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Africa Focus: Summer 2023

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Delivering growth through sustainable development

Growth through sustainable development

Recent disruptions in the global food supply chains have highlighted Africa's urgent need to become self-sufficient in food production. Traditionally, the continent has turned to small-scale community-based agricultural projects as a means to meet its food needs. But feeding a population of more than 1.2 billion people requires more than communal farming; it calls for a paradigm shift toward agriculture on an industrial scale. Our milestone tenth edition of Africa Focus opens with an article exploring obstacles to large-scale farming in Africa and how they may be overcome to secure funding required for such agricultural megaprojects.

While Angola has entered an ambitious plan to diversify its economy, it remains heavily dependent on its oil & gas industry. Hydrocarbon revenues are crucial for funding Angola's commitments under the Paris Agreement, but also for diversifying the country's economy and improving the livelihoods of its citizens. Our second article looks at the latest developments in Angola's oil & gas sector, including increased M&A activity and a three-well offshore exploration project at a depth of 3,628 meters (11,903 feet) below mean sea level—a new world record water depth set in 2021.

Africa is home to many of the world's most biodiverse regions, including eight of the 36 recognized global biodiversity hotspots. The Congo rainforests have also overtaken the Amazon as the most significant carbon sink on Earth. Our third article highlights the scale of the challenge of biodiversity protection in Africa and options to fund it.

Trade ties between Africa and the United States are seeing something of a revival as the US seeks to revitalize its economic engagement on the continent. The US African Growth and Opportunity Act (AGOA) is one such pivotal agreement that is due to go before the US Congress in 2025.

Africa holds a remarkable 30 percent of the world's mineral reserves, yet it only accounted for less than 10 percent of global mining exploration spending and less than 5 percent of the sector's global revenue in 2022. Many of Africa's minerals are vital for reducing carbon emissions and transitioning to renewable energy. Developing these reserves sustainably is crucial for Africa's economies. Our final article examines how mining companies across Africa continue to find financing for the development of their projects.

Africa's agricultural revolution: From self-sufficiency to global food powerhouse


Fueling economic diversification and growth: Angolan oil & gas takes center stage

Offshore oil rig

Preserving Africa's biodiversity: Why global funding is vital

Aerial view of a river

Redefining US-Africa trade relations


Don't let a crisis go to waste: Financing mining & metals projects in Africa in 2023

Mining excavator

Preserving Africa's biodiversity: Why global funding is vital

Countries that need biodiversity protection the most tend to be the ones least able to finance the means to effect change. Africa, a complex and abundant continent, exemplifies this reality: Despite its natural wealth, there is little economic prosperity.

10 min read

Africa's ecosystems, which are essential to sustaining its biodiversity, are under threat. The continent is home to many of the world's most biodiverse regions, including eight of the 36 recognized global biodiversity hotspots—areas with at least 1,500 vascular plants that are endemic and found nowhere else on Earth, and which have lost at least 70 percent of their primary vegetation. The East African coastal forests, ranked among the top-ten most threatened biodiversity hotspots in the world, are particularly vulnerable.

The effects of climate change are already apparent on the continent and are expected to worsen significantly in the coming decades. The rainforests of the Congo recently overtook the Amazon as the world's most significant carbon sink. This removal of carbon from the atmosphere is valued at US$55 billion per year. However, deforestation is progressing at a prodigious rate from the Congo Basin, across West Africa, diminishing the continent's ability to provide such essential ecosystem services.

8 of 36

Africa is home to eight
of the 36 recognized
global biodiversity hotspots

Although nature-related risks and the need to protect biodiverse ecosystems are continent-wide, the priorities and solutions to fund biodiversity protection solutions differ from country to country. Following the 2022 Conference of the Parties to the UN Convention on Biological Diversity (COP 15), the participating nations agreed upon the Global Biodiversity Framework. Its main goal—known as "30 by 30"—is to "ensure and enable that by 2030, at least 30 percent of terrestrial, inland water, and coastal and marine areas, especially areas of particular importance for biodiversity and ecosystem functions and services, are effectively conserved and managed."

African governments have been taking steps to conserve biodiversity in recent decades, aiming to slow the rate of ecosystem deterioration and species loss. However, these efforts have fallen short of the 30 by 30 goal agreed upon in the Global Biodiversity Framework. Several factors, including country-specific development priorities and global conflicts, along with the high cost of borrowing and various in-country physical and social risks, are causing major constraints for access to funding.

The effects of climate change are already apparent on the continent and are expected to worsen significantly in the coming decades

The scale of the challenge

According to the Organization for Economic Co-operation and Development (OECD), the decline of biodiversity is generating "significant but largely overlooked risks to the economy, the financial sector and the well-being of current and future generations." Mobilizing private finance for biodiversity and natural resources management is not a new concept, but the urgency of conservation needs and the broad scope of related issues have refocused funding efforts on two critical areas: understanding the biodiversity impacts of finance and vice versa, and the need for multiple stakeholders to participate at various levels in order to achieve a shared objective.

Numerous statistics and predictions abound on the scale and cost of addressing and implementing solutions for biodiversity protection. According to the Global Environment Fund, "preserving healthy terrestrial and marine ecosystems, and the clean air, fresh water and biodiversity on which we all depend, has a financial cost of US$300 billion to US$400 billion every year." To effectively manage Africa's 1,812 national parks, covering 3.1 million square kilometers, an estimated annual funding of approximately US$10.2 billion is required, along with an extra US$1 to US$2 billion annually for protected areas that are home to lions. Currently, only 19 percent of Africa's land and 17 percent of the seas around the continent are protected in one form or another. An estimated annual funding of approximately US$20 billion to US$25 billion is needed to align with the 30 by 30 objective.

Mechanisms for change

Causal links between biodiversity preservation in Africa and environmental, social and governance (ESG) risk mitigation in developed markets need to be clear and visible in order for impactful funding to become a reality. If these links can be compellingly demonstrated, a range of options exist for developed and African nations to collaborate in protecting African biodiversity initiatives. These include funding sourced from public and private sectors, and a range of intermediaries. Public intermediaries include government ministries, development finance institutions (DFIs), whether national, bilateral or multilateral, and multilateral and other funds whose mandates include preservation of biodiversity, such as the Global Environment Facility (GEF).

Private sector intermediaries—institutional investors, asset managers, commercial banks, philanthropic organizations and direct private sector investors into biodiversity protection projects—are also part of the equation. Looking at the scale of resources for funding real and measurable results casts a positive light on the opportunities that biodiversity protection presents. For instance, in areas such as mining, infrastructure development and agriculture in terms of minimizing harm is included among the measures to manage a project's overall environmental impact.

The Global Biodiversity Framework

The Global Biodiversity Framework agreed upon at COP 15 requires countries to submit revised or updated National Biodiversity Strategies and Action Plans (NBSAPs) in order for countries to assess biodiversity-related risks and explore mechanisms to effectively address them.

Preserving biodiversity cannot be viewed in isolation; it is inextricably linked to the geo-economic and socio-political factors that influence it, as well as the supply chains to which it contributes. These factors also require funding and frequently are at cross-purposes to biodiversity needs. Some of the elements to fortify biodiversity conservation and protection of ecosystem services in places such as the African continent include building new or strengthening existing regulatory and administrative infrastructure to implement and enforce local laws, international commitments and country-specific plans such as NBSAPs. Having robust systems in place relies on having mechanisms in place for managing and auditing the use of funds and assessing them against the intended outcomes, thereby ensuring the integrity of financing solutions. Any risks to the integrity of a solution create risks to financing the solution.

Conservation and economics

78 – 91
billion pa

Estimated global spending
on biodiversity
Source: OECD

The cost of biodiversity loss goes deeper than the cost of financing solutions. Biodiversity loss has the potential to impact a country's economics at many levels, including trade, security of supply, energy transition and even human health and safety. Some experts have argued that "partial ecosystem collapse" in areas such as fisheries, tropical timber production and wild pollination could potentially lead to credit downgrades for certain countries. These downgrades could significantly decrease the availability of funding or increase the annual interest payment on debt, leaving many developing nations at significant risk of sovereign debt default and/or fiscal shortages. There is a compelling economic rationale for sovereigns to take action to prevent, mitigate or reverse adverse biodiversity impacts. By eliminating or reducing nature-related risks, they can ultimately improve their creditworthiness.

Various instruments and mechanisms are available for funding biodiversity protection, and numerous innovative new solutions are currently emerging. One such example is the recently announced collaboration between APG Asset Management, Achmea and African Development Bank, supporting the bank's sustainable development loans by providing capital through the US$1 billion ILX Emerging Market Private Credit Strategy Fund I. The cooperative agreement between the parties shows how grant funding—from government institutions in the UK, Netherlands and Germany—can be effective in mobilizing large-scale capital from pension funds to multilateral development banks and other DFIs to support projects for sustainable development goals (SDG) in emerging markets. In this case, the funding enables the African Development Bank to consolidate financial resources from institutional investors in order to close the financing gap required to meet the bank's environmental ambitions for providing loans to the private sector in 54 African states.

Sovereign issuances to address natural capital are also developing in emerging markets, including market mechanisms such as SDG-linked or sustainability-linked bonds (SLB), as well as green bonds and green loans. Arguably, the flexibility of instruments such as SLBs that link to forward-looking targets, makes these instruments more attractive to emerging market issuers. Sovereign finance has its own challenges, but the highest hurdle is the acknowledgment of the role of the state in prioritizing and promoting solutions for biodiversity protection as part of its national and international commitments.

Nature-related financing examples include Belize's US$364 million blue bond refinancing in 2021, which is covered by a first-of-its-kind sovereign debt insurance "catastrophe wrapper" to cover Belize's loan repayments after hurricane events. Another example is the Uruguay SLB issued in 2022, linking forest preservation and greenhouse gas (GHG) emissions intensity reductions. This is indicative of the growing interest in innovative nature-related financing strategies in emerging economies and demonstrates that scaling up investment requires mechanisms that make participation appealing to investors. The protections needed are not limited to financial protections but also to manage reputational risk, which impacts participation from government entities and investors, and also on the integrity of the project.

According to GEF, blended finance is constantly evolving to produce innovative approaches for nature-based solutions, climate finance and other public/private financial solutions. A variety of grants have recently been developing, including performance-based, contingent and convertible grants and liquidity facilities. Recent successful examples show how political risk guarantees and insurance can also enhance private sector investments in the majority of vulnerable countries by mitigating political instabilities.

Solutions can also be blended, combining impact investing, for instance, through impact-specific bonds such as rhino bonds and forest resilience bonds, and projects with grants and institutional investment. Market mechanisms, such as carbon trading, can be incorporated into financing and offtake arrangements. Risk mitigation strategies, such as insurance and public guarantees, have a role to play.

US$ 10.2

billion pa

Estimated funding needed
for Africa's existing
1,812 national parks
Source: Bernstein et al., 2022

Payments for ecosystem services

Payments for ecosystem services (PES) are another innovative approach to nature conservation that involve compensating the owners or custodians of land for providing environmental services such as watershed protection, forest conservation, carbon sequestration and landscape beauty. This arrangement benefits both the beneficiaries of these services and the landowners through subsidies or market payments. The rationale is that making payments for the benefits provided by natural ecosystems recognizes their contribution and ensures that the benefits continue, no matter their size. PES could be an additional tool to protect ecosystems in Africa by financing green growth projects.

The African Development Bank recognized the opportunity for applying PES for natural resources management in Africa almost a decade ago. Early examples included using PES for carbon sequestration projects under the Forest Investment Program and the Congo Basin Forest Fund. Three East African case studies in Uganda, Kenya and Tanzania show how PES were used to mitigate risks linked to conflict over natural resources and the impacts of "asymmetric contracts resulting in unfair arrangements, elite capture, mismanagement and perverse incentives."

The beneficiary-pays approach is also used in PES programs for marine and coastal ecosystem conservation. In this approach, those who benefit from the improved provision of ecosystem services compensate resource owners or managers for changing their management practices to incentivize the provision of higher or additional ecosystem services. In Tanzania, revenues for the Marine Legacy Fund come from commercial fishing licenses, marine ecotourism revenue sharing and oil & gas taxation, and are used to pay coastal communities for conservation and to finance operational expenses.

Meeting the challenge

There are significant financial barriers to effectively implementing biodiversity conservation strategies in African countries. The effectiveness of biodiversity protection and conservation is impeded by various criticisms, such as insufficient financial resources for implementing planned activities and programs, lack of human resources and capacity in biodiversity conservation, absence of central clearing mechanisms to facilitate biodiversity financing, inadequate enforcement and compliance of environmental laws, data gaps related to the in-country economic value of biodiversity, and absence of regulatory infrastructure and technical capacity at the government level for implementing NBSAPs.

No matter what the scale of the issue or the solutions, driving change for biodiversity protection requires a concerted and inclusive approach that accommodates the needs of all stakeholders. Private sector participation is integral to achieving the Global Biodiversity Framework 2030 funding commitments, so biodiversity needs to be relevant to private sector investors and, at the same time, must be de-risked and provide acceptable returns on investment. The link between biodiversity loss, climate change impacts and economic development offers tremendous opportunities for innovative financing solutions despite the complex nature of biodiversity conservation in African nations.

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