The United Nations Development Programme (UNDP) has outlined six actionable measures to stimulate investment and growth in green businesses across Africa. The recently launched Africa Green Business and Financing Report, unveiled at Enlit Africa in Cape Town, highlights the continent’s abundant potential for renewable energy generation, both for local consumption and for powering green manufacturing aimed at reducing global greenhouse emissions.
Despite ongoing efforts to transition to green energy, the report emphasizes that the scale and pace of investment must be significantly increased to accelerate progress. During his address at Enlit Africa, Dr. Matthias Naab, Director of the UNDP Regional Service Centre for Africa, highlighted the significant climate finance challenges facing the continent. He noted that Africa requires an annual capital commitment of $277 billion to meet its Nationally Determined Contributions (NDCs) and achieve its climate goals by 2030. However, the current annual flow of climate finance to Africa stands at just $29.5 billion.
Naab also pointed out that 30 of the world’s 40 most climate-vulnerable countries are in Africa, underlining the urgent need for increased investment.
The report identifies significant regional disparities in climate finance needs across Africa. The Southern African region faces the largest financial gap, primarily due to South Africa’s substantial green capital needs, which total $107 billion annually. In Central and East Africa, countries experience the largest climate investment shortage as a percentage of GDP, averaging 26% and 23%, respectively. In contrast, North African countries have relatively lower climate investment gaps at 3% of GDP, but still require three to six times more green capital than they currently receive.
“Against this regional backdrop, it is notable that climate finance is concentrated within a limited number of countries, with 10 out of 54 African nations absorbing over half of the total investments, creating an additional challenge across the continent,” the report states.
The private sector’s participation in Africa’s climate finance activities is currently limited to 14%, equivalent to $4.2 billion in 2021. Most investments are directed towards mitigation projects, constituting 81% of the total, mainly due to the maturation of renewable energy technologies and related commercial initiatives.
The report is a key outcome of the UNDP’s Africa Green Business and Financing Initiative (AGBFI), established to support private sector engagement in green business and finance. It provides six key recommendations to drive sustainable and impactful change:
- Promote Dedicated Green Investment Banks and Funds: Establish financial institutions with a specific mandate to support green business development through tailored financing products.
- Create an African Urban Green Business and Finance Platform: Support rapidly growing cities in Africa to address the dual challenges of rapid urbanization and climate change.
- Establish Nature as an Asset Class: Leverage lessons from global carbon markets and Africa’s rich natural resources to build robust carbon and biodiversity markets.
- Enhance Green Value Chains and Capacity: Utilize Africa’s natural abundance of minerals essential for the green transition, coupled with sustainable energy and human capital, to ensure greater value addition remains within local communities.
- Encourage Multilateral Development Banks to Reduce Investment Risk: Develop new and innovative instruments, funds, and facilities to mitigate investment risks in Africa. Engage central banks to address currency risk issues and provide private investors with access to internal risk modeling data and analytics. Collaborate with credit rating agencies to review their methodologies for Africa.
- Create an African Green Business Institute: Serve as a hub for green business in the region and act as a repository of best practices in human capital.
“These actions are designed to be bold and transformative, addressing barriers to growth and championing a leadership role for Africa in the green economy,” the report states.
The UNDP emphasizes the need for concerted action to address the climate and biodiversity crisis in Africa while simultaneously stimulating economic growth and improving development outcomes. The report acknowledges the significant challenge posed by existing debt burdens and competing developmental priorities, which make it difficult for African governments to deliver the promised amount of climate finance from public sources.
Despite these challenges, Dr. Naab expressed optimism about Africa’s potential to lead the global green economy with the right investments and supportive policy and regulatory frameworks.
The Africa Green Business and Financing Report underscores the urgent need for increased investment in green business and financing across the continent. By implementing the six recommended measures, Africa can unlock its potential for renewable energy generation and green business growth, driving sustainable and impactful change.
Source: ESI Africa
