The COVID-19 pandemic resulted in an unprecedented health and economic crisis across the world. Although sub-Saharan Africa has suffered a smaller death toll compared to the rest of the world, the pandemic has led to a sharp economic downturn in the region. As the pandemic spread, MEFMI member states joined the rest of the world in implementing measures to curb the spread of the virus. Such measures included national lockdowns, overnight curfews, border and port closures, social distancing, and greater rigour in hygiene, such as washing of hands and hand sanitisation.
While such measures have saved lives, they have at the same time severely attected economic activity and negatively impacted the livelihoods of millions of people, leading to declines in aggregate demand and output. The services sectors, which include tourism, transport, education, entertainment, sports and restaurants, were the most affected The economic effects of the pandemic were exacerbated by the presence ot a large intormal sector, which Is prevalent in most MEFMI member states. Besides domestic factors, the region was also affected by a deteriorating external environment, characterised by weak global demand and supply chain disruptions. T his affected tourism, exports receipts, foreign direct investment (FDI) inflows and international reserve positions, and led to a shortage of key imports. As a result, COVID-19 led to a decline in GDP growth rates. This in turn affected local revenue collections, in the face of the increased expenditure required in order to save lives and livelihoods.
As elsewhere in the world, MEFMI countries had no choice but to respond to the crisis. The effect of the pandemic on member countries varies from country to country in view of the diversity of the group. MEFMI countries span three income groups. Four countries are classified as low-income: Malawi, Mozambique, Rwanda and Uganda; seven as lower-middle income: Angola, Eswatini, Kenya, Lesotho, Tanzania, Zambia and Zimbabwe; and two as upper-middle income: Botswana and Namibia. The structures of the various economies in the group also differ. MEFMI includes mineral-rich and oil-exporting countries such as Zambia, Botswana and Angola, while other countries …
Since the beginning of 2020, countries around the world have been grappling with the worst economic, social and sanitary crisis of recent times. At the end of March 2020, the IJN was already warning about a ‘looming financial tsunami* for developing countries. Then, the dark clouds from the COVID-19 pandemic suddenly clogged all aspects of economic and social life. The pandemic brought about a severe contraction of productive sectors and overall GDP, increased unemployment; and put serious pressure on countries’ fiscal balance sheets through reduced revenue collection, the need for massive budgetary reallocation to finance urgent expenditure in health and other essential services, and the urgent need to put in place social safety nets for the most vulnerable segments of the population.
The COVID-19 pandemic is still evolving as the virus continues to mutate and infect more people around the globe. Initially, some observers felt that Africa had not been unduly affected by the spread of the pandemic.
However, it has become clear that the pandemic’s economic and social impact on African countries has been as considerable and pronounced as in other parts of the world. Despite recent progress in strengthening health systems, dealing With future waves of COVID-19 is likely to be more challenging in Africa than in other parts of the world, given limited access to healthcare across the continent and the availability of vaccines. According to the World Health Organization (WHO), as of mid-January 2022, only 17.31 vaccine doses per 100 population had been administered in Africa, compared to 143.14 in Europe, 144.4 in the Americas, 102.87 in South-East Asia and 185.21 in the Western Pacific. If indeed the reduction in mortality rates experienced in other continents is attributable to vaccination, then as the least vaccinated continent Africa remains very much at risk.’
According to the IMF, since the onset of the COVID-19 pandemic, real GDP of sub-Saharan African countries fell by 1.9 per cent in 2020, the worse performance on …
The COVID-19 pandemic that spread across the world in early 2020 triggered one of the most devastating global health and economic crises in modern history. The crisis affected all facets of socio-economic functioning, permeating through the financial markets. According to the IMF, the impact of COVID-19 on developing countries was historic and unusual in its severity as it induced debt stresses that exceeded past experiences across several dimensions (IMF, 2020). These included a sudden increase in government borrowing needs, a sharp downturn in economic activity, strain in market conditions and disruption in normal operations.
As reviewed in Chapter Two of this study, managing sovereign debt proved complex and challenging, particularly for debt managers in developing economies. Most of them entered the crisis with
pre-existing vulnerabilities (AfDB, 2021), especially limited fiscal space due to other localised shocks. Faced with significantly narrow fiscal space compared to its situation during the 2008/09 global financial crisis, sub-Saharan Africa was caught with limited room for manoeuvre. Specifically, 16 countries were either at high risk of debt distress or already in debt distress prior to the pandemic. In addition, their funding conditions remained highly vulnerable to global risk dynamics and therefore historically more volatile than in advanced economies (OECD, 2020). The stage of development and efficiency of local currency bond markets exacerbated debt managers’ challenges.
Operational challenges escalated to unprecedented levels during the crisis. It became evident that the pandemic created challenges on how to meet increased government borrowing requirements
against a backdrop of volatile market conditions, both locally and globally Worse still, the adoption of remote working arrangements changed the overall control environment in which staff performed their roles, thus exacerbating the vulnerability of debt management offices (DMOs) to operational risks. Generally, it is more challenging to manage risks in a dispersed remote working situation than in an office
The COVID-19 pandemic has caused devastating economic and social disruption across the world. It has especially affected developing countries, which were not fully prepared and had limited leeway to take the required preventive measures.
As seen in previous chapters of this study, not only was the impact of COVID-19 historic and unusual in its severity for developing countries, it caused immense debt stresses and put fiscal pressure on governments’ economic and financial fortunes. Faced with increasing requirements to spend on health and other essential services at a time when economic activity had all but stalled and revenue streams dried up, the need to resort to additional government borrowing became inevitable. That pushed the average general government gross debt-to-GDP ratio to 57.8 per cent at the end of 2020 for the 45 countries in the sub-Saharan Africa region, from 51.5 per cent in 2019. This was the highest level in almost 20 years, and an increase of more than six percentage points in just one year (IMF, 2021).
The fact that developing economies were already facing different vulnerabilities before the pandemic made it more difficult for them to manage the level of sovereign debt. Pressures particularly came from issues such as fast-growing interest expenses as a share of revenue, rollover risks due to shorter debt maturities, a narrowing of the differential between the real interest rate and growth, expanding contingent liabilities and, in some countries, debt collateralisation with limited transparency (AfDB, 2021). As seen in Chapter One of this study, the region entered the crisis with significantly less fiscal space than it had at the onset of the global financial crisis of 2008/09, with 16 countries either at high risk of debt distress or already in distress in 2019. At the same
time, the funding conditions of these countries were vulnerable to global risk sentiment and therefore historically more volatile than in advanced economies (OECD, 2020).
To keep global temperatures from rising more than 1.5°C as outlined in the Paris Agreement and prevent the worst impacts of climate change, the world will need to reach net-zero carbon emissions by around mid-century through removal and storage of as much carbon dioxide from the atmosphere as is put. While strategies to reduce emissions — such as increasing renewable energy, improving energy efficiency, and avoiding deforestation — are critically important, they will not be enough on their own. Reaching climate goals requires strategies that actively remove CO2 from the atmosphere.
Direct Air Carbon Capture is a promising carbon sequestration methodology but has yet to scale due to high costs. Kenya-based startup Octavia Carbon, which FSD Africa has invested in, though Cohort 11 of the Catalyst Fund is the only company utilizing DAC technology in the Global South and is uniquely positioned to disrupt the cost structure of current DAC projects.
The Octavia Carbon Innovation
Octavia Carbon is one of about twenty companies around the globe that are building DAC technologies. The company has developed a prototype DACC machine and are currently working on a separate Minimum Viable Product (MVP) with a paying customer which will allow for iteration. The machine design will be replicated, with initial machines capturing 5-10 tonnes of CO2 per year and later machines capturing 100 tonnes of CO2 per year. By end of 2024, Octavia Carbon aims to produce at least one of these machines a day, adding some ~40,000 tonnes of CO2 per year in DACC capacity to the global market.
Kenya, where Octavia Carbon is based, is uniquely well-suited for DACC thanks to natural endowments such as excellent geology for CO2 storage, geothermal activity, and unique renewables capacity and potential. The Kenyan Rift Valley is home to high-porosity basaltic rock that readily bonds with CO2-enriched water (carbonic acid – H2CO3), the fastest and safest form of permanent CO2 storage. Geothermal energy is also important for Octavia because ~80-90% of the energy required in DACC is low-grade (~80°C) heat energy. In Kenya, that kind of heat comes readily from the ground and is already a ‘waste’ product of geothermal power production.
For the electrical energy that DACC machines do require, it is ideal to have 24/7 green electricity, ideally coming right down the grid, and without too many competing uses for decarbonization (e.g., displacing fossil power plants). Kenya is uniquely well-suited for hydropower and geothermal energy, which today make up>90% of Kenya’s grid, and virtually 100% in Central Kenya. Few places in the world have any significant area covered by a 100% renewable grid. Kenya is also well endowed with solar (great irradiation and no seasonality), which could in the future complement the renewable energy mix even more.
Project Impact
Octavia Carbon will removes CO2 from the atmosphere and either stores it in rocks or makes it available to industries like floriculture which require carbon. This will catalyse the emergence of a new circular carbon economy that will use cheap air-captured CO2 to create further products like synthetic fuels/plastics. These direct activities will create innovative and sustainable economic growth, which will dramatically improve millions of livelihoods. Furthermore, there are additional applications for captured CO2, like enriching greenhouses with CO2, increasing plant photosynthesis and thereby leading to a higher yield, and making nutritious horticultural products more affordable and accessible to the populations that need them most. Indirectly, DACC can also eventually change the economics of geothermal energy by using abundant waste heat, co-utilizing injection wells, and providing a reliable offtake for excess energy.
Growth potential
The business model involves extracting carbon from the air using DACC technology to either store carbon in deep rock formations or produce and then sell CO2 for industrial use. The growth trajectory depicted in the financial models is promising. By the end of 2024, wirh an annual CO2 production rate of 40,000 tonnes per annum, key customers will include industrial CO2 buyers and carbon credit off-takers. Based on Octavia Carbon’s calculations, the price per tonne of CO2 will range between $300 and $500 depending on customer profile and market fundamentals.
The range of prices for capturing a tonne of CO2 varies between $775 to 1200 today depending on the technology choice, low-carbon energy source, and the scale of their deployment. Hence, Octavia Carbon’s projected price for a tonne of CO2, which requires additional extraction from the sorbent, would make it a global cost leader by mid-decade.
It also has significant growth potential due to the market and natural conditions in Kenya. The cost of production in Kenya is much lower compared to the Global North where graduate engineers cost ten times more than in Kenya. Furthermore, the world’s largest DACC company has also located their largest installations in countries with high geothermal activity such as Iceland. In Kenya, it is estimated that there are about 7,000 to 10,000 megawatts (thermal) of untapped geothermal energy beneath the Rift Valley region. Both the supply of renewable energy and talented engineers at a fraction of the cost provides a significant competitive advantage in Octavia Carbon’s scaling plan.
In line with the UK Government’s commitment to supporting clean, green and sustainable economic growth in Africa, UK Foreign Secretary James Cleverly visited a Nigerian e-mobility platform and electric vehicle assembler, MAX Nigeria.
With support from the UK-funded Manufacturing Africa programme, MAX raised $31 million to ramp up the assembly of electric two- and three-wheelers. MAX is now gearing up for a third capital raise, to fund its expansion to become a regional e-mobility player. MAX Nigeria has empowered over 21,000 drivers operating in 8 cities within Nigeria and has contributed to cutting 52 metric tons of CO2 emissions from the environment.
Manufacturing Africa’s team of McKinsey consultants conducted a market assessment of the electric vehicle value chain for MAX, contributing to their electric vehicle (EV) scale-up strategy. UK-linked financiers including Novastar (backed by British International Investment) and Shell Foundation are some of the organisations financing MAX’s growth. MAX has also found a UK business partner in Field Ready, to support them on recruitment.
Work with MAX is part of the UK’s support for economic growth, job creation and value-addition in Africa that aligns with global climate priorities.
British funds continue to support game-changing entrepreneurs and companies in Africa. British International Investment manages a $4.7bn investment portfolio in Africa, including 86 companies and 43 funds in Nigeria alone. Other funding sources include:
Infracredit, which provides local currency guarantees to unlock long-term infrastructure financing in Nigeria
FSD Africa Investments, which invests in order to improve the financial instruments supporting Africa’s green economic growth
the Climate Finance Accelerator, a public-private finance initiative that supports low-carbon projects
Importantly, the UK also provides support for companies to access investment, whether from the UK or elsewhere. The Manufacturing Africa programme is supporting 22 manufacturers to land investments in Nigeria, with a pipeline of $664m+ foreign direct investment (FDI). The programme supports over 120 companies across 5 countries in Africa, which are mitigating 239,000 tonnes of carbon dioxide, while creating 14,000 new jobs.
British High Commissioner to Nigeria, Richard Montgomery said: “I am delighted to visit MAX Nigeria with our Foreign Secretary James Cleverly. MAX are truly innovative and entrepreneurial, solving a thousand problems at once to bring affordable electric vehicles to West African riders.”
It is fantastic that a combination of UK public and private sector support is helping MAX to create jobs, bring new skills into the market, and solve climate change challenges. We will continue to support companies doing this groundbreaking work on the continent.
Chief Executive Officer and Co-Founder of MAX Nigeria, Adetayo Bamiduro said: “Our mission at MAX is to continue scaling the impact of our vehicle subscription platform across Africa and to deliver on our commitment to provide sustainable income to millions of mobility entrepreneurs by enabling them to access income-generating, energy-efficient, and electric vehicles that meet the essential needs of Africans.”
According to ANCA Economic activity is depleting nature with nearly 75 percent of land surface significantly altered.
The dependence of Africa’s economy on natural capital exceeds the global average, with over 70% of people in sub-Saharan Africa depending on forests and woodlands for their livelihoods.
The lack of proper data, legal and regulatory structure to fund nature-related risks has seen investors shy off from pumping resources into the sector.
This has further exposed the sector, despite being a key anchor of Kenya and a majority of the African economies.
FSD Africa and African Natural Capital Alliance Lead, Dorothy Maseke says that going forward, regulators will need to identify nature-related risk concentrations for regulated entities and assess whether they are being managed effectively.
According to Maseke, this will streamline the sector and prevent the loss of $195 billion (Sh27.7 trillion) in annual natural capital in Africa.
“Enhanced transparency of nature-related risks is fundamental to managing them effectively. This is the case for individual financial institutions, which need visibility of the nature-related risks in their lending, underwriting, and investment portfolios,” said Maseke.
In Kenya currently, green financing has been concentrated in areas such as lending to renewable energy projects and providing credit lines for energy efficiency projects such as solar installations.
Speaking during the release of a report on “Improving the transparency of nature-related risks in Africa”, the lead said that if not addressed, risk assessments show that five percent of Africa’s banks risk portfolio could experience losses up to 2023.
The report outlines how financial sector stakeholders, including regulators, are increasingly recognising that the depletion of nature poses risks to financial and economic stability.
In February this year, Kenya announced a plan to set up an investment bank to increase commercial lending to environmentally friendly projects by absorbing part of the risks associated with such ventures.
Treasury in its draft National Green Fiscal Incentives Policy Framework, noted that the planned bank is part of efforts to steer Kenya’s economy onto a low-carbon climate-resilient green development pathway.
The green bank—to be referred to as Kenya Green Investment Bank (KeGIB) —will incentivise private sector investments in green projects.
According to ANCA, economic activity is depleting nature with nearly 75 percent of land surface significantly altered and over 85 percent of wetlands having been lost, threatening economies and businesses that depend on nature.
African economies are highly exposed to nature-related risks because they are especially dependent on nature and quickly losing natural capital.
Africa is home to 65 percent of the world’s arable land, and 20 percent of the global tropical rainforest area .
These natural endowments offer large natural-capital opportunities
The dependence of Africa’s economy on natural capital exceeds the global average, with over 70 percent of people living in sub-Saharan Africa depending on forests and woodlands for their livelihoods.
This is compared to about half of the worldʼs total GDP generated in industries that depend on nature.
Africa’s loss of natural capital also exceeds the global average, having seen a decline in its Biodiversity Intactness Index (BII) score of 4.2 percent between 1970 and 2014, considerably higher than the global BII score decline of 2.7 percent over the same period.
NAIROBI, Kenya, July 25 – Finance firms in Africa are beginning to recognize the risk that the sector faces from environmental degradation.
This is revealed in a new report dubbed ‘Improving the transparency of nature-related risks in Africa’ by the African Natural Capital Alliance (ANCA).
ANCA was founded by leading banks and insurers in Kenya, South Africa, and Nigeria to tackle the biodiversity crisis as well as how to benefit from it.
According to the report, the alliance underscored the growing importance of African regulators responses to nature-related risks in line with their mandate of maintaining financial viability.
“Enhanced transparency of nature-related risks is fundamental to managing them effectively,” Nature Lead at FSD Africa and ANCA Dorothy Maseke said.
“This is the case for individual financial institutions, which need visibility of the nature-related risks in their lending, underwriting, and investment portfolios.”
The alliance observes that the Global Biodiversity Framework (GBF), which was adopted in December 2022 by 188 governments across the world, aims to address biodiversity loss, restore ecosystems, and protect indigenous rights.
“This landmark agreement prompts governments to introduce policies to manage nature loss, which will lead to regulators having to act, and highlights the opportunities for regulators to do so proactively,” says Oliver Wyman’s Sandra Villars.
ANCA opines that African regulators could thus benefit from engaging with this new agenda early and being at the forefront of integrating nature into their regulatory regimes.
Nairobi — Finance firms in Africa are beginning to recognize the risk that the sector faces from environmental degradation.
This is revealed in a new report dubbed ‘Improving the transparency of nature-related risks in Africa’ by the African Natural Capital Alliance (ANCA).
ANCA was founded by leading banks and insurers in Kenya, South Africa, and Nigeria to tackle the biodiversity crisis as well as how to benefit from it.
According to the report, the alliance underscored the growing importance of African regulators responses to nature-related risks in line with their mandate of maintaining financial viability.
“Enhanced transparency of nature-related risks is fundamental to managing them effectively,” Nature Lead at FSD Africa and ANCA Dorothy Maseke said.
“This is the case for individual financial institutions, which need visibility of the nature-related risks in their lending, underwriting, and investment portfolios.”
The alliance observes that the Global Biodiversity Framework (GBF), which was adopted in December 2022 by 188 governments across the world, aims to address biodiversity loss, restore ecosystems, and protect indigenous rights.
“This landmark agreement prompts governments to introduce policies to manage nature loss, which will lead to regulators having to act, and highlights the opportunities for regulators to do so proactively,” says ANCA’s Sandra Villars.
ANCA opines that African regulators could thus benefit from engaging with this new agenda early and being at the forefront of integrating nature into their regulatory regimes.
Nairobi, 25 July 2023: A new report from the collaborative forum of African financial institutions the African Natural Capital Alliance (ANCA) and management consulting firm Oliver Wyman has underlined the growing importance of African regulators acting on nature-related risks in line with their mandate of maintaining financial stability.
The report “Improving the transparency of nature-related risks in Africa: the emerging regulatory agenda”, outlines how financial sector stakeholders, including regulators, are increasingly recognising that the depletion of nature poses risks to financial and economic stability.
The report makes clear that the issue is a particularly urgent one for sub-Saharan Africa as its economies are disproportionately dependent on nature. For instance, over 70% of people living in the region are dependent on forests and woodlands for their livelihoods, compared to about half of the total world’s GDP generated in industries that depend on nature. The rate at which nature in Africa is being lost also exceeds the global average. For example, Africa’s Biodiversity Intactness Index (BII) score – which measures the number and abundance of species on land – declined by 4.2% between 1970 and 2014, considerably higher than the global BII score decline of 2.7% over the same period.
In East Africa alone, failure to protect natural capital as a whole (including its stocks of soil, air, water, and all living things, which underpin the region’s economy and human well-being) would result in an economic loss of more than $11.3 billion a year, according to an assessment commissioned in 2021 by USAid.
Dorothy Maseke, the Nature Lead at FSD Africa and ANCA, says: “Enhanced transparency of nature-related risks is fundamental to managing them effectively. This is the case for individual financial institutions, which need visibility of the nature-related risks in their lending, underwriting, and investment portfolios. And it is also the case for regulators, so that they can identify nature-related risk concentrations for regulated entities and assess whether they are being managed effectively.”
African regulators embracing this complexity is so important, she adds, because the continent is disproportionately exposed to nature-related risks.
Sandra Villars, senior advisor at Oliver Wyman, says: “The Global Biodiversity Framework (GBF), which was adopted in December 2022 by 188 governments across the world, aims to address biodiversity loss, restore ecosystems, and protect indigenous rights. This landmark agreement prompts governments to introduce policies to manage nature loss, which will lead to regulators having to act, and highlights the opportunities for regulators to do so proactively.
African regulators could thus benefit from engaging with this new agenda early and being at the forefront of integrating nature into their regulatory regimes.”
As summarised in the report, there are four simple steps regulators can take as part of a nature-related disclosure roadmap while policy frameworks are being finalised in their jurisdictions:
Engage with finance and environment ministries to align their regulatory approach with
government’s policy agenda on nature
Assess internal capacity and act on gaps
Assess the capacity for action among regulated entities
Engage in voluntary nature networks such as the Sustainable Insurance Forum (SIF), the Network for Greening the Financial System (NGFS), the African Natural Capital Alliance (ANCA), and the Task Force on Nature-Related Financial Disclosures (TNFD)
