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Billion-dollar climate adaptation opportunities for Africa’s private sector

Updated: Nov 21, 2022

Increased severity and frequency of natural disasters in Africa is spurring the growth of the climate adaptation market, promising huge returns for private investors in the continent.

**By Conrad Onyango, bird Africa Story Agency**

Low-income African countries will provide an opportunity for the private sector to make high returns on investment projects that cut down damages caused by climate-change-induced natural disasters.

A new working paper by World Bank’s financing arm, IFC, shows investment opportunities worth US $ 100 billion for entrepreneurs offering solutions that help tame increased floods and droughts- in these highly vulnerable countries.

Titled adapting to Natural Disasters in Africa: What’s in it for the Private Sector? Lists Eswatini, Malawi, Namibia, Niger, and Mauritania are countries with potential commercially viable investment opportunities worth at least $5 billion a year between now and 2040.

“Many of the most promising investment opportunities lie in low-income countries,” the report read.

Over the next two decades, investors in Malawi will be required to pump in up to 30 per cent of the country’s GDP-the most significant share in Africa- to help vulnerable communities adapt to the impacts of flooding and droughts.

Namibia and Eswatini will require an upfront investment of 26 per cent of the country’s GDP to fund bankable climate adaptation projects, while Nigeria and Mauritania will require 22 per cent and 21 per cent, respectively.

The study tracking 43 African countries that have experienced at least one incidence of drought or floods since 1990 reported that private investors are better positioned to help fix the continent’s climate adaptation funding gap and enjoy a return of eight per cent on investments.

Billion-dollar climate adaptation opportunities for Africa’s private sector[Graphics: Hope Mukami]

“With African governments’ budgets stretched and little fiscal space, public investment will not be enough to meet the continent’s climate adaptation needs, further underscoring the need for private sector investments,” said IFC in the report.

A 2021 UNEP Adaptation Gap Report: The Gathering Storm projects cost of adaptation in developing countries will reach US $300 billion annually by 2030.

Comparatively, global flows in adaptation finance were a paltry US $46 billion in 2020, out of which $28.6 billion was shared among developing countries.

The rising adaptation costs highlight a rise in the prevalence of natural disasters because of rising global temperatures, with little funding coming by, making it an untapped opportunity.

Between 1990 and 2019 alone, Africa suffered 1,107 floods and droughts, leading to 43,625 deaths and at least US $14 billion in damages to crops, livestock, and property, according to IFC.

Another study, Landscape of Climate Finance in Africa, released by the Climate Policy Initiative in September, is also building a case for more private investments to fix a funding gap of US $2.8 trillion needed by 2030 to limit temperatures from rising above 1.5 degrees and its corresponding impacts.

According to the report, Africa’s annual climate finance flows stand at US $30 billion, with the private sector- Corporates and commercial banks contributing just US $4.2 billion of the total. Spending on adaptation is pegged at US $11.4 billion annually.

This report attributes the Private Sector’s low contribution of financial flows to actual risk, perceived risk, and ticket sizes of climate projects that ‘dissuade private capital players.’

To catalyse private investments, the authors of the report urge development partners to target higher leverage ratios through blended financing structures like the enhanced role for private insurance and partial guarantees.

“They could also support capacity building, both within domestic finance institutions and in developing a pipeline of investable opportunities,” said the report.

United Kingdom has committed an additional US $204 (£ 200 million) in adaptation financing to help vulnerable countries beat the impacts of climate change with plans to surpass its current funding of US $508 (£500 million).

On the eve of COP 27 opening UK, Prime Minister Rishi Sunak said the UK will triple adaptation funding - channelled through the African Development Bank Group’s Climate Action Window- to US $1.54 (£ 1.5 billion) by 2025.

American multinational investment bank, Bank of America, has also committed an additional US $1 trillion towards financing low-carbon and sustainable business activities between 2020-2030 across the globe.

This is a significant rise from the US $200 billion it has spent through its Environmental Business Initiative since 2007, highlighting a growing adaptation market.

**bird, Africa Story Agency **



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