Africa offers a wealth of climate-related investment opportunities, including sustainable agribusiness and renewable energy. However, hundreds of millions of people are still suffering from food insecurity, water stress, and weak access to electricity which makes make infrastructure and energy upgrades even more urgent. Between 2011 and 2020, approximately 16.5 million people on average have been impacted by droughts and floods annually across the continent. This has resulted in serious consequences for rain-fed agriculture and livestock systems, detrimentally impacting food security for numerous communities.
Additionally, the rise in sea levels exacerbates problems for coastal regions through reduced land, increased flooding, and stronger storm surges. With projections indicating a 40% growth by 2030 in Africa’s seven largest coastal cities, Lagos, Luanda, Dar es Salaam, Alexandria, Abidjan, Cape Town, and Casablanca, the concern is palpable. Keenly aware of these impacts, African nations are actively working to address the threats of climate change through their Nationally Determined Contributions (NDCs), which outline the budgets and investment plans needed to meet their environmental targets and adaptation strategies.
To combat climate change effectively and limit global warming to 1.5°C, Africa requires an annual investment of $277 billion to fulfill its climate commitments under the Nationally Determined Contributions (NDCs) by 2030. However, the current inflow of climate finance is significantly lower, at just $30 billion per year. This shortfall might be even greater than estimated, as the true financial requirements, particularly for adapting to climate changes, are likely underreported due to issues with data and methodologies used in costing NDCs.
In most cases, to determine climate finance needs in developing economies, it is critical to identify financing gaps and opportunities to guide stakeholders to effectively access, allocate and mobilize climate finance. Such data supports international policy processes, like the determination and implementation of a new collective and quantified goal on climate finance and accelerates action. The process of estimating needs also helps in assessing the effectiveness of climate finance flows. 51 out of 53 African countries that submitted Nationally determined contributions have provided data on the costs of implementing their NDCs. Collectively, they represent more than 93% of Africa’s GDP.
Based on this data, it will cost around USD 2.8 trillion between 2020 and 2030 to implement Africa’s NDCs. Despite competing development priorities and high debt burdens, African governments have committed $264 billion of domestic public resources towards financing the implementation of their respective NDCs, amounting to 10 percent of the total estimated costs for implementation. The remaining $2.5 trillion needs to be sourced from the international donor community and the private sector. This external financial support, required beyond domestic public sources, is defined as “climate finance need”.
Strategies for Bridging the Gap
Stimulate Private and Domestic Financing: Currently, private climate finance in Africa stands at just 14% of the total, compared to 50% globally. To increase this, development partners should aim for higher leverage ratios with blended finance structures, emphasize the role of private insurance, and offer partial guarantees. Additionally, building capacity and creating more visible investment opportunities can attract more private capital.
Improve Data Tracking and Disclosure: Accurate data is vital for transforming Nationally Determined Contributions (NDCs) into actionable finance strategies. Closing data gaps will enable the development of effective solutions and inform investor decisions. Both governments and private entities should enhance their climate risk analysis and reporting to better track and communicate their progress towards climate targets.
Empower Local-Level Climate Investments: As Africa urbanizes, it’s important to empower local governments to increase their financial and operational capabilities. This can improve the alignment between national and local climate actions and encourage cooperation among local governments, as seen in Kenya’s Financing Locally-Led Climate Action Program (FLLoCA).
Adapt Financial Strategies to Real-World Conditions: With debt making up over half of climate finance, it’s essential to find solutions that reflect the current economic challenges, like high debt levels worsened by the Covid-19 pandemic, food insecurity, and exchange rate issues. Tools such as guarantees, insurance, and currency hedging could attract more private investment by aligning with the fiscal realities.
Build an Enabling Environment: Supporting governments in developing smart climate policies and enhancing regulatory frameworks is crucial. While some African countries have made progress, others lack robust policies. Sharing best practices and developing joint regulations can unlock private investments and foster a supportive environment for climate finance.
Bridging the climate finance gap in Africa is not just a regional necessity but a global imperative. At Climate Action Africa, we’re dedicated to facilitating these discussions and actions. Our recent webinar, “Climate Finance in Africa: Successes, Challenges, and the Road Ahead,” held on the 29th of February, served as a platform for stakeholders to share insights and strategies. To learn more about the webinar: https://youtu.be/km5qhQTj0Hg.
