Africa's climate financing: A call to action

For many African countries, getting on track for net zero emissions by 2050 to meet the goal of limiting global warming to no more than 1.5°C means reducing national emissions, adapting to the impacts of climate change, and creating tangible investment programs and pipelines of projects that match investors’ risks and return expectations. 

Indeed, the African Development Bank estimates that the continent requires as much as $2.8 trillion through 2030 to implement its climate commitments set out in countries’ national targets under the 2015 Paris Agreement. Despite this, clean energy investments are heavily concentrated: Africa, with 20% of the global population, has only 2% (USD 35 billion) of clean energy investments. Given the limited climate finance flows to Africa, the continent is left with a gap between $200-400 billion annually by 2030, according to ECPDM. 

Traditional financial instruments need to meet the huge financing needs, given that the cost of capital for utility-scale energy projects in Africa is two to three times higher than in advanced economies. Combined with currency depreciations and US and EU interest rate hikes, this has driven up debt servicing costs, which IEA has estimated to double the level of clean energy investment across the continent as a whole.

In the African continent, at the country risk level, the macroeconomic context has significantly worsened, with UNCTAD reporting an average external debt increase as a share of GDP from approximately 19% in 2010 to nearly 29% in 2022. 

To meet the scale and urgency of the challenge, strong collaboration is needed between stakeholders, governments, international organizations, international financial institutions, and the private sector. Africa must put in place robust institutional structures and country platforms, such as the one that South Africa launched for its Just Energy Transition. It must also make concerted efforts to boost domestic resource mobilization to ensure the long-term sustainability of the necessary investments. 

Catalysing concessional financing - particularly from bilateral donors - is critical to support African countries in their mission to fulfill their international commitments and essential to scaling up other pools of climate finance, including the multilateral climate funds and the multilateral development banks. Africa will also need much higher levels of support from development finance institutions. 

Finding a multi-faceted approach to scale up financing just transitions to support Africa's ability to adapt, mitigate, and build resilience against the adverse impacts of climate change was the focus of the Climate Finance Forum hosted by RES4Africa Foundation together with Nedbank CIB and the European Investment Bank. Held in Cape Town, South Africa, on March 8th, the Forum was structured into three different sessions – (1) Financing Energy Transitions, (2) Approaches to Climate Finance, (3) Financing Innovation in Climate Investments, in which high-level representatives from relevant climate finance actors active in South Africa and Sub-Saharan Africa debated on how to bolster critical climate funding in the region. Key factors discussed as facilitators of climate investments were adopting blended finance, de-risking programmes, and technical cooperation. 

By co-hosting this high-level Climate Finance Forum, Res4Africa confirms its participation in a sustained effort, promising to shape the trajectory of sustainable electrification across the continent significantly.

The Foundation plays an active role in the collaborative endeavours to unleash the necessary resources to drive climate resilience and sustainable electrification across Africa, given that massive investment in the continent's grids is critical to improve system reliability, expand access and facilitate the integration of variable renewables. By focusing on streamlining and modernizing Africa’s energy regulatory frameworks, it strives to make them both welcoming and attractive for international investors while offering a robust set of de-risking tools.