This blogpost was written in collaboration with participating think tanks from the Amplifying African Voices Initiative and jointly published
The 9th edition of Amplifying Africa's Voices Initiative focused on the role of climate finance in Africa and the support that think tanks could provide for this agenda. What should be the strategic allocation of financial resources to regions facing acute climate challenges? What is the role of central banks in navigating the climate transition? How can countries manage their debt implications? It is also important to reflect on the role of think tanks in bridging the gap between experts and policymakers.
Unlocking Climate Finance Solutions for Africa: An Overview
The need for climate finance in Africa is substantial, as evidenced by the continent's $26 billion commitments at the Climate Summit in Nairobi.
Reuben Wambui, Founder of the Net Zero Initiative and the Kenya Climate Finance directory, kicked off the discussion based on a recent paper published by ACET “Breaking Financing Barriers for a Just Climate Transition in Africa” with Dr. Mahmoud Mohieldin - UN Climate Change High-Level Champion, COP27, Egypt- and Bogolo Kenewendo - Special Advisor and Africa Director for the UN Climate Change High-Level Champions-.
To attract more private finance; addressing inefficiencies, providing relief and debt suspension in cases of public debt constraints, and improving credit, guarantee schemes, and foreign exchange mechanisms; are crucial. He also emphasized the urgency of directing financial resources to regions with pressing needs, especially in infrastructure, agriculture, and nature-based solutions, where blended finance proves to be a promising tool.
How can we make it happen? Think tanks have a role in connecting policy ideas with ongoing processes. It is a G20 priority, but it can be shaped by African priorities if stakeholders are connected better. Central banks are another good example of actors where new ideas and engagement can help mobilize climate action.
Discussion: Strategies for Climate Finance
During the discussion, entry points to improve climate finance were discussed:
- It remained to be assessed whether it is possible to address the challenge of attracting private sector funding for climate adaptation. Climate finance, often supply-driven, requires better customization to meet specific country or regional needs, especially in developing regions like Africa.
- The potential increase in debt for countries undertaking climate initiatives underscores the significance of careful financial burden management. Additionally, addressing risks such as stranded assets and navigating the challenges associated with uneven progress and varying capacities among countries, known as "asymmetric transition," necessitates regional-level assessments and planning to ensure a fair and balanced transition process.
- Public-private partnerships provide valuable insights for blended finance, combining public and private funding to achieve more cost-effective outcomes despite challenges. Considering the high debt risks associated with climate-related projects, more equity investments would be required, but current instruments deployed by MDBs are still too fragmented.
- Investments in adaptation, particularly in agriculture, play a crucial role in ensuring food security for Africa. Climate change presents not only costs but also opportunities, which arise in green tech industries and solar energy. However, the initial heavy financial commitment to these investments prompts the exploration of policy options, such as subsidies, guarantees, and a green interest rate. Each option comes with trade-offs, emphasizing the need for further assessment and consideration.
Amid decreasing aid and rising debt, securing financing for Africa's transition is a challenge. While some sectors attract climate finance, others lack funding. Looking forward, documenting successful private capital approaches, and exploring financial trade-offs are crucial. What studies detail successes, and should there be a platform for broader accessibility?