writes Toluwalola Kasali
Africa-Press – Botswana. With limited resources, Finance Ministers must square the circle of funding development and climate adaptation programmes.
Millions of people and communities across Africa are already experiencing the impact of prolonged droughts, floods, and heatwaves caused by climate change, which exacerbate existing fragilities on the continent.
The multiplicity of crises makes it extremely difficult for Finance Ministers to redirect existing resources from one budget line to another. Development that is not sustainable will be short-lived, but sacrificing development for sustainability risks leaving millions behind in poverty. This is the challenge they all face.
Already, a significant climate finance gap exists, with African countries requiring £1.8 trillion by 2030 to address climate change locally. Although African countries have contributed less than 4 per cent of global greenhouse gas emissions, they bear a higher impact burden with limited resources to cope and adapt to the consequences.
Overlaying this financing gap is the reality that 50 per cent of Africa’s population (600 million) still lacks access to reliable, affordable, and sustainable electricity, and 37 per cent live in extreme poverty. If climate change solutions are considered in isolation without a broader development perspective, they will be socially and economically regressive, exacerbating poverty and inequality. There can be no real conversation about addressing the climate crisis in Africa without the broader development needs being at the top of the agenda.
As regional and broader geopolitical uncertainties drive fragmentation, external financing has become less reliable. Finance Ministers, therefore, need to leverage all available options to meet their country’s environmental and developmental needs.
Political economy and public opinion
The sensitivities surrounding climate resilience and development require strong political will and leadership to build consensus. Political leaders may have to make tough decisions on new taxes, the phasing out of subsidies, and cuts in welfare spending, which may have political costs. The significant public investments required today will not immediately return tangible benefits to citizens. This is particularly pressing for finance ministers who must allocate often sparse resources to try to solve an array of current problems. Kenya estimates it will need £41 billion for climate change adaptation and mitigation efforts between 2031 and 2035. By comparison, Kenya’s annual health budget is under £1 billion.
A whole-of-government, rather than a siloed approach, is required to ensure that nationally determined contributions (action plans for mitigation and adaptation to climate change) are aligned with broader national development plans.
Ministers of finance and environment should jointly host and coordinate inter-governmental committees consisting of relevant Ministers, Heads of Agencies, Heads of Departments and sub-delegates to enable collaboration, reduce duplication, and proactively address problems. Uganda for example, established joint leadership to improve the inter-ministerial and inter-agency collaboration on climate and development policy. They use a tripartite arrangement between the Ministry of Finance, Planning and Economic Development, the National Planning Authority and the Ministry of Water and Environment with the ministry of finance also being represented on three strategic climate policy committees. This has resulted in greater policy alignment.
This type of committee could identify dependencies and leverage synergies across their sectors. For example, investing in off-grid renewable solutions can enable electricity access for remote hospitals, schools, buildings and agricultural equipment. It can also create jobs and improve standards of living. Off-grid solar solutions targeting rural areas in Togo have helped electrify community health centres, support safe vaccine storage, and provide access to heated water.
Country platforms and capital mobilisation
Finance ministers will benefit from a government-led, country platform that brings together governments, international financial institutions, development partners, and the private sector to foster partnership and catalyse climate finance in the country for sustainable economic growth.
A harmonised process among funding partners helps to match funding sources to uses, reduces administrative burden, improves transparency, and allows scaled-up financing to meet specific and prioritised country needs.
Some examples of country platforms at various stages of implementation include South Africa’s Just Energy Transition Investment Plan, Egypt’s Country Platform, and Madagascar’s Climate Finance Mobilisation Platform.
De-risking investments
Available domestic and international public finance is limited, and there is a need to attract private capital. However, private capital is often put off by the risk versus return profiles of many sustainable development projects and uncertain policy and regulatory environments.
With the support of policy and regulatory reforms, blended finance, guarantees, insurance, and currency risk mitigation measures, including local currency financing, can help to de-risk investments that align with the country’s sustainable development needs.
Mission 300 is a World Bank and African Development Bank initiative that is looking to connect 300 million people to the power grid across the continent by 2030 by bringing together governments, the private sector, and development partners. Building on the energy sector reforms that African governments committed to in Dar es Salaam, Mission 300 will leverage International Development Assistance resources while using innovative tools and de-risking facilities to mobilise private sector investments.
Sustainable debt management
African countries are approaching burnout due to a vicious cycle of high debt servicing costs, limited fiscal space, the need for additional debt, and spending pressures for sustainable development projects.
Countries frequently dealing with natural disasters require additional resources to fund not only immediate disaster relief but also to build future resilience, placing a significant strain on resources. Finance ministers also need to consider social transfers for the vulnerable to ensure that people don’t fall into extreme poverty after a disaster.
A large portion of the climate finance allocated to Africa is in the form of debt, which contributes to the debt burden. Finance ministers need to combine improvements in fiscal management through tax system reforms with the consideration of innovative structures and instruments, including green bonds, blue bonds, sustainability-linked bonds, debt-for-nature swaps and other nature-based solutions.
Many countries, including Nigeria, South Africa, and Morocco, have issued green bonds for energy, conservation and infrastructure projects. Africa accounts for less than 1 per cent of the global green bond issuances. The potential exists, and the barriers that include limited issuance guidelines and templates, high transaction costs, limited fiscal incentive structure, weak regulatory framework, and capacity constraints, can be addressed.
The Coalition of Finance Ministers for Climate Action is facilitating regional collaboration through the exchange of experiences, best practices, and policies. This can enable African countries to pool their resources and expertise more effectively in managing climate and development vulnerabilities. This approach also leverages continental resources and opportunities across people, trade, infrastructure, and investment to build a sustainable and prosperous continent today and for the future of its young, growing population.
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