Africa: climate finance facing global macroeconomic challenges; time for private sector support | African Development Bank

Africa, the continent that pollutes the planet the least, is today one of the most vulnerable countries in the world to climate risks. As countries across the continent grapple with funding constraints, resources from the international private sector, including multilateral development financiers such as the African Development Bankhelp catalyze climate action and green growth.

For the African Development Bank, greater private sector involvement is crucial to closing the gap in climate finance flows to Africa, which until recently has been dominated by non-private actors. For example, of the $29.5 billion invested in African climate finance in 2020, only 14% came from private actors. This is significantly lower than comparable regions such as Latin America and the Caribbean (49%), East Asia and the Pacific (39%) and South Asia (37%). In addition, these limited funds covered a small number of African countries with relatively developed financial markets, such as South Africa, Nigeria, Kenya, Morocco and Egypt, which alone raised $4.2 billion.

It is why the Bank Group has made mobilizing private sector finance for climate and green growth the centerpiece of its 2023 annual meetings, scheduled for May 22-26 in Sharm El Sheikh, Egypt.

The meetings will discuss successful strategies to boost more resources, including in Africa, and investment opportunities in renewable energy and sustainable agriculture. The Bank’s presidents, representing its shareholders, will be joined by global experts and development financers to discuss the issue of a new architecture for mobilizing resources for sustainable investment in Africa. This includes how to leverage the rich natural capital of African countries to finance climate and green growth. About a dozen heads of state and government are expected.

The African Development Bank believes there is great potential for climate finance in Africa. The bank bases its vision on a dataset of global private assets. Private equity funds under management reached a record $6.3 trillion in 2021, while global pension fund assets in the 22 largest markets reached a new high of $56.6 trillion by the end of 2022.

To combat climate change and support green growth, African countries need more climate investment to meet their national targets for emission reductions and adaptation to climate change impacts.

The African Development Bank, the continent’s leading multilateral development finance institution, has begun providing solutions. It implements mechanisms to facilitate and channel access to global climate finance, particularly from the private sector. It has also launched programs to reduce risks and barriers to private sector participation in climate finance and green growth in Africa.

The bank has committed to mobilizing $25 billion by 2025, representing 41% of its total funding commitments.

An example of the Bank’s work is the Sustainable Energy Fund for Africa, whose objectives are aligned with the High Five strategic priorities, in particular “Light up and Power Africa” ​​and “Improve the Quality of Life for the People of africa.” This facility provides technical assistance and concessional financing instruments to remove market barriers.

For example, in 2022 Togo benefited from almost $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 . Nevertheless, the African Development Bank believes it can go further.