Amid global uncertainty, Africa is brimming with opportunity
The “worst is yet to come” warning from the International Monetary Fund this month could not have been more ominous.
The annual meetings of the IMF and World Bank boards of governors were expected to be frank; Yet few expected them to forecast that as much as a third of the global economy could contract this year, amid a cost-of-living crisis fueled by inflation and exacerbated by factors such as Russia’s war in Ukraine.
Faced with such a bleak outlook, with economies as large as the UK and US reeling, markets and investors see opportunities in high-growth, underdeveloped territories, of which Africa is home to a large number. The continent is naturally equipped to both drive and nurture international markets; however, this depends on focusing on sustainable finance.
Africa is home to some of the fastest growing markets. Thanks to its expanding economy, industrial sectors and demographics, it has enormous potential for investors. With the world population expected to reach 12 billion by the end of the century, Africa, which has more than a quarter of the world’s total arable land, is critical to feeding the planet.
However, the potential of Africa’s red soil does not end there. Eleven African nations are among the top 10 sources of at least one mineral resource. There is no doubt that Africa’s natural endowments are strong, but as the continent develops at a breakneck pace, it is the shift from mining and agriculture to other industries such as renewable energy, retail, tourism and communication, which offers interesting opportunities for expansion
As the continent has begun the transition from a traditional economy to a knowledge-based economy, investments in green industries, digital technology, e-commerce, banking and other services will play a prominent role and provide major opportunities for investors.
There is no doubt that, in a turbulent global context, the countries of the region are dealing with their own challenges, with limited fiscal space to mitigate negative economic shocks. However, because the opportunities they offer are so great, it is important that they are given the support to mitigate these challenges and realize their economic potential.
The most significant frontier of this challenge is in energy. The International Energy Agency estimated in its World Energy Outlook 2021 that more than $30 trillion is needed by the end of the decade for an ecological transition to take place effectively worldwide.
However, the dynamics of this in Africa are different; the continent contributes less than 3 percent of global greenhouse gas emissions, but has the world’s greatest potential for generating energy from renewable sources. According to the International Renewable Energy Agency, Africa’s renewable energy potential is 1,000 times greater than its projected electricity demand.
However, Africa’s vast renewable energy potential is at the mercy of climate change impacts as seven of the 10 countries most vulnerable to climate impacts are in Africa.
Therefore, despite the continent’s potential to feed the world, exposure to climate shocks will endanger it. Today, more than 95 percent of agriculture relies on rainfed agriculture and is therefore prone to extreme climate variability.
With 19 African economies currently over-indebted, investors must help the continent mitigate and adapt to climate change. Building climate-resilient economies based on renewable and green energy sources is key for Africa. This can only be achieved through international cooperation and partnerships that support African countries, through capacity building and access to affordable financial resources, to undertake the transition. Projects in this space offer double-digit returns for investors, but without global partnerships, these projects are not possible.
At the Casablanca Sustainable Finance Dialogue this week, Lamia Merzouki, deputy director general of the Casablanca Financial City Authority and co-chair of the United Nations Development Program’s Financial Centers for Sustainability, said: “Although Africa offers huge growth opportunities, how can you really take advantage of them? leveraged is through sustainable finance. The pressures of climate change are so pressing that any investment in Africa must reflect these challenges or the great potential of the continent will not be realized.”
The hydrocarbon transition in Africa also offers opportunities for global finance. However, this is not possible without constructive alliances. Currently, more than 80 percent of Africa’s energy consumption is generated from natural gas, coal and oil, and 20 percent of African countries are exporters of these sources.
Since the transition will come at the expense of lost foreign exchange earnings and government revenue, the transition to green and renewable energy sources will incur significant costs. Fortunately, Africa’s energy consumption is the lowest in the world, with only 40 percent of households having access to electricity.
However, with Africa’s population expected to grow from 1.3 billion to 2.6 billion by 2050, pressures on energy consumption will be greater. Therefore, it is essential that sustainable public-private partnerships be sought. Consequently, innovative approaches to attracting and directing financial flows consistent with a low-carbon, climate-resilient development path are crucial.
Climate change presents a $3 trillion investment opportunity in Africa by 2030 with 75 percent of investment expected to come from the private sector, to complement public sector financing. However, ensuring that promises materialize is what matters.
Amid worrying global circumstances, Africa’s natural resources, long a cause of pain and conflict, now lie at the heart of the continent’s economic transition, along with the potential to support global food and energy security.
For this to happen, mobilizing climate finance for adaptation, resilience building and development is key to ensuring that sustainable economies are created.
Rising food and fuel prices and tightening financial conditions can only be mitigated through cooperation between the private sector and African governments to provide the economic development the country requires.
Without investment, the effects of climate change risk compromising the great potential that Africa offers to the world economy.
- Zaid M. Belbagi is a political commentator and advisor to private clients between London and the GCC. Twitter: @Moulay_Zaid
Disclaimer: The opinions expressed by the writers in this section are their own and do not necessarily reflect the views of Arab News.