Africa looms large for UK’s development finance unit

Leaders from more than 20 African countries will descend on a hotel overlooking London’s O2 entertainment complex for the inaugural UK-Africa Investment Summit on Monday morning.

It will be the first international trade event for Britain’s newly elected government — and a chance to see how the country will approach the task of building relationships with global allies — as it prepares to sever ties with the EU.

While Prime Minister Boris Johnson will take centre stage, among the more influential attendees on the sidelines will be Nick O’Donohoe, chief executive of CDC Group, the UK government’s development investment arm.

“There is a reason so many leaders will be showing up to the summit — African leaders really value the development support that they get from the UK,” he says. “It’s a really important part of having influence in those countries, and CDC is an important part of that development offer.”

The softly spoken Liverpudlian, who grew up in Dublin, stresses that CDC works independently of the government, despite the Department for International Development being the sole shareholder in the organisation. But he adds: “Clearly, post-Brexit, we have more flexibility to form trade relationships. Africa has to be a significant priority for UK business and UK investment.”

For most of his career, Mr O’Donohoe appeared to be riding the golden escalator towards the upper echelon of a Wall Street bank. An MBA at Pennsylvania’s Wharton Business School was followed by long stints at Goldman Sachs and JPMorgan, where he rose to become global head of research.

But 2007 was what he describes as the “inflection point” in his career. JPMorgan decided to move into social finance, which attempts to produce societal benefits as well as economic returns. Mr O’Donohoe was given the job of overseeing the new venture, which was not expected to take up much more than 5 per cent of his time.

However, attending a conference put together by the Rockefeller Foundation at the Bellagio Center in northern Italy around this time had a profound influence on his career. It was here that the term “impact investing” was coined for the type of investing that follows the social finance model.

“This was just post the global financial crisis,” he recalls. “There was a disillusionment in finance, disillusionment in banks, disillusionment in investment, and a much greater recognition among the public that the choices made around investment, asset allocation and capital had a huge impact on people’s lives.”

Through dedicating more of his time to impact investing, he got to know Ronald Cohen, the prominent venture capitalist who had undergone his own road to Damascus conversion to social finance. In 2010, Britain’s new coalition government asked the pair to set up what would become the world’s first social investment bank, called Big Society Capital. Sir Ronald became chairman and Mr O’Donohoe chief executive.

Africa will be more affected [by climate change] than any other continent

Within five years of setting up BSC, Mr O’Donohoe moved on for a brief stint as a senior adviser at the Bill & Melinda Gates Foundation, which gave him his first taste of working in development, before taking what he describes as his “dream job” as chief executive of CDC in 2017.

The organisation, which was founded in 1948 by Clement Attlee’s postwar government to help British colonies develop agriculture, was undergoing a significant upheaval. For several years it had been accused of being too focused on turning a profit and enriching managers, with little regard for development outcomes. It attracted criticism for its investments in hotels and casinos, channelling investments through tax havens and ploughing too much money into more advanced economies such as China.

Under pressure from the government, CDC responded by refocusing its energies on African and south Asian countries, and making more direct investments rather than relying on funds. When Mr O’Donohoe joined he was charged with expanding the group, deploying more capital, taking a more rigorous approach to measuring impact and increasing its presence in the countries in which it invests.

CDC plans to invest an additional £2bn in Africa in the next two years, making it the largest private equity investor in the continent. Those investments include a large solar farm in Egypt, a forestry company in Sierra Leone and hydroelectricity in Congo. 

Eventually Mr O’Donohoe expects CDC to have up to £10bn invested globally. But the shift in strategy has led to lower returns. Between 2011 and 2015, CDC averaged annual returns of 7.5 per cent, compared with an average 6 per cent between 2012 and 2019.

While CDC is more focused on development than profit, Mr O’Donohoe insists there are still attractive investment opportunities in Africa. He points to the fact that eight of the 15 fastest-growing countries are in the continent, which will be home to a quarter of the world’s population by 2050.

“People and companies in [the UK] need to look at Africa as a hugely important investment destination and investment opportunity, and that’s both for the sort of investments we’re doing, but also as a growing number of middle class consumers,” he adds. CDC is principally focused on investing in infrastructure, financial services, agriculture and manufacturing.

Last week Larry Fink, BlackRock’s chief executive, became the latest investment leader to say he would put climate change risk at the centre of his company’s investment process. In his annual letter to chief executives, he wrote: “Every government, company and shareholder must confront climate change.”

Mr O’Donohoe could not agree more — and says CDC’s role will be critical in supporting the transition from fossil fuels to renewables in developing countries. “Africa will be more affected [by climate change] than any other continent,” he says. “We see our role as being very much becoming a green development finance institution.”