At COP28, The AfDB shared its expertise on innovative ways to tap finance for climate action and other priorities.
As the climate crisis continues to grip the world's attention, discussions at the COP28 UN climate conference have expanded beyond environmental strategies to include innovative financial solutions. A groundbreaking dialogue held as a side event at the conference shed light on the role of finance in shaping Africa's future, with insights from speakers who are driving transformative initiatives on the continent.
Chaired by Mr. Wale Shonibare, Director for Energy, Financial Solutions, Policy and Regulation at African Development Bank, the dialogue also featured Chief Adebayo Adelabu, Minister of Power of Nigeria, Mr. Chinua Azubike, CEO of InfraCredit and Mrs. Tariye Gbadegesin, the CEO of ARM Harith Infrastructure Fund.
Kicking off the discussion, Mr. Shonibare presented a visionary "moonshot" idea aimed at transforming Africa's financial landscape. He proposed the establishment of a Bank of African Settlements and the introduction of a new currency backed by commodity reserves, including oil. Addressing concerns about the inclusion of oil, Shonibare noted, "While the inclusion of oil might raise concerns in the context of climate change discussions, it's essential to understand that the proposal aims to leverage Africa's commodity wealth to create a new financial architecture."
Mr. Chinua Azubike, CEO of InfraCredit, emphasized the importance of "providing a form of credit enhancement that could de-risk perception of risk for companies that are developing infrastructure and enable them to access long-term finance in local currency." He highlighted InfraCredit's success in guaranteeing projects across various sectors, saying, "Credit guarantees play a catalytic role, essentially building local capacity and enabling the market to evolve."
Mrs. Tariye Gbadegesin, the CEO of ARM Harith Infrastructure Fund outlined plans to aggregate small-scale renewable energy projects into larger blended finance packages, by combining senior debt, subordinated capital, carbon credit revenues and risk guarantees.
Mr. Chris Canavan, an expert in international finance, raised critical questions about the impact of climate change on financial portfolios. He inquired about the climate resilience measures in InfraCredit's portfolio, prompting participants to acknowledge the importance of integrating climate resilience into risk assessments for infrastructure projects. Canavan also emphasized the need for financial innovation: "There are experiments in countries like Mexico and Chile where non-currency units of account were introduced to straddle the dilemma of dollarization without compromising competitiveness."
The dialogue at COP28 provided a glimpse into the diverse strategies and visions driving financial evolution in Africa. From local currency financing to visionary ideas, the speakers showcased a collective commitment to unlocking Africa's financial potential while navigating the challenges posed by climate change. As the conference progresses, these innovative financial solutions are likely to take center stage in shaping a sustainable and resilient future for the continent.
Delegates agreed that while sovereign wealth funds and pension reforms are advancing, more work is needed to deepen capital markets, replicate successes like India's renewable boom and ensure policies promote local currency use rather than perpetuating reliance on hard currency imports. Only by tackling these systemic issues head-on, can Africa hope to develop at the scale and speed required, they said.
