Financing small businesses the way to Africa’s climate resilience

Climate change is real for Africans — we continue experiencing floods, droughts and unpredictable weather patterns that hamper food production, lead to loss of property and regrettably loss of lives.

To combat climate change, it is estimated that $3 trillion needs to be raised by 2030, of which the African Development Bank estimates that 75 per cent will come from the private sector. Ultimately, this global challenge calls for innovative approaches that can be promoted by small and medium enterprises (SMEs), which account for 95 per cent of Africa’s private sector presence.

For a fortnight starting October 31, the world’s leaders, diplomats, scientists, activists, and business executives will gather in Glasgow, Scotland for the 26th UN Climate Change Conference of the Parties (COP26). Though few of these will be SME leaders, who possibly are too busy doing business and navigating the impacts of Covid to take time off advocating and networking on the global stage.

The summit seeks to accelerate actions towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change, with both treaties marked out by their significance in asserting climate change issues.

Africa has every reason to engage closely with the conversations in Glasgow. Although it contributes only two per cent to three per cent of global emissions, the continent is extremely vulnerable to the effects of climate change. Africa can no longer be a passive participant in mitigating climate change, as it threatens to decimate its food systems, intensify health challenges, and drive further natural disasters with untold negative impacts across the continent.

We must shift gears and insist on actions that will position Africa to keep pace with the rest of the world to attain long-term success. As world leaders talk about where and how to invest for climate action, we must therefore insist that investments in SMEs are a key part of the portfolio.

SMEs in Africa are already deploying clean energy solutions, climate insurance, and climate-smart agriculture. For example, in Njombe region of Tanzania’s southern highlands, hydropower company Luponde Hydro Ltd is lighting homes, powering tea factories and distributing power to the national electricity utility company; the company is reducing GHG emissions of approximately 6,183,409 tonnes per year.

In neighbouring Malawi, Museco, a seed company, is enhancing cultivation of climate resilient, nutritionally-enhanced hybrid seed maize and soybean. The company is working with smallholder farmers to also introduce drought tolerant cowpeas and groundnuts. These are just two of dozens of examples that could be mentioned where African SMEs are charting the frontiers of innovative business models and new food systems that are profitable for companies but also climate-friendly.

Requisite funding

But greater scale can and must be achieved by financing the private sector to expand their reach with such innovative options as those thought-out and delivered by entities like Luponde Hydro and Museco. A desired scale could be attained through dedicated climate financing, which must increase in ambition considering the African continent continues to suffer disproportionately from the effects of climate change.

From my perspective, the requisite funding will be realised through heightened activity by African leaders and the private sector to mobilise finances. Indeed, a pledge to raise $100 billion per year by 2020 in support of developing countries in the fight against climate change was first made in 2009, and reaffirmed at the 2015 Paris Climate Talks; this is yet to be achieved. During this period, the highest amount raised was $79.6 billion in 2019, therefore more needs to be done to ensure that climate finance reaches those that need it the most across Africa.

Even though resources have been mobilised and at the moment there are pockets of funding linked to clean energy and climate-smart agriculture, the available financing tends to be complex and comes with a plethora of terms and conditions, many of which cannot be met by African SMEs. The availability of finance must go hand-in-hand with structures and models that are practical for the African context and will allow more SMEs to contribute to the mitigation and adaptation efforts, and do so in a sustainable way.

As the COP26 talks start, it is anticipated that new ambitious targets will be put in place to combat climate change. It is imperative that climate financing to Africa is increased, and systems put in place to ensure maximum absorption of this funding. If this is done, communities across Africa will become more resilient to climate shocks and with its growing economies and population, stand to contribute significantly to the mitigation of climate change.

The time for action is now.

Victoria Sabula is the chief executive of the Africa Enterprise Challenge Fund