Doubling down on climate adaptation financing

The urgent need to address climate financing within the African continent has taken center stage at the ongoing COP27 in Sharm El Sheikh, Egypt. The Chief Economist and Director of Research and International Cooperation at Afreximbank, Hippolyte Fofack, emphasizes that liquidity constraints in Africa remain a significant barrier to fighting climate change. Fofack stresses the critical need to double down on action to close the financing gap, which currently stands at a staggering $250 billion annually for the decade ending in 2030. This financing gap poses a significant challenge for a continent with a combined GDP of $2.4 trillion, making up about 10% of the continent's economy. The inability to mobilize necessary funds is attributed to several constraints, including the low fiscal space within the continent and the high cost of sovereign debts. The African countries face interest rates on loans that are 3 to 5 times higher than those in other regions, making it challenging to honor their climate financing commitments. Fofack points out that Africa's energy poverty is a root cause of the narrow fiscal space and limited revenue diversification, hampering the continent's ability to close the financing gap. The region's energy consumption represents only 3% of the global total, despite accounting for 17% of the world's population, further exacerbating the climate funding challenges. Another significant impediment to addressing the financing gap is the lack of liquidity in African capital markets, driven by the high cost of borrowing. To tackle these constraints, Afreximbank plans to launch a Liquidity and Sustainability Facility (LSF) aimed at enhancing access to capital markets and promoting the issuance of green bonds by African economies at affordable rates. Fofack highlights the need for developed economies to rethink their approach to climate finance in Africa, moving away from a colonial mindset and embracing a collaborative effort to combat climate change. He challenges the outdated dichotomy of developed versus developing countries by emphasizing the shared responsibility in addressing the global climate crisis. Fofack calls for a collective commitment to creating a sustainable future for all, emphasizing the interconnected nature of climate change and the necessity for global cooperation. The launch of the Liquidity and Sustainability Facility at the COP27 signifies a crucial step towards unlocking climate adaptation financing in Africa and fostering a more inclusive and sustainable approach to addressing climate change.