Climate finance, sukuks… How to make better use of innovative sources of finance in Africa: practical cases

(SIRIUS CAPITAL) – Africa, which faces a serious financial shortage on the continent, should adopt innovative tools such as a large liquidity pool, climate finance that offers preferential treatment, and Islamic finance.Imresource mobilization.

In recent years, Africa has been able to maintain its development trajectory. The construction of the continent continues. From here and there, big projects emerge for exitIadjust the dynamics. But each of these forward movements is subject to frictional forces as severe as the others: the Russia-Ukraine conflict, Covid-19,rclimate change is on top of the structural employment crisis. In addition, lack of access to finance is a persistent problem for many African countries, hindering their ability to achieve sustainable economic and social development.

However, this growth and more, development needs to be funded!

According to Akinwumi Adesina, prThe president of the African Development Bank, the financing needs for infrastructure in Africa alone are between 130 and 170 billion dollars per year. Lack of fundsIup to $108 billion per year. Adding in climate emergencies, the continent needs $280 billion annually to meet the MDG’s overat the national level).

To close this gap, we at Sirius Capital believe it will be critical for African policymakers to further explore underutilized sources of finance such as climate finance, Islamic finance and private equity.

Climate finance that aims to support projects that reduce greenhouse gas emissions and help communitiesetc climate change adaptation is one of Africa’s most promising sources of finance.

According to the OECD Development Centre, Africa is the continent most vulnerable to the effects of climate change, findings confirmed in one of the AfDB’s reports released to the public in May 2022, showing that 9 of the 10 most affected countries have died.rclimate regulation is in Africa. However, the continent receives only 2% of global investment in climate projects, such as renewable energy.

However, there are examples of successful climate finance projects in Africa. The Lake Turkana wind farm in Kenya is the largest in Africa and is funded by a collegeageinternational multilateral and private investors (Proparco, EIB, TBD, AfDB, OPIC, etc.) are an interesting example of how climate finance can be a powerful tool in responding to the continent’s development challenges.

This represents a $680 million projectfeeling dThe largest private investment in Kenya’s history. The park has produced since its inceptionIhour 310 mmegawatt, providing more than 15% of the country’s electricity needs and reducing greenhouse gas emissions by 380,000 tons of CO2eq per year.

This winning combination of development institutions and the private sector is a perfect example of how finance comes together d(public financing instruments to attract private financing) can offer as collateral for the development of effective sustainable projects.ecosystemfertile ground for private sector climate investment.

When it comes to Islamic finance, especially sukuk (Islamic bonds), it is no less than one of the most promising sources of finance in a continent that has so far only had access to a small portion of this financing opportunity. Since 2014, it has been about $2.3 billionyoue upthrough sukuk in Africa.

However, African Islamic bonds represent only as much pris only 0.5% of the global sukuk market. Untapped liquidity potential dA desire to strengthen investment ties with the fast-growing economies of the Gulf and Asia, which have large Muslim populations with large pools of capital on the continent, should have helped boost sukuk issuance on the mainland. It was still Côyou d‘Ivory, Sénoeg, in Nigeria, Togo, Tunisia or Morocco, .. examples of funded projectss by sukuks rsuccess, there is.

In Nigeria, the latest venture to enter the sukuk market as the country grapples with a severe recessionthere is eyouespecially welcomed by reluctant Muslim investorsetc investing in traditional instruments of interestrand. Found in the last office optiondDebt Management Office (DMO), the opportunity to actively participate in the process of attracting private funds for the development of infrastructure projects in the country. Nigeria demonstrates that sukuk can be a game changer. According to Babatunde Fashola, Nigeria’s Minister of Jobs and Housing, There is the first sukuk of 100 billion naira eyoue detrické to finance 25 roads and deliver a total of 482 km naira; secondI have sukuk in 2018 eyoue detrické on 28 routes and it delivered a total of 643 km; the third 2020 was 162 billion nairayoue detrick44 routes traveled and delivered 757 km.

In recent years as wellyouBuilding on the Islamic Development Bank (IDB), which has been a key supporter of promoting the use of Islamic finance on the continent, African organizers have made considerable progress in overcoming a number of barriers in understanding and structuring these innovative tools.

We will especially remember the operations of Côyou d‘Ivory, from Sénoequally, Togo, Burkina Faso or even Mali with regional promoters such as Sirius Capital and other SGIsyouactively besideyoués of states to help structure their éssukuk missions, for saleall with brilliant success.

While a regulatory framework is being built here and there, these examples confirm that there is indeed a potential, a dynamism, that African States need to tap into to compensate for the lack of funding.

Ismail Adam Cisse, General Managernoeral, Sirius Capital

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