Challenges, opportunities, and modalities for upscaling nationally determined contributions through private sector green investments
Year of Publication: 2021
Authors: K. Fobissie, K. Hassamal, O. Duyan
Abstract
Context and Approach
African countries are committed to implement the Paris Climate Agreement through the implementation of climate change adaptation and mitigation actions presented in their nationally determined contributions (NDCs). Various African governments expect the private sector (small, medium and large companies) to play a key role in NDC implementation process through green investments.
This report analyses the implementation of NDC-aligned activities in Africa and presents some of the challenges and opportunities for the private sector. The report covers North, West, Central, East and Southern African regions and focuses on seven key sectors that include: climate-smart agribusiness and forestry; sustainable transport and infrastructure; green buildings and smart cities; renewable energy (RE) and energy efficiency; waste management; water and irrigation; and the financial sector.
The methodological approach used in preparing this report includes: literature review and content analysis of technical, scientific and policy documents related to NDCs, green investments, climate finance and
private sector landscapes in Africa. In addition, interviews with selected experts the private sector, governments and non-governmental organizations were conducted and the data analysed to understand
the challenges and opportunities.
This report analyses the implementation of NDC-aligned activities in Africa and presents some of the challenges and opportunities for the private sector. The report covers North, West, Central, East and Southern African regions and focuses on seven key sectors that include: climate-smart agribusiness and forestry; sustainable transport and infrastructure; green buildings and smart cities; renewable energy (RE) and energy efficiency; waste management; water and irrigation; and the financial sector.
The methodological approach used in preparing this report includes: literature review and content analysis of technical, scientific and policy documents related to NDCs, green investments, climate finance and
private sector landscapes in Africa. In addition, interviews with selected experts the private sector, governments and non-governmental organizations were conducted and the data analysed to understand
the challenges and opportunities.
KEY FINDINGS
NDC-aligned projects and climate finance landscape
A number of NDC-aligned projects are being implemented in different sectors and regions of Africa by large private companies, small and medium size enterprises (SMEs) and start-ups. The top recipients of climate
finance include Morocco for North Africa, South Africa for Southern Africa, Democratic Republic of Congo for Central Africa, Tanzania for East Africa and Niger for West Africa. The successful mobilization of climate finance in Africa is partly attributed to national leadership on climate politics and policy, dedicated agencies that support private sector green investments and the presence of established financial institutions that are capable of directly accessing climate funds.
Cross-cutting challenges for private sector involvement in NDC implementation
Insufficient access to climate funds: A vast majority of private companies in Africa have had little success in accessing dedicated climate funds and concessional green loans. The procedures and requirements to access these funds remain a big challenge and in turn limit private sector involvement and financing of NDC implementation.
Knowledge gap and limited skills on climate change: African private sectors/ African private business stakeholders do not have in-depth knowledge of NDC processes as well as on associate de-risking smart investment and financial instruments to support the continent resilience and transition to low carbon economy.
Weak business case for green investment in adaptation projects: So far, the business case for mitigation projects in the energy, forestry, transport, green cities and waste sectors is easy to make. Many African countries find it difficult however to make a good business case for adaptation hence, making it difficult to attract private investment in adaptation projects.
Environmental, political and economic changes and shocks: A number of African countries have been facing several shocks related to political transition, internal unrest, difficult economic situation and business environment, which in turn discourage some private sector actors to invest in long-term green projects.
Limited integration of private sector in climate planning processes. African countries have put in place their NDC, national green strategies, policies and climate investment plans. The level of private sector involvement in the planning process remains very limited and creates a situation where the private sector is not encouraged to invest in green projects.
Increasing focus on COVID-19 and decreasing focus on green projects: Many African governments have shifted their priorities towards the post-Covid 19 recovery with a strong focus on the health sector. This has reduced the willingness of many governments, donors, private sector and international financial institutions to invest in green activities and projects in the short term.
Lack of clarity in climate policies and communication: Policies, legislations and official communications by African governments related to climate change, green investments and NDC implementation do not, in many cases, clarify the specific roles and potential benefits for the private sector.
Low culture of collaboration between private sector and the government: It is common to experience mutual distrust between some African governments and the private sector. The distrust is exacerbated by unfavourable business climate, poorly understood green investment concepts and complex national and international procedures and standards for green projects.
Knowledge gap and limited skills on climate change: African private sectors/ African private business stakeholders do not have in-depth knowledge of NDC processes as well as on associate de-risking smart investment and financial instruments to support the continent resilience and transition to low carbon economy.
Weak business case for green investment in adaptation projects: So far, the business case for mitigation projects in the energy, forestry, transport, green cities and waste sectors is easy to make. Many African countries find it difficult however to make a good business case for adaptation hence, making it difficult to attract private investment in adaptation projects.
Environmental, political and economic changes and shocks: A number of African countries have been facing several shocks related to political transition, internal unrest, difficult economic situation and business environment, which in turn discourage some private sector actors to invest in long-term green projects.
Limited integration of private sector in climate planning processes. African countries have put in place their NDC, national green strategies, policies and climate investment plans. The level of private sector involvement in the planning process remains very limited and creates a situation where the private sector is not encouraged to invest in green projects.
Increasing focus on COVID-19 and decreasing focus on green projects: Many African governments have shifted their priorities towards the post-Covid 19 recovery with a strong focus on the health sector. This has reduced the willingness of many governments, donors, private sector and international financial institutions to invest in green activities and projects in the short term.
Lack of clarity in climate policies and communication: Policies, legislations and official communications by African governments related to climate change, green investments and NDC implementation do not, in many cases, clarify the specific roles and potential benefits for the private sector.
Low culture of collaboration between private sector and the government: It is common to experience mutual distrust between some African governments and the private sector. The distrust is exacerbated by unfavourable business climate, poorly understood green investment concepts and complex national and international procedures and standards for green projects.
Cross-cutting opportunities for private sector involvement in NDC implementation
Climate-smart agriculture and forestry: Africa holds about 60% of the world’s uncultivated arable land that can be used to grow food and engage in low carbon and climate resilient agribusiness and forestry.
Renewable energy (RE): Africa is endowed with abundant biomass, hydro, solar, wind, and geothermal RE resources. Investments in the continent’s RE resources could account for a 50% share of the needed 610 GW of power to be generated by 2030 in the region.
Green cities, transport and infrastructure: About 50% of Africans are expected to live in cities by 2030 and at least 52 African cities already have more than 1 million people each. This provides private sector investment opportunities in climate-smart cities, infrastructure and urban transport.
Municipal solid waste (MSW): Waste is increasingly being used as a raw material in Africa. Of the 125
million tonnes of MSW generated annually in African urban areas, with a total value of US$8.0 billion per annum, only 4% are currently being reclaimed.
Financial sector: Some African countries and banks are engaged in issuing green bonds, green lines of
credit and in the establishment of carbon trading to unlock private finance and investments to address climate change.
Renewable energy (RE): Africa is endowed with abundant biomass, hydro, solar, wind, and geothermal RE resources. Investments in the continent’s RE resources could account for a 50% share of the needed 610 GW of power to be generated by 2030 in the region.
Green cities, transport and infrastructure: About 50% of Africans are expected to live in cities by 2030 and at least 52 African cities already have more than 1 million people each. This provides private sector investment opportunities in climate-smart cities, infrastructure and urban transport.
Municipal solid waste (MSW): Waste is increasingly being used as a raw material in Africa. Of the 125
million tonnes of MSW generated annually in African urban areas, with a total value of US$8.0 billion per annum, only 4% are currently being reclaimed.
Financial sector: Some African countries and banks are engaged in issuing green bonds, green lines of
credit and in the establishment of carbon trading to unlock private finance and investments to address climate change.
Cross-cutting recommendations
A win-win objective between profit-making by the private sector and combating climate change should be established. African governments need to recognise that the engagement of the private sector in NDC implementation must be backed by returns on their investments.
Capacity building: Access to climate finance could be improved by developing the capacity of financial
institutions on climate change adaptation and mitigation and strengthening their credit risk assessment towards green investments to enhance private sector capacities in developing integrated / innovative projects which would have great potential to succeed than traditional projects.
Credit guarantee schemes for climate change projects might be a way to alleviate collateral constraints, while strengthening secured transaction laws and making collateral registry more efficient. This would support green lending to SMEs without putting financial stability at risk.
Best available environmental management processes and low-carbon technologies should be integrated by the private sector within their production units and value chains. Environmental performance contracts, carbon audits and eco-labelling could be used in different countries.
Greening COVID-19 financial stimulus package could support the transition to low carbon and climateresilient future. These stimulus packages could provide synergies with fiscal reforms and incentives to promote green investments and green jobs.
Governments should build on successful green projects. Governments should identify and showcase
successfully implemented low-carbon and/or climate resilient, green projects. This will build confidence in the minds of the private sector firms and will encourage them to step in and invest.
Public-private partnerships (PPPs) would work best if past experiences and lessons are used to inform decision-making, including the designing, funding and implementation of future partnerships. In this way, PPPs can realise mega climate resilient and low carbon projects in different sectors.
Economic incentives could be provided to private firms. Such incentives could encourage them to switch from business as usual to green projects. Such incentives, in the energy sector for example, could be in the form of Feed-In tariff schemes.
Policies need to be revised and updated. Policies and regulations such as those on access to and
ownership of land and other property need to be updated in many countries, as some of them are currently obsolete and do not promote climate adaptation and mitigation actions and investments.
Capacity building: Access to climate finance could be improved by developing the capacity of financial
institutions on climate change adaptation and mitigation and strengthening their credit risk assessment towards green investments to enhance private sector capacities in developing integrated / innovative projects which would have great potential to succeed than traditional projects.
Credit guarantee schemes for climate change projects might be a way to alleviate collateral constraints, while strengthening secured transaction laws and making collateral registry more efficient. This would support green lending to SMEs without putting financial stability at risk.
Best available environmental management processes and low-carbon technologies should be integrated by the private sector within their production units and value chains. Environmental performance contracts, carbon audits and eco-labelling could be used in different countries.
Greening COVID-19 financial stimulus package could support the transition to low carbon and climateresilient future. These stimulus packages could provide synergies with fiscal reforms and incentives to promote green investments and green jobs.
Governments should build on successful green projects. Governments should identify and showcase
successfully implemented low-carbon and/or climate resilient, green projects. This will build confidence in the minds of the private sector firms and will encourage them to step in and invest.
Public-private partnerships (PPPs) would work best if past experiences and lessons are used to inform decision-making, including the designing, funding and implementation of future partnerships. In this way, PPPs can realise mega climate resilient and low carbon projects in different sectors.
Economic incentives could be provided to private firms. Such incentives could encourage them to switch from business as usual to green projects. Such incentives, in the energy sector for example, could be in the form of Feed-In tariff schemes.
Policies need to be revised and updated. Policies and regulations such as those on access to and
ownership of land and other property need to be updated in many countries, as some of them are currently obsolete and do not promote climate adaptation and mitigation actions and investments.
Conclusion
The five regions of Africa are characterized by different cross-cutting and sector-specific challenges that are impeding the contribution of the private sector in the implementation of NDCs. Detailed sector-specific challenges are presented in the body of this report. Despite the challenges, this report has highlighted several green investment opportunities that are aligned to the priorities of African NDCs. Moving forward, the revision and implementation of NDCs provides an opportunity for African governments to work closely with small, medium and large private companies to address the identified challenges while seizing on the opportunities.