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Africa's pathway to a climate-resilient economy
By Dr Terence Sibiya, Managing Executive, Nedbank Africa Regions
Posted 12/12/2023 Updated 11/01/2024 2 mins
As Africa progresses towards a future shaped by climate challenges, its journey represents a balancing act between developmental imperatives and environmental sustainability. The African Union's Agenda 2063 encapsulates this vision, charting a course that not only prospers but does so without leaving anyone behind. However, this noble ambition is paved with opportunities and threats. The threat is immediate and tangible, evident in the chaos caused by erratic weather patterns affecting our ecosystems, agriculture, and food security. It underscores an urgent need for action, calling for robust policy interventions, funding, and multilateral support to avert a looming climate catastrophe that threatens to exacerbate poverty, unemployment, and inequality.
This urgent need for action is reinforced by the numerous instances of climate-related disasters across the continent. From the droughts in East Africa to the devastating cyclones in Mozambique and floods in South Africa, the effects of climate change are no longer hypothetical scenarios but harsh realities. These events not only disrupt lives but also undermine decades of development gains. As a result, there is a rising chorus among African nations for climate resilience strategies encompassing adaptation and mitigation efforts – resilient meaningful social development cannot ignore climate realities.
Conversely, this transition presents a unique opportunity for Africa to reshape its socio-economic landscape. Research increasingly shows that a greener economy will yield better economic outcomes over time, but the path to get there won’t be smooth. The transition requires a socio-economic transformation, striking a delicate balance between the ongoing use of fossil fuels for immediate economic benefit and a gradual shift, informed by science, towards a low-carbon economy. This calls for a Just Transition, fair and inclusive, ensuring equitable distribution of both costs and benefits of a renewable-powered world.
In pursuing this Just Transition, the role of innovative technologies and indigenous knowledge systems cannot be overstated. Africa has a rich heritage of living in harmony with nature, and this traditional wisdom, coupled with modern technology, can pave the way for sustainable practices in agriculture, energy, and urban development. For instance, the use of solar energy in rural electrification and adopting sustainable agricultural practices that increase yield while preserving biodiversity are practical manifestations of this blend of old and new.
Africa's unique position
The African continent finds itself in a paradoxical position: it is the most vulnerable to climate change impacts yet contributes minimally to global carbon emissions, accounting for less than 4%. Despite this, Africa's rich natural resources - land, water, minerals, and biodiversity - present an untapped opportunity for sustainable development and climate action. By harnessing these resources, Africa can diversify its energy sources, enhance energy security, and foster social and economic development, especially in underserved areas. The continent stands on the cusp of a decarbonisation revolution, mirroring the transformative industrial processes of the West. This revolution promises sustainable economic growth, development, and significant contributions to climate change mitigation.
The potential for renewable energy in Africa is immense. With some of the world's highest solar irradiation levels, vast hydropower capacity, and promising geothermal and wind resources, the continent is well-positioned to leapfrog traditional fossil fuel-based energy systems.
Economic growth and carbon emissions
The historical correlation between economic growth and carbon emissions is well-established. Nations have traditionally relied on fossil fuels to fuel their industrialisation and development. However, this model is increasingly untenable and undesirable, given its detrimental effects on the environment, human health, and social stability. Africa has the opportunity to sever this link, embracing a low-carbon development pathway. Investments in renewable energy, green infrastructure, and circular economies can reduce emissions, create jobs, improve living standards, and enhance global market competitiveness.
This transition, however, is not without its challenges. For some African countries, fossil fuels, particularly coal and oil, remain significant contributors to national revenues and employment. The challenge lies in transitioning these economies in a manner that does not trigger economic and social upheaval. Innovative financing models, capacity building, and technology transfer are essential to this transition. Furthermore, developing green industries, such as sustainable agriculture, eco-tourism, and renewable energy manufacturing, presents a pathway for diversifying economies and creating new employment opportunities.
Investment in renewable energy
The United Nations Environment Programme (UNEP) highlights the collective benefits Africa stands to gain by pooling its vast natural resources to finance sustainable and climate-resilient development. Achieving universal access to clean and affordable energy is crucial, particularly for previously underserved areas. Despite its immense renewable energy potential, the continent faces challenges in realising these projects, including financing, policy and regulatory uncertainties, technical capacity, and grid integration. Overcoming these barriers demands increased investment and support from domestic and international sources, including the public and private sectors, development partners, and multilateral institutions.
The role of international finance in bridging the investment gap in Africa's renewable energy sector is critical. Initiatives such as the International Renewable Energy Agency and the Sustainable Energy Fund for Africa are vital in mobilising resources for renewable energy projects. Public-private partnerships and innovative financing mechanisms, such as green bonds and blended finance, are also crucial in attracting investment while mitigating risk. Additionally, developing local financial markets and strengthening regulatory frameworks are essential for creating an enabling environment for renewable energy investments.
Africa's unique position grants it both a moral authority and a strategic opportunity to influence the global decarbonisation agenda and advocate for climate justice. Developed countries, having historically relied on fossil fuels for growth, now face a moral imperative to address the disproportionate impact of their emissions on Africa. Climate justice is not just an environmental issue but also encompasses human rights, social and ethical considerations. It demands a fair and equitable approach to addressing the causes and consequences of climate change, considering historical responsibilities, current capabilities, and future needs.
The concept of climate justice implies tangible actions, such as transferring green technologies to developing countries at an affordable cost, financial compensation for loss and damage caused by climate change and integrating climate justice principles in international trade and climate policies. The principle of "common but differentiated responsibilities" enshrined in international climate agreements acknowledges countries' different capacities and historical emissions and is a cornerstone of climate justice.
Role of financial institutions
Financial institutions have a significant role in mobilising climate finance. There's a substantial opportunity for growth in renewable energy investments in Africa, requiring simplified access to finance and targeted risk mitigation strategies.
Nedbank has been at the forefront of promoting a sustainable economy in Africa. Since 2012, we have financed renewable energy projects totalling over R35 billion, contributing to over 4,000 MW of electricity generation capacity. Our commitment to Sustainable Development Finance (SDF) is evident in our exposures, which stood at R134 billion as of June 2023, representing 15% of our total gross loans and advances. We aim to increase this to approximately 20% by 2025.
In addition to financing renewable energy projects, there is an increasing focus on integrating Environmental, Social, and Governance (ESG) criteria into investment decisions. This holistic approach ensures that investments yield financial returns and contribute positively to society and the environment. This trend is gaining traction globally, and African financial institutions are well-positioned to lead this shift, promoting sustainable practices across industries and sectors.
Opportunities for Africa
Decarbonisation presents numerous opportunities for sustainable development and green growth. It can help Africa achieve its development goals, such as eradicating poverty, reducing inequality, and enhancing peace and security. Furthermore, it enables the harnessing of natural and human resources for new economic opportunities and competitive advantages. Africa's participation in climate negotiations, trade agreements, and development partnerships will strengthen regional and global integration and cooperation.
In conclusion, the journey towards a Just Transition in Africa is a complex yet achievable endeavour, requiring a collaborative and adaptive approach. It necessitates a balance of governmental policy-making, business innovation, and societal support tailored to each nation's specific needs and capabilities. By embracing these diverse roles and responsibilities, Africa can pave the way for a greener, more sustainable, equitable, and prosperous future for all its citizens. This holistic strategy will not only address immediate environmental challenges but also ensure long-term economic stability and growth across the continent.