Experts argue that tax systems in most African countries favor investments in “brown” rather than “green” economies and this is prohibiting investments in renewable energy.
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Pillar: Development Impact
FSD Africa’s 2023 Development Impact Report discusses our progress against our sustainable finance strategy and is the second since we began implementing the strategy in April 2021. Other than progress, we also share the lessons we have been learning along the way on how to make finance work harder for Africa, both for current and for future generations.
In 2023, we celebrated two key milestones – the 10th anniversary of FSD Africa, and the coming of age of FSD Africa Investments. FSD Africa Investments turned six this year and has so far committed £92m pounds. Together, FSD Africa and FSDAi, have delivered value to over 12 million people and 3.2 million businesses, and have helped strengthen the financial markets in over 30 African countries.
While we celebrate several milestones, we are cognisant of the challenges that African countries continue to face in mobilising sufficient finance for climate and social development goals. That is why we are now placing a greater emphasis on new ways of mobilising finance for the continent’s sustainable development – through innovative climate finance solutions, leveraging Africa’s natural capital, and developing carbon markets. We emphasise the unique opportunities and resources that Africa has, and can bring to bear, in solving the climate and development challenge we all face.
What to expect from the report.
- Learn about our work with regulators, policy makers and other market actors and how this is helping to catalyse the flow of finance into frontier investment opportunities on the continent.
- Learn about the Africa Natural Capital Alliance, which we helped set up to mobilise the financial community’s response to nature loss in Africa and to help drive nature-positive investments on the continent.
- Learn about the work we are doing with 4R Digital, Rabobank and others to grow and democratise access to Africa’s carbon markets. iv. Learn about our investment in Catalyst Fund, and how support provided to Sand to Green, an Africa based Agri start-up, is promoting sustainable food production in Northern Africa.
- Learn about the Bima Lab Insurtech Accelerator, and the work we are doing with Soso Care in Nigeria, a low-cost health insurance provider that accepts recyclable waste as payment for insurance cover.
- Learn about our emerging work on gender that is focused on giving women agency and financial resources that help advance the continent’s climate action, as well as solving for other needs.
- Learn about the many other transactions we have supported to bring renewable energy, clean transport, and affordable green housing to those who need them most.
- Lastly, engage with the lessons and insights we share from our experience, and let us know your thoughts on how we can make finance work better for Africa’s future.
As international headlines chart the terrible suffering caused by flooding, earthquakes and wildfires, a less headline-grabbing, but nonetheless hugely significant, good news story has emerged from Nairobi, Kenya. The African Climate Summit, which concluded on September 6, was a huge success story for Africa and for Kenyan President William Ruto.
Pledges directed to African climate change adaptation and litigation amounting to $26bn have emerged from the summit. That’s not enough to solve Africa’s climate challenges, but even if only a fraction of this sum materialises, it will have a real impact on the ground.
Even more consequential in the long term is the consensus that emerged from the conference around the need for economic growth that delivers both prosperity and environmental benefits. The fact that a consensus was achieved is significant, because it strengthens Africa’s position for the forthcoming COP28 conference in Dubai in November. Furthermore, the admission of the African Union to the G20 means the African voice is getting louder and clearer on the world stage.
Importantly, the summit’s adoption of the Nairobi Declaration, which commits African countries to develop and implement “policies, regulations and incentives aimed at attracting local, regional and global investment in green growth and inclusive economies”, is also a signal that Africa will look for other strategies to support climate action, alongside the $100bn a year promised by developed nations in 2009.
Indeed, the summit was most of all an assertion of African self-determination and specifically the need to mobilise Africa’s domestic private capital in the continent’s climate efforts. Relying on international finance creates a dependency that Africa does not want. Put simply, Africa has determined that its own resources must be channelled, supported by a financial market architecture which ensures that states can absorb climate finance effectively, distributing it where it is most needed.
But if it is to do this, the current situation – in which less than 0.5% of domestic institutional assets under management are invested in alternative assets – cannot continue. As was argued powerfully at the launch of the Pan-African Fund Managers’ Association at the beginning of the summit, we need to think about how we can put in place not only the policy and regulatory incentives but also the instruments and the financial architecture to drive much more of the$1.4tn of institutional capital in Africa towards climate and nature-positive projects.
Crucially, this will mean more use of de-risking strategies such as credit guarantees to persuade pension funds to de-emphasise the easy but less safe option of government securities and to invest in green assets. It will also require sources of donor and philanthropic capital to step up their support for project development, for example through the use of challenge funds or by investing in intermediaries that are closer to the market as a way of reaching the more innovative start-ups and entrepreneurs who will drive the new green economy.
[Current] global prudential regulations can make it economically impossible for large institutional investors to allocate capital to African projects.
Moreover, the summit underlined an important issue that has seen Africa’s financing needs neglected, namely the need for reform of the global prudential regulations, which can make it economically impossible for large institutional investors to allocate capital to African projects. There should be a global review of these constraints, perhaps led by the G20.
Even with such reforms, African governments, many of which are battling with high levels of debt, will need to be both agile and visionary if they are to compete at a time when the world’s biggest economies are offering big incentives to attract green investment. Though deeply political, carbon taxes could be one way to go, but would need to be sensitively introduced. Other green fiscal incentives, balancing out tax breaks for green investment by removing subsidies for dirty industries, are also essential for governments to be able to direct their economies towards a greener future.
The UN Framework Convention on Climate Change has just released its first global stocktake report, highlighting yet again that, despite a major global effort, progress since the Paris Agreement has been inadequate. The report recommends greater commitment to transformation across all sectors and recognises the need for more access to climate finance for developing countries in line with the key recommendations from the Nairobi Summit.
If we get this right, the prize is very significant and the message from the summit is that Africa will not wait. Instead, it is determined to grab the opportunities of a new green growth pathway now, as are an increasing number of investors, and that has to be good for us all.
PREAMBLE
We, the African Heads of State and Government, gathered for the inaugural Africa Climate Summit (ACS) in Nairobi, Kenya, from 4th to 6th September 2023; in the presence of other Global Leaders, Intergovernmental Organizations, Regional Economic Communities, United Nations Agencies, Private Sector, Civil Society Organizations, Indigenous Peoples, Local Communities, Farmer Organizations, Children, Youth, Women and Academia:and Government in the presence of global leaders and high-level representatives on 6 September 2023 in Nairobi Kenya
- Recall the Assembly Decisions (AU/Dec.723(XXXII), AU/Dec.764 (XXXIII) and AU/Dec.855(XXXVI)) requesting the African Union Commission to organize an African Climate Summit and endorsing the offer by the Republic of Kenya to host the Summit;
- Commend E Dr. William Samoei Ruto, President of the Republic of Kenya, and Chair of the Committee of African Heads of State and Government on Climate Change (CAHOSCC) for providing the political leadership of an African vision that simultaneously pursues climate change and development agenda;
- Commend also E Moussa Faki Mahamat, the Chairperson of the African Union Commission (AUC), for his dedication and commitment towards the convening of the Summit;
- Further Commend the Arab Republic of Egypt for the successful COP27 and its historic outcomes, particularly regarding loss and damage, just transition and energy, and call for the full implementation of all COP27 decisions;
- Acknowledge that climate change is the single greatest challenge facing humanity and the single biggest threat to all life on Earth, demanding urgent and concerted action from all nations to lower emissions and reduce the concentration of greenhouse gases in the atmosphere;
- Take Note of the 6th Assessment Report (AR6) of the Intergovernmental Panel on Climate Change (IPCC), stating that the world is not on track to keeping within reach the 1.5°C limit agreed in Paris and that global emissions must be cut by 43% in this decade;
- Underscore the IPCC confirmation that Africa is warming faster than the rest of the world and if unabated, climate change will continue to have adverse impacts on African economies and societies, and hamper economic growth and wellbeing;
- Recognise that Africa is not historically responsible for global warming, but bears the brunt of its effects, impacting lives, livelihoods, and economies;
- Reaffirm the principles set out in the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement, namely equity, common but differentiated responsibilities and respective capabilities;
- Express concern that many African countries face disproportionate burdens and risks arising from climate change-related unpredictable weather events and patterns, including prolonged droughts, devastating floods, out-of-season storms, and wildfires, which cause massive humanitarian crisis with detrimental impacts on economies, health, education, peace and security, among other risks;
- Recall that only seven years remain to achieve the Sustainable Development Goals of the 2030 Agenda, and note with concern that 600 million people in Africa still lack access to electricity while about 970 million lack access to clean cooking;
- Further note that extreme weather events and changes in water cycle patterns are making it more difficult to access safe drinking water, resulting in about 400 million people in Africa having no access to clean drinking water and 700 million without good sanitation;
- Further recognise that African cities and urban centres are growing rapidly, and by 2050 would be home to over 1.0 billion people. Cognisant of the fact that rapid urbanization, poverty, and inequality limit planning capacities and other urban dynamics which increase people’s exposure and vulnerability to hazards and have thus turned cities into disaster hotspots across the continent;
- Concerned that despite Africa having an estimated 40 percent of the world’s renewable energy resources, only $60 billion or two percent of US$3 trillion renewable energy investments in the last decade have come to Africa;
- Reiterate Africa’s readiness to create an enabling environment, enact policies and facilitate investments necessary to unlock resources to meet our own climate commitments, and contribute meaningfully to decarbonisation of the global economy;
- Recognise that Africa’s vast forests, especially the Congo Basin rainforest are the largest carbon sinks globally, and the important ecosystem services provided by Africa’s vast savannahs, Miombo woodlands, peatlands, mangroves, and coral reefs, it is time that Africa’s natural capital wealth is properly measured by recognizing its contribution to reducing global carbon emissions;
- Further recognise the critical importance of the oceans in climate action and commitments made on ocean sustainability in multiple fora such as the Second UN Oceans Conference in 2022, and the Moroni Declaration for Ocean and Climate Action in Africa in 2023;
- Emphasise that Africa possesses both the potential and the ambition to be a vital component of the global solution to climate As home to the world’s youngest and fastest-growing workforce, coupled with massive untapped renewable energy potential, abundant natural assets and an entrepreneurial spirit, our continent has the fundamentals to spearhead a climate compatible pathway as a thriving, cost-competitive industrial hub with the capacity to support other regions in achieving their net zero ambitions;
Now hereby identify the following to be critical agendas for urgent collective action at the continental and global level:
- We call upon the global community to act with urgency in reducing emissions, fulfilling its obligations, honouring past promises, and supporting the continent in addressing climate change, specifically to:
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- Accelerate all efforts to reduce emissions to align with goals of the Paris Agreement
- Honour the commitment to provide $100 billion in annual climate finance, as promised in 2009 at the UNFCCC COP15 in Copenhagen, Denmark
- Uphold commitments to a fair and accelerated process of phasing down unabated coal power and phase out of inefficient fossil fuel subsidies while providing targeted support to the poorest and most vulnerable in line with national circumstances and recognizing the need for support towards a just transition.
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- We call for climate-positive investments that catalyse a growth trajectory anchored in the industries poised to transform our planet and enable African countries to achieve stable middle-income status by
- We urge global leaders to join us in seizing this unprecedented opportunity to accelerate global decarbonization, while pursuing equality and shared prosperity.
- We call for the operationalization of the Loss & Damage fund as agreed at COP27 and resolve for a measurable Global Goal on Adaptation (GGA) with indicators and targets to enable assessment of progress against negative impacts of climate change.
In recognition of the scale, urgency and importance of these collective actions, we commit to:
- Develop and implement policies, regulations and incentives aimed at attracting local, regional and global investment in green growth, inclusive of green and circular economies;
- Propel Africa’s economic growth and job creation in a manner that reflects our commitments to the Paris Agreement and also aids global decarbonization efforts, by leapfrogging the traditional progression of industrial development and fostering green production and supply chains on a global scale;
- Focus our economic development plans on climate-positive growth, including expansion of just energy transitions and renewable energy generation for industrial activity, climate smart and restorative agricultural practices, and essential protection and enhancement of nature and biodiversity;
- Promote clean cooking technologies and initiatives as a just energy transition and gender equality for African rural women, youth, and children;
- Strengthen actions to halt and reverse biodiversity loss, deforestation, and desertification, as well as restore degraded lands to achieve land degradation neutrality; and implement the Abidjan declaration on achieving gender equality for successful land restoration;
- Strengthen continental collaboration, which is essential to enabling and advancing green growth, including but not limited to regional and continental grid interconnectivity, and further accelerating the operationalization of the Africa Continental Free Trade Area (AfCFTA) Agreement;
- Advance green industrialization across the continent by prioritizing energy-intense industries to trigger a virtuous cycle of renewable energy deployment and economic activity, with a special emphasis on adding value to Africa’s natural endowments;
- Promote investments in reskilling to unlock the human capital that will power for Africa’s inclusive green transition;
- Redouble our efforts to boost agricultural yields through sustainable agricultural practices, to enhance food security while minimizing negative environmental impacts;
- Contribute to the development of global standards, metrics, and market mechanisms to accurately value and compensate for the protection of nature, biodiversity, socio-economic co-benefits, and the provision of climate services;
- Finalise and implement the African Union Biodiversity Strategy and Action Plan, with the view to realizing the 2050 vision of living in harmony with nature;
- Provide all the necessary reforms and support required to raise the share of renewable energy financing to at least 20 percent by 2030;
- Promote the production of green hydrogen and hydrogen derivatives such as green fertilizer and synthetic fuels;
- Integrate climate, biodiversity and ocean agendas into national development plans and processes to increase resilience of local communities and national economies;
- Promote regenerative blue economy and support implementation of the Moroni Declaration for Ocean and Climate Action in Africa, and the Great Blue Wall Initiative, whilst recognising the circumstances of Africa’s Island States;
- Support smallholder farmers, indigenous peoples, and local communities in the green economic transition, given their key role in ecosystems stewardship;
- Identify, prioritize, and mainstream adaptation into development policy-making and planning, including in the context of Nationally Determined Contributions (NDCs);
- Build effective partnerships between Africa and other regions, to meet the needs for financial, technical and technological support, and knowledge sharing for climate change adaptation;
- Promote investments in urban infrastructure including through upgrading informal settlements and slum areas to build climate resilient cities and urban centres;
- Strengthen early warning systems and climate information services, as well as taking early action to protect lives, livelihoods and assets and inform long-term decision-making related to climate change risks. We emphasise the importance of embracing indigenous knowledge and citizen science in both adaptation strategies and early warning systems;
- Support implementation of the Africa Water Investment Programme (AIP), which aims to close the Africa water investment gap by mobilising US$30 billion by 2030;
- Enhance drought resilience systems to shift from crisis management to proactive drought preparedness and adaptation, to significantly reduce drought vulnerability of people, economic activities, and ecosystems;
- Further enhance our inclusive approach including through engagement and coordination with the children, youth, women, persons living with disabilities, indigenous people, and communities in climate vulnerable situations;
- Accelerate implementation of the African Union Climate Change and Resilient Development Strategy and Action Plan (2022-2032)
CALL TO ACTION:
- We call upon world leaders to recognise that decarbonizing the global economy is an opportunity to contribute to equality and shared
- We invite Development Partners from the global north and south to align technical and financial support to Africa for sustainable utilization of Africa’s natural assets for low carbon development that contributes to global decarbonization.
- To accomplish this vision of economic transformation in harmony with our climate needs, we further call upon the international community to contribute to the following:
- Increase Africa’s renewable generation capacity from 56 Giga Watts (GW) in 2022 to at least 300 GW by 2030, both to address energy poverty and to bolster the global supply of cost-effective clean energy for industry.
- Shift exports of energy intensive primary processing of Africa’s raw material back to the continent, to serve as an anchor demand for our renewable energy and a means of rapidly reducing global
- Access to, and transfer of environmentally sound technologies, including technologies to support Africa’s green industrialisation and transition.
- Design global and regional trade mechanisms in a manner that enables products from Africa to compete on fair and equitable
- Request that trade-related environmental tariffs and non-tariff barriers must be subject to multilateral discussions and agreements and not be unilateral, arbitrary or discriminatory measures.
- Accelerate efforts to decarbonize the transport, industrial and electricity sectors through the use of smart, digital and highly efficient technologies such as green hydrogen, synthetic fuels and battery storage.
- Design industry policies that incentivize global investment to locations that offer the most and substantial climate benefits, while ensuring benefits for local communities.
- Implement a mix of measures that elevate Africa’s share of carbon markets.
- Reiterate the decision 1/COP27 that states that global transformation to a low-carbon economy is expected to require investment of at least USD 4 – 6 trillion per year and delivering such funding in turn requires a transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors.
- We call for collective global action to mobilise the necessary capital for both development and climate action, echoing the statement of the Paris Pact for People and the Planet, that no country should ever have to choose between development aspirations and climate action.
- Call for concrete, time-bound action on the proposals to reform the multilateral financial system currently under discussion specifically to:
- Build resilience to climate shocks, including better deployment of the Special Drawing Rights (SDRs) liquidity mechanism and disaster suspension clauses.
- Re-channeling of at least $100billion of SDRs to Africa, including through institutions such as the African Development Bank which will be able to leverage the SDRs by three to four times. We also call for the formation of a group of SDR donors to expedite this re- channeling ahead of COP28.
- Propose for consideration a new SDR issue for climate crisis response of at least the same magnitude as the Covid19 issue (US$650 billion).
- Better leverage of the balance sheets of MDBs to scale up concessional finance to at least $500b per year.
- Improve debt management, including:
- the inclusion of ‘debt pause clauses’, and
- the proposed expert review of the Common Framework and the Debt Sustainability Analysis.
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- Provide interventions and instruments for new debt relief to pre-empt debt default to:
- extend sovereign debt tenor, and
- include a 10-year grace
- Provide interventions and instruments for new debt relief to pre-empt debt default to:
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- Decisively act on the promotion of inclusive and effective international tax cooperation at the United Nations with the aim to reduce Africa’s loss of US$ 27 billion annual corporate tax revenue through profit shifting, by at least 50% by 2030 and 75% by 2050.
- Put additional measures to crowd in and de-risk private capital, such as blended finance instruments, purchase commitments, partial foreign exchange (FX) guarantee and industrial policy collaboration, which should be informed by the risks that drive lack of private capital deployment at
- Redesign MDB governance, to ensure a “fit for purpose” system with appropriate representation, voice, and agency of all countries.
- Decisively act on the promotion of inclusive and effective international tax cooperation at the United Nations with the aim to reduce Africa’s loss of US$ 27 billion annual corporate tax revenue through profit shifting, by at least 50% by 2030 and 75% by 2050.
- Note that multilateral finance reform is necessary but not sufficient to provide the scale of climate financing the world needs to achieve 43 percent emission reduction by 2030 required to meet the Paris Agreement goals, without which keeping global warming to 1.5 degrees celsius will be in serious jeopardy.
- Further note that the scale of financing required to unlock Africa’s climate-positive growth is beyond the borrowing capacity of national balance sheets, or at the risk premium that Africa is currently paying for private capital.
- Draw attention to the finding that inordinate borrowing costs, typically 5 to 8 times what wealthy countries pay (the “great financial divide”), are a root cause of recurring debt crises in developing countries and an impediment to investment in development and climate action.
- We call for adoption of principles of responsible sovereign lending and accountability encompassing credit rating, risk analysis and debt sustainability assessment frameworks and urge the financial markets to commit to eliminate this disparity by 2025.
- Urge world leaders to consider the proposal for a global carbon taxation regime including a carbon tax on fossil fuel trade, maritime transport and aviation, that may also be augmented by a global financial transaction tax (FTT) to provide dedicated, affordable, and accessible finance for climate-positive investments at scale, and establish a balanced, fair and representative global governance structure for its management, with an assessment of the financial implications on socio- economic impacts on Africa.
- Propose to establish a new financing architecture that is responsive to Africa’s needs including debt restructuring and relief, and the development of a new Global Climate Finance Charter through UNGA and COP processes by 2025.
- We call for revaluation of the Gross Domestic Product of Africa through the proper valuation of its abundant natural capital and ecosystem services including but not limited to its vast forests that sequester carbon to unlock new sources of wealth for Africa. This will entail the use of natural resource accounting and development of national accounting standards.
- Note that the first Global Stocktake which will conclude at COP28 offers a pivotal opportunity to correct course by including a comprehensive outcome, both backward and forward looking.
- Resolve to establish the Africa Climate Summit as a biennial event convened by African Union and hosted by AU Member States, to set the continent’s new vision, taking into consideration emerging global climate and development issues.
- Resolve also that this Declaration will serve as a strong contribution from the African continent to the global climate change process including COP 28 and beyond.
- Welcome the pledges and commitments made at the Summit to a tune of USD 26 billion from Development Partners including the European Union, the United Arab Emirates (UAE) as COP28 President- Designate, the Government of the United States, MDBs, Philanthropic Foundations, and Private Sector, to support Africa especially in the areas of renewable energy and adaptation.
- Appreciate the efforts of the United Arab Emirates as the COP28 President-Designate in the preparation of COP28 and affirm Africa’s full support for a successful and ambitious outcome of COP28.
- Request African Union Commission to develop an implementation framework for this Declaration and to make Climate Change an AU theme for the Year 2025 or 2026.
- Thank the Government and People of the Kenya for successfully hosting the inaugural Africa Climate Summit, and the warm hospitality accorded to all delegations to the Summit.
In witness of which we the African Heads of State and Government assembled in the (venue) of the Kenyatta International Convention Centre in Nairobi now make this declaration in the presence of global leaders and high-level representatives on this 6th day September 2023, in Nairobi, Kenya
“In a short space of time, we have strengthened and developed financial markets and tapped into capital by using new instruments such as green and gender bonds,” says Mr Mark Napier, CEO of FSD Africa.
FSD Africa, a UK Aid funded specialist development agency, on 27th March celebrated a decade of strengthening financial markets across Africa, growing economies, increasing incomes for vulnerable populations and combatting poverty.
FSD Africa has made significant strides over the past decade by advancing policy and regulatory reforms, enhancing financial infrastructure and increasing capacity, all while tackling systemic issues in Africa’s financial markets. These efforts have led to large-scale and long-term change, providing access to financial services to over 10.2 million people and addressing issues related to financial exclusion.
During the Covid-19 pandemíc, FSD Africa observed a remarkable 87% increase in the demand for and use of remittance services, which played a crucial role in protecting families from Covid-19’s financial impacts.
FSD Africa’s market-building initiatives have resulted directly or indirectly in £1.9 billion of long-term capital made available for SMEs, affordable housing and sustainable energy projects, among others. Its support for financial sector innovation has increased access to financial services for close to 12 million Africans, while its support for business growth has improved access to finance for more than 3 million African businesses and led directly or indirectly to the creation of over 35,000 new jobs.
“Celebrating over ten years of our trailblazing work across Africa is special,” said Mr Mark Napier, CEO of FSD Africa. “In a short space of time, we have strengthened and developed financial markets and tapped into capital by using new instruments such as green and gender bonds.”
FSD Africa’s strategy has evolved to address the continent’s expanding needs, with a greater emphasis on identifying innovative methods to mobilise resources for sustainable economic development. The organisation has recently boosted investment into projects that enable an equitable transition to a green future for Africa after several successful initiatives, including developing regulations and assisting green bond issuance programmes in Kenya and Nigeria.
The organisation’s green portfolio and pipeline have expanded because of continuous investments in programmes that provide environmental and social consequences, with close to £50 million being invested in green initiatives.
Ms Jane Marriott, OBE, British High Commissioner to Kenya said the UK is continually working with Kenya to promote green finance and economic growth as part of its strategic partnership with Kenya. FSD Africa is delivering on these priorities in Kenya and across the continent, creating over 35,000 jobs and leveraging more than Ksh300 billion into sectors like renewable energy.
Kenya’s National Treasury Cabinet Secretary Prof Njuguna Ndung’u, said Kenya’s partnership with FSD Africa has created a favourable environment for the growth of local capital markets, resulting in increased interest from both domestic and foreign investors.
“FSD Africa also played a crucial role in establishing the Nairobi International Financial Centre (NIFC), positioning Kenya to receive more financial flows,” Prof Ndung’u said. “We look forward to collaborating more closely with FSD Africa on green finance initiatives to promote sustainable development while addressing climate change challenges.”
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FSD Africa, a UK aid funded specialist development agency, today celebrated a decade of strengthening financial markets across Africa, growing economies, increasing incomes for vulnerable populations, and combatting poverty.
FSD Africa has made significant strides over the past decade by advancing policy and regulatory reforms, enhancing financial infrastructure and increasing capacity, all while tackling systemic issues in Africa’s financial markets. These efforts have led to large-scale and long-term change, providing access to financial services to over 10.2 million people and addressing issues related to financial exclusion. During the Covid-19 pandemic, FSD Africa observed a remarkable 87% increase in the demand for and use of remittance services, which played a crucial role in protecting families from the pandemic’s financial impacts.
FSD Africa’s market-building initiatives have resulted directly or indirectly in £1.9 billion of long-term capital made available for SMEs, affordable housing and sustainable energy projects, among others. Its support for financial sector innovation has increased access to financial services for close to 12 million Africans, while its support for business growth has improved access to finance for more than 3 million African businesses and led directly or indirectly to the creation of over 35,000 new jobs.
Speaking during the event, Mark Napier, CEO at FSD Africa said: “Celebrating over ten years of our trailblazing work across Africa is special: in a short space of time, we have strengthened and developed financial markets, and tapped into capital by using new instruments such as green and gender bonds. The future is key, and I look forward to continuing our hard work with our collaborative and innovative team. I have no doubt that we will continue to support and address Africa’s expanding needs as we move towards sustainable economic development.’’
Future-focused, FSD Africa’s strategy has evolved to address Africa’s expanding needs, with a greater emphasis on identifying innovative methods to mobilise resources for sustainable economic development. The organisation has recently boosted their investment into projects that enable an equitable transition to a green future for Africa after several successful initiatives, including developing regulations and assisting green bond issuance programmes in Kenya and Nigeria. The organisation’s green portfolio and pipeline have expanded because of continuous investments in programmes that provide environmental and social consequences, with close to £50 million being invested in green initiatives.
Jane Marriott, OBE, British High Commissioner to Kenya said: ‘”The UK is continually working with Kenya to promote green finance and economic growth as part of the UK-Kenya Strategic Partnership. FSD Africa is delivering on these priorities in Kenya and across the continent, creating over 35,000 jobs and leveraging more than KES 300 billion into sectors like renewable energy. I look forward to FSD Africa’s continued work in the years ahead.”
Prof. Njuguna Ndung’u, Cabinet Secretary, Kenya National Treasury said: ‘’Kenya’s partnership with FSD Africa has created a favourable environment for the growth of our local capital markets, resulting in increased interest from both domestic and foreign investors. FSD Africa also played a crucial role in establishing the Nairobi International Financial Centre (NIFC), positioning Kenya to receive more financial flows. We look forward to collaborating more closely with FSD Africa on green finance initiatives to promote sustainable development while addressing climate change challenges.’’
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Key points
- These efforts have led to large-scale and long-term change, providing access to financial services to over 10.2 million people and addressing issues related to financial exclusion.
FSD Africa, a UK aid-funded specialist development agency, today celebrated a decade of strengthening financial markets across Africa, growing economies, increasing incomes for vulnerable populations, and combatting poverty.
FSD Africa has made significant strides over the past decade by advancing policy and regulatory reforms, enhancing financial infrastructure, and increasing capacity, all while tackling systemic issues in Africa’s financial markets.
These efforts have led to large-scale and long-term change, providing access to financial services to over 10.2 million people and addressing issues related to financial exclusion. During the Covid-19 pandemic, FSD Africa observed a remarkable 87% increase in the demand for and use of remittance services, which played a crucial role in protecting families from the pandemic’s financial impacts.
FSD Africa’s market-building initiatives have resulted directly or indirectly in £1.9 billion of long-term capital made available for SMEs, affordable housing, and sustainable energy projects, among others. Its support for financial sector innovation has increased access to financial services for close to 12 million Africans, while its support for business growth has improved access to finance for more than 3 million African businesses and led directly or indirectly to the creation of over 35,000 new jobs.
Speaking during the event, Mark Napier, CEO at FSD Africa said: “Celebrating over ten years of our trailblazing work across Africa is special: in a short space of time, we have strengthened and developed financial markets and tapped into capital by using new instruments such as green and gender bonds. The future is key, and I look forward to continuing our hard work with our collaborative and innovative team. I have no doubt that we will continue to support and address Africa’s expanding needs as we move towards sustainable economic development.’’
Future-focused, FSD Africa’s strategy has evolved to address Africa’s expanding needs, with a greater emphasis on identifying innovative methods to mobilize resources for sustainable economic development. The organization has recently boosted its investment into projects that enable an equitable transition to a green future for Africa after several successful initiatives, including developing regulations and assisting green bond issuance programs in Kenya and Nigeria. The organization’s green portfolio and pipeline have expanded because of continuous investments in programs that provide environmental and social consequences, with close to £50 million being invested in green initiatives.
Jane Marriott, OBE, British High Commissioner to Kenya said: ‘”The UK is continually working with Kenya to promote green finance and economic growth as part of the UK-Kenya Strategic Partnership. FSD Africa is delivering on these priorities in Kenya and across the continent, creating over 35,000 jobs and leveraging more than KES 300 billion into sectors like renewable energy. I look forward to FSD Africa’s continued work in the years ahead.”
Prof. Njuguna Ndung’u, Cabinet Secretary, Kenya National Treasury said: ‘’Kenya’s partnership with FSD Africa has created a favorable environment for the growth of our local capital markets, resulting in increased interest from both domestic and foreign investors. FSD Africa also played a crucial role in establishing the Nairobi International Financial Centre (NIFC), positioning Kenya to receive more financial flows. We look forward to collaborating more closely with FSD Africa on green finance initiatives to promote sustainable development while addressing climate change challenges.’’
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These trees are Gabon’s superstars. They absorb and store millions of tons of earth-warming carbon dioxide each year, a critical function for the global fight against climate change. They also fuel the country’s timber industry, a major focus of economic development during the past decade.
In today’s financial markets, Gabon’s trees are worth more dead than alive. Despite the billions pledged worldwide to fight climate change, little has been distributed as compensation for the global benefit that trees provide. In 2021, Gabon received its first payment for reducing forest-related emissions—$17 million via the Central African Forest Initiative.
The timber industry, on the other hand, contributes about $1 billion to Gabon’s annual gross domestic product. It could be a great deal more. Unlike some of its neighbors, the country strictly limits logging, palm oil production and other activities that lead to forest destruction; it’s suffered less than 1% forest loss since 1990, compared with about 14% for continental Africa.
Now that oil production, the country’s primary source of revenue, is dwindling, leaders are reevaluating the money-making potential of the forests. Opening more land to timber companies is one option, but for now Gabon’s environmentally minded government is more interested in keeping the trees alive—if the international financial markets can make it worthwhile.
The best avenue for that, Gabon says, is the $2 billion-and-growing market for “carbon offsets.” That’s traditionally been limited to those who can document improvement on past environmental practices, not those who, like Gabon, never wrecked their forests in the first place. That’s because for a carbon offset to fulfill its function of compensating for its buyer’s emissions, it needs to have financed something that wouldn’t have happened otherwise. But in Gabon, forest protection has been happening anyway.
Unlike some of its neighbors, Gabon has put strict limits on logging. But with oil production—the country’s primary source of revenue—dwindling, leaders are reevaluating the money-making potential of the forests. Photographer: Guillem Sartorio/Bloomberg
Still, Gabon insists it should be compensated for the air-purifying service its trees provide. Otherwise, it hints, its commitment to forest preservation may take a backseat to more traditional economic development. In its recent national action plan under the Paris Agreement, the global climate pact, the country says it plans to remain a “net-carbon absorber”—if it gets access to international finance through a carbon market.
“There is no financial instrument to support Gabon to continue to offer this critical ecosystem service,” Akim Daouda, the chief executive officer of Gabon’s $1.9 billion sovereign wealth fund, said in an interview during a recent trip to London. “Can we monetize the forest and keep it for the rest of the planet? Or do we need to find a way to respond to the needs of our population?”
Gabon’s timber industry has been a major focus of economic development in the last decade, contributing as much as $1 billion to Gabon’s annual gross domestic product. Photographer: Guillem Sartorio/Bloomberg
Gabon’s per capita GDP is the highest on the continent, but there’s little evidence of wealth past or present in Nyanga. One of the few local health centers lacks running water, exposed wires poke out of the walls, and bare mattresses cover four, cast-iron bedframes.
The province is home to a 100,000 hectare (247,000 acre) cattle ranch, part of the Grande Mayumba project. A flagship of Gabon’s “sustainable development” efforts and backed by investments from the family offices of the Westons, Fricks and Sarikhanis, Grande Mayumba’s plans include logging, cattle farming and eco-tourism, as well as an area 37 times the size of Manhattan set aside for conservation.
The ranch raises N’Dama, a small chestnut-colored breed of indigenous beef cattle that tolerate tsetse flies and the sleeping sickness they carry. The 4,000-strong herd will grow and eventually roam alongside wild buffalo and antelope. The free-range model will minimize harm to the savannah ecosystem, and careful grasslands management could boost the soil’s carbon stock, according to Africa Conservation Development Corp., Grande Mayumba’s parent company.
The ranch isn’t profitable yet. So far, only Grande Mayumba’s logging operation is fully operational. The rest has moved far more slowly. To raise the money needed to really get the project off the ground, ACDG will need to issue and sell carbon credits.
The Nyanga ranch raises N’Dama, a small chestnut-colored breed of indigenous beef cattle that tolerate tsetse flies and the sleeping sickness they carry. Photographer: Guillem Sartorio/Bloomberg
The forest-based carbon offsets on the market today tend to be based on projects that seek to avoid emissions or increase carbon storage. Limiting deforestation usually qualifies; so could planting trees. Developers usually calculate how the forests fared under their control compared with a historical baseline, then sell the difference in units of extra tons of carbon removed or avoided as offsets.
But because Gabon already has stringent restrictions on logging and there’s little deforestation to speak of, ACDG has had to take a different approach. Based on trends in more than a dozen once-highly forested countries, it contends there’s an imminent threat to the trees in Nyanga. Pending government approval, ACDG will sell credits based on how Grande Mayumba’s activities avert that hypothetical future destruction.
“There will be development in the Grande Mayumba area over time,” said Rob Morley, science and environmental planning director at ACDG. “This will either be unsustainable, unplanned and that will lead to a large amount of forest loss, or it will be planned.”
Gabon’s per capita GDP ranks among Africa’s highest, but there’s little evidence of wealth past or present in Nyanga. Photographer: Guillem Sartorio/Bloomberg
On the ground, the threat feels distant. About the size of Israel, the province is Gabon’s poorest, with just three paved roads, two hospitals and few public services. Residents have gone looking for better opportunities in Gabon’s main cities, leaving a population of around 53,000.
The Grande Mayumba project says it will generate as many as 4,000 jobs, mirroring President Ali Bongo’s Gabon Émergent, the country’s three-pillar development strategy based on industry, the environment and a services economy. Most will work in forestry or ranching, but a handful will staff a luxury ecolodge under construction in neighboring Ogooué-Maritime province. For $2,000 per night or so, well-heeled tourists will be able to see hippos frolic in the surf and ghost crabs dash in and out of the waves.
When ACDG figures out how to stabilize a runway on the sandy soils, guests will be able to access the lodge by plane. Until then, it’s a half-day journey from the nearest main town, by car, river barge and speedboat. The last leg is by quadbike along a strip of beach frequented by buffalo and the odd elephant, tide permitting.
Africa Conservation Development Corp, Grande Mayumba’s parent company, is constructing a luxury ecolodge in neighboring Ogooué-Maritime province. For $2,000 per night, it will welcome well-heeled tourists eager to see hippos frolic in the surf and ghost crabs dashing in and out of the waves. When ACDG figures out how to stabilize a runway on the sandy soils, guests will be able access the lodge by plane. Photographer: Guillem Sartorio/Bloomberg
In its original plans, Grande Mayumba expected its model to generate as many as 200 million credits over the next 25 years. At today’s prices, that would be worth about $2 billion, according to data provider Allied Offsets, roughly equal to Gabon’s sovereign wealth fund.
So far that’s yet to materialize. The British bank Standard Chartered Plc and Swiss trading firm Vitol SA have expressed interest, but neither have culminated in a deal. Investors are getting antsy.
Josh Ponte, a former gorilla researcher and special adviser to the President of Gabon and now an ACDG director, bemoaned the delay in carbon-credit revenue.
“The carbon play was a core incentive,” he said, sitting on a rudimentary platform that will eventually be a dining room. Other than some staff lodging, there’s little more to see. “But there’s since been a reality check on the timeline of the carbon credits, how they’ll work, and how they’ll fit with government strategy. It’s really tiring our investors.”
Josh Ponte (center right), who now serves as an ACDG director, checks camera traps near future site of the Petit Loango lodge. The camera traps recorded over 20 species, including forest elephants. Photographer: Guillem Sartorio/Bloomberg
Gabon Vert, the environmental pillar of the Bongo administration’s development plan, frames both its deal with ACDG and the country’s plans to issue its own, sovereign carbon offsets. Gabon’s offering will rely on different math. It plans to tally the CO2 its trees suck out of the atmosphere, subtract its own emissions, and sell the difference to other, more polluting countries as “net sequestration” credits.
Anyone can issue carbon credits, and anyone can buy them. Most developers use third-party verification bodies to vouch for the quality of their offerings. Gabon doesn’t plan to do so. Fledgling exchanges are also trying to streamline trade, but for now, over-the-counter, bilateral deals are the most common.
It’s not clear the markets will bite. Gabon’s plans have been met with caution. It’s yet to sell some 90 million credits it already generated for past carbon absorption using an established albeit contested approach.
“It always makes me nervous when people say they’re going to roll out their own methodology,” said Danny Cullenward, policy director at nonprofit research group CarbonPlan. “It’s really easy to manipulate the methodology intentionally or incidentally to produce outcomes that are less credible or inconsistent with other key points of data.”
Methodology aside, political uncertainty hangs over Gabon. The fate of Gabon Vert may depend on the outcome of the presidential election later this year.
Though a member of the Bongo family has led Gabon for the past 56 years, the current presidency is under a cloud. Ali Bongo won his most recent election by fewer than 10,000 votes, triggering charges of ballot-rigging and days of violent protest. A 2019 coup attempt failed, and Bongo has had a stroke.
Ahead of this year’s presidential election, the government has embarked on an aggressive green diplomacy push. In February, a delegation joined the UK’s environment ministry and King Charles III to chat conservation. This week, Emmanuel Macron will attend a “One Forest” summit in Libreville, the first time a French president has visited the country in about a decade.
The Grande Mayumba project was already halted once, in 2015, when Gabon’s then-oil minister gave the site of a proposed port to a Moroccan company, despite an agreement that assigned it to ACDG. Development stalled until the dispute was resolved in 2018.
“If the president were to change, I’m not convinced that the model has got deep enough roots yet to be fully sustainable,” said Lee White, environment minister in Bongo’s government. The project also is facing a groundswell of opposition from local communities and NGOs. A grassroots campaign called “No to Grande Mayumba” calls for the suspension of the plan, saying restrictions on access to resources threaten the custom and livelihoods of subsistence farmers who haven’t been adequately consulted.
“There’s sacred forest here and the local population should be consulted on what can and can’t be cut down,” said Nicole Nouhando, governor of Nyanga province who’s broadly supportive of ACDG’s plans.
ACDG has had its own turmoil. Alan Bernstein, the South African safari entrepreneur who founded the company, left after a falling-out with its biggest investors. ACDG says he no longer holds stock in the group; Bernstein says he is seeking compensation after an initial court settlement in January.
During a two-hour flight from the capital of Gabon, Libreville, to a cattle ranch in the southernmost province Nyanga, the land below is a nearly unbroken stretch of textured green carpet. Photographer: Guillem Sartorio/Bloomberg
For now, Gabon and ACDG are pushing ahead. In the absence of oversight, their success depends less on whether the credits help avert climate change and more on whether and how much a buyer will pay.
In December, US oil company Hess Corp. sealed the first purchase agreement for a similar kind of “high forest, low deforestation” credits with Guyana. Earlier in the year, the International Civil Aviation Organization said those credits could be used by airlines to offset their emissions. Experts have cautioned the credits will fail to serve their purpose.
If ACDG or Gabon can make a deal, it will add fuel to the efforts of other rainforest nations across the world’s tropical belt.
It could also pit the government at odds with the private sector. Gabon is one of a handful of countries with agreements to generate and trade their own carbon credits under a new carbon market run by the United Nations, according to Trove Research Ltd., a carbon analytics company. Last year, White castigated TotalEnergies over a new forest-based credits plan in Gabon. “They don’t have the rights” to that carbon, he said.
ACDG retains the government’s support. The success of the Grande Mayumba project would encourage “forest countries to continue preserving their forests,” said Daouda of Gabon’s sovereign wealth fund, which will market the country’s carbon credits. For him, it would answer the country’s big question in the affirmative: “It would mean that today, the world is recognizing that a living tree has higher value than a dead one.” —With Akshat Rathi and Ben Elgin
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As countries around the world race to combat the effects of climate change, carbon trading continues to gain traction.
Carbon trading is the buying and selling of permits of carbon credits that allow the holder to emit a certain amount of carbon dioxide and other greenhouse gases (GHGs).
Financial site Investopedia defines a carbon credit as the equivalent of one tonne of carbon dioxide or any other GHGs that an organisation can emit into the atmosphere.
Essentially, companies are awarded credits to allow them to continue to pollute up to a certain limit, often on a reducing basis.
What happens when a company exceeds its limits?
While some businesses are able to cut their emissions, others are not able to do so. For some, their emissions might even increase in the course of a given period.
Those that cannot reduce their emissions are, however, allowed to continue operating, but usually at a higher cost.
In some instances, businesses are unable to exhaust their credit limits even after operating for the marked duration. These are called ‘‘surplus’’ or ‘‘excess’’ credits.
When a business is left with unutilised credits, it can sell them to other businesses. The business may also choose to keep the surplus credits for future use.
What is the difference between carbon credits and carbon offsets?
While carbon credits and carbon offsets are sometimes used interchangeably, they are different commodities with the same goal of reducing the emission of carbon and other GHGs into the atmosphere.
Carbon credits are limited to within an area and are regulated by a governing body. It is this governing body that is also responsible for creating and distributing them to companies operating within that jurisdiction.
Carbon offsets are neither created by a specific entity nor distributed by a particular body. Instead, they are traded freely on ‘‘voluntary markets.’’
Read: Northern Kenya conservancies eye pie of carbon credit billions
While carbon credits ‘‘cap’’ emissions, carbon offsets compensate an organisation for investing in carbon projects, also called green projects, that help to cut down emissions.
Carbon offset projects can be realised through activities that either reduce the emission of greenhouse gases or those that increase carbon sequestration.
Some of these activities may involve investment in renewable energy forms to displace fossil fuels that emit carbon and reforestation to increase the number of trees that serve as carbon sinks.
Does Kenya have a history of carbon trading?
This trade dates back to 2014. A group of 60,000 smallholder farmers in the Western region under the Kenya Agricultural Carbon Project (KACP) earned carbon credits for sustainable farming.
The credits had been issued worldwide under the sustainable agricultural land management (SALM) carbon accounting methodology.
The programme supported the farmers to grow crops in a productive, sustainable and climate-friendly manner.
With its forests, expansive grasslands and wetlands, Kenya is considered a rich carbon offset sink. This is expected to improve even further once the country attains its target of planting 15 billion trees in the next 10 years.
How is carbon trading regulated in Kenya?
One of the functions of the National Climate Change Action Plan under the Climate Change Act of 2016 is ‘‘to guide the country toward the achievement of low-carbon climate-resilient sustainable development.’’
It does not, however, address specifically how trading in carbon credits, as a climate change response, will be regulated in Kenya.
Environment lawyer Stella Ojango acknowledges the gaps, noting that Kenya’s limited regulatory framework and absence of requisite laws make carbon trading in the country an almost opaque undertaking.
‘‘We have the Climate Change Act of 2016, but it does not address carbon trading sufficiently. We need to amend that Act so that we can introduce regulations for trading carbon. Enriching our laws will help to regularise this business.’’ Ojango says.
Last year, the Nairobi International Finance Centre (NIFC) said Kenya lacks a clear framework for buying and selling carbon credits locally.
The body noted that this unregulated sale of carbon credits costs the country billions of shillings in unrealised revenues.
The organisation is planning to establish a carbon trading exchange in the country to allow small-scale trade-in credits.
‘‘We need to have in place mechanisms that measure how much carbon is being absorbed through reforestation. This way, we will have created a market. Regulating the pricing aspect will then become easier,’’ Ojango adds.
How are carbon markets regulated elsewhere?
Kenya is not alone in lacking proper regulation for carbon trading. Most of the carbon credit markets in the developing world are unregulated by law. There are no agreed prices for carbon credits.
Plans are underway to establish a global carbon credit and carbon offset trading market. This was agreed on by negotiators at COP26 in Glasgow in 2021. Carbon credits also exist within markets with Cap & Trade regulations.
Who is trading in carbon credits in Kenya?
A number of businesses and organisations are already making money from either carbon credits or carbon offset programmes.
In Northern Kenya, conservancies are increasingly moving away from tourism as their mainstay to now invest in carbon projects as a source of revenue.
Northern Rangelands Trust (NRT), for instance, has put 4.7 million acres of grassland under a carbon project.
NRT is a group of 39 marine and land conservancies that cover, among other counties, Laikipia, Samburu, Tana River and Lamu. Out of these, 14 are under the project.
The Northern Rangelands Carbon Project will focus exclusively on the removal of carbon from the soil, with a target of 50 million tonnes of CO2 in 30 years. This effectively makes it one of the few projects of this scale in the market globally.
Last year, Kenya Forest Service (KFS) signed a deal with global audit firm BDO that would see the government agency earn millions of shillings for offsetting carbon dioxide.
According to the deal, KFS will rake in $15 (Sh1868) for every tonne of carbon dioxide removed from the atmosphere by government forests.
In villages in coastal Kenya, communities living near the sea are selling ‘‘hewa kaa’’ to international corporations to help them reduce their carbon emissions.
This carbon project is promoting the conservation and sustainable use of mangrove resources by the villagers.
Controversy of trade
While widely adopted around the world today, carbon credits still divide opinion. Those in support say carbon trading is a ‘‘measurable and verifiable’’ emissions reduction strategy through climate projects.
Those opposed to carbon offsets call the trade ‘‘a scammer’s dream scheme’’ and the next big thing in greenwashing.
Climate change advocacy organisation Greenpeace dismisses carbon offsets as a bookkeeping trick ‘‘intended to obscure climate-wrecking emissions.’’
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