Grete Faremo, 2nd left, visits Lima, where UNOPS has advised the government and done the procurement processes for the subway system of the city. Photo: UNOPS

De-risking for the mainstream

03/03/2017

With 10,000 staff in 80 countries, many of them among the most crisis- and conflict-hit in the world, UNOPS is at the frontline of international development.  Traditionally a partner to other UN agencies, governments and aid actors, we talk to Executive Director Grete Faremo about how the organisation is now looking to broaden its offer to the private sector, to help the flow of more mainstream investment funds into emerging economies.


Note: Technical terms are marked with an * and explained briefly in the Glossary.


As its name advertises, UNOPS provides in-country services of various kinds to project developers. These include procurement and HR assistance as well as project design, management and construction.  It focusses its assistance in key development sectors such as water and sanitation, social housing and grid-alternative sources of energy.

Unusually for a UN agency, the Copenhagen-based organisation is entirely self-funded from the market-rate fees that it charges for these services, resulting in a turnover of some $1.5 billion annually. “Even though we are a non-profit organisation, that fee-based model makes us very well positioned to understand commercial operators,” says Grete Faremo, who joined UNOPS as Executive Director in 2014, having previously served in various civil service, political and private sector roles in Norway, most recently as Minister of Justice and Public Security.

We are used to operating in difficult environments and we bring a brand and values that carry strong signals about our approach

“With 60-70% of our business in countries affected one way or another by conflict, we are used to operating in difficult environments.  As a UN agency, we bring a brand and values that carry strong signals about our approach – not just to financial issues but also environmental and social ones as well.  Our basic philosophy is that no-one should be left behind.  That’s why we want to try to ensure that it’s not just the ‘easier’ emerging markets that get investment, but that this can reach all countries.  That’s also why we insist on using local sub-contractors and promoting skills transfer into these markets.”

To date, UNOPS’ clients have been mainly public sector or philanthropic actors.  “But with a background in both development finance and politics, I could see during all the discussions leading up to the adoption of the SDGs in 2015 that they would be a game-changer,” Faremo says. “These goals are global, they will require funding far beyond official aid sources, and that will require new partnerships to be created.  The same applies to the NDCs, which are of course in many ways very closely linked to the SDGs.”

Faced with this new paradigm, the first stage in Faremo’s thinking on how her organisation can respond is to explore how traditional approaches to projects could have their commercial potential teased out.

“An example is social housing.  Up till now, that’s mainly been funded by donors.  But this type of project creates a physical asset that has long-terms cash flows associated with it, and that should be of interest to investors with a need for that kind of steady, long-term income. That doesn’t mean it can’t have donor input, far from it. Donor funding for part of a project could create a subsidy that lowered the cost for residents, or it could be used for capacity building, for example, to train government staff in how to run social housing schemes. Or it could be used to create a first loss* buffer, where the donor money provides some protection for commercial investors.”  UNOPS is working with the Habitat for Humanity NGO on developing projects of this kind.

“Energy is another big sector for this kind of approach.  And once we have these new financing models, one of the things that a global agency such as UNOPS can do is help to replicate them from country to country.”

Like what you’re reading? Sign up to our free weekly newsletter for links to key stories in climate finance.

A more engaged role than just facilitation
Guinea: UNOPS has been building health clinics across the country to rebuild the health system after the Ebola epidemic.  Photo:  UNOPS

But Faremo is also exploring a more engaged role for UNOPS than simply facilitation.  “We can create confidence by demonstrating that we have deal and project experience across all kinds of sectors, and that we can drive efficiency and excellence even in challenging places,” she says.  “But we believe that it will help attract private sector investment even more if we as the in-country partner are running some risk ourselves.  That we have ‘skin in the game’ as the saying goes.”

To this end, she plans to establish a New Business Unit, which will have core expertise in project finance but also draw on external expertise.  Working alongside IFC and other partners, UNOPS is exploring several investment projects, including the establishment of a small fund that could help seed projects.  Initially, this would be by investing in activities such as feasibility studies.

Seed funding can be highly catalytic in getting projects off the ground.”

“Project preparation is the most difficult issue for institutional investors,” Faremo says.  “The pipeline of potential projects is thin, and we need to speed up the planning phase and create solid plans that can attract investors in. As a not-for-profit, we will always be cautious about financial risk. But this kind of seed funding can be highly catalytic in getting projects off the ground.”  Returns for UNOPS would come from success fees once a project was completed.

In time, investment in projects could become more direct, and see UNOPS using its financial reserves to take equity stakes in projects in sectors such as social housing, water and renewable energy.

SDGs and NDCs advance the ball

Faremo sees the SDGs and NDCs as critical advances because of the obligations they create on governments to make progress on development and climate goals, and, crucially, to report on these.  “This has created national and international dynamics that are feeding down into the business communities, including investor communities.  For example, the Danish government has set up an SDG fund that brings together public and private money.  The way that organisations like mine can help is by trying to make the risk in developing countries investment grade* for the likes of European pension funds that are either participating in funds like the danish one, or even want to make direct investments.  There are no limits on the kinds of partnerships with the private sector that we can create to achieve that.  We are always looking for innovations.”

Gateway for SMEs and women entrepreneurs

Meanwhile, fulfilling its traditional facilitator role, UNOPS is the gateway for some $16 billion in UN procurement annually, managing the UN Global Market and UN Web Buy, an electronic (and quite exotic) catalogue with a range of goods available for eligible users from armoured vehicles to solar power equipment.  Faremo urges companies interested in the supplier opportunities to register.  UNOPS especially wants to engage with SMEs and women entrepreneurs with whom and to this end, UNOPS has established a special “Possibilities” portal.

Biography

Grete Faremo joined UNOPS as Under-Secretary-General and Executive Director in August 2014. Before this appointment, Ms. Faremo held various senior-level positions for the Government of Norway.  Most recently, she was Minister of Justice and Public Security; a role she held for two years.

She was Minister of Defence (2009-2011), Minister of Oil and Energy (1996), Minister of Justice (1992-1996), and Minister of Development Cooperation (1990-1992) for the Norwegian Government’s Ministry of Foreign Affairs.  She was elected member of Parliament from 1993 to 1997.

In the private sector, Ms Faremo worked as the Executive Vice President for the Norwegian insurance group, Storebrand, from 1997 to 2003. From 2003 to 2008, she was Director of Law and Corporate Affairs at Microsoft Corporation’s Western European Office, where she developed the legal and public affairs division responsible for corporate compliance in the region.

Ms. Faremo graduated from the University of Oslo in 1978, with a degree in Law, specialising in International law. She entered the public service in 1979, as an executive officer in the Norwegian Government’s Ministry of Finance, later moving to NORAD in 1980, and the then newly established Ministry of Development Cooperation, where she worked for six years.

Now have your say! Leave a comment below, or join the conversation by following us on Twitter, Facebook or Linkedin.

 

 

TAGS / , , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *