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African economies will be greener, resilient in face of climate change

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Picture: David Ritchie/African News Agency (ANA) – South Africa – Sedgefield – 26 March 2022 – A lush green valley in the folds of the mountains visible from the Montagu Pass, it runs between the tiny town of Herold, on the northern side of the Outeniqua Mountains, down to the town of George.

By Sanda Ojiambo

I like businesspeople. They make decisions fast when the opportunities are clear.

Recently in Abidjan, the world of business, investors and project developers and global and African financial institutions gathered for the Africa Investment Forum Market Days 2022, organised by the African Development Bank and its partners. In 72 hours, we secured $31 billion in investment interests to Africa. Taken together with $32.8 billion we secured in March of this year, the Africa Investment Forum mobilised $63.8 billion of investment interests to Africa this year alone. That shows that Africa is bankable!

That’s why I am very excited that African business leaders have decided to mobilise to tackle climate change in Africa, with the creation of the Africa Business Leaders Coalition. Well done!

This is a coalition whose time has come. And it could not come at a better time. At a time when the world is dangerously off course on keeping global warming to 1.5 degrees above pre-industrial level. No wonder the UN Secretary General António Guterres said, “we are on the way to climate hell”.

Well, for millions in Africa, it is already hell on earth, as Africa is warming up faster than any other region of the world. Unless the trajectory changes, farming will be difficult due to greater frequency of droughts, floods, cyclones, locusts, and army worms. Africa is losing $7-15 billion annually due to climate change, which is expected to increase to $50 billion annually by 2030. Africa is suffering from the consequences of what it did not cause, as the Continent accounts for just 3 percent of global greenhouse gas emissions.

Africa’s economies are being stymied by climate change, as the Continent loses between 5 percent and 15 percent of its gross domestic product due to climate change.

To be blunt: climate change is making Africa poorer, while developed countries that polluted are getting richer.

Africa will need $1.3 trillion to $1.6 trillion by 2030 to implement its nationally determined contributions and adapt to climate change, or on average $125 billion a year. Yet, Africa receives just $18 billion annually in climate finance, with only $11 billion for climate adaptation. That leaves a climate adaptation financing gap of $110 billion per year.

The African Development Bank is leading the way in helping to mobilise resources for climate adaptation for Africa. We have doubled the share of our total financing dedicated to climate finance to reach $25 billion by 2025. We now devote 41percent of our total financing to climate, exceeding our set target of 40 percent. We now devoted 67 percent of our total climate finance to climate adaptation, the highest of any institution globally. We must, as climate adaptation is Africa’s major challenge.

The African Development Bank and the Global Centre on adaptation are implementing the African Adaptation Acceleration Program, with the goal of mobilising $25 billion for climate adaptation for Africa. The Bank has also opened a Climate Action Window to mobilize more resources for low-income countries and fragile states. I was delighted yesterday that the UK provided 200 million pounds towards this initiative, and the Netherlands provided 110 million EUR for the initiative.

But to tackle climate change, most of the resources will need to come from the private sector, especially for climate mitigation. It is in Africa’s interest to green its economies. A greener, low-carbon, and climate resilient Africa is good for people and good for business. This is the time for bold actions to reduce the carbon footprint in all the supply chains. We must green our industries. We must move away from relying on heavy fuel oils and coal for powering industries, to use of renewables, while recognising the importance of natural gas as a critical transition fuel in Africa, to provide a balanced energy mix and stabilise grids to foster industrialisation.

That is why the African Development Bank is investing heavily in renewable energy and now devote 85 percent of all its financing for power generation to renewables.

Governments can support further decarbonisation of economies by removing subsidies on fossil fuels and use carbon taxes to reduce reliance on carbon emitting technologies. Businesses can help by full disclosure of the carbon footprint of their supply chains and shifting from fossil fuels to greater use of more renewable energy.

The development of the carbon markets, with the right pricing of carbon, will help speed up this transition.

Businesses need to increasingly factor climate risks into their businesses, supply chains and financial projections, as climate risks will impact on business profitability, viability, and sustainability. The development of market risk transfer mechanisms can help reduce risks for businesses, especially for the small and medium sized businesses that are most vulnerable to climate change.

African economies will be greener, and businesses more resilient in the face of climate change, the faster Africa progresses on developing green infrastructure. Green infrastructure is very limited in Africa, and this can be seen in terms of Africa’s share of global green bonds that support green infrastructure. Of the total $522 billion of green bonds issued globally between 2007-2018, Africa accounted for only $2 billion, or 0.4 percent.

The shift to accelerating the development of green infrastructure will open great opportunities for the launch of more green bonds, and crowd in institutional investors that are driven increasingly by Environmental, Social and Governance (ESG) criteria in their investment decisions. By focusing on the development of green infrastructure, Africa can increase its share of green bonds to 2.5 percent globally, and leverage about $14 billion in green financing to boost Africa’s green infrastructure assets.

That is why the African Development Bank, and its partners launched the Alliance for Green Infrastructure in Africa (AGIA) to speed up the development of green infrastructure in Africa in our collective drive towards net zero emissions.

We are doing all of these because we believe that businesses are part of the problem of greenhouse gas emissions, and businesses must now become a critical part of the solution.

Nobody wants to live in hell.

Together, let’s change our ways.

Let’s change how we power businesses.

Let’s make businesses across Africa greener.

For in the greening of Africa, lies new opportunities of over $3 trillion.

That’s real business that’s good for people and shareholders.

Sanda Ojiambo is CEO and Executive Director at UN Global Compact