The World Bank Ghana Climate Innovation Center (P145765) REPORT NO.: RES41715 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF GHANA CLIMATE INNOVATION CENTER APPROVED ON FEBRUARY 2, 2016 TO ASHESI UNIVERSITY, INNOHUB FOUNDATION FINANCE, COMPETITIVENESS AND INNOVATION AFRICA Regional Vice President: Hafez M. H. Ghanem Country Director: Pierre Frank Laporte Regional Director: Asad Alam Practice Manager/Manager: Douglas Pearce Task Team Leader(s): Michael Ehst The World Bank Ghana Climate Innovation Center (P145765) ABBREVIATIONS AND ACRONYMS CIC Climate Innovation Center CITF Climate Innovation Trust Fund COVID-19 Coronavirus Pandemic DANIDA Danish International Development Agency EDD End Disbursement Date FCI Finance, Competitiveness, and Innovation GCIC Ghana Climate Innovation Center GCVF Ghana Climate Venture Facility IC (GCVF) Investment Committee ISR Implementation Status and Results Report MDTF Multi Donor Trust Fund RETF Recipient Executed Trust Fund SMEs Small and Medium Enterprises TA Technical Assistance The World Bank Ghana Climate Innovation Center (P145765) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P145765 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 02-Feb-2016 30-Jun-2020 Organizations Borrower Responsible Agency Ashesi University,innoHub Foundation Ashesi University College,innoHub Foundation Project Development Objective (PDO) Original PDO The objective of the project is to support entrepreneurs and SMEs involved in developing profitable and locally- appropriate solutions to climate change and increase business activity in the climate technology sector through the establishment of a locally based climate innovation center. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A8548 11-Oct-2018 11-Oct-2018 13-Nov-2018 30-Jun-2020 3.20 2.12 1.08 TF-A1680 03-Feb-2016 03-Feb-2016 22-Feb-2016 30-Jun-2020 8.50 7.85 .65 The World Bank Ghana Climate Innovation Center (P145765) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING PROJECT STATUS 1. The Ghana Climate Innovation Center (GCIC) project became effective in February 2016. The project objective is to support entrepreneurs and SMEs involved in developing profitable and locally appropriate solutions to climate change and increase business activity in the climate technology sector through the establishment of a locally based Climate Innovation Center. The climate technology sector includes renewable energy, energy efficiency, clean water, waste management, green buildings and transportation, and climate smart agriculture. 2. The project was designed as an important addition to Ghana’s growing entrepreneurship and venture financing ecosystem, establishing the first Ghana based business incubator and first early stage investment fund that specifically target “green” Ghanaian startups and early-stage businesses that offer innovative climate technology products. 3. Funding for the project comes from the Embassy of Denmark (DANIDA) and the Embassy of The Netherlands and is administered through the World Bank’s infoDev Climate Innovation Trust Fund (CITF) within the Finance, Competitiveness, and Innovation (FCI) Global Practice. 4. The Project consists of two components, each financed by a separate recipient-executed trust fund (RETF) grant. The status of each of these components follows. Component 1: Climate Innovation Center Establishment, Services and Monitoring and Evaluation 5. The GCIC is a business incubator supporting climate technology entrepreneurs and SMEs. The GCIC establishment and operations are financed under component 1 through a USD 8.5m RETF grant (TF0A1680). The grant was signed and became effective in February 2016. The grant recipient and lead implementing partner for the GCIC is Ashesi University College, as part of a consortium that also includes Ernst & Young Ghana, SNV Ghana, and the United Nations University – Institute of Natural Resources and Agriculture (UNU-INRA). The GCIC was formally launched by the consortium in June 2016. 6. The GCIC has incubated over 100 businesses since 2016 and is recognized as an important driver of green growth in Ghana. Those businesses have delivered climate friendly products to over 340,000 Ghanaian households while creating sustainable jobs and businesses. It operates across Ghana’s regions and has a dedicated women’s entrepreneurship program. The GCIC also plays an active role influencing Ghana’s policy environment for climate The World Bank Ghana Climate Innovation Center (P145765) technology business. For instance, the GCIC has made contributions to Ghana’s climate smart agriculture, innovation, and entrepreneurship policies. 7. An important outcome for the project is having the GCIC continue to operate after the Bank project closes. To that end, the GCIC management team is actively fundraising for its continued operations. It has had some fundraising success to date, including a USD 500,000 funding from Stuart Investors Foundation for current operations. It has further strong prospects to raise financing to support its operations after the Bank grant ends. Global Affairs Canada (GAC) is considering providing up to CAD 10m of financing support over five years to the GCIC. GAC’s review process for this financing to the GCIC has been slowed due to COVID-19, with a decision not expected until fall 2020. GCIC is also having promising funding conversations with Visa International, Rockefeller Foundation Africa, the Shell Foundation, and others. The GCIC could also potentially benefit through a competitive process from the World Bank financed Ghana Economic Transformation project, which has funding targeted for entrepreneurship hubs and incubators. However, full funding to continue operations is yet to be achieved. If none of these funds materialize, it is expected that the GCIC will have to cease operations after the project closes, meaning by the end of September 2020 if the project closing date is extended to then. Component 2: Ghana Climate Venture Facility (GCVF)1 8. The GCVF component establishes an early stage investment facility (“the GCVF Investment Company”) that deploys a blend of public and private capital to offer equity and quasi-equity financing to climate technology startups and SMEs. The investment facility’s establishment, operations, and initial investment capital are financed under component 2 through a USD 3.2m RETF grant (TF0A8548). The grant was signed in October 2018 and became effective in November 2018. The grant recipient and lead implementing partner for the GCVF component is Innohub Foundation, a Ghanaian not-for-profit entrepreneurship support organization. Innohub Foundation acts as the fiduciary for the Bank grant and has established the GCVF Investment Company -- branded publicly as Wangara Green Ventures (https://wangaragreenventures.com/) – as the for-profit investment vehicle under the terms defined in the grant agreement. 9. The signing of the GCVF grant was part of a September 2018 restructuring that added Innohub Foundation as the component 2 implementing partner. The restructuring involved a year-long dialogue with the government that impacted the structure of the facility, including the removal of an international partner that was bringing matching investment capital and fundraising expertise and networks. A risk to the component meeting matching capital fundraising targets following this change and within the remaining implementation timeframe was acknowledged during restructuring but was mitigated based on a strong pipeline of potential investors that the fund management team had cultivated and still has largely in place. 10. The GCVF Investment Company (Wangara Green Ventures), was formally launched in June 2019. It utilizes a hands-on investment model providing patient risk capital to its investee companies in the USD 100,000 - 500,000 range through equity and quasi equity instruments, coupled with high-touch management assistance that enables these companies to validate/refine their business model, accelerate sales, build capacity, and get on the path to scale. The GCVF Investment Company has made initial investments and is now focused on further building up its investment pipeline and raising additional public and private investment for its capital pool. 1Note that Component 2 was retitled to “Ghana Climate Venture Facility” in the September 2018 restructuring paper, rather than “Climate Venture Financing Facility” as was used in the original PAD The World Bank Ghana Climate Innovation Center (P145765) 11. On investment goals, the GCVF Investment Company has made strong progress. It has built an investment pipeline of over 90 leads, conducted due diligence on eight businesses, and has had three investments approved by its investment committee. It also is providing investment readiness training to six potential investee companies and direct technical assistance to two prospects. 12. On fundraising, progress has been slower than expected and the project team has flagged this during the last (December 2019) implementation status and results report (ISR). The GCVF Investment Company has made some progress but has not secured any signed commitments. Specifically, the investment team has had ongoing discussions with four investors (two institutional and two individual investors) for an aggregate investment of over USD 4m (200% of the target for the matching funding withdrawal condition). As of March 2020, these investors had concluded preliminary due-diligence and discussed investment terms with the GCVF Investment Company, with two investors issuing letters of intent (LOIs) for USD 2.25m. These investors’ follow-up action plans included completing remaining due-diligence (including in-person “site visits”) and making final investment decisions (including completing negotiations of terms). Due to COVID-19 impacts, two of the investors (with total investment interest of USD 2.25m) are still proceeding with their plans but could not conduct remaining due- diligence until the lockdown ended and normal business resumed. Considering these delays, these investors are more likely to make final investment decisions and issue letters of commitment (rather than have signed shareholders agreements) before the proposed GCVF grant closing in September 2020. The remaining two investors have for the next few months paused further consideration of any new investments to assess impact of the economic disruption caused by COVID-19. They have, however, indicated their continued interest in the GCVF investment facility with the possibility of moving forward as per their original investment plans once the economic impacts of COVID-19 on Ghana’s economy and Wangara’s prospects become clearer. The team has confirmed these COVID-19 related delays and adjusted timelines by speaking directly with three of the potential investors. Fundraising challenges are not only related to COVID-19. Fundraising for an early stage impact investment facility is not an easy or predictable process, so delays are not entirely surprising, but still a concern as the facility does need to expand its pool of investment capital over time. 13. The Bank’s direct involvement in supervising, monitoring, and supporting the GCVF investment facility ends once the project ends. However, the GCVF Investment Company will continue operating, investing, and fundraising after the World Bank grant comes to an end. Governance structures have been established to ensure the sustainability of the GCVF Investment Company and its adherence to the project objectives after the project’s close. Innohub has established a GCVF Steering Committee, as required by the grant agreement, which is operating effectively and will outlive the grant agreement for a minimum of two additional years. The GCVF Investment Company has a Board of Directors which has authority over the GCVF Investment Company’s management. The GCVF Investment Company Board has two representatives from Innohub (as the sponsor and anchor investor of the investment facility). The Board Chair is appointed by the GCVF Steering Committee. The Board is accountable for the proper operations of the GCVF Investment Company as with any private company. The GCVF Investment Company also has an Investment Committee to make investment decisions, independent from its Board. Furthermore, investment capital from the grant is held in an escrow account that is administered by a licensed institutional custodian account under a custodian agreement. The GCVF Investment Company is also applying for its SEC license and therefore will be a regulated entity. These structures are all in place to ensure the World Bank’s funding – as well as that of other investors/funders – is used as intended within the context of establishing this new permanent capital (“evergreen”) investment vehicle that will operate beyond the close of the Bank project. A. RATIONALE FOR RESTRUCTURING The World Bank Ghana Climate Innovation Center (P145765) 14. The proposed restructuring involves: (i) a three-month no-cost extension to the Closing Date for the project and both RETF grants, from June 30, 2020 to September 30, 2020; (ii) a modification to a withdrawal condition for the GCVF RETF grant; (iii) a reallocation within a cost category for the GCVF RETF grant, related to the modified withdrawal condition. Closing Date Extension 15. The rationale for the closing date extension is to enable the GCIC and the GCVF implementing partners additional time to complete project activities and achieve the intended outcomes of the World Bank grants. Both GCIC and GCVF have been affected by the impacts of COVID-19 and would utilize the additional three months to complete ongoing activities that have been delayed. In this way, the extension would contribute to the Bank’s overall support to Ghana to address the impacts of COVID-19. The businesses that have been incubated and financed by the GCIC project are among those that have been directly impacted by COVID-19 and the project will be able to provide them extended support through the revised closing date. 16. Elements of the GCIC’s work plan have been interrupted by the COVID-19 lockdown period and remaining social distancing requirements in Ghana. For instance, programming for GCIC entrepreneurs was being delivered virtually during lockdown, and there is the need to adapt existing programming to address changing customer demands, cashflow challenges and supply disruptions that are facing SMEs. The extension will allow GCIC to conclude support to its current cohort of entrepreneurs as they recover from the COVID-19 impacts. The additional time will also allow GCIC to advance its own fundraising efforts as described above. The funding discussion with GAC would benefit from the additional months as GAC’s internal funding decisions process has been slowed by COVID-19 impacts and GAC is using October 1, 2020 as a potential funding start date for the GCIC if the funding is approved. The GCIC team has modified its 2020 Work Plan, as agreed with the Bank team, to continue funding its operations under the existing grant resources through the revised closing date. 17. The GCVF Investment Company has been facing the challenge during COVID-19 of conducting investing due diligence, providing investment readiness support, and raising additional investment capital through virtual means. Potential and existing investee companies are also facing challenges from COVID-19 and the GCVF Investment Company is investing additional time with these businesses to help them adapt business models to the post-COVID-19 economy. Other impacts have included a lengthened investment cycle and delayed investment decisions from potential investors into the capital pool. The later closing date would provide the GCVF implementing partners additional time to meet the investment and fundraising targets set out in the project’s results framework. The GCVF implementing partners have modified their 2020 Work Plan, as agreed The World Bank Ghana Climate Innovation Center (P145765) with the Bank team, to continue funding the component activities under the existing grant resources through the revised closing date. 18. The length of the requested extension is three months due to restrictions of the parent multi donor trust fund (MDTF). The MDTF has an end disbursement date (EDD) in its Administration Agreement of December 31, 2020 so a longer extension is not possible. This EDD cannot be extended since the World Bank corporate limit of two prior extensions have been completed for the MDTF and the trust fund is planned to be closed under the Bank’s trust fund consolidation exercise. 19. The revised closing date will leave the grant recipients with a shortened grace period of one month after the project closing date rather than the customary four months to make final payments or withdrawal requests. The grace period will conclude on October 31, 2020 which is the mandated minimum of two months prior to the parent MDTF EDD. These restrictions have been discussed and agreed with the project’s finance and accounting and financial management teams. The grant recipients have also been made aware and agreed to the shortened grace period. As remaining activities are mainly operating costs, the team does not expect to have significant disbursements after the project closing. The team has reviewed and will continue to monitor commitments and contracts of the implementation partners closely to ensure disbursements are made prior to project closing. Withdrawal Condition Modification and Reallocation in GCVF RETF Grant 20. Progress on both investment and fundraising of additional investment capital are important measures to ensure the GCVF Investment Company’s viability after the Bank financing ends. While the GCVF Investment Company has achieved its investment targets, it has not yet achieved its fundraising targets. The proposed withdrawal condition modification would recognize the progress on investment targets while leaving in place incentives to meet fundraising targets, which are modified to reflect the impacts of COVID-19 on fundraising timelines. 21. The specific modification and reallocation are related to a final USD 1m disbursement of grant funding for investment capital to the investment facility. The disbursement is currently conditioned on (i) the GCVF Investment Company fundraising USD 2m from public and private sector investors as demonstrated by signed Shareholders Agreements, and (ii) the GCVF Investment Company having three investments in climate technology SMEs approved by its Investment Committee. 22. First, the proposed modification would split the disbursement into two USD 500,000 disbursements. One USD 500,000 disbursement would be conditioned on three investments being approved by the GCVF Investment Committee (which has already been achieved). The other USD 500,000 disbursement would be conditioned on fundraising USD 2m of matching capital (the same level of matching capital in the existing condition). 23. Second, the withdrawal condition language on fundraising would be modified to allow either signed Shareholders Agreement or signed Letters of Commitment. This would introduce an additional way for the GCVF Investment Company to demonstrate fundraising progress. The World Bank Ghana Climate Innovation Center (P145765) 24. It is important to note that letters of commitment cannot be construed as a pledge to invest. The original requirement of signed shareholders agreement is a legally binding commitment. For institutional investors, Letters of Commitment come after Investment Committee final approval of an investment, to be followed by finalization of legal agreements and any remaining legal due diligence that might need to take place. Although the letter of commitment is not legally binding, the risk of the investor backing out is low though not zero. In contrast, Letters of Intent are a much lower level of commitment as they are sent out in very early stages of dialogue between the investor and the fund managers. A letter of commitment does provide comfort that the investor has approved the investment (including amount and terms) and negotiations have been concluded, but it is not legally binding. While this is not the ideal fundraising milestone, it provides an adequate degree of comfort that the GCVF Investment Company will be able to bring on board within a short period of time additional funding to enable its sustainability and growth. With the unforeseen COVID-19 impacts, a letter of commitment is a more achievable outcome before the grant ends than a signed shareholders agreement. 25. The risk in utilizing letters of commitment vs shareholders agreements for the condition is that the matched funding falls through after the Bank has fully disbursed the grant, leaving uncertainty over the timeline for additional capital to be raised. A larger risk would be in simply removing the matched capital requirement, which would lower the pressure on the fund manager to push quickly to close on fundraising. That might mean the raising of matching capital is considerably delayed (into 2021 or even later). Alternatively, leaving the condition as is risks disbursing none of the last USD 1m and leaving the fund undercapitalized until additional funding can be raised. The benefit of going ahead with the split of the category and the withdrawal condition modification is that the fund is further capitalized which is an important signal for fundraising and offers the fund more capital for investing while keeping the incentive of the final $500,000 tranche based on fundraising. 26. Considering the totality of the COVID-19 impacts, the project team believes the proposed modifications offer a balance that recognizes investment progress and keeps fundraising incentives in place while also recognizing that COVID has legitimately slowed investor timelines. The exact changes are listed in the “Description of Proposed Changes” section below. 27. The team has briefed the Dutch and Danish embassies about the proposed changes and related risks, and benefits, and both embassies have provided written agreement of their support for the changes. II. DESCRIPTION OF PROPOSED CHANGES Summary of Changes: Component 1 RETF (TF0A1680) 28. Closing Date revised to September 30, 2020 The World Bank Ghana Climate Innovation Center (P145765) Summary of Changes: Component 2 RETF (TF0A8548) 29. Closing Date revised to September 30, 2020 30. Amendment to the financing table with the addition of Category (2c) and the reallocation of $500,000 from Category (2b) to (2c), as follows: Revised Financing Table (modifications are in red italics) Percentage of Expenditures Amount of the Grant to be Financed Category Allocated (expressed in USD) (Inclusive of Taxes) (1) Goods, Consulting Services and Training, and 1,200,000 100% Operating Costs (2a) Capitalization of the GCVF Investment Company 1,000,000 100% under Part 1.b (i) of the Project (2b) Capitalization of the GCVF Investment Company 500,000 100% under Part 1.b (ii) of the Project, Payment #1 (2c) Capitalization of the GCVF Investment Company 500,000 100% under Part 1.b (ii) of the Project, Payment #2 TOTAL AMOUNT 3,200,000 31. Modification of the Withdrawal Conditions with the amendment of Condition (c) and the addition of Condition (d), as follows: “(c) under Category 2(b), until the Recipient has ensured that at least three investments in climate technology SMEs have been approved by the Investment Committee. (d) under Category 2(c), until the Recipient has ensured that the GCVF Investment Company has signed commitments for investments of a minimum of two million United States Dollars ($2,000,000) from public and private sector investors, either in the form of signed Letters of Commitment for investment into the GCVF Investment Company or executed Shareholders Agreements between the GCVF Investment Company with said investors, satisfactory to the World Bank.” The World Bank Ghana Climate Innovation Center (P145765) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. III. SUMMARY OF CHANGES Changed Not Changed Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ The World Bank Ghana Climate Innovation Center (P145765) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications TF-A1680 Effective 30-Jun-2020 30-Sep-2020 31-Oct-2020 TF-A8548 Effective 30-Jun-2020 30-Sep-2020 31-Oct-2020 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed TF-A8548-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: GD, CS, TR & OC 1,200,000.00 995,487.41 1,200,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Capitalization of the GCVF Investment Company 1,000,000.00 0.00 1,000,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: Capitalization of the GCVF Investment Company 1,000,000.00 0.00 500,000.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: Capitalization of the GCVF Investment Company 0.00 0.00 500,000.00 100 Total 3,200,000.00 995,487.41 3,200,000.00 .