SELEMO NKWE
The international community has acknowledged the significance of climate finance in supporting developing countries’ pursuit of climate-resilient and low-carbon development, but translating the commitment into action has been demonstrably insufficient.
Despite commitments made since the 2009 Copenhagen Accord pledge of $100 billion annually to support mitigation efforts, challenges persist in channelling climate finance for developing countries.
Africa stands on the front lines of a climate crisis fuelled by the world’s wealthiest nations. Despite contributing a mere fraction of global emissions, the continent faces devastating climate change impacts, from prolonged droughts and catastrophic floods to rising sea leaves and food insecurity.
These climate-driven challenges have resulted in loss of life, displacement of millions and destruction of vital infrastructure, and devastating economies. The profound injustice is further compounded by a global financial system that has unsuccessfully delivered adequate and equitable resources for Africa to effectively mitigate climate change and transition to sustainable energy development.
Several initiatives, such as the Green Climate Fund, the Adaptation Fund and various bilateral and multilateral partnerships, were launched to increase climate finance for developing countries. However, the efforts fail to address the root of the problem: the governance of the global finance system itself, which continues to constrain the flow of climate financing.
While a step in the right direction, the pledges made under the 2015 Paris Agreement have fallen short of meeting Africa’s priorities. Conservative estimates indicate that the continent requires $250bn (R4.4 trillion) annually in climate financing between 2020 and 2030 to implement its Nationally Determined Contributions. Yet, climate finance flow to Africa stands at $30bn a year, a mere 12% of what is required.
Energy poverty is another challenge Africa faces due to the global financial shortfall. More than 600 million people in sub-Saharan Africa, representing 43% of the population, lack access to electricity.
The energy poverty has far-reaching consequences, impacting health, education, investment opportunities and environmental sustainability. Dependence on traditional biomass for cooking and heating leads to indoor air pollution that claims an estimated 600 000 lives each year, half of whom are children under five. The lack of reliable electricity also hinders businesses and industries, decreasing productivity, competitiveness and innovation.
The World Economic Forum estimates that sub-Saharan Africa loses 2 to 4% of its gross domestic product annually due to inadequate power infrastructure. The economic stagnation, fuelled by energy poverty, exacerbates inequalities, generating a vicious cycle of poverty, food insecurity, migration and conflict in the region.
The reality reveals a stark disparity between the continent’s needs and the investment it receives. Africa requires between $35bn to $50bn annually to reach SDG7: access to affordable energy for all. While public and private energy finance from G20 countries and Multilateral Development Banks (MDBs) has reached those levels, it represents a mere 5% of global energy investment and is unevenly distributed across the continent.
Consequently, the total energy investment in Africa had declined before the Covid-19 pandemic and decreased further in 2020 by more than 20%. Furthermore, Africa accounts for 2% of international spending on clean energy. While renewable energy investment has grown, reaching $9.4bn, conversely, foreign investors have worsened climate change by financing fossil fuel projects in Africa by $29bn a year between 2016 and 2021.
Moreover, it has become more challenging for African governments to mobilise external financing due to market penalisation, high external debt and weaker credit ratings, even if these are not representative of the project-specific risks on the continent. Lenders and investors often cite country risk and poor credit ratings as key challenges, relying on top-down assessments that inflate risks and shortfalls to recognise the significant diversity within Africa.
Reforming the architecture of climate finance is not solely focused on increasing the flow of funds; it is about changing how the funds are accessed, delivered and governed.
Given Africa’s vulnerability to climate change and limited financial capacity, optimising access to climate finance is crucial. This means prioritising projects that address Africa’s unique climate risks and ensuring a fair allocation of funds that reflect the continent’s development needs and priorities.
MDBs must play a vital role in this transformation by simplifying and streamlining their financing instruments, increasing concessional funding and leveraging private investments through innovative mechanisms like green bonds and guarantees.
Furthermore, a just energy transition requires amplifying African voices in global economic governance. The AU’s membership in the G20 provides a critical platform to advocate the reforms and ensure that African priorities are integrated into the global agenda.
MDBs should align their strategies with the AU’s Agenda 2063, collaborating more closely with African institutions like the African Development Bank and prioritising goals set by African governments. Using this collaborative approach will ensure that climate action translates into tangible benefits for the continent and pave the way for achieving sustainable development goals.
Selemo Nkwe is a researcher at the Institute for Pan-African Thought and Conversation at the University of Johannesburg.
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