Ready, set, go: Green economy revving to go in Africa

ESI Africa
February 27, 2023

Written by: Nicolette Pombo-van Zyl

The green economy has the mesmerising appeal of a crystal, with many angles reflecting different colours as it turns. For Africa, this green economy ‘crystal’ is still in the making; however, it is already showing off a brilliant display of opportunities.

This display was evident during last week’s festivities into the green economy held in Cape Town, South Africa, which included a business summit, Cape Town’s first E-Prix, and the launch of the next Electric Vehicle Road Trip.

Much was discussed and pondered, concluding that a green economy is there for the taking. Here are a few choice quotes from Africa’s Green Economy Summit, held ahead of the E-Prix, on 22-23 February, that got me thinking about how this budding economy will shape new endeavours.

Invest or heed the warnings

When Dr Amani Abou-Zeid, the African Union Commissioner for Infrastructure and Energy, spoke of the faulty generalisation of Africa being a risky investment destination, she had my full attention.

Did you know that of the 32 African countries rated, 18 had their credit ratings downgraded since the COVID-19 pandemic started? The significance of this number is more about it being greater than that of European countries. And noting that EU countries have faced similar and more drastic economic challenges.

As such, Abou-Zeid pointed out that Africa’s confidence in rating agencies is waning. “The current approach is to leave out elements that contribute to the poor credit rating, making investors shy away from Africa and making things even harder,” she added.

Sadly, the continent’s default rate is amongst the world’s lowest, backed by Moody’s Analytics which found that Africa’s default rate on infrastructure loans is 1.9%. “Other studies by rating agencies have come to similar conclusions,” said Abou-Zeid.

Rating agencies versus ROI

But investor confidence should look at another (probably more relevant) statistic – research into foreign direct investment shows that those investing in Africa earned the highest rate of return compared to other continents “at 11% versus the 9% in Latin America and Asia, and the global average of 7%,” shared Abou-Zeid.

Sadly, the impact of a low credit rating leads to higher interest and insurance rates for infrastructure projects, creating higher unnecessary costs that Africa can ill-afford.

But how do we capture the opportunities when Africa struggles to escape from being branded a risky, corrupt business environment?

Since the numbers show a whopping return on investment compared to other regions, do you heed the ratings agencies’ warnings or follow the ROI numbers? In my view, with so much potential in Africa’s green economy unfolding, investors must review real versus perceived (and sometimes stereotyped) risks to make informed decisions.

Of interest to you:
Fitch revises South Africa’s outlook to negative and affirms IDR at ‘BB+’
Moody’s moving in on local credit rating company is bad news for Africa

Stakeholders in the green economy in Africa

Unlike the development of the traditional electricity, power and energy market, the green economy in Africa will be about co-creating.

Budding green initiatives will be driven by public-private partnerships, city initiatives and commercial, industrial and residential projects. All of which will flourish as government sets forth enabling policies.

However, the keyword is inclusivity.

As John Roome, Regional Director for South Asia Sustainable Development at the World Bank, pointed out: “It’s not a simple task to move forward and bring change to this agenda, so we need to bring together communities to make these systemic changes… Inclusive development is needed. We need to get the basics right.”

And this is well on the way, as indicated by Hastings Chikoko, Director of Regions & Mayoral Engagement & Regional Director for Africa at C40 Cities Climate Leadership Group, who said: “Cities are rethinking the role of urbanism in shaping a green economy in Africa, re-imagining sustainability, climate resilience, digitalisation and innovation.”

Incentivising nations

However, Arvana Singh, Head of Sustainable Finance Solutions at Nedbank Corporate and Investment Banking, advised that incentives are needed. These are necessary to incentivise residential and property developers to build green amidst a very constrained environment that is very cost sensitive.

Surely this is one of those low-hanging fruit opportunities for any country to implement?

Singh added that a truly green economy isn’t just about removing fossil fuels from the energy mix. “It’s an entirely new economic model that values sustainability and social responsibility.”

With such colourful quotes delivered at Africa’s Green Economy Summit, you probably wonder what’s next.

As the green economy in Africa is well on its way, the conversation turns to where to find the tenders and requests for proposals and the need for standardisation. Join us at the next event, where stakeholders will gather to talk about the green economy and market in general.