Plugging the $2.8m Africa climate financing gap

Africa is at the cusp of a climate crisis, with global warming wreaking havoc on the continent. The funding gap to address this crisis stands at over 2.8 trillion dollars. To tackle the looming threat of climate change, experts argue that African governments must amp up efforts to strengthen governance and engage in innovative partnerships. In a recent interview with CNBC Africa, Titus Gwemende, Division Director of Open Society-Africa, delved into the pressing issue of climate finance in Africa. The continent requires an estimated 2.8 trillion US dollars between 2020 and 2030 to execute its nationally determined contributions. However, a meager 14% of this amount has been sourced from the private sector within Africa. Gwemende emphasized the imperative need for a significant increase in both private and public financing in the foreseeable future. He highlighted several key areas that require immediate attention to bridge the climate financing gap in Africa. The current global debt and financial architecture upon which climate finance stands is dysfunctional, necessitating a transformation to enable increased investment in climate resilience development in Africa. Gwemende stressed the need for a robust African agenda during summits to push for systemic changes that would enhance climate finance in the region. Furthermore, he called for greater support for the operationalization of the loss and damage fund, established during COP27. The fund needs to be resourced adequately to enable countries to access funds swiftly within 24 hours after a climate-related disaster strikes. Another critical aspect that Gwemende highlighted is the urgent reform of credit ratings for African countries. He argued that the current rating system by agencies has inflated the cost of borrowing for climate-vulnerable nations, making it challenging for them to access liquidity at reasonable interest rates. By reforming the credit rating process, African countries could potentially alleviate the burden of high borrowing costs and improve their access to climate finance. Gwemende also emphasized the importance of developed nations honoring their climate finance commitments. The promise of 100 billion dollars per year needs to materialize to support climate action effectively. One of the key strategies proposed by Gwemende is the rerouting of Special Drawing Rights (SDRs) through Multilateral Development Banks (MDBs) like the Africa Development Bank. While the International Monetary Fund (IMF) approved approximately 650 billion dollars worth of SDRs during the COVID-19 crisis, only a fraction of this amount reached Africa. By increasing the flow of SDRs through MDBs, African countries could gain access to more manageable, cost-effective, and long-term climate finance. Gwemende's insights shed light on the critical need for concerted efforts to bolster climate finance in Africa and address the widening funding gap. The conversation around transitioning from conventional aid models to innovative investments that promote wealth redistribution back to the continent is gaining prominence. Gwemende cautioned against relying solely on aid, citing a decline in overseas development assistance to Africa amidst global economic shifts. He outlined the necessity for governments and the private sector to adopt a more strategic and bold approach towards climate finance. Drawing parallels with Southeast Asia, where domestic capital markets have played a pivotal role in financing energy transition and clean energy projects, Gwemende urged African nations to harness their domestic resources for sustainable investments in climate initiatives. Moreover, he stressed the urgency of ensuring specialized funds for loss and damages are readily available to support countries grappling with natural disasters intensified by climate change. The redistribution of SDRs through MDBs, reforming multilateral institutions to enhance climate finance lending capacity, and supporting private sector initiatives through guarantees and equity were proposed as key strategies to drive sustainable climate finance in Africa. As Africa stands at a critical juncture in its fight against climate change, innovative solutions and robust partnerships are imperative to bridge the financing gap and secure a sustainable future for the continent.