Africa Cannot Confront Climate Change Alone

IMF Blog, December 17, 2021

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Africa’s 1.4 billion people — around 17% of the global population — are responsible for less than 3% of the world’s total greenhouse-gas emissions.
Data suggest that the forests of the Congo River Basin alone absorb 3% of global carbon-dioxide emissions every year.
The continent is experiencing more frequent climate-related disasters, hotter weather, erratic rainfall, and rising sea levels, causing human tragedy, social upheaval, and economic disruption.
With each new drought, annual per capita growth over the medium term can decline by a percentage point.

Climate shocks undermine development and raise the urgency of building resilience, especially in countries dependent on rain-fed agriculture.
Climate adaptation needs come on top of financing required to meet the Sustainable Development Goals.
COP26 discussions concluded that African leaders indicated the region would need $1.3 trillion over the next two decades for climate adaptation and mitigation.
The COVID-19 pandemic has driven up debt levels and constrained growth, making required sums out of reach for African countries.
Efforts by the international community to date have fallen short.

The African Union-endorsed Africa Adaptation Acceleration Plan calls for investments in:
- resilient infrastructure,
- climate-adaptive agriculture,
- digitalization,
- trade reforms,
- broadening of safety nets.
These measures are up to 12 times more cost-effective than disaster relief.
Well-designed adaptation measures also generate jobs, raise incomes, and improve living standards.

Grant and concessional financing should be used more effectively; multilateral climate funds and development banks should seek opportunities to streamline project approvals (while maintaining safeguards) to get money flowing faster.
Well-targeted interventions that unblock bottlenecks or redress market failures can help crowd in private-sector funding; for example, increased digital connectivity supports entrepreneurs providing crop insurance, weather services, or real-time agricultural advice.
Green bonds can finance climate initiatives at comparatively low rates, but Africa trails other regions:
- From 2007 to 2018, the region accounted for around $2 billion in issuances — just 0.4% of the global market for green bonds.
New bilateral and innovative financing examples:
- The United Kingdom agreed to provide $500 million to the Democratic Republic of Congo (DRC) to curb forest loss.
- Norway has a similar agreement with Gabon for $150 million.
- The Seychelles’ $15 million “blue bond” issuance in 2018, guaranteed by the World Bank, finances ocean-based projects and, thanks to a reduced interest rate, helps to lower the national debt.
- COP26 generated a bespoke deal: an $8.5 billion mix of grants and cheap loans to help South Africa decarbonize its economy.
Debt-for-climate swaps are highlighted as a related idea, requiring a large pool of swappable debt, standardized performance indicators, and related data.

Helping African governments access new sources of capital depends on reducing credit- and country-risk profiles.
Domestic actions include improving governance through reforms in procurement and management of public investment, public finances, and debt, and ensuring carefully costed and fiscally sustainable investment plans.
On the international side, standardized measures — such as a system of first-loss guarantees — could improve risk profiles and catalyze private financial flows; careful design is needed to ensure appropriate risk-sharing across public and private sectors.

The IMF is playing a role in building national capacity to address climate challenges (the DRC is one of the first recipients of the IMF’s support for climate-focused capacity development).
Through the Fund’s Article IV surveillance, investors are kept apprised of countries’ progress in implementing climate adaptation measures.
Following the recent $650 billion allocation of new special drawing rights (the IMF’s unit of account), the Fund has a green light to establish a new Resilience and Sustainability Trust.
- This facility will provide affordable, longer-maturity financing for poor and vulnerable middle-income members and small states undertaking structural reforms to transform their economies and address climate risks.

Use grant and concessional financing more effectively and streamline project approvals while maintaining safeguards.
Target interventions that redress market failures to crowd in private-sector funding (e.g., leveraging digital connectivity).
Expand new financing mechanisms, including green bonds and debt-for-climate swaps, and develop standardized performance indicators and related data.
Improve domestic governance and fiscal sustainability to reduce credit risk and attract capital.
Design international risk-sharing instruments (for example, first-loss guarantees) to catalyze private finance with appropriate public–private risk allocation.
Scale up comprehensive, well-financed adaptation to secure development gains and enable people to live, work, and prosper in the new climate economy.

Source: International Monetary Fund — "Africa Cannot Confront Climate Change Alone", December 17, 2021.