By Nishika Bajaj
An insightful panel discussion unfolded as the first for Day 2 of the Africa Partnership Conference on 03 October, on the theme of ‘Dissecting the path towards sustainable development and prosperity in Africa’.
Care Ratings Africa CEO Saurav Chatterjee dived deep into the key theme for Africa’s future, helming a panel made up of the UN-Habitat’s Africa Focal Point for Climate, Resilience and DRR, Fruzsina Straus; the British International Investment (earlier CDC)’s Chief Legal Officer, Mark Kenderdine-Davies; Absa’s Head of Sustainable Finance, Heidi Barends; and SBM’s Group Chief Strategy Officer, Nuvin Balloo.
Saurav set the stage for the discussion by noting that the Global Impact Investing Network (GIIN) reports that 43% of top 300 impact investors had allocations to the continent in 2020. He remarked on the importance of creating a fostering and enabling environment for sustainable and resilient investment, noting that the panel would reflect on the following key pointers:
- The 2030 agenda towards the SDGs
- The investing community view on ESG
- Challenges faced for sustainable economic growth
Climate policies being shaped for Africa’s transition to low carbon economies
He posed his first question to Fruzsina Straus of the UN, asking her that since the Sustainable Development Goals (SDGs) provide time-bound targets in key sectors such as health, energy and infrastructure, among others, how does she see climate action policies being shaped for African countries to transition towards becoming low carbon economies. He also asked her to provide local context to the question, set as the conference is in Mauritius, which is a Small Island Development State (SIDS) and hence more vulnerable to climate change in particular.
Fruzsina noted that, reflecting on the theme of the conference, Unity in Partnerships, there has been discussion around PPP, but the UN speaks of a fourth P – Public-Private-‘People’- Partnerships. She reflected on how, in 2015, the UN proclaimed these SDGs, which followed the Millennium Development Goals that were simpler with eight of them, and the 8th one centering around partnerships. Being at the UN headquarters in 2015, she witnessed first-hand how the private sector played an extremely important role in the process. She remarked that the SDGs are not just for the UN or the governments, but also equally for the private sector, academia and scientific community.
“Just last year, we did our review of progress towards goals. Every year, different goals are reviewed. This year, goal 17 on partnerships was reviewed, amongst others. The private sector has invested US$3.6 trn in sustainable development projects towards the achievement of the SDGs – more than governments and multilateral institutions combined. If the SDGs are to be reached by 2030, it will unlock another US$12 trn in market opportunities as well as create about another 280 million jobs around the world. At the moment, we are only 15% on track towards achieving 169 targets of the 17 SDGs. We really need to amplify partnerships to accelerate the achievement of the SDGs and better be able to work together. We need to be better at coming together and joining the opportunities for investment. The 2030 Agenda and the SDGs are not the only criteria to consider. There is also the Paris Convention on Climate, with COP28 on the anvil in Dubai. We are also called upon to consider the new urban agenda and the Sendai convention on disaster risk reduction – all of which are very much inter-related.”
On SIDS, she noted that they are all very different in terms of their economic contexts and geographic locations – but share common hazards as they are at the forefront of the climate battle, are vulnerable due to being located remotely, and have difficulty in accessing supply chains. She elaborated that countries like Singapore, Barbados and Vanuatu have implemented aggressive and successful climate action policies and can impart lessons to others in Africa, like Mauritius. “SIDS need to work together to exchange innovation, technologies, and policy recommendations to be able to amplify their voices. Partnerships are critical, policies on their own are not enough. We need investment, we need action, and we need partnerships for unity,” she remarked.
Legal, regulatory and other barriers in the way of climate investment opportunities
Next, Saurav asked Mark that, as BII seeks to invest 30% of its annual commitment to climate financing, what legal, regulatory or other barriers does it face when considering climate investment opportunities in Africa particularly around the generation and transmission of renewable energy?
Mark noted: “BII has a portfolio of US$8bn, of which US$3bn are in Africa. We seek to invest US$1.6-2bn a year across the world and 30% of these annual commitments are directed to climate finance. Besides our own investments and those in partnership with funds on the ground, such as in Mauritius, we also have energy operating companies, such as Globeleq and Grid Works. We provide a combination of equity and debt in the climate space including in Egypt, South Africa, Mozambique, the DRC and Cameroon. There are always regulatory issues when companies are incorporating renewable energy in their mix. But, fundamentally, African governments like it as they save on imports of fossil fuels and forex if they buy it using dollars, so it is not so difficult to work in the region. However, there are climate impediments such as when the sun doesn’t shine, or the wind doesn’t blow. How do we store energy? I heard about batteries in a panel discussion yesterday, and we hope there will be concessional capital available to support this development. As a lawyer, though, there is a policy and regulatory question that occurs to me, and that is, should countries liberalise their energy markets by allowing buyers to not just buy from the state and offtakers but other energy producers.”
Saurav thanked Mark for his comments on Independent Power Producers and noted that, in Mauritius, the government has taken a pledge that by 2030, the economy will reach 60% of renewables in its energy mix. Lots of companies are setting up solar projects, and we are expecting bigger projects in the solar, hydro and wind space, he elaborated.
Untapped potential of renewable energy opportunities in Africa
Next, he asked Heidi, where and how was she seeing opportunities based on Absa’s experience on the ground in Africa, and if Absa had looked into any particular solar energy projects in Mauritius.
Heidi noted that the panel on Day 1 had her colleague, Theuns Ehlers, speaking about the immense renewable energy opportunities in Africa.
“There is a spectrum of energy opportunities, such as small scale ones targeting the home buyer where sometimes households can afford it themselves. Sometimes, in East Africa, for instance, homes can use FinTech offerings to have access to energy for the first time by putting in place modular solar solutions. On a medium scale, there are small business putting solar on the roof. On a large scale there is a humungous opportunity for renewable energy. There are a couple of key drivers, which would be weaker or stronger depending on where in the continent one is located. One would be cost – the cost of renewable energy is often cheaper than conventional energy. Second is the regulatory framework. Opening and liberalising the energy markets is mobilising far more investment in the space. For instance, typically, it is hard for us to take a 20 year view on a corporate client, but it’s easier for us in areas like energy which are supported by the government. I must emphasise that PPPs are critical. It is interesting to see how the aspirations of big companies towards meeting the SDGs are driving change on the ground. Some big tech companies have said that they want to be net zero but that means their suppliers need to be net zero,” she elaborated.
Country risk factors impacting investment into Africa
Turning to the final speaker, Saurav asked Nuvin that, as an economist, what country risk factors does he see impacting investment, especially considering the sovereign outlooks by the rating agencies and asked him to add further on the international investment flows to Africa from Mauritius as an IFC.
Nuvin Balloo noted that this conference testifies to the immense importance that the public and private sectors in Mauritius are assigning to sustainability as a key engine of durable and holistic socio-economic progress in Mauritius, and also as a means of empowering Africa.
“We can all agree that in the 1980s and 1990s there were only fleeting references to sustainability as a topic. Today, it is embedded in all discussions, business activities, and mindsets. Also, terms such as double materiality factor, green and social bonds and impact investments are gaining prominence. Here, we are talking about impact. The EAC notes that the annual SDG investment gap for Africa is US$1.3 trillion of which Africa has been able to mobilise 53% of this amount. Yes, Africa has made noticeable progress in mobilising impact investment but there is a long way to go.”
He next asked why Africa is in need of fuelling investment, and explained that there are three basic reasons behind it. One major factor is to green the economy, boosting renewable energy production and supply. Another is to adapt to a changing urban landscape where Africa has an increasingly young and urban workforce. Finally, it is clear that there is an imperative for Africa to have the right quality and level of investment associated with these megatrends such as a rising middle class and increasing consumption on the ground. On that, he noted that Africa has gone a long way towards generating the conducive factors to mobilise investment, and having a stimulating business environment that attracts investment – this is where Mauritius has a key role to play to tip the balance further in favour of investors committing to the continent. “Mauritius now offers a clear and predictable economic and investment environment, with investment grade ratings by both Moody’s and S&P on the basis of certain key success factors such as economic, institutional and fiscal strength. We have a predictable, certain and stable environment, and also a simple and attractive fiscal regime,” he explained.
Encouraging the private sector to take the ‘right risks’ – do well by doing good
Saurav turned again to Mark to enquire into the perceived risks when one invests in Africa. He rued that DFI capital is only a drop in the ocean when one considers the continent’s capital needs, so how does BII convince others to invest alongside them?
Mark noted: “As a DFI, we have a mandate to take significant equity and credit risks in our top locations of interest. ‘We are encouraged to do the hardest things in the hardest places.’ We try to deliver on that. There are four ways in which we motivate others to take the sort of risks we are willing to accept.“
- Encouraging corporates to enter the market: In Ethiopia, we partnered with Safaricom for a private licence. We partnered with DP World in Ivory Coast to enter the ports there.
- Structuring debt with commercial banks: We try to structure credit in a way that encourages them to lend more, be it in the form of concessional finance or subordinated debt. We spend a lot of time working on structuring working capital lines to support commercial banks.
- Syndication: This is a key measure, where we take the whole equity risk ourselves. We have done it in India, and perhaps we will do so in Africa.
- Partnerships/Mobilisation: The final is partnerships which goes to the heart of the event, be it sovereign, insurance, or pension fund capital – there isn’t enough on this continent. We call it mobilisation.
“We are a long-term, patient investor and we are looking for partners,” Mark highlighted.
What mitigation and adaptation policies can Africa follow to counter climate crisis
Saurav next turned to Fruzsina to ask about the mitigation and adaptation policies that African economies can follow in response to climate vulnerabilities such as cyclones and rising sea levels.
Fruzsina soberingly remarked that climate change is making disasters worse and more frequent and certainly islands like Mauritius are experiencing this first hand. She noted that disasters are also expensive, putting people and assets at risk, such as tourism and hospitality. She gave the example of how, in 2015, Cyclone Winston wiped off in 36 hours a third of the GDP of Fiji while Mauritius witnessed floods that caused damage to infrastructure in Port Louis in 2019.
“The intersection of three powerful forces – climate, disaster, and urbanisation – are at play at the same time in Africa. Africa is the fastest urbanising region in the entire world. By 2050, 60% of Africa will be living in cities. We see the mushrooming of mega cities such as Gauteng in South Africa and Lagos in Nigeria. We see new and intermediary cities popping up which create great opportunities for green and sustainable planning. The exception are small islands like Mauritius where the entire island becomes one city system because there isn’t enough space and in case of disaster, the entire system is affected. We can plan better and put integrated measures such as resilient infrastructure and services in place, looking at opportunities for green growth and working together with nature and undertaking urban ecosystems restoration. How can we make sure our cities remain green, resilience, and disaster proof – both to protect the people and the asset within? On islands, we need to look at the blue economy as well as innovations in the area, such as marine biotech, aquaculture and ocean’s renewable energy. Then there is the question of mitigation vs adaptation. We need options for mobilising investment and climate financing, and adaptation measures as well which will de-risk such economies from the ill effects of climate change.”
How are commercial banks factoring climate and social risks into decision making
Saurav next turned to Heidi and asked her that, with such sustainability exposure having a knock-on effect on risk, how is Absa incorporating this risk into its decision making.
Heidi stated: “It has been a fantastic decision to be part of the bank as it incorporates sustainability into its decision-making engine. Two big pieces that are changing and driving the bank are the Task Force on Climate-related Financial Disclosures (TCFDs) and the new guidance notes coming out of BASEL. Typically, as a bank, we manage risk, and ensure that we can get your money back to you. For a long time, climate and social risks were unseen risks which we did not have to necessarily have to incorporate into our decision making, since they were not as acute as they are now. Hence, we as a bank are currently doing extensive work into modelling climates and how that could possibly impact the assets we finance.”
She explained that the entire agricultural and real estate book in South Africa has been assessed, taking climate models and then drilling down to their details, so Absa can see on a relatively small scale what the impact will be ‘almost but not quite on a square metre by square metre basis’.
“This is all based on models and projections. We are building the capability quite significantly to understand climate risks. The other part is the social knock-on risk from big climate disasters such as migration, losses of income, and assets,” Heidi rued that such social risks have huge impact on social cohesion. However ‘modelling that into our decision making is really hard, but that is an industry problem, not an Absa-problem’, she candidly remarked.
In his final question to the panel, Saurav asked Nuvin to reflect on the key factors affecting the sustainability agenda for economies in the AU, and explain if this really a quest between the global North and the global South, considering some countries are EU are facing economic de-growth.
Nuvin noted that global citizens continue to be fuelled by upcoming studies speaking of the dynamics and relevance of sustainability impacting lives and livelihoods, but he stressed the importance of looking at empirical studies, and analysing this from a pragmatic and long term perspective for Africa.
“There is a theory that the use and extraction of finite resources so crucial to economic growth does lead to environmental degradation. There is another viewpoint that economic growth tends to lead to environmental damage because of high carbon emissions. We must analyse this matter from a holistic and long term and micro-level perspective on importance of sustainability to growth. We all concur that GDP growth is a recognised and objective measure of a country’s advancement, but it is a necessary though not sufficient condition to measure and gauge a country’s evolution. Today, it is important for African countries to nurture a holistic and all-encompassing view of what prosperity means. Prosperity beyond economic performance is about social advancement, equality of opportunities, preservation of national capital, and having an engaged and versatile and empowered workforce. It is not a debate between GDP and environment, but a question of having a holistic view of what advancement of a country and its empowerment and prosperity mean for African countries. It is important to go beyond the quantitative notion of GDP and have a much larger and more informed view of what progress means and implies. Today, various factors are shaping the need for African countries to embed sustainability in their very social, economic and financial fabrics. African countries need to accelerate their economic growth and per-capita income evolution. Before COVID, Sub-Saharan Africa (SSA) witnessed a marked economic deceleration in terms of GDP growth. From 2000-10, annual GDP growth was 5.4% in SSA, but this reduced to 3.3% from 2015-2019. In a post-COVID era, sustainability can be a decisive factor for Africa to embed durable, holistic, balanced and sound economic growth trajectory,” he noted.
On this note, he elaborated that sustainability could enable a country to expand its economic space, help a country to ensure that tech diffusion and innovation through technology can improve its productivity levels, and also to nurture a stimulating environment for investment.
He concluded on the note that another important rationale for Africa to embrace sustainability is to cope with climatic events. “Today, there is an increasing frequency and intensity of climatic conditions warranting our attention. In Mauritius, we speak of sustainable tourism because we are vulnerable to climatic changes over which we have little control over the short term,” Nuvin urged, stressing the importance of sustainability to have a greener, cleaner, and more resilient Africa for all.
