AFDB (2023) 2023 African Economic Outlook is Mobilizing Private Sector Financing for Climate and Green Growth in Africa. # 238 p
AFDB (2023) African Economic Outlook 2023 - Highlights # 40 p
In addition to analysing Africa's growth performance and outlook amid increased uncertainties and elevated global geopolitical tensions, heightened climate risks and lingering effects of the COVID-19 pandemic and Russia’s invasion of Ukraine, the AEO 2023 covers topics such as:
- opportunities and barriers for leveraging private sector financing for green growth in Africa;
- strategies, policies, and actions required to mobilize both domestic and international private sector financing;
- and specific roles development financial institutions (DFIs) and multilateral development banks (MDBs) in general.
The African Economic Outlook 2023 underscores the urgency to fast-track climate action and green transitions to drive the continent’s inclusive and sustainable development. The Bank’s new research, based on African countries’ latest submitted Nationally Determined Contributions (NDCs), estimates that private sector financing will need to grow annually by 36 percent until 2030 to close the continent's climate finance gap, evaluated on average at $213.4 billion per year. This will be important to address the continent’s climate financing needs, estimated at as much as $2.8 trillion over 2020-2030, or $250 billion annually. Unlocking private climate financing will require addressing both demand- and supply-side barriers while developing innovative financing instruments to tap into the continent’s enormous investment opportunities in climate and green growth.
The report also highlights the important role of Africa’s huge natural capital, valued at $6.2 trillion in 2018, in bridging the prevailing climate finance gap and promoting green growth transitions. Through sustainable management, Africa's abundant natural capital can be transformed into financial assets to complement financing for climate adaptation and mitigation, as well as into investments that support green growth transitions. This will require the deployment of appropriate policies and instruments, including fiscal instruments, to better understand the true value of Africa’s natural capital and strengthen local content and value addition. It will also build institutional capacity to address gaps in governance that have prevented the continent from realizing the full potential of its natural endowments and create regional value chains and markets to benefit from cross-regional synergies.
KEY MESSAGES PRIVATE SECTOR FINANCING FOR CLIMATE ACTION AND GREEN GROWTH IN AFRICA (page 61)
- Africa has great potential and self-interest to achieve green growth. However, despite its growing political commitment toward green growth and its rich natural capital endowment, the continent lags other regions on many green growth dimensions, in particular on the provision of green economic opportunities. Progress on efficient and sustainable resource use and on the promotion of social inclusion has not been sufficient to catch up with other world regions.
- To close Africa’s climate financing gap by 2030, approximately $213.4 billion will need to be mobilized annually from the private sector, to complement constrained public resources. Africa received $4.2 billion in private climate finance in 2019/2020, 14 percent of total climate finance flows of $29.5 billion. It requires $242.4 billion a year on average until 2030 — $2.7 trillion over 2020–30 — to implement its climate action expressed in the latest submitted Nationally Determined Contributions (NDCs).
- In addition, Africa will require about $1.3 trillion annually to meet its sustainable development needs by 2030 — and thus to achieve green growth. Most of this finance is expected to be met through private finance. To meet these needs and given the current levels of public climate finance, private climate finance should increase by about 36 percent each year until 2030.
- However, barriers on the supply and demand sides inhibit reaching the full potential of private investments in climate and green growth sectors in Africa. Ineffective implementation of green growth strategies, weak regulatory structures and institutions, high perceived investment risk, and the lack of bankable project pipelines continue to impede private investment in Africa’s climate and green growth projects.
- Despite the barriers, many investment opportunities in climate action and green growth could unlock private finance. Sectors that will rely on climate smart and low-carbon technologies — such as renewable energies and electric vehicles, energy-efficient buildings, climate-resilient infrastructure, improved dryland crop production, and water resource resilience — present Africa’s trillion-dollar market opportunities for the private sector. The implementation of appropriate regulatory, policy, and institutional frameworks is essential for turning them into booming markets for private investors.
KEY MESSAGES NATURAL CAPITAL FOR CLIMATE FINANCE AND GREEN GROWTH IN AFRICA (page 115)
Harnessing Africa’s enormous natural capital to complement its climate finance needs and sustainable and green economic growth requires the following policies and actions by different stakeholders and at various levels:
- African governments need to use appropriate natural resource policies and instruments to finance sustainable and green economic growth. These include:
- fiscal instruments to increase resource revenues and linkages with industrialization;
- increase local content and value addition to natural resources and utilization along value chains;
- in-country value creation and retention;
- controlling illegal, unreported, and unregulated fishing and curbing the high rate of deforestation;
- investing in human capital across the value chain and build international negotiation capacity;
- and building transparent and accountable institutions to govern their resources and guard against illicit trade, illicit financial flows and corruption.
- It also is important to ensure that returns are used to build inclusive and sustainable development. Sovereign wealth funds can be useful, but also need good governance.
- African countries should also invest in data collection for better valuation and measurement of natural capital, including implementing and integrating natural capital and ecosystem services into the standard system of national accounts; implementing appropriate fiscal and market instruments for optimal utilization of both renewable and non-renewable natural resources that take climate change and green growth into account; investing in the capacity, technology, approaches and tools needed to benefit from best practices in exploration and licensing initiatives, and international agreements; and reforming institutions to improve transparency and implement best practices for the governance of natural resource.
- The global community should honor pledges and commitments in international agreements such as the agreement on a Loss and Damage Fund, the post-2020 Global Biodiversity Framework, and the Paris climate agreement. It should increase collaboration and coordination among stakeholders — including international and regional multilateral organizations, national governments, and the private sector— to invest in the sustainable management of Africa’s natural resources while ensuring equity in the distribution of rents despite competitive advantages between investors and investment destinations.
- Multilateral development banks, bilateral donors, and corporations have a role in promoting transparency in contractual negotiations and operations to ensure that African countries get good deals from natural resource investments. Efficient use of natural resources involves improving regional integration and for trade, sharing information, and learning from each other. Furthermore, although natural capital is becoming relevant in the environmental sustainability leg of the Environmental, Social, and Governance rating by credit risk and rating agencies, more needs to be done to adequately reflect the value of natural capital assets in the credit risk profiles of African countries. They should also support Regional Member Countries in enhancing their credit risk profiles by integrating the true value of natural capital to help them boost their creditworthiness and mobilize foreign capital and bond issuance as part of their climate finance in the international market
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