What did we learn during our approach to the Ebola crisis?

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In 2014-16, Sierra Leone suffered from an Ebola outbreak that tragically killed nearly 4,000 people. At the same time, the crisis put the brakes on the economic progress made by the country over the previous decade, with the annual growth rate of GDP falling from almost 9 per cent to minus 2 per cent.

The World Bank estimates that the economic impact from lost growth and investment was nearly $2 billion, more than half the country’s total gross domestic product, and the outbreak left 9,000 waged workers and 170,000 self-employed workers unemployed.

For many companies, in a country that was already difficult to do business in due to poor infrastructure and a lack of access to capital, the situation was made worse. There were shortages in the supply of basic commodities and disruptions to supply chains, as well as reduced production from the mining sector, which the country had previously relied upon to bring in foreign exchange. As a result, many businesses were left with acute shortages in accessing capital, with serious implications for jobs. During that crisis, as is the case during the current Covid-19 pandemic, CDC’s focus was to find a way to channel much-needed liquidity to local businesses.

Are there parallels in the situation Sierra Leonean businesses faced during that epidemic and the situation many businesses face as a result of Covid-19? What approach did we take six years ago and why? And how is it informing our current approach as we work to strengthen the impact we have can have in Africa and South Asia?

The first lesson we learnt at the time was that speed was critical, and we needed an approach that was going to help us act as quickly as possible. Our regular due diligence processes – incredibly important to ensure that our capital goes to the right places – are more difficult to carry out in the same way during emergency situations. By partnering with a commercial bank like Standard Chartered Bank, we were able to deliver solutions to companies that needed a fast response. At a time when it was difficult to carry out on-the-ground due diligence, working with a trusted partner like Standard Chartered, whose customers were already well-known to the bank, had an advantage.

Geoff Manley, CDC’s lead on the investment with Standard Chartered Bank back in 2015, says: “It was definitely a situation that required adjusting of some of the usual rules to be responsive to the crisis. In responding to the Ebola crisis, the timeline from start to finish was around two months. Being able to adapt your processes to achieve the speed required by a crisis situation is important.”

Speed has also been a critical factor during the Covid-19 crisis. For example, we have instituted new processes – such as fast-track investment committees  – to ensure we can respond quickly to urgent needs.

Secondly, by splitting the risk with another partner, and taking advantage of that partner’s local knowledge and networks, the approach allowed us to both bring in more capital to the country and reach more companies than we could do otherwise. Geoff says: “We decided to go down a partnership route, because we wanted to get a multiplier effect on the capital we were deploying. We thought that by pooling capital, we could collectively bring more to the problem, and achieve more than we would on our own.”

It’s also important to choose a partner that brings different, and complementary, strengths to our own. We know that others can bring capacities and expertise to the table that we might not have.

Dania Siddiqui, Investment Manager at CDC, says: “A commercial bank, like Standard Chartered, has the deep relationships with existing local business customers that we may not necessarily have. Whilst, as a development finance institution, we have the risk appetite that commercial banks may not.” As a long-term investor, we’re able to invest in countries and sectors at times when it is challenging for mainstream investors to commit.

Dania also points out that we can play a role in encouraging banks to do more, for example encouraging them to provide the facility in the first place, ensuring banks take on at least an equal level of risk to us and that only new loans, rather than existing loans, are part of the facility: “This increases the availability of capital for the market”, she says.

“In crisis situations”, says Geoff, “getting working capital to those businesses who can both support employment as well as import and distribute critical good and services, is vital.” In the case of the Sierra Leone facility, the partnership with Standard Chartered enabled us to invest in an area of the market that was critical to the recovery.

The businesses supported by the facility were small and medium-sized – which can suffer and be put under pressure during a crisis. We know that our most effective way of getting capital to this size of business is through partners such as investments funds and banks, rather than investing directly. The partnership meant we could get working capital to businesses in need.

It not only allowed us to provide investment to the right part of the private sector, but also in the way that they most needed support. Dania explains: “Working capital is what businesses suffering both during Ebola and now during Covid-19 most need to continue operations. At the same time, working capital facilities require the kind of monitoring which, as a development finance institution, we’re not set up to do internally. But for commercial banks, this is a core focus. That means that by partnering with these banks, we’re able to provide this kind of support much more easily.”

An important part of our involvement in a facility like this is to ensure that the finance provided meets appropriate environmental, social and governance (ESG) standards.

Firstly, we can strengthen our commercial partners’ own ESG policies; in the case of the Standard Chartered facility, we provided training for the credit officers at the bank’s head office in Freetown, which was over and above the support that its London-based ESG team could provide. Secondly, we also want to ensure that these practices then reach a wide range of companies – all those benefitting from the facility, and in some cases the bank’s wider portfolio of customers. We were hands-on in approving the companies borrowing from the Sierra Leone facility, putting in place accelerated ESG and business integrity checks, and retaining the ability to veto companies that didn’t meet these standards.

Guy Alexander, ESG Manager at CDC, who was involved in providing assistance on ESG matters to the Standard Chartered facility, says: “The setup of the facility was able to proceed at pace as there was a rapid exchange of portfolio information. That meant we could appraise potential customers and develop an efficient and effective approach with our counterparts at the bank. The training that followed was built upon trust and a sound understanding of each other’s processes, which was important given the situation in which the facility was developed”.