Swedfund’s investments lay the foundations for a better future

At the start of the year, we began to return to normality after two years of pandemic. However, this situation was rapidly changed when Russia invaded Ukraine and began a war that has caused enormous suffering and had major consequences globally. According to the OECD, the global economy is facing major challenges in the form of an energy crisis, lower growth, high inflation and rising interest rates. Higher interest rates globally are putting pressure on households, businesses and governments and hitting vulnerable groups and already indebted developing countries, whose economies are still in a recovery phase in the wake of the pandemic.

At the same time, the Intergovernmental Panel on Climate Change is warning of global warming far in excess of the goals of the Paris Agreement. At COP27 (climate) and COP15 (biodiversity), many important decisions were made that must be implemented and financed. The report from the UN Environment Agency (UNEP) shows a huge gap between the need for climate adaptation and the actual investment taking place in developing countries. An example of the type of investment that is needed is Swedfund’s investment in the Climate Investor Two fund, which invests in water, waste management and ocean-related projects.

Fast pace of investment set to continue
Swedfund carried out a total of 15 new investments within Energy & Climate, Financial inclusion and Health, with a value of SEK 2.1 billion. These investments were financed through capital injections from the development cooperation of SEK 1.2 billion and Sweden’s own reflows from the portfolio.

The value of Swedfund’s contracted portfolio continued to grow and amounted to just over MSEK 8,400 at the turn of the year, which means that the value of the portfolio rose by almost MSEK 2,600 in 2022. This increase is the result of a high volume of new contracted investments and a positive effect on the value of the portfolio from currency translation and changes in the value of a number of holdings. The reported operating profit (EBIT) for the full year amounts to MSEK 151 and was positively affected by currency effects. Full-year earnings have been negatively impacted by a number of write-downs, which are predominantly attributable to holdings in the Energy & Climate sector, where higher market interest rates have generally had a negative impact on valuations of underlying assets and as regards investments in Ukraine. However, the portfolio as a whole has shown growth in surplus values, which are reported outside the income statement. Swedfund is achieving the financial goal of a positive EBIT on average over five years, and the portfolio’s average annual return since 2013 (IRR) amounts to 5.1 percent.

Results with a big impact
Given the global situation, it is crucial to strengthen the resilience and growth of small and medium-sized enterprises (SMEs). Many African companies find it difficult to obtain finance from banks because they lack collateral and a formal credit history. During the year, Swedfund invested in two credit funds based in Africa – BluePeak and Vantage. The aim is to improve access to long-term capital for SMEs and to contribute to their further growth, which is expected to lead to significant job creation and improve access to essential goods and services, such as medicines and connectivity and communication services.

Given the challenges we have seen, it is a very positive sign that our total portfolio is contributing 333,000 jobs, that 61 percent of the portfolio companies have seen positive job growth, and that 100% of the holdings in the active value creation phase are fulfilling the ILO’s Declaration on Fundamental Principles and Rights at Work. A job is often what people need to escape from poverty, and a job in the formal sector also helps to create even more indirect jobs. Our portfolio is estimated to have contributed to 1.53 million indirect jobs. 57 percent of the portfolio meets the requirements for investing in women entrepreneurs, in companies with women in senior positions, with a high proportion of female employees or products and services targeting women. In the Energy & Climate sector, our investments supply energy to around three million households and companies. Approximately 450,000 SMEs gain access to loans through our investments in financial inclusion, and we have contributed to approximately six million patient visits through investments in the health sector. Through this type of impact, our investments have a ripple effect and contribute to sustainable and inclusive economic development.

Growth leads to new sector and new regional office
‍Swedfund’s organisation has grown during the year in order to better meet the needs of developing countries, and we have also been able to conduct many site visits thanks to the relaxation of travel restrictions. We have decided to establish the sector Sustainable Enterprises, which brings together our fund investments and thematic investments in health and digitalisation. Following the increasing food insecurity and growing hunger, we have decided to add a new sector, within which we will contribute to streamlining food supply through investments at the production and processing stages. Furthermore, Swedfund has decided to expand its regional presence by establishing a regional office in Abidjan in Ivory Coast. In the same way as the regional office in Nairobi, the office will help to boost investment volumes in West Africa. Our expertise within the sectors in which we invest, combined with our business model which balances impact on society, sustainability and financial viability, formed the basis for this year’s good results. Well-developed partnerships with other actors, as well as active value creation are prerequisites for continuing to accelerate development.

Project accelerator as a bridge
‍During the year, Swedfund’s Project Accelerator continued to address the challenge of limited capacity in the public sector in developing countries, and helped sustainable projects to develop, become financially viable and be implemented. The Project Accelerator serves as an important bridge between development cooperation, trade and investment. When sustainability aspects and life-cycle costs are taken into account in procurements, business opportunities can be created for Swedish companies which offer sustainable and long-term solutions. The primary focus is on green infrastructure, renewable energy and sustainable transportation. The work of the Project Accelerator is closely linked to Swedfund’s investments through, for example, feasibility studies that help to improve the electricity grids of the countries concerned and create the right conditions to enable renewable energy generated through Swedfund’s investments to be managed. In cooperation with the Ukrainian Ministry of Internal Affairs, the Project Accelerator has worked on preparations and support for the procurement of a national emergency “112 system” in Ukraine. We see excellent opportunities to further use the feasibility study instrument to contribute to the recovery and reconstruction of Ukraine.

Well-equipped to meet greater needs
In 2023, I look forward to continuing to develop the business together with my employees. A capital injection of MSEK 1,460, with MSEK 460 earmarked for climate investments, presents us with excellent opportunities to continue to deliver on our mission. Through the cooperation within EDFI, we have gained access to an EU guarantee framework to carry out investments in line with the priority areas set out in Global Gateway, renewable energy, digital infrastructure, climate and health. This will enable both us and other development finance institutions to further accelerate investments to meet the enormous needs that exist today, while at the same time ensuring that our efforts generate positive effects for the future and accelerate progress towards Agenda 2030.

Maria Håkansson,
Chief Executive Officer