December 10, 2018
Independent assessment of Finnfund’s operations: Shifting the focus to the poorest countries succeeded without risking the development impacts and profitability
Finnfund has managed to invest more and more in the poorest countries and difficult sectors while maintaining its economic viability, states an independent evaluation commissioned by the Ministry for Foreign Affairs.
“The investments that produce the most positive development effects are quite often also the most financially challenging due to their high risks. Finnfund appears to have been very successful in this balancing act – in other words, it has managed to invest more and more in the poorest countries and most difficult sectors while also maintaining its commercial viability,” says Stephen Spratt, who headed the international assessment team, in a press release published by the Finnish Ministry for Foreign Affairs.
The assessment notes, that despite the fact that Finnfund is still one of the smallest national development financiers in Europe, it is still subject to the same requirements as larger development financing companies: the company’s activities must be profitable, while also serving development policy objectives.
The assessment finds that the investments are likely to have led to significant development impacts, such as improvements in the number and quality of employment opportunities and good relationships with communities when taking into account the sectors and countries that are the target of Finnfund’s investments. According to the assessment, Finnfund consistently complies with, and sometimes even exceeds, the corporate responsibility requirements of the IFC, the World Bank Group’s private sector branch. In many cases Finnfund has also had a positive impact on the development of companies’ business activities and corporate responsibility.
Spratt’s team recommends that Finnfund continues to develop its operations e.g. by focusing on certain sectors, and by developing risk management as well as the evaluation of development impacts over the entire lifecycle of investments and afterwards.
During the evaluation period 2008-2018 Finnfund’s investments have undergone a major change in composition, e.g. Africa’s share rose from 29 % to the current 45 %. The share of Least Developed Countries (LDC –countries) rose from 13 % to 32 %. The figures for 2018 are from September and they include investments made and investment decisions that have not been disbursed yet.
Strategic goal is to double the amount of financing and triple the development impacts
In its report, German consultancy company Particip assessed Finnfund’s investment activities starting from 2008 as well as its strategy for 2018–2025 in order to help inform corporate governance and decision-making at the Ministry for Foreign Affairs. Finnfund’s strategy focuses on agriculture and forestry and renewable energy production, which are integral areas for mitigating and adapting to climate change, along with financial services. The main goal is to double the amount of financing and triple the development impacts.
“Achieving these objectives is possible, but the financial risks increase as the company concentrates more and more on the poorest countries and on sectors that do not produce rapid gains. It is clear that the company needs more public and private funding in order to implement its ambitious strategy, and the way that this is structured will be crucial in this regard”, Spratt argues.
The assessment notes that the portion of funding Finnfund receives from the state is smaller (around 40%) than that of similarly sized development financiers, because the company also takes loans from the markets for its investments and always reinvests its profits. The assessment also draws attention to the fact that the sustainable development goals require massive private investments, which is why European countries have tripled the assets of their development financiers over 2010–2016.
”This assessment provides us valuable feedback and analysis for the development of our operations. Our goals are ambitious, but we believe they are reachable. It requires active work and further development as well as cooperation with different actors,” says Jaakko Kangasniemi, CEO of Finnfund.
- Finnish Ministry for Foreign Affairs: Independent assessment: development financier Finnfund’s work most impactful in agriculture and forestry sector
- Finnish Ministry for Foreign Affairs: Evaluation of Finnish development financier Finnfund
More information: Communications Director Pasi Rajala, tel. 358 400 464 393, pasi.rajala(a)finnfund.fi