Finnfund

Even in poor countries, a company can find commercially profitable targets for investment. But, as speakers at the Finnfund anniversary seminar pointed out, the keys to success are a professional approach, reliable partners and an environment conducive to business.

Finnfund celebrated 25 years of operations at a seminar held at the end of May for its customers and other stakeholders. The event, held in Helsinki’s Wanha Satama, was opened by Paula Lehtomäki, the Minister for Foreign Trade and Development.

“The private sector is not only a good partner in global development but it is an essential part of it” said Minister Paula Lehtomäki. The public sector can encourage companies to seek new markets and participate in risk sharing. Minister Lehtomäki announced that the Finnish Ministry for Foreign Affairs is about to unveil a plan that would bring in Finnish private sector as partners in official development co-operation.

“We are trying to create a continuation to the public aid and support to business in developing countries taking into account the whole life span of investment” said the Minister.

The seminar’s keynote speaker Michael Klein, who is vice-president for Private Sector Development at the World Bank and chief economist for the International Finance Corporation (IFC), urged companies to pay close attention to changes taking place in developing and transitional economies.

Although the countries in direst need of reform, which are generally the poorest, are not reforming, many others are. Even in Africa, which is regarded as a difficult place to operate, many countries have made great strides in dismantling bureaucracy and improving business conditions.

“In the last decades there have been two successful countries in Africa: Botswana and Mauritius. Now some ten other countries have developed good possibilities for rapid growth and successful business opportunities. My list is not complete and in all of these countries there are still challenges, but prospects are essentially better than before in Senegal, Ghana, Mali, Cameroon, Uganda, Tanzania, Mozambique and Kenya, and partly also in Nigeria” said Klein.

Finnfund’s success in investments

Finnfund has financed hundreds of investments during the past 25 years. In the past few years Finnfund’s investment decisions have focused on the poorest countries.

“From the point of view of our development targets it is very valuable to be able to find projects, which have real possibilities to succeed and to be flexible in assisting in these ventures”, said Jaakko Kangasniemi, Finnfund’s managing director, CEO.

Jaakko Kangasniemi judged Finnish companies to have been rather successful in the developing countries although many have faced a difficult start.

“On average Finnfund recovers the money it puts into projects and achieves a profitable return on its investments. New projects are not financed from the government budget for development cooperation but generally by re-investing funds paid back from earlier projects.”

Kangasniemi said he hoped Finnfund’s operations would lower the threshold to investing in the poorest developing countries. However the crucial decisions lie with enterprises themselves.

“In challenging markets a project generally succeeds only if it is an integral part of the company’s strategy, if the project’s key personnel are firmly committed to it and if they are ready to put their shoulders to the wheel,” Kangasniemi stressed.

Reindeer slaughtering brings jobs to Siberia

The role of a Finnish financer was also underlined by managing director Raimo Niemi of the Kauhajoki company Kometos, which manufactures meat processing equipment. Kometos is a shareholder in a reindeer slaughtering plant in Komi, northern Russia. Finnfund is one of the project’s financers.

The positive development effects of a production plant that brings employment and income to poor areas are undisputed. These positive effects would not have materialized without the long-term commitment of Kometos. 

Niemi also noted that the project would have been too small to attract financing from international development banks. That is why the participation of a Finnish development finance institution was important.

“Finnfund’s involvement has also given the project more importance and made dealings with Russian authorities easier,” he mentioned.

Renewable energy a challenging target for finance

Another focal point of Finnfund’s operations is exploiting renewable energy and improving energy efficiency. Jukka Nyrölä, executive vice president of Jaakko Pöyry Group, stated that renewable energy projects can be profitable but that it is often difficult to arrange the financing.

According to Nyrölä, project financing in which the project itself is the security for lenders is very challenging.

“The sector is relatively new so its operating models are not understood. In addition projects are often small in size and financers are unfamiliar with the technology involved,” he added. “In practice it takes generally many years to develop these kinds of projects.”

Nyrölä said that development financers like Finnfund play a key role because they have broader experience of project financing than local banks. They also understand the financial profitability of the projects and their development impact.

“It is worth developing models that combine private and public equity financing,” he continued. A good example is PEMF, the Private Energy Market Fund formed by Finnfund, Jaakko Pöyry and Finnish insurance companies.

PEMF has invested its entire capital of 26 million euros in energy projects, mostly in Asia. Nyrölä said that preparations are under way for establishing a second EUR 50 million fund, PEMF II.

Finnish companies have much to offer

The chairman of Finnfund’s Supervisory Board, Member of Parliament Jari Vilén, said he believed that Finnish companies could offer competitive skills suited to local conditions in developing countries in many sectors. The presentations in the seminar gave a good idea of the large spectrum of these skills which can be part of projects financed by Finnfund.

During the years many of Finnfund’s former target countries have joined the EU. On the other hand the business climate in many remote countries has improved and also Finnish companies have shown growing interest in them.

“We have to go to Africa, too”, said Vilén interpreting the changing situation and emphasizing the Finnfund’s role as a supporter of Finnish companies.

Especially in difficult operating areas Finnfund’s financing is not enough and also other measures are needed in catalyzing the companies’ contributions. Finnfund’s Supervisory Board welcomes the government’s plan for more private sector involvement in the development co-operation. Vilén hoped the plan could be realized soon.

For more details please contact Mr Jaakko Kangasniemi, tel. +358 9 3484 3339 or by email firstname.lastname@finnfund.fi