Greenpeace Africa volunteers rally in Nairobi to call for climate finance for Africa. Image source: Simon Maina/AFP/Getty Images
Climate change poses a serious challenge to the livelihoods of people in many African countries, which have contributed very little to causing climate change. More frequent extreme weather events, such as floods, heat waves and droughts, exacerbate hunger, deteriorating security and population displacement. The continent holds about 30 percent of the global total in mineral resources, which is crucial for moving away from fossil fuels in the future. However, Africa mostly exports these raw materials, allowing companies in other countries to profit from the manufacture of low-carbon technologies and digital infrastructure.
Sustainability economists Michael Adetayo Orabisi and Howard Stein have proposed a new African "green bank" as a solution. Their idea is that the bank should be established by African governments, similar in nature to state-owned banks, and jointly owned by African countries. Such banks would be able to access international funds not available to individual countries. Its management, capital and voting structure will be entirely controlled by African countries. This would help to circumvent the problems that have surfaced in other pan-African organizations. They tend to rely too much on donor assistance, which undermines sovereign decision-making power. (For example, 42% of the voting power of the African Development Bank is controlled by non-African countries.)
Drawing on Japan's main banking system, African Green Banks can choose to take a small stake in the project or enterprise in which they receive a loan. This will allow the bank to monitor the project and earn a certain income. They proposed that the bank should have seven departments. This will enable it to provide different services that work in tandem, bridging capacity gaps while allowing each sector to specialize. On the services sector, they suggested that the African Green Bank would provide financing, but not just a financial institution. It will serve as a continental industrial policy organization to support and stimulate all activities required for Africa's transition to a sustainable economy based on renewable energy.
Regional development banks and international financial institutions serving African governments have a poor track record in promoting industry, particularly green energy and manufacturing. The bank is exactly what Africa needs to move away from the long-standing colonial model of extracting and exporting raw materials. The existing international financial architecture, characterized by its monetary hierarchy, makes access to climate finance difficult and expensive, causing poorer countries in Africa to lag behind the rest of the world. Sub-Saharan Africa, for example, will receive only 9 percent of the funding it needs to tackle climate change between 2024 and 2030. This is currently the lowest percentage of global climate funding. The continent also lacks national and subregional development banking institutions specialized in green industrialization.
Green banks can bring together scarce professionals in one place-top engineers, scientists, industrial planners and financial experts. Africa and other developing regions have received funding from the Global North for climate adaptation. They proposed that these countries should allocate transition costs to green banks so that they have a hard currency capital base. African countries should also inject capital into the bank based on the size of their gross domestic product. The money flowing into the bank will be a combination of African currencies and hard currencies. Gold reserves can be used as a substitute for hard currency. The bonds will be issued both inside and outside Africa to finance green projects. The Green Bank will issue loans in African and non-African currencies to state-sponsored or guaranteed projects. In this way, it will finance green manufacturing. The amount of financing will be limited to a certain multiple of the amount of capital injected by countries. Repayments can sometimes be made in a combination of currencies in different proportions.
The bank will promote green industrialization. This helps stabilize regional currencies and promotes "de-dollarization" by giving African countries the option to repay hard currency loans in their own currencies ". If African countries set up factories to produce green energy components and sell them in export markets, it will also weaken the dollar's influence. As a multi-currency custodian, the bank can also simplify the transfer of funds in Africa. For example, payments made by a solar power station in Tanzania to a solar cell factory in Kenya or Ethiopia can be directly credited to the balance of each project's account with the bank. In the long term, the bank is expected to become a clearing house for African currencies, reducing the need to convert them into dollars before trading.
High-income countries may be suspicious of channeling climate funds to governments they see as corrupt or lack technological capacity. Green banks can provide a transparent and accountable channel for climate finance. This would provide security to existing lenders and donors. In addition, this will facilitate co-financing with institutions such as the World Bank and regional development banks, as long as the other party accepts the African Bank's priorities. Large African development banks such as the African Development Bank and the African Export-Import Bank are shifting towards more climate-aligned priorities. However, there are no clear signs of progress in implementing climate adaptation funding. They proposed that green banks would work in parallel with other development banks, adapting as common goals evolve. At the same time, it should focus on how to use industrial policy to ensure that countries adapt to climate change.
The creation of a new bank to meet the continent's industrial, financial and climate change challenges is beyond doubt. Setting up such a bank is not easy. This requires a consensus among the countries of the continent. Countries in the global North also need to be willing to allocate climate change funds to this new organization. The current international order is fragmented. With a growing focus on competitive dominant powers and the way they behave in the world today, this could be an opportunity for independent-minded nations to forge new alliances and help build a better African future.