A drastic increase in climate financing is needed. The African Development Bank (AfDB) noted that around $1,6 trillion in financing is required by 2030 to assist Africa to adapt to and mitigate the risks of climate change, as well as for African countries to effectively implement their Nationally Determined Contributions (NDCs) under the Paris Agreement. NDCs are the contributions that countries make to reduce their carbon emissions and adapt to the impacts of climate change. 

Recent climate funding announcements

• Last year, the African Group of Negotiators and the African Ministerial Conference on the Environment expressed concern about the slow pace of progress on climate change in Africa, noting that the continent was exposed to diverse types of loss and damage. They called on developed countries to deliver a meaningful loss and damage finance package, including the pledged $100 billion from developed countries. By the end of COP 27, negotiators had concluded a climate change agreement that included the formation of a loss and damage facility, and a financial support structure for countries vulnerable to climate change, to be operationalised by COP 28, which will be held later this year.

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  According to the United Nations, agreement was also reached on the arrangement for operationalising the Santiago Network for Loss and Damage, which will catalyse assistance for vulnerable developing countries. 

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• United Nations Secretary-General António Guterres used his platform at COP-27 to express solidarity with the Africa Adaptation Acceleration Programme (AAAP), and urged the international community to support it. The AAAP is an initiative of the Global Centre on Adaptation and the AfDB, working in collaboration with the African Union, which intends to mobilise $25 billion to speed up and increase the continent’s climate change initiatives. The programme has mobilised more than $3,5 billion in investments in Africa since 2021. 

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• The International Finance Corporation’s (IFC) Managing Director, Makhtar Diop spoke in support of Africa at the conference, stating that Africa needed $100 billion over the next 20 years to adapt to climate change, and noting the usefulness of an investment of $5 billion a year. 

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• US President Joe Biden announced several major initiatives during the conference. He noted that the US Emergency Plan for Adaptation and Resilience fund (PREPARE) had already deployed $2 billion in financing to help developing countries prepare for climate change. He announced a $150 million down payment to support PREPARE’s adaptation efforts in Africa, including for the Accelerating Adaptation in Africa project that was launched by the US and Egypt earlier in 2022. Other US climate initiatives in Africa include expanding access to early-warning systems and building capacity for African decision makers to accelerate climate adaptation, among others.

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• The EU and the African Union recently announced a new Team Europe initiative on Climate Change Adaptation and Resilience in Africa, which is part of the EU-Africa Global Gateway Investment Package. This new initiative will bring together new and existing climate change adaptation programmes worth more than €1 billion, which includes €60 million for loss and damage in Africa.

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• European Commission chairperson, Ursula von der Leyen said at the conference that the European Union (EU) had signed new strategic hydrogen partnerships with Egypt and Namibia, and would support South Africa to decarbonise its economy. 

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• France further announced it would contribute €20 million in subsidies to the Global Shield Against Climate Risks, which assists the most vulnerable countries with climate-related loss and damage. Senegal will be one of the early beneficiaries of the Global Shield. Germany, Canada, Denmark, the United States, France and Ireland noted that they would contribute a combined total of €210 million to the Global Shield.  

 

• The United Kingdom (UK) announced climate change financial support for the poorest African countries, deploying £200 million to AfDB’s Climate Action Window, which channels climate finance to vulnerable African countries. 

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• The West African Development Bank revealed plans to invest $1,3 billion in climate projects until 2025. The Bank noted that it would allocate €1,2 billion to climate finance, with an expected 10% coming from funds and capital markets. The funds will be deployed to address climate change challenges; in particular, food security in the West African region. 

 

• The Africa Carbon Markets Initiative (ACMI) was launched at COP 27 last year, with the goal of substantially expanding Africa’s participation in voluntary carbon markets. The ACMI is aiming for the production of 300 million credits in Africa annually by 2030, and 1,5 billion credits annually by 2050. It noted that these targets would provide much needed financing for energy transition in Africa. Many African countries, including Gabon, Kenya, Malawi, Nigeria and Togo, supported the initiative. 

 

• The Just and Affordable Energy Transition Initiative was launched at the conference, with the goal of providing all African citizens with access to clean energy, while also meeting the energy requirements needed for the continent’s economic development. The initiative will identify local strategies and energy mixes needed to steer African countries away from reliance on fossil fuels. It was also announced at COP 27 that Egypt was set to achieve its goal of supplying 42% of the country’s energy requirements through renewable energy. 

 

• Tanzania presented an $18 billion energy transition proposal, covering 12 southern African countries that are connected via the Southern African Power Pool. The proposal is to increase renewable energy generation (solar and wind) by around 8.4GW. The 12 countries are Angola, Botswana, the Democratic Republic of the Congo, Eswatini, Lesotho, Mozambique, Malawi, Namibia, South Africa, Tanzania, Zambia and Zimbabwe. 

 

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  More than a year ago, at COP 26 in November 2021, the EU and the governments of France, Germany, the UK and the US pledged $8,5 billion in first round financing to assist South Africa with energy transition projects as part of the Just Energy Transition Partnership (JETP). President Cyril Ramaphosa launched the new Just Energy Transition Investment Plan during his attendance at COP 27 last year, outlining the investments required to achieve South Africa’s decarbonisation commitments, while promoting sustainable development, and ensuring a just transition. The plan identifies $98 billion in financial requirements over the next five years, from both the public and private sectors. Discussions are also underway to establish a similar partnership in Senegal. 

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Infrastructure financing

To achieve a low carbon future, Africa requires major investments in sustainable infrastructure, clean energy, climate change adaptation and biodiversity restoration. However, Baker McKenzie’s report – New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding – showed that the major global players’ approach to infrastructure lending in Africa has changed in recent years. The report’s data revealed that multilateral and bilateral infrastructure lending into Africa declined from $100 billion in 2014 to $31 billion in 2020.  

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Development finance institutions (DFIs) 
The report outlined how DFIs are increasingly anchoring the infrastructure ecosystem in Africa, because they can shoulder political risk, access government protections, enter markets that others cannot, and are uniquely capable of facilitating long-term lending. However, the amount of capital needed to build climate resilient and sustainable energy infrastructure is significant, and DFIs cannot bridge it alone. Private equity, debt finance and specialist infrastructure funds are primed to enter the market, and multi-finance and blended solutions are expected to grow in popularity as a way to de-risk deals and support a broader ecosystem of lenders. To mobilise private sector finance, investor-friendly policies and incentives are needed to reduce barriers such as uncertain licensing processes, lack of market liquidity, and bankability. 

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In 2018, the AfDB launched a platform to mobilise climate finance and incentivise the shift to low carbon and climate resilient investments – the African Financial Alliance for Climate Change. The AfDB is also involved in capacity building to enable Africa’s private sector to participate in the implementation of NDCs, and has launched a range of climate investment tools to promote climate action in private and financial sector lending in financial institutions in Africa.  

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Major players - a focus on sustainability
Despite reductions in infrastructure funding, the major global players have all recently reaffirmed their commitment to impact-building and financing strategic, long-term projects in Africa. In 2022, a $600 billion lending initiative, the Partnership for Global Infrastructure Initiative (PGII), was launched to fund infrastructure projects in the developing world, with a particular focus on Africa. The G7 countries – Canada, France, Germany, Italy, Japan, the UK, and the US – explained that the PGII would help address the infrastructure gap in developing countries, with a core focus on sustainability. 

The US announced that, as part of the PGII, it would mobilise $200 billion for developing countries over the next five years. This funding will be in the form of grants, financing and private sector investments. One of the priority pillars of this funding will be “tackling the climate crisis and bolstering global energy security through investments in climate resilient infrastructure, transformational energy technologies and developing clean energy supply chains across the full integrated lifecycle.” Some deals have already been announced, including a $2 billion solar energy project in Angola. 

In February 2022, the European Commission announced investment funding for Africa worth €150 billion. The funding package was part of the EU Global Gateway Investment Scheme and is said to be in the form of EU combined member funds, member state investments, and capital from investment banks. In early 2020, the European Commission published its Comprehensive Strategy with Africa, outlining the region’s plans for its new, stronger relationship with the continent. Some of the key focal points outlined in this strategy were assisting the continent with the green transition, improving access to clean energy, and sustainable growth. 

With financing pledged from the world’s major players, numerous climate initiatives recently announced that will benefit the continent, the participation of DFIs to facilitate the financing process, and the increasing mobilisation of the private sector to participate in climate adaptation and resilience projects, African countries will hopefully begin to gain access to the significant support needed. This is essential, not only to address urgent climate change adaption and mitigation in Africa, but also to unlock the great potential of the continent – home to more than 1,4 billion people, multiple sources of renewable energy, large reserves of precious metals, and a rich biodiversity.

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Foundethakis is Baker McKenzie’s Africa Steering Committee Chair and Global Head of Projects and Trade & Export Finance.