The Need for Private Investment to Tackle Climate Change in Africa

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The evidence is clear: within ten years the world is likely to surpass the 1.5°C global warming threshold. Surpassing this threshold will significantly endanger natural systems and will be accompanied by major climate catastrophes. Even if the threshold is avoided, climate change will have a significant – although highly disproportionate – impact throughout the world. Seven of the ten countries most vulnerable to climate change are in Africa. Climate change threatens to exacerbate numerous issues in Africa, such as food insecurity and conflict.

Climate change issues are significantly hindering a continent that offers great promise. Africa’s richness in natural resources and its growing workforce should empower African countries to thrive. It is this potential that has led to the increasing engagement by the United States and China in Africa, such as the recent visits of U.S. Secretary of State Antony Blinken to numerous African countries. Even as Africa grows increasingly central to geopolitical competition, climate mitigation is unlikely to accelerate in the coming years. Lacking proper foreign investment and international aid, the countries most at risk of climate change are once again at risk of becoming an afterthought. For this reason, the world must turn to an often-overlooked source of climate funding: private investment. While challenges for private investment on the African continent persist, the continent offers great opportunities for private industries to develop a symbiotic relationship.

Africa’s Climate Problem

U.S. and Chinese pivots to Africa symbolize the great promise that Africa offers. Africa’s natural resources and its projection to have the world’s largest workforce by 2040 could enable significant long-term growth. The continent does, however, face a variety of serious challenges, at the forefront of which are the risks brought on by climate change. Climate change is likely to not only threaten Africa’s growth prospects but more importantly the stability and habitability of numerous African countries.

Global warming issues in Africa range from growing food crises to conflict. The Intergovernmental Panel on Climate Change (IPCC) predicts shortened growing seasons and increased water stress. This will exacerbate the already existing drop in agricultural productivity. A rise in global temperatures will decrease crop yields and fish harvests, reduce freshwater supplies, and significantly reduce the biodiversity of animal and vegetal species. Not only does this affect food availability, it also impacts the income of many families. Over 60 percent of sub-Saharan Africa’s population consists of smallholder farmers. Climate change will therefore further push African families into poverty. Compounding this lack of food availability and accessibility will be a growing food demand. Africa’s population is expected to nearly double by 2050 – reaching 2.5 billion people. Lacking proper agricultural self-sufficiency, climate change will therefore worsen African food insecurity. This food insecurity does not just affect civilians; it also impacts political stability.

Climate change is also likely to increase the frequency and intensity of conflicts in Africa. Socioeconomic and political stressors are likely to increase as a result of climate change. Lack of food accessibility and a loss of income for farmers will increase public grievances. This establishes conditions ripe for increased political instability. The catalysts of recent conflicts such as the Syrian civil war were heavily influenced by the effects of climate change. As the Syrian case exemplifies, environmental changes led to a scarcity of natural resources, which endangered food and agricultural job security. This lack of food and job security in turn increased displacement, overwhelmed government capacities, and exacerbated grievances. Similar effects have already occurred in numerous African countries during the Arab Spring, such as in Egypt and Tunisia

Funding Climate Change

Fortunately, the effects of climate change have not gone unnoticed. For nearly three decades the United Nations has brought countries together through the annual Climate Change Conference, better known as COP. The latest event, COP27, once again reiterated the importance of tackling climate change but left many disappointed with weak governmental commitments. The lack of commitment to curb emissions and significantly increase climate funding will affect vulnerable countries the most.

Africa only receives 12 percent of the climate financing it requires to properly address climate change. International funding is falling well short of its promises, with little sign of improvement. Addressing climate change in Africa will therefore require significant funding outside of international aid. Lacking proper investments from governments and international organizations, African countries require private climate investment. COP26 in 2021 already underlined the importance of the private sector in addressing climate change. The African climate issue, however, isn’t limited to mere funding. Specifically, the allocation of resources must subsequently be addressed.

Most climate change financing is focused on climate mitigation. Climate mitigation focuses on efforts to reduce or prevent greenhouse gas emissions. While mitigation is important, most African countries also require significant climate adaptation funds. Current climate change levels are already taking their toll. Reducing the effects of climate change through adaptation is therefore essential to protect the livelihood of Africans. It is this adaptation that requires funding.

Why should businesses invest?

While the need for private investment in African climate adaptation has been established, the question remains: why should private actors invest? The first argument that can be made is that there is a vast market that the private sector has left largely unexplored. The UN’s 2022 Adaptation Gap Report estimates annual adaptation costs to be between $160-$340 billion by 2030, meaning that funding needs are five to ten times higher than currently available capital. Of this current capital, only 1.4 percent is estimated to come from the private sector. As the effects of climate change continue to grow, so will the need for adaptive solutions. Decreased crop yields, water shortages, and damage to real estate and infrastructure will likely total billions of dollars in damages per year without proper adaptation. An expected $2 trillion climate adaptation market will present appealing business opportunities in Africa.

The appeal of private investment can further be supplemented by reducing the risk factor for investors. To attract private investment into African climate security, public capital should be leveraged. Among the main deterrents to private investment in African markets is risk exposure. To limit risk exposure, governmental and international organization funds should be used more frequently to attract private investment. Current funds provided by organizations such as the UN and International Finance Corporation are not enough. Through blended financing, private investors can use donor funds to finance part of their investment, reducing a private actor’s risk exposure and therefore directing capital toward undersupplied markets. Funds such as the UN’s Green Climate Fund should be expanded to make private investment more attractive.

Removing the Barriers

While blended financing incentivizes investment, existing barriers to investment cannot be overlooked. A joint report by the World Bank Group and Global Facility for Disaster Reduction and Recovery identified two additional barriers to enabling private investment.

The first of these barriers is the lack of available data to conduct proper risk assessments. Data and information regarding future climate impacts, population trends, and socioeconomic trends are essential to calculate long-term risk. Country- and region-specific climate change and vulnerability databases are needed for investors to make informed decisions. The lack of proper quantitative and informational support services leaves private capital unable to make the required long-term investment decisions.. This lack of information is exacerbated by poor institutional policy and coordination.

The general lack of national adaptation planning provides an additional barrier to private investment. Specifically, the shortcomings of Nationally Determined Contributions (NDCs) and National Adaptation Plans (NAPs) should be addressed. Established under the Paris Agreement, NDCs are meant to provide national goals for climate mitigation and adaptation. NDCs set out a roadmap to reach country-specific climate targets and provide monitoring systems to assess progress. However, the current lack of adaptation roadmaps makes investment unattractive. African countries should set up clear policies, budgets, and investment programs. Through well-defined NDCs and NAPs, clear goals and governmental commitments will make it easier to obtain private investment. On the national level, this means that governments need to provide proper coordination between all relevant actors to enable feasible projects and initiatives. This entails effective stakeholder management between ministries, local governments, and private sector entities. Therefore, countries impacted by climate change should establish clear climate adaptation NDCs and NAPs that communicate goals, allow for effective stakeholder management, and signal stable investment climates.

Establishing a Symbiotic Relationship

By reducing the barriers to private investment, a symbiotic relationship between private investors and climate-affected states can be established. Setting out clear NDCs and NAPs will allow private capital to be directed to adaptation projects that positively impact local populations. Numerous climate mitigation projects in Africa already show how such relationships can be established. In Senegal, for example, the World Bank Group initiative Scaling Solar is providing support to mitigate Senegal’s poor regulatory framework to enable private investment. This resulted in the creation of two massive solar power plants by the private firms ENGIE and Meridiam that provide power to 540,000 Senegalese at a low cost.

Effectively addressing climate adaptation concerns in Africa will require similar private investments. Current climate funding levels are insufficient and the lack of funding will exacerbate socioeconomic and political hardship in Africa. Available public capital should be used to attract private investment, which opens the door to a plethora of investment opportunities. However, current barriers to private investment – specifically, poor risk assessment opportunities and lackluster national planning – cannot be ignored. Only by improving the investment climate can states hope to properly adapt to climate change. Addressing climate adaptation, therefore, requires a comprehensive approach by both public donors and the African countries themselves to attract private investment.

While this analysis has examined the importance and environment required for private investment to address climate change in Africa, it only scratched the surface. In-depth country-level risk assessments and NDC analyses are required to properly identify opportunities beneficial to both private investors and local populations. Only through collaborative efforts between African governments, public climate change financiers, and the private sector can the lives and livelihoods of at-risk African communities be protected.

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