Finance

The report offers a vision of climate finance’s future. (Image source: Adobe Stock)

A new report by Climate Policy Initiative (CPI) has revealed that climate finance flows into Africa are far below what is required to meet the continent’s climate adaption and mitigation needs

The ‘Landscape of Climate Finance in Africa 2024’ report, commissioned by FSD Africa, sets out these damning findings that could lead to potentially catastrophic social and economic implications. According to the research, there was actually a 48% growth of climate finance to the continent in 2021/2022 from 2019/2020. This saw climate finance reach US$44bn, with private sector finance also doubling to reach US$8bn.

However, despite this move in the right direction, the research indicated that this is simply not enough, with a grave financing gap threatening Africa’s long-term sustainable development trajectory. Key findings from the report include:

• Climate finance was only 23% of the estimated finance required annually for countries to implement their NDCs and meet their 2030 climate goals;

• Finance from domestic actors made up only 10% of total climate finance and funding from African governments remains in decline (from US$1.bn in 2019/020 to US$1bn in 2021/2022);

• There is a huge regional imbalance in flow with the top ten countries receiving 50% of total finance and the bottom 30 receiving just 10%;

• Private finance comprises only 18% of total climate flows;

• Half of all private finance goes to South Africa, Egypt and Nigeria.

Rate of growth "too slow"

“Climate change has the potential to cause Africa major and unprecedented economic disruption and reverse gains made in the recent past,” said Mark Napier, chief executive officer of FSD Africa. “To counter all actors must invest in a more sustainable future. Climate finance is the key element which will determine Africa’s ability to adapt to, mitigate, and develop through, a changing climate. This report by the CPI provides policymakers and decision makers on the continent with a survey of the climate finance landscape as it is now, and as it can – and must – develop in the future.”

In order to do so, the report also provides recommendations to address the gap and accelerate funding such as:

• Establishing an ambitious enabling environment to mobilise capital;

• Strengthening coordination between investors and development financiers to scale-up private sector investment through concessional resources;

• Maximising the impact of mitigation and adaptation investments by stronger integration of climate and development objectives into national policy development and long-term strategies.

• Seeking out and investing in the numerous business opportunities for green, resilient growth in Africa, taking advantage of growing pools of concessional finance and guarantees, while integrating climate risk management from the outset into decision-making.

“It is encouraging to see more climate finance flows in Africa, but the rate of growth is too slow,” surmised Barbara Buchner, global managing director of Climate Policy Initiative. “Public policy and investment must be targeted effectively, and private capital, both domestic and international, can no longer sit on the sidelines. Otherwise, the significant economic opportunities currently available across the continent will be overshadowed by severe economic losses and catastrophic social consequences.”

The transaction marks a significant milestone as the first investment under the Africa Resilience Investment Accelerator. (Image source: BII)

British International Investment, a development finance institution and impact investor, has sought to boost private sector growth in high-impact sectors through the launch of a US$25mn risk sharing facility with Ecobank Sierra Leone

Currently, SMEs provide employment for about 70% of Sierra Leone’s population. Despite representing a crucial component of the country’s economy, BII has noted that these businesses still struggle to gain access to capital due to a number of factors such as limited availability of suitable financial products, high collateral requirements, high interest rates and the prevalence of short-term loans.

The risk sharing facility, which includes a comprehensive technical assistance programme, will therefore support Ecobank to increase lending to ambitious businesses in a frontier market where economic growth is hampered by lack of capital and investment.

“The signing of this agreement with Ecobank Sierra Leone underscores BII’s pioneering role to lead investments in countries that are often overlooked by investors,” remarked Samir Abhyankar, MD and head of financial services, BII. “The facility will be a game-changer for Sierra Leone, providing much-needed capital for ambitious local businesses to accelerate their growth, spur job creation and deepen impact. It’s an example of BII innovating and working with partners to help address pressing challenges where it matters the most.”

Growing Sierra Leone business

Building on US$50mn trade finance facility between the two entities in 2021 (which helped the bank to deepen its reach across Africa), the new facility will support local currency lending. According to BII, it will demonstrate its ability to act as the first mover in frontier markets and drive impact through risk navigation strategies.

Sebastian Ashong-Katai, managing director, Ecobank Sierra Leone, remarked, “We are delighted to have secured the support of British International Investment in boosting Ecobank’s vital lending capacity for Sierra Leone businesses who are the engine room for our country’s growth, economic development and employment. This further strengthens our intent to be the bank of choice for Sierra Leone’s businesses and leverages our delivery of world-class products, services, solutions, borderless digital pan-African platform and business skills training which are designed to support them in further growing their businesses.”

The investment will help Ecobank Sierra Leone to grow its loan book by increasing credit limits and extend lending tenors to up to five years. This is expected to boost business growth, create more jobs and increase private sector contribution to Sierra Leone’s economy.

The investment is anticipated to strengthen Africa's position in global value chains. (Image source: Afreximbank)

ARISE IIP, a pan-African developer and operator of industrial parks, has announced a significant capital raise of US$443mn

The capital was primarily attained through a US$300mn investment from The Fund for Export Development in Africa (FEDA), Afreximbank’s development impact investment arm, and a US$143mn contribution from Africa Finance Corporation (AFC).

“This equity partnership with Afreximbank significantly enhances our financial capacity to execute our pan-African industrial development strategy,” commented Gagan Gupta, founder and CEO of ARISE IIP. “It’s a strong vote of confidence in our business model and growth prospects.”

As a result of this development, ARISE IPP’s total equity capital now exceeds US$1bn. The funds are intended to accelerate its fast expansion and operational efficiency across its 12-country portfolio and are aligned with the entities’ objective to catalyse industrial transformation across the continent.

President & chairman of board of directors at Afreximbank, Benedict Okey Oramah, remarked, “We are very pleased with our latest investment in ARISE IIP which is aligned with Afreximbank’s strategic pillars of promoting intra African Trade and facilitating industrialisation and export development across Africa. The capital boost will arm ARISE IIP with the financial muscle needed to drive Africa’s industrialisation, promote intra and extra-African trade, job creation and the general economic growth of our continent.”

Samaila Zubairu, president & CEO of AFC, added, “Our journey towards capturing greater value within the continent, by converting raw materials into intermediate and finished goods, has already shown significant progress in three countries, with an expanding pipeline of projects in ten more. This success reinforces our commitment to further support and invest in this important initiative, including our latest equity investment of US$143mn.”

John Humphrey ringing the trading bell alongside leaders from MOBILIST, NSE, FSD Africa, AIB-AXYs and Capital Markets Authority. (Image source: MOBILISE)

At a launch event in Nairobi, UK Government programme MOBILIST announced a new partnership with the Nairobi Securities Exchange (NSE)

This will drive the listing of new investment products in the Kenyan market and increase the amount of private sector capital available for development and climate projects in Kenya.

MOBILIST, which boasts similar partnerships with several emerging market exchanges including the Nigerian Exchange and Johannesburg Stock Exchange, provides investment and technical assistance to help businesses that contribute to the United Nations Sustainable Development Goals to overcome the barriers that keep them from listing on a stock exchange.

“The NSE is delighted to partner with the UK government-backed MOBILIST Programme,” remarked NSE CEO, Frank Mwiti. “The strategic partnership between the NSE and MOBILIST aligns with our new strategic focus aimed at enabling the NSE to play a more dynamic role in mobilising and channelling capital to sectors that have the most significant capital needs, with a special focus on sustainable development. As a market, we will continue providing a pivotal intersection connecting capital to investment-grade opportunities in Kenya for sustained economic growth.”

Reaffirming UK-Kenya ties

The launch was attended by the UK’s Trade Commissioner for Africa, John Humphrey, as he began a three-day visit to the East African country following his recent trips to Egypt and Ethiopia. In his time in Kenya, Humphrey will focus on delivering long-term investment projects that support the UK-Kenya Strategic Partnership – a five-year agreement that seeks to unlock mutual economic benefits for the two countries.

“Mobilising investment solutions in Kenya are vital to economic growth as they provide a platform for Kenyan businesses to raise the capital they need to expand their operations, increase cross-border trade, and employ more Kenyans – and at the same tackle climate change and achieve critical development goals,” commented Humphrey.

“Long-term investments that deliver lasting change for the people of both our countries are the cornerstone of the UK-Kenya economic relationship. We go far when we go together – I am delighted to be back in Kenya to deliver our mutually beneficial partnership which is rooted in respect.”