The Challenges and Opportunities of Green Financing in Sub-Saharan Africa

Introduction

 According to the United Nations Environmental Programme (1), green financing refers to all financial operations carried out with the aim of protecting the environment. This funding aims to manage environmental and social risks, and to raise awareness of the need to protect the environment. Green financing uses tools such as the carbon market, the carbon tax, the ecological bonus-malus, and green works and investment. Sub-Saharan Africa is the world’s second largest forest and biodiversity zone, with 5,866,756 ha of forest certified by the Forest Stewardship Council (FSC) in 2022, equivalent to around 12% of exploitable forests. Nevertheless, this sparsely polluted area is the one that suffers most from the effects of pollution emanating from industrialized countries. Post-summit green financing appears to be a stopgap measure that offers both challenges and opportunities for the region’s countries. Held on June 22 and 23, 2023 in Versailles, France, the summit for a new global financial pact aimed, among other things, to establish a new agreement for a more interconnected international financial system.The objective of this article is to analyze the challenges and opportunities that green financing presents to Sub-Saharan African countries considering the important position that this area occupies in the world in terms of forests. So, we will first present the challenges and then present the opportunities.

  1. The Challenges of Green Financing in Sub-Saharan Africa

Sub-Saharan Africa is the region that least contributes to greenhouse gas emissions in the world, but is the most vulnerable to climate shocks. As a result, given the standard of living in the region, the financing of climate change and the transition to green energies, which is costly, cannot be supported by the countries in this area. Sub-Saharan Africa therefore faces several challenges when it comes to green financing.

Firstly, there is the problem of access to financial, material and human resources for the Sub-Saharan Africa countries. Indeed, green financing has a cost and according to the ADB (2023) , it is necessary to involve the private sector more. According to the United Nations Environment Programme, the average annual cost of adaptation to climate change is inevitable for Sub-Saharan Africa and could reach around 15 to 18 billion over the coming decades if average global warming of the planet does not exceed 4°C. However, for the majority of investors the Africa destination is very risky. The observation is that climate financing in Africa is the work of non-private actors. To illustrate this, of the $29.5 billion in climate finance in Africa in 2020, only 14% came from private actors, which is considerably lower than in other comparable regions. Access to financial resources is essential to counter climate change and stimulate green growth in Africa.

Second, Sub-Saharan African countries suffer from a lack of accumulation of important technical skills to develop and advance green projects. If Sub-Saharan Africa has experts, they could quantify the reduction in greenhouse gases due to deforestation and forest degradation, and communicate this to different interested parties. Today, in most of Africa, decision-making based on data analysis is hampered by the scarcity of access to reliable and relevant climate information. This axiom is true: “what can be quantified can be financed”. Therefore, to mobilize additional funds, both nationally and internationally, and encourage the private sector to participate in green financing, African states should continue to improve their business climate. Countries that have not yet done so should introduce green tax measures, such as a pollution tax, to boost projects aimed at reducing environmental damage. African governments should also mandate their investment promotion agencies to be at the forefront of their countries’ quest for sustainability.

  1. Green Finance Opportunities for Sub-Saharan African Countries

The necessary response to climate change offers an opportunity to boost the economic transformation that Sub-Saharan Africa needs. This is why it is imperative to respond to climate change and implement an early warning system. Green financing is thus presented as a means of stimulating development that is resilient to climate change, with low carbon emissions, which stimulates growth, employment and economic development. The following opportunities then present themselves:

The opportunity to increase electricity production: The Sub-Saharan African region urgently needs to increase large-scale electricity production to achieve universal access to energy. Countries urgently need to massively increase electricity generation capacity to ensure universal access to energy, but they have the capacity to do so through an appropriate energy mix including solar, which would enable Africa to provide electricity and energy to its cities, rural areas and economies.

The agricultural opportunity : According to an AfDB report in 2015, 70% of the African population lives mainly from agriculture, which is of fundamental importance. Likewise, globally, Africa has the largest share of unused Arab land (25% of the planet’s fertile land). Climate change being a current concern for this sector, green finance is emerging as a solution to improve agricultural production without degrading land (going from 280 billion dollars to 880 billion in 2030). Africa could thus feed itself and create jobs.

The big difficulty for Sub-Saharan African countries is the lack of financing to capture climate opportunities. Several financing methods present themselves but with the summit for the new global deal, green financing happens to be the biggest financing opportunity. Sub-Saharan Africa is full of many resources but suffers from a crucial lack of financing.

Conclusion

Climate change presents major challenges for Sub-Saharan African countries to achieve sustainable development goals but at the same time offers several opportunities to seize. The summit for the new global deal presents green financing as another big opportunity. To benefit from this new reform, Sub-Saharan African economies should:

  • Establish a favorable business climate for private investments;
  • Diversify funding sources to support initiatives in the transition to green growth;
  • Promote the rich natural capital of Sub-Saharan Africa to finance training as well as initiatives promoting green growth.
Dr.-Herve-Nicanor-ONDOUA-1024x908
Dr. Hervé Ondoua
Economy Policy Analyst | + posts

Hervé Nicanor ONDOUA, est titulaire d’un Doctorat Ph.D en Economie de Développement obtenu en Janvier 2021 à l’Université de Yaoundé II-Soa (Cameroun). Il a dans la même université obtenue un Master en Gouvernance et Développement Economique et une Licence en Economie publique.

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