Egypt has a dynamic economy, sizeable entrepreneurial ecosystem, and a government committed to developing the private sector and its infrastructure. Therefore, the country is a priority market for the CDC Group, which has been operating in the country for the past 18 years.
Sherine Shohdy, CDC’s newly appointed Group Coverage Director in Egypt, sat down with Daily News Egypt to provide an insider’s perspective on the country’s investment environment, and CDC’s plans for the future. She also reviewed the projects the company has invested in, which are accelerating the country’s economic transformation.
What were the motives behind CDC Group’s keenness to invest and finance projects in the African market?
CDC is the world’s first impact investor with over 70 years of experience in successfully supporting the sustainable, long-term growth of African businesses. Our mission of eradicating poverty by investing in private businesses that create employment, pay taxes, and drive economic transformation hasn’t changed since our establishment in 1948. However, we have expanded our range of investment products to adapt to evolving business needs. We currently have investments in over 700 African businesses that collectively employ over 300,000 people in 35 countries.
Which Egyptian sectors is the company looking to promote investments in?
Our developmental mandate means we invest in areas that underpin human development and accelerate sustainable, long-term economic transformation. Over the past 18 years, we’ve invested in a wide range of sectors where our capital and sector expertise help make a tangible impact on livelihoods, investing in 29 Egyptian companies that collectively employ over 28,000 people in Egypt.
Sectors where we currently have investments include infrastructure, manufacturing, health, communications, and consumer goods. Our commitment to investing in Egypt is rooted in the country’s promising prospects. The combination of a major, diversified economy with a large population, sizeable entrepreneurial class, and a strong government commitment to private sector-led development, means we are committed to playing our part in helping Egyptian businesses thrive by investing in them for the long term.
What are the main sectors in which the company has invested and achieved remarkable success in the Egyptian and African markets?
We are currently focused on investing in food and agriculture, health, education, manufacturing, infrastructure, financial institutions, and telecommunications, in alignment with the government’s development vision. In July this year, we announced a $100m deal with the Commercial International Bank (CIB) to strengthen its capital base and support its lending to exporting sectors of the economy.
This will allow the bank to continue providing affordable finance to over a million customers. We are also a key partner in the 800 MW Benban Solar Park, where our $97m investment spans over nine of the 13 solar power plants.
In terms of pan-African investments, our $180m investment in Liquid Telecom, Africa’s largest independent fibre and cloud provider, will bring connectivity to some of the most underserved markets and support the growth of Africa’s tech ecosystems. This month we announced an additional US$40m investment to boost the company’s cloud computing capacity.
The health sector is of great importance – does the group plan to invest in this sector in Egypt and Africa?
We are actively seeking to invest in healthcare opportunities in Egypt and Africa. We currently have several health care investments in our Egypt portfolio, including Integrated Diagnostic Holdings, a provider of integrated diagnostics services, and Future Pharmaceutical Industries, a medication manufacturing business.
The novel coronavirus (COVID-19) pandemic has demonstrated the immediate need for improved health systems and manufacturing capacity. To address these critical gaps, we aim to deepen our investments in the health sector as part of the “Strengthen” pillar of our COVID-19 response strategy. This will help mitigate the impacts of the pandemic and build resilience within our markets.
What is the size of the group’s investment portfolio allocated for investment in Africa, particularly Egypt?
The current value of our portfolio in Africa is $3.321bn, while our Egyptian portfolio is valued at $146.6m as of the end of the first quarter (Q1) of 2020. In January 2020, we announced plans to invest £2bn in African businesses over the next two years.
While the pandemic has somewhat altered our medium-term priorities, we remain committed to continue investing, both by allocating to private equity (PE) and venture capital (VC) funds with local exposure, and by injecting capital directly into promising businesses. Lastly, we do not set specific targets for investments in the markets where we operate. Rather, we invest where we see opportunity. Egypt is a priority market for CDC, and we currently have a strong pipeline of Egyptian companies we are considering investing in.
What is the size of the group’s budget to finance SMEs during fiscal year (FY) 2020/21?
CDC does not have a specific investment target for small- and medium-sized enterprises (SMEs). While our criteria for direct investments, ticket size upwards of $10m, excludes firms at the smaller end of the SME segment, we also invest in PE and VC funds that invest on our behalf.
In Egypt, our $15m commitment to Ezdehar has allowed the company to invest in mid-sized companies with high growth potential. We also invest in SME-specific funds, for instance in early 2020, we committed almost $40m to Verod and Adiwale, two PE firms targeting SMEs in West Africa.
What measures did the group enact to avoid losses during the COVID-19 pandemic?
We have developed a structured approach based on three key pillars, with an initial focus on preserving the viability of our existing portfolio of investees. To this end, we provided targeted and technical support to companies that needed it most.
We have also injected systemic liquidity to strengthen Africa’s financial system via existing partners and financial intermediaries. Our recent investments include trade finance deals with Absa and Société Générale, worth $125m and $100m, respectively. These trade finance facilities will allow our partner banks to support supply chains, sustain trade and enable importers to continue operating. Finally, we remain committed to investing in Egypt and across the continent, both directly and through private equity funds that we have partnered with.
Throughout the COVID-19 crisis, we have worked closely with our partner fund managers, investees and other development finance institutions (DFIs) devise innovative, flexible solutions that mitigate the impacts of the pandemic.
What initiatives has CDC undertaken to achieve the UN’s Sustainable Development Goals (SDGs) in Africa?
CDC’s investment goals are directly linked to the UN Sustainable Development Goals (SDGs). We target a wide range of global issues and people experience our impact through more and better jobs (SDG 8); access to basic goods and services such as food, health, education and power (SDGs 2, 3, 4 and 7); and our action on gender equality (SDG 5) and climate change (SDG 13).
Recent initiatives that help accelerate progress towards the SDGs include our commitment to become aligned to the Paris Agreement, and the $300m we expect to commit in liquidity to Africa’s financial system as part of our COVID-19 response. The latter will help support trade and jobs, while protecting access to basic goods that underpin human development, with a focus on food security and health.
Women’s empowerment is at the top of the Egyptian government’s agenda. How does CDC contribute to this area?
Gender equality and women’s empowerment are key to sustainable and thriving economies. All of our investments are made with a gender focus, and we are a founding member of the 2X Challenge, which has committed and mobilised $4.5bn in capital towards women’s economic empowerment. We have also partnered with the Financial Alliance for Women to strengthen gender diversity in the finance sector. Lastly, we backed The Boardroom Africa with £1.6m to increase women’s representation in African boardrooms.
As Group Coverage Director for Egypt, what prominent opportunities and challenges will you address?
My role is primarily to deepen relationships with our existing partners, and develop new ones with potential investees, financial institutions and policymakers. I aim to capitalise on my previous experience, extensive sectoral knowledge, and networks, in driving origination and deepening CDC’s investments and presence in Egypt.
What are the challenges that CDC Group faces in the Egyptian and African market?
A major challenge faced by private businesses in Africa is a lack of access to finance, which has been exacerbated by the COVID-19 pandemic. A lack of continental integration, fragmented regulatory regimes and the infrastructure deficit, estimated at up to $108bn per year, are also significant challenges. Lastly, a shortage of specialised skills is also a barrier to growth.
These issues have an adverse impact on Africa’s competitiveness, making the continent less attractive for investment. However, there are also strong opportunities to invest to overcome these barriers. In the context of the COVID-19 pandemic, CDC is committed to building back better to help build more resilient economies that are greener and better equipped to deal with future crises.