The availability of, and access to, long-term and predictable finance remains insufficient in the Congo Basin. Africa, home to nine of the ten countries that are most vulnerable to climate change, receives only between 3 to 4% of global climate finance1. This is the case both for donor funding (public and philanthropic) and investment finance (private sector and public).
There are many reasons for this. One important factor is the challenging governance context in the region, including limited institutional capacity, unclear regulatory and policy frameworks, insufficient coordination between ministries and sectors, and political instability.
As a result, both donors and investors are often cautious about providing finance. While this is understandable, they are often overly cautious: on the part of donors, this may in part reflect a limited capacity or willingness to tolerate higher levels of risk. This has led to the development of arduous approval processes, as well as a tendency to rely on international institutions, rather than engaging with country partners and domestic institutions to address these challenges. For investors, the business environment in the region can be unpredictable, due to political and economic instability. However, the risks are often perceived to be higher than they are in reality, in part because of a lack of in-depth knowledge of the region. Even where investors do have a good understanding of the risks and are willing to pursue a project, it may not be economically feasible to do so because the costs of borrowing are high.
A number of potential solutions to help address these challenges were discussed, which can be grouped into 3 categories:
- Improving the governance and business environment
- Improving the knowledge economy
- Facilitating access to finance
To improve governance and the business environment:
- Establish clear policies and rule. The governments of the region could work together to develop legal frameworks and potentially harmonise these at the regional level, for example, for carbon finance and for the timber sector. Strengthening land-use governance, for example, through improved mapping and the reconciliation of concessional rights, is also important to encourage investment.
- Strengthen institutions, within government and beyond. Increased institutional capacity can help to overcome some of the ‘absorption’ constraints for international finance, particularly through enhanced fiduciary capacity within government. Strong civil society institutions are also an important element of a good business environment, including SME cooperatives, business associations, and NGOs.
- Investment in public infrastructure. The establishment of reliable public infrastructure, including transport and information technology, is an important means of reducing the costs of doing business and so can facilitate private investment.
To strengthen the knowledge economy:
- Strengthen research and build expertise. Drawing on both scientific and traditional knowledge will enable a better understanding of the region’s natural ecosystems, their diverse values and economic potential. This is important in providing a sound basis for policymaking and implementation, including the elaboration of particular financial instruments. For example, in-depth knowledge of the region’s natural assets is essential for the development of mechanisms for Payment for Ecosystem Services (PES) and for natural capital accounting. In addition, robust data is important for enabling the identification of opportunities for investment within the nature-based economy.
To increase the accessibility of finance:
- More feasible and flexible financing conditions: Donors and public financiers (IFIs) including the climate funds such as GEF and GCF should adopt more feasible and flexible conditions for their funding, as well as quicker approval processes, both for accrediting beneficiary organisations and approving projects themselves. More broadly, it was considered that they should accept more risk, which could be facilitated through more in-depth engagement with the countries, as well as undertaking more extensive research, to better understand the risks and to find ways to mitigate these.
- Early engagement with more risk-averse investors: An important role for public finance is to provide de-risking for other investors. For example, this can be implemented through the provision of credit enhancement, or guarantees for carbon markets or for other mechanisms. To bring in more risk-averse investors, it was noted that it is important to talk with them as early as possible, to identify what is needed to enable them to engage financially.
- Increasing access to finance at the local level: Local financial flows are as crucial as international. Financial institutions at the local level are of vital importance for rural economies and for the SMEs that are the engine room of the economy, but they often lack expertise in sustainability and in nature-based investments. Capacity strengthening on these issues for local banks, for example, on nature-based investments would enable them to support those wishing to pursue such opportunities and facilitate economic diversification. IFIs could also work to enable their access to capital
- African Development Bank (2024), COP29: African Leaders Urge Rapid Increase in Climate Finance for Adaptation and Green Growth. November 2024. https://www.afdb.org/en/news-and-events/cop29-african-leaders-urge-rapid-increase-climate-finance-adaptation-and-green-growth-78689#:~:text=At%20the%20same%20time%2C%20the,this%20to%2010%25%20by%202030. ↩︎