By Jack Aldane, editor of Development Finance
“Even talking about it I get emotional. Going down the Congo River, along the borders there are, well, settlements. You can’t even call them villages. It’s mud and poles, and a little bit of fishing. People have nothing. Most of them don’t even have clothes, some walk around in rags.”
Luuk Zonneveld, CEO of Belgian’s development finance institution BIO, has just returned from the Democratic Republic of Congo and it has clearly left a profound impression.
Born in the Netherlands in 1957, Zonneveld is no stranger to Africa having started his career there as a 29-year old journalist but the sights he met on his recent trip brought back how desperate the poverty can be.
In 2017, the African population stands at more than 1.2 billion but the Democratic Republic of Congo, home to 77 million, is still by far one of the poorest and most politically fractured places on Earth.
Zonneveld spent two days on a boat in the Congo to get to the remote site where BIO and several other DFIs have financed the rehabilitation of a palm oil plantation built by Unilever in the early 20th century.
Plantations et Huileries du Congo started eight years ago after an equity investment in Canadian agribusiness Feronia by the UK’s CDC led to a US$49 million syndicated loan in 2016 involving BIO, Germany’s DEG and the Dutch development bank FMO. CDC owns a 67 percent stake in the company.
The project involves obvious risks. Palm oil production has destroyed close to 90 percent of the orangutan species’ habitat, putting acres of forestry on the United Nation’s list of conservation emergencies.
Zonneveld said BIO discussed the project internally for more than a year and a half before agreeing to join the other institutions. Maintaining investment standards while bringing in returns would be hugely complex and would take many years to get right.
“This is one of the riskiest types of project DFIs can possibly do,” he says.
Meeting the farmers
Before joining BIO, Zonneveld worked for Fairtrade Labelling, a non- government organisation, which he joined as managing director in 2001. At Fairtrade Labelling, Zonneveld saw the power companies could bring to development. He shook hands with African farmers that wanted a better deal with their trading partners among whom were UK supermarkets Tesco, Marks & Spencer and Sainsburys and US coffee chain Starbucks.
“The companies were getting direct access to quality coffee, which was their main drive to getting into fair trade and the farmers were getting a reasonable price for a product they were proud of,” says Zonneveld. “You could see what that did for their own self esteem, and their motivation to develop cooperatives and deliver better products.”
But the job lost momentum in the years that followed. The problem, as Zonneveld saw it, was that the development cooperation industry stood for something it could not do itself: change.
“I had the feeling they were still using models from forty or fifty years ago. There was, and still is, such enormous positive evolution in developing countries that I felt we really needed to rethink our concept. It wasn’t happening,” he says.
The organisation had tried to set up an investment fund before discovering how difficult it was to get the money together.
“Then I figured there were DFIs who had been doing this for quite some time and were taking things to scale while still helping development as their primary goal.”
Zonneveld left his managing director role at Belgian NGO VECO in 2008 and was hired as the CEO of BIO in 2012.
The long haul
Five years into the role, Zonneveld argues that the time when grant money was sent overseas for the purpose of long-term development is “basically over”. In Somalia, where widespread famine affects six million people and leaves more than 350,000 children acutely malnourished, grants follow basic instinct. Implementing sustainable change for future generations, however, requires substantial reinvestment with social and economic impact.
No event in the last decade speaks more of either, in negative terms, than the fall of US investment bank Lehman Brothers. This event in 2008 made the financial crisis that followed a watershed moment for the global economic order, prompting a variety of responses, most visibly fear and contraction among the bigger banks. Lenders facing new regulatory measures from Dodd Frank in the US and Basel in Europe swiftly withdrew from emerging markets.
Zonneveld acknowledges the “existential shock” of institutions in which people “really thought they were doing the right things”, but have since had to reconsider the terms on which they operate.
“What I do regret very strongly however is that the reaction has been one of retreat and becoming very risk averse. The Basel requirements have made it very difficult to invest in Africa,” he comments.
The space cleared by the retreat is undeniably where development banks and their private sector arms should be. Zonneveld praises the volume of prospection of DFIs in high- risk regions, naming DEG, Proparco and Norfund among those he rates most highly. Asked whether DFIs have traded too heavily on demand from the market to do business, he answers:
If people are not actively asking for your money, the question is whether they really need it. Development finance has become sufficiently well known in developing countries for most people to find this one way or another.
Blended finance is the latest and most controversial tool to galvanise development finance. Combining the benefits of government-backed concessional or grant finance with institutional or private investment, it could be the best way to scale up projects, while satisfying investors’ appetite for yield in a post-Lehman world. Blended finance crucially underscores the importance of the private sector to achieving the UN’s sustainable development goals by 2030 but Zonneveld is not convinced that the resulting flow of cheap money is sufficiently prudent in this context.
“What I’m rather scared about is that in the way blended finance is currently being embraced. Every five years, a new concept comes along. People get terribly enthusiastic about it, they start freeing up enormous amounts of money for it, and all the while a critical angle is missing. I’ve seen it with SAPs [structured adjustment programmes] and with import substitution and I see the same thing happening with blended finance.”
Going the distance
Heading up a DFI can be transcendently rewarding at the price of picking up risk no other institution will touch. The challenges are huge, Zonneveld assures – a lot can go wrong, be misconstrued or wilfully misunderstood.
Feronia has operated at Plantations et Huileries du Congo for almost a decade. Around a hundred thousand Congolese inhabit the villages surrounding the plant. Many enjoy access to healthcare through outposts set up by Feronia but the publication of a 2016 report by non- governmental organisation Grain put into question the company’s land titles, financial management and human resource practices.
“I had a hard time believing they were right in what they were saying,” says Zonneveld. “Of course, there are certain truths in it but I wanted to get a sense of the scale of the problem as they saw it. I think the problems were in pockets throughout the project but they were not fundamental to the project.”
Grain addresses several complaints from villagers, including the lack of work offered by Feronia. The company has filled from 500 to 600 jobs, a mere 1 percent of the 60,000 people of working age among in the community. Workers meanwhile dispute the company’s irregular system of payment for their output. Zonneveld insists that organising such a system requires that people be in some way accounted for by the state. This is not the case for villagers in the Congolese jungle.
Most people are illiterate in these areas. They have no ID, no passport, and no identity cards. Just to keep track of who has worked for how many hours and who is owed what is a huge challenge. Anyone can then tell you they’ve worked 8 hours and are owed payment. Its very hard to check this.
Zonneveld takes pride in the project’s attempt to “reach down to the deepest areas of society” where he describes conditions as “a scandal in a world that is richer than ever”. The biggest improvement to conditions on the ground, he says, can be heard in the patter of tiny feet. Childbirth in the area has exploded, almost doubling within the last three to four years. The photo of Zonneveld surrounded by children aged 11 and younger, could have been taken anywhere on the trip, he says.
Joining Zonneveld in the Congo this year was Diana Noble, CEO of CDC. Zonneveld’s motivation for going was to see first-hand the results of BIO’s decision. Investing with a vision for impact, he concludes, doesn’t come from envisioning a solution, so much as seeing the problem to begin with.
“Anybody who is involved in any of this should spend a week on the ground, in a village along the Congo river. If you’ve been there, if you’ve seen it and if you’ve felt it, felt what it means to walk five miles for a bucket of water, or go to bed hungry, I’m sure a lot of attitudes would be very different.”
Photo credit: ©BIO