The disparity between Africa’s contribution to greenhouse gases (3% of the global total) and its vulnerability to climate change (16 of the 20 most vulnerable countries in the world are African) and therefore its need for climate finance is striking and well documented.
Climate finance could help address climate-induced incidents that lead to other knock-on effects such as reduced agricultural production, loss of biodiversity, or reduced structural integrity of infrastructure and buildings. But the facts show that there is a financing gap in the fight against climate risks between Africa and other regions of the world.
Countries that belong to multilateral groupings and development bodies such as United Nations agencies have pledged funding programs to help developing countries in their efforts to mitigate and adapt to climate change. But if funding levels continue on their current trajectory, African governments are unlikely to have the financial capacity to achieve the NDCs or prepare for the effects of climate change.
While an average of $632 billion was committed to climate finance worldwide between 2019 and 2020, this amount is insufficient. A 590% increase is needed by 2030 if global climate goals are to be met. Furthermore, the already insufficient funding is not systematically paid out.
An Oxfam report suggests that the help developing countries need to climate change action ranged between $19 billion and $22.5 billion between 2017 and 2018, less than a quarter of the $100 billion initially promised each year.
These figures are mentioned at the start of a joint report by the African Private Capital Association (AVCA) in partnership with the Tony Blair Institute for Global Change, Climate finance in Africa: strategies for the future. The joint report draws on expertise from the public and private sectors to examine the current state of climate finance on the continent. It then presents recommendations for governments and the private sector.
Climate finance in Africa is on the move
In Africa, climate finance for adaptation and mitigation is typically publicly funded through a combination of grants, DFIs and national budgets. This contrasts sharply with the climate investment environment in economically advanced regions of Western Europe, the United States, Canada and Oceania, whose climate activities are primarily financed by private finance.
The report highlights that renewable energy was chosen by almost three-quarters of respondents as presenting the most climate investment opportunities in Africa. This is not surprising given the continent’s abundant natural resources which give rise to high viability in renewable energy production. Agriculture and transportation comes in second and third place.
The attractiveness of the agricultural sector for climate investments is relevant, as many African economies rely heavily on rain-fed agriculture. The sector is at the heart of the continent’s economic activity, representing 15% of Africa’s GDP, and reaching 23% when located in Sub-Saharan Africa.
Solar-powered irrigation, crop insurance for farmers, regenerative agricultural practices to improve yields and technologies for improving soil fertility, soil and water conservation are transforming the chain of value and play a catalytic role in the resurgence of investor interest in the sector from a climate perspective. .
Likewise, innovation and electrification of modern equipment transportation are responsible for the fact that 35% of participants see transport as offering the most climate investment opportunities in Africa. The added value of these innovations is enhanced by favorable public policies, such as in Kenya, where the local government introduced a reduced tax on electric vehicles equipped with electric motors, with the Ministry of Transport also implementing an electric vehicle policy . More recent policy developments include how to using time-of-use pricing to promote electric vehicles take.
Barriers to climate investment in Africa
The perceived lack of climate-resilient, investment-ready, risk-adjusted projects with a commercial rate of return was identified by the largest cohort of respondents as a barrier preventing private climate investment in Africa.
The high risk/reward profile of climate-related investment opportunities has also been identified by investors as an inhibitor of private capital in the sector. It is worth noting that all survey respondents who share this view also identified renewable energy as their sector of interest for climate-related investments. Investing in renewable energy is often associated with high financial risk (inflation, exchange rates, capital transfer) and project risk (grid access, political risk and market access for independent power producers).
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However, it is likely that this perception of high risk will ease in the medium term as blended finance mechanisms aimed at reducing the risks associated with climate investments and innovative products (such as first loss protection or guarantees performance) will become more important elements in the climate field in Africa. ecosystem.
In particular, a knowledge barrier (limited private sector climate impact awareness) was not a particularly important concern for respondents, illustrating a generally strong perception of climate awareness in the African private sector.
Similarly, the lack of universally adopted disclosure and reporting frameworks was cited as a barrier to private climate investment by only 18% of respondents.
This suggests that while this lack of uniformity is somewhat concerning, it is not enough to deter the private sector from engaging in climate finance in Africa. ESI
Learn more about the recommendations presented in the Climate finance in Africa: strategies for the future report.