The International Monetary Fund (IMF) has said that Nigeria, Ethiopia, Cameroon, South Africa, and Somalia are seeking $600bn in climate financing support from financial institutions. The Washington-based lender also said that Nigeria is struggling to attract climate-related Foreign Direct Investments (FDI) due to its inability to end parallel foreign exchange rates and other policy uncertainties.
The IMF shared the concern in a report titled ‘Harnessing Renewables in Sub-Saharan Africa: Barriers, Reforms, and Economic Prospects’. The report which was conducted by IMF staff members highlighted that given the high capital expenses to transition to clean energy, securing appropriate financing is crucial.
It said, “Nigeria has been active on the climate policy front, passing 12 climate policies between 2007 and 2019, which included feed-in tariffs, strategic planning, and procedures for renewable energy auctions, it has not been able to attract enough FDI, potentially because of policy uncertainty, weak financing mechanisms and other structural weaknesses such as the existence of a parallel exchange rate market in recent years.
“Sub-Saharan Africa can learn from the experiences of successful EMDEs and close the most binding structural gaps, by promoting good governance, trade and capital accounts openness, as well as product market reforms.”
The IMF noted that the experiences of successful Emerging Markets and Developing Economies (EMDEs) indicate a link between climate action and the inflow of green FDI.
It emphasized that to attract green FDI, targeted policy initiatives and favorable preexisting conditions are necessary, including advancements in structural reforms and geographic suitability for renewable energy.
The report said Nigeria and other 47 countries requested more than $1.2tn in climate financing. IMF noted that “48 African countries have requested more than $1.2tn in climate financing with almost 60 percent of it for climate mitigation.
“Half of this financing request comes from six African economies, five of which are in sub-Saharan Africa—Ethiopia, Nigeria, Cameroon, South Africa, and Somalia. 0.5 per cent of GDP investment shock in our simulations is equivalent to annual spending of about $12bn in total in sub-Saharan Africa by 2030, which is a fraction of the finance requested in the NDCs.”
