At Enlit Africa in Cape Town this week, the UNDP unveiled the Africa Green Business and Financing Report, highlighting the continent’s vast potential for renewable energy production.
This potential extends not only to meeting its own energy needs but also to fueling environmentally friendly manufacturing for companies seeking to reduce their carbon footprint worldwide.
Despite significant strides in the transition to green energy across Africa, the report emphasizes the need to ramp up investment both in terms of scale and pace to expedite progress.
At Enlit Africa, Dr. Matthias Naab, Director of the UNDP Regional Service Centre for Africa, emphasized the climate finance challenges confronting the continent.
Yet, the current annual flow of climate finance to Africa amounts to $29.5 billion. Naab pointed out that 30 out of the world’s 40 most climate vulnerable countries are located in Africa.
The Southern African region encounters the largest financial shortfall in absolute terms, largely attributed to South Africa’s substantial green capital requirements, amounting to $107 billion annually.
In Central and East Africa, countries face the most significant deficit in climate investment relative to GDP, averaging 26% and 23%, respectively.
Conversely, North African nations encounter comparatively smaller climate investment shortfalls at 3% of GDP, yet they still necessitate three to six times more green capital than their current intake.
“In this regional context, it’s worth noting that climate finance is primarily focused on a select few countries, as 10 out of 54 African nations receive more than half of the total investments, posing an additional challenge continent-wide.”
The private sector’s engagement in climate finance initiatives across the continent accounted for 14% in 2021, totaling $4.2 billion.
The majority of these investments, around 81% of the total, are channeled into mitigation projects. This trend largely reflects the advancement of renewable energy technologies and associated commercial ventures.
Seeking momentum to finance the expansion of eco-friendly businesses in Africa.
The report represents a crucial result of the UNDP’s Africa Green Business and Financing Initiative (AGBFI), established to explore avenues for enhancing private sector involvement in green business and finance, ultimately fostering sustainable and impactful transformations in the sector.
“The primary aim of this report, along with AGBFI, is to inspire practical initiatives in green business and financing that drive substantial and significant transformations. “The insights from this report and the suggestions provided will contribute to the subsequent phase of the program, which involves developing Country Action Roadmaps for three engaged nations: Angola, Malawi, and Togo.”
What are the six recommendations outlined in the report?
- Advocate for the establishment of specialized green investment banks, facilities, and funds, tasked with promoting the growth of green businesses in the area through tailored green financing solutions.
- Formulate an African urban green business and finance platform to aid the burgeoning urban centers in Africa in tackling the intertwined issues of rapid urbanization and climate change.
- Introduce nature as a valuable asset class, drawing insights from existing carbon markets worldwide and Africa’s abundance of natural resources, to develop resilient carbon and biodiversity markets.
- Strengthen green value chains and capacity by leveraging Africa’s abundant natural resources, essential for the green transition. Utilize the region’s sustainable energy and human capital potential to ensure that more value addition occurs within the communities and areas engaged in mineral extraction.
- Urge multilateral development banks to take proactive measures to mitigate investment risks in Africa. This includes developing new and innovative financial instruments, funds, and facilities. Collaborate with central banks to address currency risk issues, provide private investors with access to their internal risk modeling data and analytics, and engage with credit ratings agencies to reassess their methodology for evaluating investments in Africa.
- Establish an African green business institute to serve as a central hub for green business activities in the region. It will also function as a repository of the best practices in human capital development within the region.
These actions do not operate in isolation; instead, they interconnect in mutually reinforcing cycles. Nevertheless, they aim to be bold and revolutionary, striving to overcome the growth obstacles mentioned earlier, advocate for Africa’s leadership role, and align with the regional aspirations delineated in the 2023 Nairobi Declaration, adopted during the Africa Climate Summit.
For further details, please download the report here.