Greening finance in the Africa-Europe partnership: a better model for sustainable investments

Coming on the heels of the UN’s COP26 climate conference in Glasgow, the latest ‘Talking Africa-Europe’ debate highlighted the urgency of mobilising green financing in Africa, with a focus on linking public and private funding and getting money to high-impact grassroots projects.

“If we want an economy that’s fit for purpose, an economy that’s really in the service of life, all life, and one that puts people and the environment first, we have to put money where it matters,”(20.20)Najma Mohamed, Member of the Africa-Europe Foundation Women Leaders Network and Policy Director for the Green Economy Coalition, told Thursday’s broadcast discussion.

The monthly debates bring in policymakers, business leaders and civil society figures under the auspices of the Africa-Europe Foundation, The AEF was founded by Friends of Europe and the Mo Ibrahim Foundation, in partnership with the African Climate Foundation and the ONE Campaign. It brings together stakeholders from civil society, business, policymaking and the youth sector across Africa and Europe to facilitate dialogue, catalyse partnerships and unlock new opportunities that can transform Africa-Europe relations into action.

Rich countries in Glasgow committed to increased efforts to meet their missed $100bn-per-year target for climate support to the developing world. However, speakers said shortfalls in the investment needed to build resilience and help Africa fight climate change mean it is essential to expand the private-sector’s role in green financing.

“There is a huge investment gap. What is also very clear, is that this gap cannot be bridged with available resources from the public sector only” said Magdalena Kouneva,”(07.40), Member of the Africa-Europe Foundation Strategy Group on Energy and an Independent Expert working on innovative climate and green finance instruments.

“There is a move away from grants only, towards using public finance and grants more strategically to crowd-in the amounts of capital needed to bridge the investment gap, both for mitigation finance, and for adaptation and resilience,” Kouneva added (8.36).

Speakers stressed that private finance for climate change in Africa should not be made available under regular commercial terms but, instead, needs to take account of local conditions by offering longer-term, low-interest loans.

Public finance should be used to leverage and de-risk private investments. Calling into the debate from Nairobi, Stephen Karekezi, Director at the African Energy Policy Research Network (AFREPREN) gave an example of how that worked with the development of geo-thermal energy in East Africa, where public investment in the high-risk drilling phase opened the way for private spending.

The need to clear hurdles keeping small businesses and local operators from access to green finance was one of the key issues raised during the debate.

“The economy we need is not going to emerge without a radical reform of the existing financial system,” Mohamed said from her base in South Africa(23.08). “Financial inclusion is core to this agenda, so we need to … work hard to remove the barriers that exclude local actors from accessing green finance.”

Moderator Dharmendra Kanani, Friends of Europe’s Chief Spokesperson and Director for Asia, Digital, and Peace, Security and Defence, suggested the European Union should set up a ‘green finance portal’ to facilitate access to funding for African projects.

“To symbolise a new EU-Africa relationship, having a portal … a top-end access point for all types of funding, and create bridges, opportunities, seems to be a neat and simple solution,” he said (56.27).

Rwanda’s National Fund for Environment (FONERWA) was set up in 2012 after a study found climate change was knocking 1% off gross domestic product (GDP) every year. The fund’s CEO Teddy Mugabo outlined how it works as a financing vehicle to support implementation of the country’s green-growth and climate-resilience strategy, while playing a coordinating role in mainstreaming climate action across all sectors.

As a domestic institution working closely with local communities, FONERWA is able to ensure funding meets the specific needs of the most vulnerable, Mugabo said.

“This is something other African countries can think about. Having the fund is a home-grown solution,” she explained (36.36). “It’s very timely that the African continent and African countries come up with their own solutions because we know what our problems are … The fact that it is a home-grown solution has made it work.”