Creating green financial markets in Africa

By Josué  Tanaka

Creating Green Financial Markets in Africa

This editorial by Josué Tanaka, EBRD's Managing Director, Energy Efficiency and Climate Change, was first published in L'Economiste

With the world gearing  up for a major international climate conference in Morocco, a spotlight has been thrown on the role of Africa in the global fight against climate change.

As our colleagues at the African Development Bank (AfDB) have so eloquently expressed,  Africa faces a double-edged challenge – “it must drastically increase its citizens’ access to basic power services and at the same time it must meet its commitments under the climate change agreement.”

African nations made climate commitments as part of the Paris Climate Agreement, sealed at the COP21 climate talks in the French capital at the end of 2015. The COP22 follow-up conference will be held in Marrakesh in November 2016, building on the Paris accord and helping deliver its pledges.

Africa and its climate challenges will certainly feature strongly in the Marrakesh discussions. 

The EBRD has joined in the collective response to addressing Africa’s energy challenges. Since 2012 it has been actively investing in three North African economies.

But the Bank’s particular expertise in attracting private sector financing to green energy investments is now spreading to other countries across the continent.

The EBRD’s involvement in the southern and eastern Mediterranean (SEMED) region came in response to the political and economic upheaval that swept across the Arab world in 2011. The Bank applied the skills that it had developed in promoting the private sector in emerging Europe to a whole new set of countries.

Over the last four years, it has financed around 100 projects worth over €3.8 billion in Egypt, Morocco and Tunisia, as well as in Jordan.

Climate finance has played a major role in this engagement and an important priority has been placed on developing renewable sources of energy, tapping into the region’s abundant natural resources of sun and wind.

Together with international partners, the EBRD launched a US$ 250 million financing framework for private sector renewable energy generation in its SEMED region in 2015.

Its first project under the new facility was an investment with Morocco’s Banque Marocaine du Commerce Exterieur (BMCE) Bank of Africa and the Clean Technology Fund (CTF) in a windfarm in Khalladi, close to the Moroccan city of Tangiers.

North Africa has also proved to be fertile ground for another of the EBRD’s innovative and powerful climate instruments, its Sustainable Energy Financing Facilities (SEFFs).

Through its SEFFs, the EBRD extends credit lines to local financial institutions that seek to develop sustainable energy financing as a permanent area of their business. Finance for sustainable energy projects is provided primarily in energy efficiency and small-scale renewable projects. Local banks lend the funds they have received from the EBRD on to their clients, such as small and medium-sized businesses, corporate and residential borrowers, and renewable energy project developers.

This financing instrument has been very popular across a large number of countries where the EBRD invests. Individual facilities are tailored to suit the prevailing market conditions in any given country.

Up to now, over 30 SEFF programmes – and still counting – have been developed in 24 countries, such as the successful TurSEFF in Turkey,  a facility worth some US$ 1.5 billion for Turkish banks to pass on to their clients. 

The equivalent facility for Morocco is called MorSEFF. In 2015, the EBRD, the Agence Française de Développement (AFD), the European Investment Bank (EIB) and Kreditanstalt für Wiederaufbau (KfW) teamed up together and  – with support from the European Union – provided a €20 million credit line under MorSEFF for climate projects for the clients of BMCE Bank.

An important element in the roll-out of the SEFFs is the EBRD’s cooperation with international donors such as European Union and the Climate Investment Funds (CIFs).

With their support and funding, the EBRD can reach out to even more potential investors and provide inventives that not only help reduce market barriers to successful investment in sustainable energy projects but contribute to the successful development of financial markets and banking sectors fully attuned to the promotion of a low-carbon economy.

The EBRD is currently actively engaging in knowledge-sharing exercises, passing on its expertise to parties who may well look to the CIFs to help fund their investments. The Bank is also keen to ensure that, in addition to the provision of its own financing, its successful SEFF business model can be shared with other insitutions, even in countries that do not come within the EBRD’s geographical remit. We have, for example, shared our experiences with SEFFs with the AfDB to support the start of their activities in sub-Saharan Africa. The EBRD has also highlighted its SEFF products to a range of African banks at a pre-COP22 conference in Casablanca in October 2016, co-hosted by BMCE.

By stepping up its international cooperation in this way,  the EBRD is seeking to achieve a lasting impact and to make an important contribution to addressing the global climate challenge.