- Lender AfDB is looking to harness global equity funds to finance climate change mitigation in Africa.
- AfDB statistics show that only 14 percent of $29.5 billion that was invested in climate finance for Africa in 2020 was from the private sector.
- AfDB is set to hold climate change financing meeting in Sharm El Sheikh, Egypt, this May.
An increasing number of people across Africa are grappling with unpredictable but definite cycles of failed rains, flash floods or severe drought as climate change-induced weather patterns become the norm in the continent that is one of the least polluters globally.
“Africa, the continent that pollutes the planet the least, is today one of the world’s most vulnerable to climate risks,” admits the African Development Bank.
In many countries in Africa today, it is nearly impossible for farmers to practice rain-fed agriculture, which is the primary option for 99 percent of agricultural production in the continent.
Climate change has doomed Africa’s agricultural productivity. If African nations are to produce sufficient food to feed their people let alone export, then modern, climate-smart farming approaches must be adopted and to do that, long-term financing is required.
At the moment, multilateral development financiers such as the African Development Bank (AfDB) stand between Africa and a total collapse of the continent’s food security programs. However, the bank cannot do it by itself, greater involvement of the private sector is crucial to closing the gap in climate finance flows into Africa, which is currently dominated by non-private actors.
A look at private sector investment in mitigating climate change, shows dwindling trend in Africa. According to the AfDB statistics, only 14 percent of $29.5 billion that was invested in climate finance for Africa in 2020, was from the private sector.
A comparison of this figure with areas such as Latin America and the Caribbean where the private sector handle almost half (49 percent) of all climate change investment, one sees the need for African governments to interest more private sector players into this space.
Read: How green banks and climate funds shield Africa’s development
Africa’s private sector is simply short of resources to make a significant contribution to the climate change financing needs of the continent.
In fact, Arica’s private sector is the least contributor to climate change financing compared to the rest of the world including East Asia and the Pacific whose private sector contributes 39 percent of climate change investments followed by South Asia whose private sector contributes 37 percent of investment in climate change financing.
“We understand this problem and it is the reason the Bank Group has made mobilizing private sector financing for climate and green growth the centerpiece of its 2023 Annual Meetings scheduled for 22-26 May in Sharm El Sheikh, Egypt,” announced AfDB in a media communique released in April.
Egypt is a fitting location to hold climate change financing meetings because the north African country was the location of the last international gathering on climate change action COP27. It is in Egypt that the world leaders pledged to support Africa’s climate change mitigation through financing, but the pledges are yet to be met.
At the May meet, financiers will deliberate with sector experts and government officials on “successful strategies to galvanize more resources, including within Africa, and investment opportunities in renewable energy and sustainable agriculture.”
These high-profile meetings, to be attended by more than a dozen Heads of State, will be led by the AfDB Governors who will represent the bank’s shareholders. They in turn will be deliberating on possible financial solutions with global experts and development financiers.
The bank hopes to use the meetings to charter what it describes as “a new architecture for mobilizing resources for sustainable investment in Africa.”
The financing experts plan to develop a deal that will see Africa utilize its “rich natural capital” to finance climate and green growth.
To back the “rich natural capital,” the bank plans to make the most of global Private Equity Funds that are reported to harbor an impressive $6.3 trillion as of 2021, as well as Global Pension Fund Assets spread that as of last year hit a new high of $56.6 trillion.
While it looks for these external funding sources, all from the private sector, the bank itself has committed to the mobilization of some $25 billion come 2025, which is about 41 percent of its total funding commitment to climate change financing on the continent.
“To combat climate change and support green growth, African countries need more climate investments to achieve their national targets for emissions reductions and adaptation to the impacts of climate change,” that is the bottom line, the bank writes in the press communication.
Read: Banking on the informal sector: can Tanzania fetch billions?
AfDB is now spearheading this drive to channel access to global climate financing options and particularly from the private sector. Notably, while the bank looks for funding solutions, on the other hand, it is also overseeing programs to remove risks and barriers that limit private sector participation in climate finance in Africa.
Citing one such example, the media communique points to the work that the bank is doing with the Sustainable Energy Fund for Africa. Notably, the fund’s objectives are aligned with the overall climate change goals in that its flagship priorities include the Light up and Power Africa initiative and the Improve the Quality of Life for the People of Africa, project.
In 2022, for example, Togo benefited by nearly $4 million, while in January 2023, SEFA provided a $1 million grant for green mobility in Africa to seven countries: Kenya, Morocco, Nigeria, Rwanda, Senegal, Sierra Leone and South Africa. Still, the African Development Bank believes it can go further.
