Africa, Asia DFIs see potential $100bn harvest for climate change

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December 26, 2023567 views0 comments
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Urge companies to tap into fund for projects
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Looks at collaborating to leverage fund
The World Bank has argued that every dollar spent on climate adaptation has a multiplier effect of four dollars in economic benefits, highlighting the importance of investing in climate solutions. Similarly, the African Development Bank (AfDB) has estimated that Africa needs to spend $250 billion annually to meet its climate finance needs. This suggests that climate spending is not only necessary for environmental sustainability, but also for economic growth.
The World Bank and AfDB’s estimates highlight the scale of the challenge that Africa faces in addressing climate change. With so much money needed, it is clear that a coordinated and sustained effort will be required to make meaningful progress.
It is concerning to note that Africa only receives 12 percent of the $250 billion needed per year, and that only two percent of this amount is available for spending. The funding gap is a major obstacle to addressing climate change in Africa. The Copenhagen Accord, agreed upon at COP15 in 2009, was a step in the right direction, but it has not been enough to close the funding gap. The Accord committed developed countries to a goal of mobilising $100 billion per year by 2020 to support climate action in developing countries. This goal was reiterated at COP16 in Cancun and COP21 in Paris, and was extended to 2025.
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To this end, the Association of African Development Financing Institutions (AADFI) and the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) have identified a potential $100 billion annual fund that could be used to tackle climate change challenges in developing countries, including Nigeria. The two associations suggest that companies in these countries could tap into the fund to develop and implement projects that address the impacts of climate change.
The potential of the $100 billion annual climate fund was revealed at a recent forum in Abuja, Nigeria, hosted by the Bank of Industry (BoI) and the African Development Bank (AfDB). The event, titled “Strategic Role Towards a Climate-smart Future,” brought together over 300 delegates and 30 speakers from across Africa and the Asia Pacific.
The forum focused on the need for strategic partnerships and collaboration to address the challenges of climate change, and explored how development finance institutions can play a role in this effort. Representatives from the BoI and AfDB discussed how they are working to support climate-smart projects and initiatives.
Doris Uzoka-Anite, the Nigerian minister of trade and investment, called for global action to promote a climate-smart future. Uzoka-Anite, who was represented by Mimi Abu, the director of human resources, emphasised the role of Development Financial Institutions (DFIs) in mobilising private investment to address climate challenges. She explained that DFIs can play a critical role in facilitating access to capital, mobilising resources, and developing innovative financing mechanisms to support climate-smart initiatives.
Uzoka-Anite noted that if DFIs fail to create solutions for climate change mitigation and adaptation, it could have severe consequences for the agriculture and infrastructure sectors. She noted that these are areas where climate change is already having a significant impact, and where the effects are likely to become even more severe in the future. She therefore stressed the need for swift and decisive action to address these challenges.
The minister pointed out that DFIs can play an important role in addressing the needs of the agriculture sector and reducing hunger through innovation. She urged African businesses to include climate-resilient products and measurable targets in their business models, and called for the expansion of actionable plans to derisk sustainable investments in the region.
Uzoka-Anite noted that by investing in climate-smart agriculture and infrastructure, DFIs can boost productivity and reduce hunger, while also reducing the risks associated with climate change. She stressed that these investments can have a significant impact on the livelihoods of people in Africa, and help to ensure a more sustainable and resilient future for the continent. She expressed confidence that the decisions made by DFIs at the conference have the potential to change the economic landscape in Africa for the better.
On his part, Olasupo Olusi, the CEO of the Bank of Industry (BOI), said the bank has been working with partners to raise over $5 billion in the past five years to support climate action in Nigeria. This funding is in line with the vision of President Bola Tinubu, who has made building a climate-smart Nigeria a priority. Olusi also recalled that the Bank of Industry recently secured a credit line of €100 million from the French Development Agency (AFD) for the expansion of green finance in Nigeria.
“As Nigeria’s leading DFI, one of the primary drivers of BoI’s developmental strategy is to accelerate the country’s development through supporting environmental-friendly and sustainable projects across the key sectors of the economy. We at BoI are committed to promoting this strategy to deliver on our mandate,” he said.
In addition to the launch of the joint forum, the AADFI-ADFIAP CEO Forum also announced the creation of the Association of African Development Financing Institutions in Africa Working Group on Climate Change. This group will focus on identifying funding opportunities for green projects, and will collaborate with the African Financial Alliance on Climate Change (AFAC) to support member institutions in addressing climate change challenges.
This new working group is an important step in increasing the capacity of African financial institutions to finance climate action. The group will bring together experts from a variety of disciplines to share knowledge and expertise, and to develop innovative solutions to the challenges faced by African countries in addressing climate change.
With the launch of this new group, AADFI-ADFIAP stated that it is taking a proactive approach to addressing the challenges of climate change. By identifying funding opportunities and collaborating with AFAC, the group is considered well-positioned to make a significant impact on the continent’s ability to finance climate action.
A statement by the group explained that it will also focus on developing a roadmap for climate change in Africa. This roadmap will be designed to help African countries meet their climate goals and mitigate the impacts of climate change. In addition, the group will support climate change solutions by providing technical assistance and capacity building to member institutions. This will ensure that the institutions have the expertise and resources they need to effectively finance climate action.
Michael Ma’hmoud, an economist and development management expert, discussed the importance of sustainable capital for the success of development financing institutions (DFIs). He noted that in the past, DFIs were regulated and supervised in the same way as commercial banks, which led to the failure of several institutions in francophone countries.
Ma’hmoud emphasised that in order for DFIs to be successful, they need to be more sustainable. This requires a focus on long-term goals and the careful management of resources. He also noted that sustainability is essential for mobilising resources to address the challenges of development.
Zeph Nhleko, the chief economist at the Development Bank of Southern Africa, stated that while DFIs are important for climate financing, more needs to be done to attract more capital. He suggested that innovative models, such as green bonds and blended finance, could be used to raise additional funds. He also highlighted the importance of collaboration among DFIs, governments, and the private sector to make progress on climate change.
Overall, Nhleko emphasised the need for more resources and better coordination to support the financing of climate change initiatives.