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Thursday, 20 April 2017

Building greening economies

Africa needs more than token action towards building green economies. Without adequate climate action, African farmers may lose 40 % to 80 % of their croplands for growing grains. Preventing the loss of biodiversity (SDG 9) and ecosystem degradation will safeguard urban people’s food supply too. The big question is: how will private sector resources be mobilised? No doubt, African financial institutions have significant capacities to support investors. However, they have a history of risk aversion and lack sufficient market instruments to facilitate risk-sharing. Therefore investments in agribusiness has stayed below what is needed. A further drag is the macroeconomic situation. Interest rates are rising and are increasingly beyond what smallholder farmers and small and mid-sized enterprises can afford. To unlock private-sector funding, therefore, the credit market’s demand and supply sides must be unblocked. More­over, there has to be a framework for sharing expertise on the continent. The good news is that we already have networks that pool resources, help to mitigate risk and share knowledge. They need better coordination however. In this contest, the African Risk Capacity (ARC) is a very promising initiative at the supra-national level. Founded in 2012, it is a donor-supported agency of the African Union. It basically runs an insurance scheme to finance disaster response and promote climate resilience. In line with its mandate, the ARC is planning to create an Extreme Climate Facility (XCF), which will issue bonds. The idea is to raise funds on global capital markets, attracting investors from beyond Africa. A market-driven insurance facility that is backed by governments and multilateral institutions is a clever way to spread risks widely. One hopes that the XCF will soon become a reality, and the rigorous risk modelling it plans to have in place will serve other market initiatives. Necessary as it is for Africa to take responsibility for its resilience to climate change and to develop its adaptation mechanisms, the continent should not be denied climate justice. The heavily-industrialised countries account for overwhelming shares of the emissions that are heating the planet and are intensifying climate risks for vulnerable people in less-privileged countries.

Source: Development and Cooperation