Africa is one of the world’s most vulnerable continents to climate change. The erosion of the Earth’s atmospheric balance poses a serious threat to sustained economic growth, poverty reduction, food security and quality of life. The response must be comprehensive, holistic and multi-faceted.
Green bonds have the potential to deliver low-carbon, climate-resilient infrastructure and are known to foster renewable energy, low-carbon transport, water infrastructure and sustainable agriculture. More importantly, green bonds are an example of how African nations can take the best of the existing ideas in other nations and combine them with their own needs.
In Nigeria, US$142 billion of new investment is needed by 2030 to meet the country’s climate commitments. Working in partnership, Financial Sector Deepening Africa (FSD Africa) has helped identify the gaps and solutions needed to grow local capital markets. In December 2017, with our support, Nigeria became the first African nation to issue a Climate Bonds-certified sovereign green bond. The debut US$30 million bond is helping fund renewable energy, afforestation and environmental projects.
Given that markets in Africa are still maturing, there exists tremendous opportunity to build on green principles. This makes green finance an inherent part of the continent’s development and it has every chance of making Africa a world leader in this space.
Yet green bonds are only one solution. Sequencing is also a large part of the issue. The most astute people working in the development and financial markets understand this is an art, not a science, and so it was an issue discussed at length during the recent AFSIC Investing in Africa conference held in London earlier this month.
At the event, I chaired an optimistic, well-turned out panel on capital markets, during which we discussed how innovative finance solutions can reduce poverty, grow economies and create jobs. Panelists and the audience alike understood that in order to make good use of scarce resources, we must seek out the best ideas and implement them locally.
For long-lasting impact, success relies on a mix of the best of what is already known with local expertise on the ground to make a solution for Africa’s unique circumstances. Like green bonds, Islamic Finance offers another illustration of this. Found in only a few countries, Islamic Finance practices nonetheless afford benefits that stretch far beyond any one region. They provide investors with a vast opportunity to channel investment into infrastructure, including enterprise and housing.
In order to realise these benefits, financial sector regulators need to develop a supporting institutional, policy and regulatory environment. In Kenya, FSD Africa has been advising and educating financial institutions. We have been busy helping regulators build these in line with their country’s goal of becoming a regional Islamic financial centre. Islamic Finance also offers African nations’ large Muslim communities access to a product they can connect with in support of financial inclusion.
Capital market development and products such as Islamic Finance and green bonds give 1.2 billion people a fighting chance of freeing themselves from crippling disadvantage. In future, a diverse range of products needs to be available to solve the unique challenges we face. That is why conferences on these issues are imperative, because they provide the space in which information can be traded by organisations whose job it is to deepen and add breadth to where investors can have the most impact.
On the ground, this continent has an opportunity to not only provide investors with a suitable place to put their money, but to help solve its own environmental, demographic and infrastructure-based issues, and in the process, lift itself and its people out of poverty.
About the Author
Evans Osano is director of capital markets development at FSD Africa. He has more than 20 years' experience in capital markets, ranging from investments to advisory and technical assistance. Osano's focus has covered Africa, the Middle East and North Africa (MENA), North America, Europe and South Asia. Previously, he has worked at both the World Bank and International Finance Corporation (IFC).
Interesting article. Good insight!