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Private sector is the key to Africa’s green economic transformation

The private sector is key to mobilising green investment and sustainable development in Africa. Climate change presents a US$3 trillion investment opportunity in Africa by 2030. 75% of the investment is expected to come from the private sector to complement public sector financing. This calls for innovative approaches to attract and steer financial flows consistent with a pathway towards low-carbon and climate-resilient development.

In addition to being a force for financing, the private sector in Africa is important in mitigating climate change and implementing adaptation measures. With SMEs constituting 95% of Africa’s private sector – which is the continent’s main energy user and greenhouse gas producer – ensuring that nascent and growing SMEs are not only climate-responsible but also helping curtail climate change is fundamental.

Throughout Private Sector Day at the African Pavilion during COP24 in Katowice, a number of expert panellists stressed the need to ensure private sector development and involving financial sector actors in helping leverage opportunities for Africa to leapfrog to a climate-friendly trajectory.

In sessions, including ‘Harnessing synergies between market mechanisms and climate finance in Africa’ andGreenpreneurs and ecoenterprises – climate resilient entrepreneurship and SME development’, the need for global financial institutions to support low-carbon and climate-resilient investment schemes and enterprises was mentioned frequently; particularly the catalyst role of governments through enabling market and investment policies and mechanisms.

On climate financing, the Paris Agreement established market mechanisms, including cooperative approaches and a new multilateral sustainable development mechanism in the future architecture of the climate regime. Gareth Phillips, Division Manager for Climate and Environment Finance at the African Development Bank, said:

“In order to achieve tangible benefits for Africa, market mechanisms should build on those elements of Clean Development Mechanism (CDM) reform that have enhanced participation in Africa, and continue to advocate further improvement of rules.

Building bridges between market-based approaches and climate financing institutions is crucial to allow for rapid investments into emerging mechanisms, so that the policy instruments of the Paris Agreement can evolve in a “learning-by-doing” approach.”

Louise Brown, Senior Climate Change Advisor at the African Development Bank, spoke about the Adaptation Benefit Mechanism (ABM) that the African Development Bank has been piloting. She explained:

“It’s a results-based approach to incentivize the private sector to invest in adaptation, by creating a price signal for adaptation results. By assigning a unit of measurement and price to an adaptation result, such as dams built or climate-resilient livestock produced, we are able to price the outcomes of an adaptation project and create a mechanism where developers can go to investors and make a financial case for it.

The ABM is governed and regulated through an architecture modelled on the CDM to ensure it is credible and can make the most of the legal structures that exist”.

Ensuring strong contributions by African negotiators and policymakers to the COP24 processes will have a critical impact on the equitable participation of African countries in the mechanisms of the Paris Agreement and ensure adequate resources around mitigation challenges.

Mbaye Diagne, Member of the CDM Executive Board and Managing Director of Afrique-Energie-Environnement – who  was at the COP24 negotiations, said:

In Africa we haven’t benefited from the CDM for many reasons. We weren’t really involved when it came to building the rules in 2001 in Marrakesh. Our concerns were not taken into account. Now under the Paris agreement it’s different; we weren’t represented on the Executive Board of CDM but now we are.

If we succeed in embarking on improvements within the new market mechanism that will be for the benefit of Africa.”

However, he pointed out that negotiations had been difficult and that it is critical to advocate for and promote African positions and experiences through more visibility at key events like COP24. This can support Africa’s efforts to contribute to shaping ongoing reforms and development of multilateral rules.

Later in the discussions on the role of the private sector in being active against climate change, the importance of SMEs and entrepreneurship for a clean future for Africa was another message that rang through loud and clear. Muawia Shaddad from the Nile Basin Discourse who moderated the session on greenpreneurship set the tone when he said::

“We’ll need 600m jobs in Africa in 2030. SMEs have a huge part to play in this, and in helping to mitigate climate change effects. Development needs to be sustainable and green so we don’t become part of the problem and entrepreneurship is critical to that”.

From the blue economy to the green economy and agriculture, startups and growing SMEs in Africa have a responsibility to not only mitigate but to adapt to climate change. Hearing first hand from dynamic youth from Sudan, Seychelles and Canada who are leading in growing youth-led private sector development in a responsible and climate-friendly manner bought the responsibility and determination of Africa’s youth in the effective implementation of the Paris Climate Change Agreement to the forefront.

In the end, an enabling environment, the right skills and knowledge and derisking mechanisms for financial investments in green private sector development were reiterated by young entrepreneurs and Marcel Fodgo, Head of Climate Finance and Insurance at the National Climate Change Programme for the Government of Cote d’Ivoire.

The African Development Bank’s Jobs for Youth in Africa (JfYA) Strategy aims to support African countries in scaling up responses to youth unemployment and underemployment.

It focuses on practical, high-impact solutions aimed at creating opportunities through education and training, jobs and a business environment conducive to youth entrepreneurship. The goal of the strategy is to create 25 million jobs for African youth over the next decade and to equip 50 million with a mix of hard and soft skills to increase their employability as well as their entrepreneurial success rate.

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