Africa-Press – Tanzania. However, challenges prevent opportunities. The private sector in particular should not see climate change as a burden but an opportunity to tap into the new green economy.
In Tanzania, a country with high potential to develop solutions for climate change, the private sector should capitalize on a range of under-explored climate opportunities. These include: (i) Cost savings from energy efficiency or lower electricity costs during power cuts, (ii) Access to green financing of carbon credits and (iii) Increases in revenue from accessing profitable export markets.
In realizing these opportunities a range of initiatives must be observed. Firstly, becoming more energy efficient can reduce costs and make companies more sustainable. Efficient operations and energy use is likely to attract low costs while reducing greenhouse gas emissions.
Opportunities around energy efficiency have already been recognized in Tanzania for instance in the National Energy Policy 2015 and the Energy Efficiency Action Plan 2021. High-energy consuming companies in the manufacturing transport and logistics sector may benefit the most from becoming more energy efficient.
One way for these companies to optimize their energy use is through energy audits. Experience from Tanzania shows that energy audits followed up by efficiency measures can help save up to 30 percent of energy bills.
Still these audits are under-utilized in Tanzania, as almost half of the respondents in a recent survey said that they do not perform energy audits in their companies.
In this case relying less on the grid and on generators is another way for companies to reduce energy costs. Grid electricity costs less in Tanzania than in neighboring Rwanda, Kenya and Uganda. But the greater issue in Tanzania is electricity reliability given the frequent power outages.
This can cost businesses about 15 percent of annual sales as businesses experience up to nine outages per month. Therefore, companies rely on fuel-based generators which are becoming increasingly expensive.
One solution for avoiding these costs and power cuts is installing solar systems to reduce dependency on the grid. For example, one company from Arusha has achieved cheaper and more reliable power by using solar systems for its factory.
“Solar is very reliable considering consistent power outages. It has reduced electricity costs by a considerable amount. We are making more profits from returns as we have alternatives to conventional electricity,” said Mkarima Tarimo, managing director Tarimo Industries in a recent dialogue.
Through tax cuts and other support, solar systems are becoming more affordable for businesses in Tanzania.
Secondly, accessing climate or green financing brings benefits to companies in Tanzania. The rising in financial flows created to ensure better environment outcomes, creating promising affordable financing opportunities for the private sector.
One recent example of green financing in Tanzania is in the agriculture sector. Using concessional resources from the Green Climate Fund, CRDB Bank has launched a $200million facility with three new financial products to support local agribusiness.
At a broader scale, Standard Chartered has pledged to mobilize $300billion in green finance by 2030 to aid the transition to net zero in emerging markets.
Despite these future plans, Tanzania still needs to access more funding for climate action. The country has recognized the need to improve its readiness to receive and use climate finance. In this light, the Financing Strategy of the National Five Year Development Plan 2021/26 has proposed creating a National Climate Change Financing Mechanism and the Climate Change Fund.
Opportunities for new business models using carbon credits are also available in Tanzania. Carbon credits are increasingly important in Africa, due in part to a large potential for sustainable development projects on the continent.
Recent events such as the launch of the Africa Carbon Markets Initiative at COP27 also aim to expand Africa’s participation in voluntary carbon markets. Still opportunities around carbon markets remain under-realized in Tanzania.
Other African countries provide examples for business models that implement carbon credits. In Nairobi, KOKO Networks is a clean cooking company replacing dirty cooking fuel with ethanol.
“The emissions reductions are quantified and verified through a UNFCCC Clean Development Mechanism program and then traded into global compliance and voluntary markets. We use the revenues to lower consumer price of the KOKO Cooker kit and therefore accelerate uptake,” said Greg Murray co-founder and CEO.
There are similar opportunities for the Tanzania private sector to expand the generation and use of carbon credits. Other potential sectors besides clean cooking and waste management include agriculture.
Thirdly, profitable export opportunities for environmentally responsible and climate friendly products are also possible for the private sector. Tanzania and other African countries can become leaders in sustainable trade and commerce and in the process create a positive image for themselves.
Organic agriculture is one area already showing progress as Tanzania has the sixth number of certified organic farmers globally and the third highest in Africa. The strength of the organic agriculture sector in Tanzania comes partly from the enabling systems and institutions that make the organic farming system more accessible.
As a result, producers of major cash crops such as coffee, cotton, cocoa and tea are able to obtain organic certification and benefit from price premiums. In the case of coffee the organic price premium per kg is about $1 more than the conventional price.
Tanzanian companies should also adjust to how the country’s partners become more environmentally conscious. For example, the European Union’s recent Carbon Border Adjustment mechanism will add a carbon tax on imports such as cement, iron, steel, aluminum or fertilizer.
This could affect Tanzania as it is now considering environments in the fertilizer industry. In light of other similar taxes enacted in the future, Tanzania companies should consider how to best align themselves to export market conditions by becoming more environmentally and climate responsible.
Exploring these opportunities could help Tanzanian companies align their financial improvement with broader climate benefits. This alignment is becoming a desirable outcome for all efforts tackling climate change, and could even create competitive advantages for these companies at the regional and global level.
Devang Vussonji is the CEOrt of Tanzania strategy consultant on economic development director. He also serves as a partner at Dalberg Advisors.
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