Status Quo a Barrier to Africa’s Future as Green Superpower

Despite growing sustainable investment opportunities across Africa, “business-as-usual” finance system reinforces funding gap.  

Climate finance channelled into Africa cannot be upscaled in line with a 1.5°C temperature pathway without global policy and financial system reform, according to a leading South Africa-based academic. 

“The regulatory system and the financial sector continue to incentivise business-as-usual [for developed nations], and that’s why climate finance is not going to materialise [for Africa], despite proclamations otherwise every COP,” said Carlos Lopes, Professor at the Nelson Mandela School of Public Governance at the University of Cape Town. 

“What is necessary for the [climate] transition is regulatory system change and the transformation of the financial system,” Lopes added, speaking at the ‘Africa’s Climate Agenda’ webinar on 30 August, hosted by NGO Project Syndicate.  

He pointed to the Loss and Damage Fund as an example of the growing “recognition of a historical problem”, referring to the fact that that developed nations have contributed most to climate change while emerging markets and developing economies (EMDEs) suffer some of the worst climate-related impacts. But Lopes said the fund will not go far enough to make a tangible difference to the continent’s efforts to mitigate the worst climate-related impacts and transition to a low-carbon economy.  

The Loss and Damage Fund was unveiled at COP27 and aims to compensate countries most vulnerable to climate change. Recommendations for funding arrangements will be made at COP28 in December. 

The fund’s voluntary nature means that “developed countries don’t have any obligation to fulfil what they have promised”, Lopes, also a member of the World Resources Institute’s Board and Chair of the African Climate Foundation Board, said. 

Many developed nations have already made commitments to the fund, including Belgium pledging US$2.7 million last year and Germany US$180 million.  

Wangari Muchiri, Director of Africa WindPower at the Global Wind Energy Council, said “talks around Africa’s climate transition need to be in the trillions, not millions”.  

The African Financial Alliance on Climate Change (AFAC) recently warned that Africa will continue to experience residual loss and damage across all climate change scenarios and will need to rapidly upscale its climate resilience.  

Financial sector reform is on the agenda.  

Earlier this year, France hosted the New Global Financing Pact, an event aiming to coordinate and accelerate international action to address financing needs in the Global South.  

New initiatives were unveiled at the summit, including the Private Sector Investment Lab to develop and scale solutions that can overcome barriers preventing private sector investment in emerging markets.  

Further, Just Energy Transition Partnerships (JETP) have been forged between developed nations, private sectors and emerging markets, such as South Africa, Indonesia and, more recently, Senegal. It is hoped the JETPs will facilitate a huge amount of capital; Indonesia’s JETP aims to mobilise US$20 billion.  

Unfulfilled potential  

“It’s both a good thing and a bad thing that Africa’s energy systems are not fully developed,” according to Muchiri. 

“It gives us a blank slate to start working from to invest in and upscale green technologies while developed nations have to also deconstruct their carbon-intensive energy systems,” she said.  

The International Energy Agency (IEA) noted that Africa has 60% of the best solar resources globally, but only 1% of installed solar photovoltaic (PV) capacity. A “rapid redirection of resources, including investment”, is needed, the IEA said.  

Muchiri also cited the increasing global demand for critical minerals as a future opportunity for the continent. 

“A number of critical minerals are coming into play for the transition – copper, lithium, nickel, cobalt – some of the biggest reserves are in Africa. So how do we ensure that we account for value addition locally, while also benefitting from exports to the rest of the world?”  

Developed nations are already forging partnerships across the continent. This month, Japan signed agreements with five African countries to explore and extract critical minerals. 

Muchiri acknowledged that the existing funding gap is restricting progress. 

Currently, only about 2% of global investments in renewable energy go to Africa. Further, Africa is only receiving 12% of the finance it needs to successfully mitigate the effects of climate change and transition to net zero, according to a report by the think tank Climate Policy Initiative (CPI).  

It noted that around US$250 billion a year is needed to help all African countries install greener technologies and more climate resilient infrastructure. Africa received US$29.5 billion in 2020, CPI said. 

The AFAC report said the investment opportunity to build climate resilience in Africa represents US$3 trillion by 2030, adding that just 0.1% of global investors’ assets would be enough to bridge the annual US$108 billion infrastructure gap on the continent.  

Impact in Africa 

A new report published by the Global Impact Investing Network (GIIN) surveyed impact investors on their investment strategies and performance, as well as their five-year capital allocation plans.  

Fifty-six percent of investors said they intend to increase impact assets in sub-Saharan Africa, and 62% of direct investors said they will increase their allocations across the region in the next few years.  

Emerging market-focused impact investors cited the challenge of integrating impact and financial decision-making, with 34% further noting that comparing impact results to peers is very difficult. A quarter of emerging market-focused investors said verifying impact data received by investees is also a barrier.  

“The global response to the threat of climate change continues to be timid, throwing into doubt our ability to keep the global temperature rise below 2°C,” said Joyce Banda, former President of the Republic of Malawi.  

“As we prepare for COP28, we have a responsibility to immunise ourselves and generations to come from climate change and achieve sustainable economic growth and development.”

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