According to reports, Africa has a substantial Climate Finance gap and has to make large investments to meet its Sustainable Development objectives. Africa is at the vanguard of climate risk, which is the world’s most pressing issue. In response, African countries have outlined robust Nationally Determined Contributions (NDCs) detailing their strategies for lowering Emissions and preparing for climate change. However, funding these lofty objectives remains a major challenge. The UNDP estimates that African nations, including Nigeria, will require $2.8 trillion between 2020 and 2030 to meet their NDCs.
This substantial amount, which equates to roughly $250 billion yearly, highlights a significant funding gap as the continent presently only receives approximately $30 billion annually in climate finance, which represents only 12% of the total required sources, with only 14% coming from the private sector. This heavy reliance on public funding highlights a significant window of opportunity for private engagement in climate solutions across Africa. Despite having low emissions in comparison to other continents, Africa is disproportionately affected by climate change, which jeopardizes public health, food security, and economic stability.
Private funding has not yet been extensively utilized.
For African populations and economies, the effects of drought, flooding, and Desertification are especially severe, requiring significant investments in both adaptation and mitigation endeavors. African governments have pledged US$26.4 billion in domestic public resources each year (roughly 10% of the overall cost). But due to their debt levels and other development priorities from ongoing issues, they may not be able to deliver all of this. Private funding for African NDCs has not yet been extensively utilized. Only 14% (USD 4.2 billion) of the continent’s total climate Finance came from the Private Sector as of 2022, which is much less than in other areas.
Nonetheless, there are enormous and worthwhile opportunities within this funding deficit, especially for the private sector. An estimated $213.4 billion will need to be raised yearly from the private sector to supplement limited state resources in order to close Africa’s climate financing gap by 2030, according to an AfDB report. New market data from the UNDP’s SDG Investor Maps shows a promising horizon. The Third Edition of the UNDP Africa Investment Insights Report, identifies 207 investment opportunities in 11 sectors, 24 sub-sectors, and 42 industries from 15 African nations that have the potential to have a significant financial and SDG impact.
Investment opportunities found across the SDGs.
Out of this, 130 (63 percent) of all investment opportunities found across the SDGs, have the potential to favorably impact climate action. These prospects, which span the food and beverage, infrastructure, renewable energy, and other industries, promise significant environmental and social advantages in addition to strong financial return expectations. With potential returns of 15–25% for both Internal Rate of Return and Return on Investment, the majority of these opportunities have markets with sizes ranging from $100 million to $1 billion. Crucially, a large number of these opportunities offer favorable results for stakeholders who would not otherwise receive adequate attention.
Majority of the climate-relevant investment opportunities help adapt to a changing environment and manage climate-related risk. Another 36 percent focus on mitigating the underlying causes of climate change, and 21% offer dual benefits, which cover both adaptation and mitigation. The potential for investment is not fictional as their potential as business solutions that complement nations’ NDCs is already being demonstrated by real-world examples. For instance, a UNDP Growth Stage Impact Venture (GSIV) finalist, SOSAI Renewable Energies is bringing cost-effective, dependable, and efficient Renewable Energy to underprivileged areas in northern Nigeria.
Related Article: Climate plans fall short of global targets
Meeting Africa’s climate financial requirement is both an economic and humanitarian need as the effects of Climate Change worsen. Governments, international organizations, and private Investors must strategically work together to pave the way forward. By making investments in Sustainable Solutions now, the continent can reap the advantages on a local and global level, enhancing resilience and promoting climatic stability worldwide. However, supportive policies and processes are necessary for success in order to mitigate investment risks like high debt costs and the limited bankability of projects in some areas.