Financing Africa’s green transition

Africa is at a critical juncture in its transition to a green economy, with the need for climate finance more urgent than ever before. The continent faces a significant financing gap of $2.7 trillion by 2030, with only $47 billion received in 2022, a mere 3.6% of global climate finance. This stark disparity underscores the pressing need for innovative financial solutions and stronger partnerships to mobilize capital for green investments. CNBC Africa recently spoke with Santosh Singh, MD of Climate & Agri Solutions at Intellecap, to delve deeper into the challenges and potential solutions to financing Africa's green transition. Singh highlighted several key issues affecting the flow of climate finance to critical sectors and the role of public and private finance in driving sustainable investments. One of the main obstacles to attracting private sector investment lies in the varying financial viability of climate solutions across different sectors. While renewable energy, such as solar, presents a more attractive investment opportunity due to its commercial returns, sectors like training and capacity building for climate resilience struggle to attract private capital. Singh emphasized the importance of addressing all critical sectors, regardless of their commercial viability, to meet climate commitments effectively. Another significant challenge is the failure of many countries to fulfill their financial commitments to developing nations and least developed countries. Singh underscored the need for increased commitments and highlighted the importance of creating commercially viable solutions in the climate space to attract private capital. To bridge the gap between public and private finance, Singh proposed a more catalytic use of public and philanthropic capital to de-risk private sector investments and make certain sectors more attractive. By leveraging blended finance, guarantees, and risk mitigation tools, the cost of capital can be reduced, and private sector investment in renewable energy and sustainable agriculture can be stimulated. However, Singh stressed that while some innovative financing mechanisms exist, they remain limited in scale and are not yet sufficient to address Africa's climate finance needs. Looking ahead, Singh urged for more tailored solutions and increased collaboration to scale up these innovations. Carbon markets present a significant opportunity for Africa to attract more commercial investment in previously uncompetitive sectors by leveraging carbon credits. However, the complexity and technical nature of carbon markets pose a challenge for many stakeholders. Singh emphasized the need for a focused strategy, robust methodologies, and long-term planning to effectively leverage carbon markets. By creating a regional voice for Africa's carbon market and highlighting additional social and environmental benefits, such as gender and biodiversity impacts, African businesses and governments can position themselves to capture a premium in the market. Finally, agriculture, a cornerstone of Africa's economy, receives disproportionately low global climate finance, despite contributing nearly a quarter of sub-Saharan Africa's GDP. Smallholder farmers face systemic risks and high transaction costs, making it challenging to finance climate-smart practices. Singh suggested exploring aggregation models and collective financing to reduce transaction costs and enable smallholder farmers to adopt climate-friendly practices more efficiently. By addressing these challenges and implementing tailored financing models, Africa can accelerate its green transition and achieve its climate goals.