As the world prepares for COP28 later this month in Dubai, Africa stands at a critical juncture. While the continent is blessed with an abundance of solar, wind, hydro and geothermal resources, it faces the daunting challenge of securing the financing required to transform its energy systems and the pressing issue of widespread energy poverty.
The 2023 Africa Climate Forum held last month in Abuja, Nigeria, brought together experts and stakeholders to delve into this important issue and explore innovative pathways towards unlocking Africa’s renewable energy potential.
Here are some of the key points raised during the session on Financing Mechanisms and Instruments for the Energy Transition moderated by Gori Olusina Daniel, AP3’s Managing Partner:
- The Imperative for Climate-Resilient Infrastructure & Nature-Based Solutions: With climate-related losses currently amounting to $ 7 billion to $15 billion annually, the continent faces an urgent and present need for climate-resilient infrastructure and Nature-Based Solutions that safeguard communities against the increasing frequency and severity of floods, droughts, and other extreme weather events. This is projected to rise to $50 billion by 2030 and underscores the need for substantial investments in adaptation resilience funding.
- The Funding Gap and the Need for Radical Change: Meeting Africa’s climate commitments under the Paris Agreement will require an estimated $2.8 trillion between 2020 and 2030. This requires a ten-fold increase on current levels, represents about 93% of Africa’s GDP, and demands a radical shift in approach to mobilising the much-needed private and concessionary funding support.
- The Impact of COVID-19 and Global Inflation: The COVID-19 pandemic has exacerbated the continent’s debt burden., while the global inflation-fuelled currency crisis has led to significant devaluations against the dollar, placing a massive strain on financial capacity and making it even more difficult to attract funding for key projects.
- A New Partnership Approach and Review of the Global Financial Architecture: Africa holds immense potential for renewable energy generation, with an estimated 60% of the world’s untapped renewable energy resources, and nearly a third of the critical minerals needed to power the energy transition revolution. To fully harness Africa’s potential to support and lead the global energy transition, a new partnership approach is required, along with a radical review of the global financial architecture. This includes enabling African countries to monetize and extract fair value from their natural resource endowments through a value-chain approach that promotes industrialisation and encourages local processing, which supports local sustainable jobs and economic transformation.
- The Pivotal Role of Government Policy: Government policy plays a pivotal role in facilitating this step change. African governments must prioritize polices and projects that mainstream their Nationally Determined Contributions (NDCs) in their national development plans and annual budgets, attracting much needed FDI (e.g. promoting Green Industrial Zones), climate finance (e.g. green bonds, Carbon taxes, tax rebates and reduction of excise duties to encourage local production of green technologies and adoption of renewable energy technologies), and blended finance (e.g. combination of concessionary, donor, green and private sector capital) required for climate compatible growth.
Looking Ahead
Africa’s commitment to a net zero pathway should not be in doubt, given it is one of the regions most impacted by climate change. However, it is right to recognise that conversations about Africa’s preparedness and ability to meet its commitments under the Paris Agreement should include the need to evolve how the continent’s factors of trade are harnessed and traded, as well as the imperative of recognising the need for a transition that recognises the unique and just development pathways countries across the continent need and are increasingly demanding. The global financial architecture also demands critical attention, considering Africa’s susceptibility to debt distress from dollar-denominated loans and financial products.
In conclusion, the transition to a clean energy future is not just a challenge, but an opportunity for Africa to secure a sustainable and prosperous future. The continent possesses the resources, the will, and the need for this transformation.
By fostering new equity-based international trade partnerships, leveraging private sector investment, and addressing the continent’s susceptibility to unsustainable debt, Africa is poised to become a global leader in the energy transition – paving the way towards a transition to a clean, sustainable, equitable future for its people and the planet.
