Environment
By Maureen Chigbo, reporting from Sharm El Sheikh, Egypt
AKINWUMI Adesina, president of the African Development Bank, AfDB, has advocated the use of green bonds to mobilize global financing for tackling climate change challenges. Adesina stated this on Wednesday, May 23, at the ongoing three-day 2023 annual meetings of the bank with the theme: “Mobilizing Private Sector Financing for Climate and Green Growth in Africa”.
Realnews reports that Africa needs $2.7 trillion to meet its climate financing goals and even the $100 billion yearly pledge made by the developed countries to assist has not been redeemed while Africa suffers disproportionately from carbon emissions. Hence the urgent need to raise financing for the private sector for climate change adaptation in the continent.
“The valuation of companies on the stock exchange based on the greening of their portfolios will provide greater incentives for green investments. The use of green bonds can mobilize global green financing to Africa. That is because Africa currently accounts for just 0.2% of the USD 2.2 trillion of cumulative global green bonds issued up to 2022,” Adesina said.
Realnews reports that the AfDB has issued more than $10 billion of green and social bonds in the past 10 years, to support green projects such as the Cabeolica wind farm in Cabo Verde which supplies 20% of its electricity and the Gabal El-Asfar water treatment plant in Egypt which supplies water for over 3.3 million people, one of the 10 largest water treatment plants in the world.
“We are using the private sector to transfer to the market the climate risks facing countries, by insuring countries against climatic shocks. The Africa Disaster Risk Financing Program, which is being implemented in partnership with the Africa Risk Capacity, supports African countries in managing risks of climate disasters through risk profiling, contingency planning, and disaster risk financing. It is working very well,” the AfDB president said.
Realnews learnt that three years ago, when Madagascar suffered from droughts, the programme disbursed $2.1 million to support losses suffered by 600,000 vulnerable people. Similarly, when Malawi experienced droughts, the insurance programme unlocked $14.2 million as payouts to farmers. The AfDB is working now to deepen the development of reinsurance markets to expand capacity of the private sector on market risk transfers.
“We must do more to green the infrastructure space of Africa through private sector financing. Therefore, the African Development Bank, Africa50 and partners launched the Alliance for Green Infrastructure in Africa (AGIA). It will accelerate private sector investments in renewable energy, green urban transport systems, green hydrogen, and climate-resilient infrastructure. AGIA plans to mobilize USD 500 million of project preparation and project development financing using private equity platforms and mobilize USD 10 billion for private sector financing for green infrastructure in Africa,” said Adesina.
The bank is using blended financing to accelerate private investments in electricity. It is implementing with the public and private sector a $20 billion Desert-to-Power programme to develop 10,000 megawatts of electricity using solar in the Sahel and provide electricity for 250 million people.
It is also deploying partial credit guarantees to support the mobilization of private financing. A good example is our recent provision of EUR 195 million as a partial credit guarantee to support the Republic of Benin to raise USD 500 million on the global capital markets.
Last week, the Board of Directors of AfDB approved a $345 million partial credit guarantee to support Egypt to raise USD 500 million in private financing for green growth through the issuance of its first-ever sustainability Panda bond.
“As the world moves to transition to electric vehicles, Africa stands to be able to attract billions of dollars in private investment for greening global transport systems. That’s because Africa has 80% of the global deposits of platinum, 50% of cobalt, 40% of nickel, and substantial deposits of lithium. Africa must set up itself to manufacture lithium-ion batteries to tap into the future market of electric vehicles that some projections that is estimated to run into several trillions of dollars in the future. The cost of establishing a lithium-ion precursor factory in Africa is three times less expensive than in the US or China,” he said.
Adesina is of the view that the future before Africa “is full of challenges on climate change, but massive opportunities on green growth of our economies. To mobilize a lot more private financing for climate change and green growth, governments and development partners should take five approaches.”
He called for the establishment of national development plans for green transition for their economies; subsidizing green industries to spur growth, raise demand, profitability, and sustainability; and multilateral and bilateral financial institutions should provide guarantees at scale to help de-risk investments by the private sector.
He also advocated that support should be provided for the preparation and development of bankable projects that can provide high-risk-adjusted returns to the private sector, adding that “the existing public-financed infrastructure should be transferred to the private sector – what we call asset recycling – to mobilize more private sector resources for greener infrastructure.”
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Tags: AfDB African Development Bank Akinwumi Adesina
