Africa’s green financing challenges and private sector advantage

Africa is currently going through a phase of increasing FDI inflow which will eventually circulate throughout the economy and ultimately encourage more private sector investment...

Africa’s green financing challenges and private sector advantage

The future for green growth in Africa is bright. The role of the private sector in both financing and the implementation of climate change alleviation and transition initiations has heightened during COP27 held at Sharm el-Sheikh in Egypt

The COP27 summit in Egypt has brought a lot of ambition and commitment to change to the fore and this new path will greatly change the green fortune of Africa through the collaboration of Kenya, Malawi, Gabon, Nigeria and Togo with ACMI (Africa Carbon Markets Initiative) to scale carbon credit production via voluntary carbon market activation plans. Together, these 7 countries have a maximum potential to generate jobs, reduce emissions, and drive green investments for long term benefits for the continent. 

ACMI, in collaboration with major carbon credit buyers and financiers, such as Exchange Trading Group, Nando’s, and Standard Chartered, is set to set in motion an advance market commitment for hundreds of millions of dollars for high–integrity African carbon credits by spearheading a bold ambition for the continent — to reach 300 million credits produced annually by 2030. This production rate would bring about 6 billion in income and champion 30 million jobs. By 2050, ACMI is targeting over 1.5 billion credits produced annually in Africa, creating a strength of over $120 billion and advocating for over 110 million jobs.

Efforts at green financing Africa's key sectors makes every stakeholder aware of where the developing nations stand, where the challenges are, including the pertinent roadblocks towards Africa's journey to a greener future. Unanimously, the global business world has no choice but to adopt the green business development cause – though the developed countries industrialised with high emissions processes – this is not an option for Africa so that the climate centre doesn’t fall apart irreversibly. 

The many challenges facing Africa in its journey towards green growth, apart from the unsustainable debt management positions of Sub Saharan African countries – are lack of long term financing and financial markets that are infamously underdeveloped with skewed and inadequate regulations, high interest rates, extreme poverty, rapid population growth rate and urbanisation, deforestation, food shortages, inadequate infrastructure and other environmental impacts of extractive industries.

The side effects of the climate change in Africa, on economic activities are no longer the responsibility of the state alone. Indeed, if green growth is to be adopted successfully in Africa, all economic activity globally will benefit and vice versa. This reverse does not apply only to big polluting ventures in Africa, it will also affect, negatively, the growth of small and medium scale enterprises towards achieving green growth. And these small enterprises are largely pivotal to the socio economic growth and development of the continent.

A large majority of small medium scale businesses in Africa suffer from high interest rates and the expensive costs of production, going green may heighten the situation due to the assumption of risks associated with financing new technologies and the fact that they may, largely, lack the competencies or collateral in securing such financing. The way out is the advantage that comes with the capital fund earmarked by developed countries to promote green business development in developing countries with low earnings. The Green Climate Fund has been strengthened with the objective of raising $100 billion per year to finance green business development.

The financial markets are dominated by government securities and they lack financial diversity or specialist financial instruments. This affects the SMEs most – the driving force of the African economy. They are not, mostly, competent enough to assure risk averse financiers in an unregulated environment that abounds in the region. Though the situation seems dire, there is hope.

Africa is currently going through a phase of increasing FDI inflow which will eventually circulate throughout the economy and ultimately encourage more private sector investment and bring the much needed development to Africa's Financial markets; bringing in its wake specialists financial instruments that will be better adjusted to SMEs green business activities and by implication, Africa's journey towards a greener future.                             

The future for green growth in Africa is bright. The roles of the private sector in both financing and the implementation of climate change alleviation and transition initiations has heightened. In Africa, like everywhere else in the world, green growth should bring about job creations for new technologies, steered by reduced emissions and improved finances and efficiency in the usage of natural resources and the protection of the biodiversity in the ecosystems.

The larger percentage of the informal sector are the sole proprietors or the SMEs – they provide enormous contributions to the economic value addition. In overriding the challenges of climate change anywhere; the adoption of new technologies and practices are involved. The SMEs are competitively positioned to take utmost advantage of this position as they tend to be innovative than larger industries, and are more flexible and open to new ideas while being rightly positioned within the value chains.

Secondly, African countries are in a better position to install green technologies from the onset of business activities rather than transitioning at a later date – avoiding all the unavoidable costs of transformations that are incurred by developed countries in their industrial and infrastructural sustainable transition. Thirdly, the cost of green technologies will continue to fall as new innovations come up and when calculated long term, costs of doing business decreases significantly.

ACMI’s objective is impactful conversation, coordination, and action towards the development of African voluntary carbon markets. A call by Joseph Nganga, the steering committee member, and Vice President, Global Energy Alliance for People and Planet, asks every human to contribute to this pertinent effort in our history: “Sustaining the rapid growth of African carbon markets isn’t going to happen accidently, it’s going to require action by governments, developers, and buyers. Together, we can unlock billions for climate finance and economic development in Africa.”       

There has to be a paradigm shift – an overhaul of all processes as we know it – it is high time that ESG and the full UN Sustainable Development Goals take the front burner in all policy making endeavours – this has to be taken seriously; everyone has to know what is at stake and not just the knowledge of where our ignorance and ineptitude has led us, also the understanding that it is a matter of life and death. A reorientation has to happen. Citizens of developing countries and every stakeholder has to be brought on board – every business, every family – we all have pertinent roles to play in reducing carbon footprints across all industries and sectors of the economy.

There has to be sincere commitment of the developed countries, both to the 2009 promises of $100 billion annually made to developing nations who need help in curtailing the climate crises, and also moving forward with the sustainability agenda in a decisive change of business processes and operations for a greener future. Governments and financial institutions in Africa and globally should be more forward looking in taking advantage of the private sector to unlock the financing needed to tackle climate change.