Vice President, Economics and Private Sector Development - International Finance Corporation, a member of the World Bank Group.
Africa is the most vulnerable continent to climate disasters, such as floods and droughts. More than 1,100 climate-induced floods and droughts have occurred on the continent between 1990-2019. This has caused in excess of 43,000 deaths, affecting 13.4 million people annually, and incurring an estimated $456 million in annual damages, according to the report. Coupled with persistently high levels of poverty and food insecurity, climate adaptation efforts will be needed in Africa more than anywhere else. Yet, African governments, already burdened by excessively high public debt loads, lack the fiscal capacity necessary to finance these vital adaption projects. New research by IFC - International Finance Corporation proposes a role for the private sector to viably finance and implement bankable climate adaptation measures in Africa. We estimate that the private sector could invest up to $100 billion cumulatively over the next 20 years – garnering an 8% risk-adjusted rate of return. Across the continent, this represents 5.1% and 3.1% of GDP on average to respectively finance drought and flood adaptation projects – such as climate information systems and weather-risk insurance. Investment needs by country range from 0-12% of GDP for droughts and 0-16% for floods (see graphic for country breakdowns). This, however, assumes no change in the frequency and severity of droughts and floods relative to the 1990-2019 average, and any increase in frequency or severity generates proportionally greater investment needs. Given that investors tend to perceive African markets at higher risk than other developing markets, support from Development Finance Institutions will be a cornerstone of private sector mobilization for climate adaptation. Specifically, de-risking tools offered by Development Finance Institutions will be essential to bridge viable returns for investors and feasible investment costs for project stakeholders. Blended finance is one such tool, which splices concessional donor funding with private capital to offer projects lower interest rates and hedge against default with first and second loss guarantees. Ensuring the commercial viability of adaptation projects is vital, as they tend to be cost saving rather than revenue generating such as renewable energy mitigation projects. Read the full report below:
