Innovative financing models are key in tackling Africa’s climate needs

By Ali Mansoor and Awa Mbaye

African countries need alternative funding schemes to tackle climate change impacts whose effects have been exacerbated by the Covid-19 pandemic, the Russian-Ukrainian war, geopolitical fragmentation, and external shocks around the world

This can only mean that, for the continent to consolidate her efforts on climate change course, which currently depends only on Resilience and Sustainability Facility (RSF) from IMF which was initiated in 2022, innovative financing is imperative.

The Covid-19 pandemic, the Russian-Ukrainian war, geopolitical fragmentation, and external shocks around the world have exacerbated the effects of climate change in developing countries, low-income countries, and Small Island and Developing States (SIDS), increasing the huge financing needs they already had. 

For example, Africa will need around $133 billion annually in clean energy investments to meet its energy and climate goals between 2026 and 2030, according to the Climate Policy Initiative. According to the International Monetary Fund (IMF), the investment required for adaptation in developing countries could range from $50 billion to $500 billion annually by 2050. African countries, which make up most developing countries, would face adaptation and mitigation costs of 50 billion dollars per year by 2050.  

Investment deficits vary from country to country. All sub-regions receive far less funding than they need. However, the Southern African region has the largest funding gap, mainly due to the high climate finance needs identified by South Africa alone ($107 billion per year), combined with one of the lowest regional levels of climate investment. Central and East African countries have the largest climate investment gaps as a percentage of GDP: 26% and 23% on average, respectively. North African countries have the lowest climate investment gaps (3% of GDP), but the need for climate finance in these countries still exceeds flows by three to six times.

To support vulnerable countries, in April 2022 the Executive Board of the International Monetary Fund approved the creation of the RSF, which is financed by voluntary contributions from IMF members with a strong external position, including through the reallocation of surplus Special Drawing Rights (SDRs). The IMF set up this new financing instrument to help low- and middle-income countries and Small Island Developing States meet the challenges of adapting to climate change and pandemics.

While the only African countries to benefit from IMF loans under the RST include Rwanda, Senegal, and Seychelles for amounts of $310 million, $327.1 million, and $46 million respectively, some say the facility is far from being able to meet the needs of African countries in terms of climate finance, given that the access ceiling for eligible members is less than 150% of the quota or SDR 1 billion, and the starting point for determining access is an access standard of 75% of the quota member.

Indeed, when we estimate the total access ceiling for all African members eligible for the RST (around $31.3 billion), we realize that this amount is extremely low compared to the average annual needs of African countries ($243 billion) to cope with the effects of climate change. Even if loans were allocated under the RST every year, which is not the case, and the loans are meant to play a catalytic role, they would not be enough to meet the climate financing needs of African countries. Rwanda, for example, which has a government-estimated cost for new investments in adaptation projects of $11 billion, of which $6.9 billion is conditional on new financing , has received only $310 million to, among other things, strengthen its resilience to climate change. 

The effectiveness of financing climate change is generally limited because the loan quota is linked to SDR quota, which depends on the size of a country’s GDP – this means that countries with small economies and a significant need for climate finance are not favored.

Reality is; African countries need substantial and diversified funding to continue their economic development process. To meet the challenges of climate change, effects of the pandemic, the economic disruption caused by the war in Ukraine, and long-standing structural obstacles, African countries must mobilization additional resources, and look beyond IMF financing. Only the mobilization of additional resources, substantial and diversified, will widen the room and light up African countries.  

Sign Up