohdy, Egypt’s coverage director who sheds light on their $1 billion investment plan for 2021, the pandemic’s impact on their projects, and their focus on fostering positive environmental, economic, and social change through their investments.

 

What can you tell our readers about your investment portfolio and history in Egypt?

Our portfolio covers diverse sectors, including infrastructure, manufacturing, trade, microfinance, healthcare, business, and financial services.

CDC provides the flexible long-term investments that will support the growth of many Egyptian businesses. We particularly focus on investments that generate employment and sustainable growth in food, agriculture, health, manufacturing, infrastructure and climate, financial institutions, and telecommunications sectors that have a tangible impact on everyday lives.

We provide both equity and debt to businesses and projects in sectors that accelerate human development. Lastly, we also invest in private equity (PE) and venture capital (VC) funds focused on Egypt and North Africa, such as Ezdehar and Sawari Ventures. In total, we have backed 12 PE and VC funds with exposure to Egypt. This allows us to invest in SMEs that are too small to absorb our direct investments, which are typically in the range of US$ 10 million to US$ 150 million.

Further, we are a key partner in the 800 megawatts Nubian Suns solar power project. Our $97 million investment spans 9 of the 13 Nubian Suns projects for a total capacity of close to 400 megawatts. The project will provide clean, cost-effective power to over 350,000 people and generate up to 6,000 jobs during construction.

How does your presence in Egypt compare to other markets in the region? Chosen sectors, level of investments? Which market is your largest?

As one of the world’s first development finance institutions, CDC has been investing in the sustainable, long-term growth of businesses in Africa and Asia for over 70 years. Today, CDC’s Africa portfolio supports over 80 investment funds operating in 37 countries across the continent. We currently have investments in over 700 African businesses that collectively employ over 300,000 people in 35 countries. Our presence in Egypt is relatively recent, compared to Nigeria where we have been investing since 1948.

Over the last two years, we have focused our deal-making efforts on the continent in Egypt, Nigeria, Kenya, Ethiopia, and Ghana. We believe we can drive substantial impact at scale in these countries via our investments, resulting in job creation, enhanced environmental and social outcomes in our portfolio companies, and accelerating human and economic development. Our efforts aren’t only concentrated in these five countries: we work across the continent and are particularly focused on frontier countries that are sometimes overlooked by international finance.

We invest across many sectors but prioritize those that help further economic and human development. Our seven priority sectors have the strongest potential to create the most jobs for the capital invested and contribute towards many of the Sustainable Development Goals (SDGs). These sectors are infrastructure and climate, financial services, food and agriculture, health, manufacturing, construction and real estate, and technology. Our sectoral priorities vary from country to country: in Nigeria, for example, the power deficit means that we are focusing our efforts on power generation, transmission, and distribution, whereas Egypt has a more stable power grid, so we are focusing on the sectors mentioned above.

How has the recent EGP 1.56 billion investment in Alfa Medical Group impacted CDC’s investment portfolio in Egypt and its future outlook? Is this your largest investment in the country? How does it compare to your regional investments?

In February, we announced a $100 million investment in Alfa Medical Group, which includes leading diagnostics companies Alfa Scan and Alfa Laboratories, as well as El Saha Hospital. Alfa Medical Group is one of the largest healthcare providers in Egypt and consists of over 140 labs and six radiology labs, with a 170-bed hospital and two further hospitals and the Alfa Medical City under construction. This healthcare is available to all income levels.

The investment represents CDC’s largest equity investment in Egypt and demonstrates our strong commitment to investing in the country. I’m particularly proud of the impact this investment will have; it will increase public access to high-quality medical care, in line with the government’s objectives, as outlined in Egypt Vision 2030. In parallel, it will also finance the establishment of the Alfa Academy, a training center for Alfa Medical Group staff and third-party healthcare staff. By providing valuable training to professionals and developing high-quality talents across the healthcare sector, we can tremendously improve health outcomes across Egypt.

Last July, CDC provided CIB a subordinated loan worth $ 100 million. Can you explain to our readers a bit about the purpose and impact of this deal?

Last July, we closed a deal to provide $100 million in Tier-2 capital to Commercial International Bank (CIB). This followed the signing of an MoU between CDC and CIB at the Africa Investment Summit in London earlier that year. The facility serves two objectives: firstly, to strengthen the bank’s capital base, so that it can continue to underpin growth and an expansion in lending; and secondly to support its lending to specific, exporting sectors of the economy, in line with the government’s agenda to find new sources of hard currency outside of the tourism sector. The signing of the deal came at a particularly crucial time as the COVID-19 pandemic had a major impact across the world, bringing much uncertainty and reducing investments. The investment has helped Egyptian businesses sustain their operations and protect their workforces during these uncertain times.

How has the pandemic impacted your operations, plans, and priorities?

As an organization whose mandate is to bring about positive environmental, economic and social change through our investments, we have devoted significant resources to supporting companies in our markets to ensure they weather the effects of the pandemic. Our initial focus was on preserving our portfolio by working closely with our investees to provide financial and technical assistance where needed. As part of the Strengthen pillar of our COVID-19 response, we have injected systemic liquidity into Africa’s financial system via existing intermediaries and partners. To date, our trade finance commitments—which ensure trade continues unhindered—via partners such as Absa, Societe Generale, TDB and Standard Chartered amount to $375 million, which we expect to rise to over $500 million. Egyptian banks and local importers will benefit from this support. Lastly, throughout the pandemic, we have continued to invest in partner funds, such as our $100 million commitment to Helios Investment Partners’ fourth private equity fund, or the anchoring role we played with the BlueOrchard COVID-19 support fund, an innovative fund that aims to support over 200 million jobs in emerging and frontier markets.

Our approach to addressing the COVID-19 pandemic is driven by two key priorities. First, we absolutely need to protect the economic and human development gains that have been won over the last two decades. We can’t afford to lose any progress made towards achieving the SDGs. Secondly, supporting the private sector, facilitating trade, and investing in promising businesses and funds today will contribute to a swifter economic recovery from the pandemic.

What can you tell us about the cooperation with DPI and EBRD to secure medicine access across Africa?

In November, we partnered with the European Bank for Reconstruction and Development (EBRD) and leading PE firm Development Partners International (DPI) to launch a new biopharmaceutical platform to broaden the access of vital specialty generic drugs across Africa. The founding investors of the platform–CDC, DPI, and EBRD–committed $250 million, which financed the acquisition and combination of two leading companies: Egyptian generic drugs manufacturer Adwia Pharmaceuticals and Celon Laboratories Pvt, an Indian oncology and critical care specialist.

The partnership by the three investors creates the first pan-African pharmaceutical platform of its kind, which will generate significant cost savings for healthcare providers across the continent, while also broadening the range of therapeutics available in underserved markets and strengthening local manufacturing operations. The platform now aims to raise a further US$ 500 million to realize its strategy, fund additional acquisitions, develop new drugs, and establish new distribution capabilities.

What other notable cooperation on a regional level would you like to share?

I’m extremely proud that we work with many of the continent’s leading private equity and venture capital firms who are committed to supporting local entrepreneurs and working hand-in-hand with them to grow their businesses, create jobs, improve skills and gender equality, all of which contribute to more prosperous and sustainable societies.

Moreover, we work very closely with other development finance institutions to share information and collaborate on investments. Our shared goal is to amplify our impacts, and co-investments are one of the many ways we are achieving this.

Our subsidiary Gridworks, which we launched in June 2019, aims to invest over $300 million to improve the transmission and distribution infrastructure that delivers reliable and sustainable power across Africa. Sustainable, affordable, and reliable power is one of the continent’s biggest challenges, with 600 million people – two-thirds of Africa’s population – without access to electricity. The company has made several investments over the last two years, including a $7.5 million equity investment in Mettle Solar, a leading South Africa-based solar company that serves commercial and industrial customers across the continent.

In July, our subsidiary MedAccess, a company established by CDC to increase patients' access to life-changing medical supplies in Africa and South Asia, partnered with UNICEF to provide vital COVID-19 medical products, including diagnostics tests and clinical management supplies for low- and middle-income countries.

What are your main challenges in Egypt? How do they compare to the challenges you face in other countries?

One of the key challenges faced by businesses across the continent, specifically SMEs, is access to finance, which hampers growth. These dynamics have been greatly compounded by the COVID-19 pandemic.

One of the main challenges CDC faces is finding businesses that are sufficiently large in scale, have a strong alignment with our developmental vision, particularly in terms of improving environmental, governance, and social performance, and are actively seeking external investment. To overcome these issues, CDC has reinforced its presence in Africa over the last two years, opening offices in Lagos and Cairo, and strengthening its footprint in Kenya and across the broader East Africa region. As CDC’s Coverage Director based in Cairo, my role is to develop and deepen relationships with existing and new partners, including entrepreneurs and potential investees, financial institutions and intermediaries, as well as policymakers. Having a strong local presence is absolutely vital to building the right connections and identifying promising companies in which CDC can invest.

What are your plans for 2021 and beyond?

As recently announced, we aim to invest $1 billion in African businesses this year, providing much-needed countercyclical financing to local businesses. As with our financing in response to COVID-19 in 2020, this is particularly important as foreign direct investment has dropped significantly over the last twelve months. Now, more than ever, we are committed to playing our part in backing promising businesses so that they can accelerate Africa’s economic and human development.

Across the continent, we are heavily focused on driving inclusion via our financial services portfolio. We work closely with our partner banks to boost lending to companies, particularly SMEs, which account for the largest share of employment in Africa. We also invest in banking and non-banking financial institutions to expand access to formal financial services, particularly for underserved communities.

CDC is also investing for a more sustainable future across its portfolio, with a particular drive from our Infrastructure and Climate team. This year we plan to further develop our capability in climate-focused investing. From 2021, 30% of our annual commitments will go to climate finance, in alignment with the goals of the Paris Agreement. Our infrastructure and climate investment strategy can improve the resilience of sectors, communities, businesses, and people to the effects of climate change. We are one of the main investors in the Nubian Suns project, which is part of the Benban Solar Park near Aswan, and we are doubling down on our efforts to invest in sustainable energy across the continent.

Lastly, we continue to have a strong focus on boosting productivity and addressing key constraints to economic growth through five main sectors: Services, Manufacturing, Agriculture, Real Estate, Technology, and Telecomunication. CDC is also innovating with catalytic capital to generate significant development benefits through reaching underserved communities or developing nascent and frontier markets, in sectors including energy access and efficiency, electricity, and medical supplies.

I look forward to executing our strategy in Egypt in 2021 and beyond, building on our successful track record. We reiterate our commitment to invest in leading Egyptian businesses that have a transformative impact on the economy and society. With the right capital and expertise, the growth of the private sector can be greatly accelerated. I’m thrilled that CDC is rising to the occasion and prioritizing investments in Egypt.

 

By Nadine Abou el Atta

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