When it comes to the big debates about climate change, Africa is the forgotten continent. It receives less than three percent of global climate finance and yet 30 out of the 40 most climate vulnerable countries in the world are in Africa. It contributes the least to global warming and yet extreme weather events are growing in both frequency and severity with a shocking knock-on impact on biodiversity loss.
However, while we tend to see Africa merely as a victim of climate change, this ignores the fact that it could be a large part of the solution as well.
From the forests of Gabon to the Congo Basin in Central Africa, the continent is rich in natural capital and countries are tapping into this potential. Take Kenya, which has become a leader in green energy with 90 percent of its energy production already renewable.
The recent visit to London by the Kenyan president Uhuru Kenyatta saw further progress with the announcement of UK investments in off-grid solar energy and a new fund to develop green, affordable housing. But it is in the area of green finance that the partnership between Kenya and the UK could prove to be even more significant. Although progress has been too slow and fragmentary, African countries have been getting themselves ready to receive a much bigger share of global climate finance.
Once this is invested in green projects, this will benefit the whole planet. Kenya has already been leading the way. It has removed tax on interest on green bonds. It has drafted a green fiscal policy incentives framework covering the whole economy and is now considering a carbon tax as well. Kenya’s inaugural sovereign green bond has been trailed for years and it is expected to make further announcements in the next few months.
All this is significant in several ways not least that it is about a new type of relationship between sub-Saharan Africa’s third biggest economy and the UK — one based on investment rather than aid — whilst at the same time showing how smart, targeted British aid, which has been crucial to the development of the green bond and other aspects of Kenya’s push on green finance, can help unlock that investment.
There can be no better symbol of that new relationship than the agreement, announced during the visit, between the City of London and Nairobi’s International Financial Centre (NIFC), backed by Prudential, one of the UK’s most established financial institutions. NIFC has been established to make it easier and more attractive for firms to offer financial services and related activities in Kenya and the region, reinforcing Nairobi’s position as a hub for investment in the region.
For UK investors who may have shied away from what they regarded as risky investments, green bonds offer an attractive route to investing in developing markets because of the greater transparency they need to have to be verifiable as genuinely green.
For Kenya and other developing countries, green finance is attractive because of the huge growth of funds chasing investment opportunities. This is particularly important at a time when these countries are having to deal with the financial impact of the Covid pandemic.
Mark Napier is the chief executive officer of FSD Africa