Climate Finance Facing Global Macroeconomic Challenges; Time for Private Sector Support
Africa, the continent that pollutes the planet the least, is today one of the world’s most vulnerable to climate risks. While nations across the continent grapple with financing constraints, resources from the international private sector, including multilateral development financiers such as the African Development Bank, are helping to catalyze climate action and green growth.
For the African Development Bank, greater involvement of the private sector is crucial to closing the gap in climate finance flows into Africa, which until recently, was dominated by non-private actors. For example, of the $29.5 billion invested in African climate finance in 2020, only 14% was 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%). Besides, 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 attracted $4.2 billion.
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.
The meetings will discuss successful strategies to galvanize more resources, including within Africa, and investment opportunities in renewable energy and sustainable agriculture. The Bank’s Governors, representing its shareholders, will be joined by global experts and development financiers to discuss the matter of a new architecture for mobilizing resources for sustainable investment in Africa. This will include how to make African countries’ rich natural capital to finance climate and green growth. About a dozen heads of state and government are expected to attend.
The African Development Bank believes there is much potential for climate finance in Africa to increase. The bank bases its view on a dataset of global private resources. Private equity funds under management reached a record $6.3 trillion in 2021, while global pension fund assets in the 22 largest markets hit a new high of $56.6 trillion by late 2022.
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.
The African Development Bank, the continent’s premier multilateral development finance institution, has begun providing solutions. It is implementing mechanisms to facilitate and channel access to global climate finance, particularly from the private sector. It has also launched programs to mitigate risks and barriers to private sector participation in climate finance and green growth in Africa.
The Bank has committed to mobilize $25 billion by 2025, representing 41% of its total funding commitments.
One example of the Bank’s work is the Sustainable Energy Fund for Africa, whose objectives are aligned with its High Five strategic priorities, particularly “Light up and Power Africa” and “Improve the Quality of Life for the People of Africa.” This facility provides technical assistance and concessional finance instruments to remove market barriers.
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.