Reduce Africa’s dependency on climate aid finance to ensure a sustainable future – The Mail & Guardian

Loans to fund action against climate change prevent a sustainable future. Photo: File

Unsustainable sustainability is a paradox that best describes the climate finance flow from developed countries to Africa under the Paris Agreement. Although the transition to a low-carbon economy inspires hope for the continent’s developmental future, the “loan” format of climate finance exacerbates external debt, which hinders a sustainable future. The continent needs innovative ways to reduce its reliance on foreign climate finance for a sustainable future. 

Fossil fuel-based economic structures carry the remnants of imperialist and monopolist structures, characterised by exploitation, monopolisation, asymmetrical North-South developmental dependency and pejorative socio-economic complexities in African countries. 

A low-carbon transition proposes a new transformative economic structure that enables African countries to circumvent the developmental misfortunes that haunted progress during the pursuit of fossil fuel-based industrialisation. Similar to the digital transition, the low-carbon transition could alleviate gatekeeping, bring in new local industry players and provide a way for the continent to leapfrog conventional developmental paths and achieve wider industry participation and inclusivity. 

However, a major hiccup, if not a blockage, is the financing of the transition. The Paris Agreement committed to ensuring that developed nations provide financial assistance to developing countries to implement mitigation and adaptation projects that align with the priorities and needs of developing countries, especially those vulnerable to climate change. However, what constitutes climate finance and how it is conceptualised for appropriate measuring is still an issue. At the moment, climate finance comes in the form of  loans that exacerbate the continent’s external debt. 

Karabo Mokgonyana, climate and energy senior campaigns associate at Power Shift Africa, a Kenyan-based environmental organisation, captured it comprehensively in an opinion piece for Business Day which talked about the loans received by Eskom, South Africa’s state-owned electricity enterprise. She said “despite billions in more government and annual bailouts (R254 billion in government debt relief through the Eskom Debt Relief Act, for example), it still faces issues”.

Additionally, the findings in my doctoral thesis show the unsustainable sustainability of bilateral climate finance from powerful advanced states to South Africa, Nigeria and Zambia — huge loans with classified repayment terms to advance green development. 

Therefore, it is significant for African countries to pursue digital sustainable finance in mobilising private climate financing from both domestic and foreign sources. This modus operandi cements the conception of sustainability. Future generations should not incur the debt created by the current generation in the quest to achieve its ecological needs. This accumulating debt will ultimately compromise both generations, especially the future, in achieving their developmental needs.  

However, I am cognisant that developing countries contributed minimally to this phenomenon and should not compromise their developmental trajectory to finance the low-carbon transition. That said, the Paris Agreement mandated developed countries allocate climate finance to developing countries, but their loan-based method of payment is unsustainable for African countries. Africa’s experience with foreign aid or loans is unpleasant and climate finance should not replicate the issues concomitant to development finance.

Although the elephant has already occupied the room, this is evident from irregular climate patterns and climate-related calamities like drought, which lead to severe migration and displacement on the continent, especially in the Horn of Africa. The continent should seek innovative ways to reduce its dependency or reject loan-based climate finance from developed countries. 

Some of the innovative ways for African countries to explore are digital sustainable finance (crowdfunding) and financially penalising greenwashing. Another model could be cutting fossil fuel subsidies, but if done prematurely, it could be inflationary, as many countries still depend on fossil fuels. Nigeria is a perfect example of a premature fossil fuel cut that led to a significant increase in petrol prices. 

The Indonesian T20 Task Force 9 lamented about this digital sustainable finance in its policy brief. Digital financial technology has made significant progress, which holds the potential to accelerate the sustainable finance agenda. Digital finance, according to the World Economic Forum, should be understood as the integration of ubiquitous technologies such as big data, artificial intelligence, mobile platforms, blockchain and the internet of things in the provision of financial services.

It alluded to the use of a digital crowdfunding platform, which enables a transparent record and certified the use of proceeds, sustainability impact and revenue streams of projects. These digital approaches assist in addressing the barriers that perpetuate asymmetrical information access between investors and other stakeholders and, significantly, the lack of community power. 

Some countries, mostly in the Global North, have already established climate-oriented crowdfunding platforms. Germany has EcoCrowd, which specialises in green projects and sustainable initiatives. South Korea established YOLK to raise funds for a solar charger. In the Global South, Argentina established Crowdear as a rewards-based crowdfunding platform. 

The intention is to unlock new sources of finance that boost entrepreneurship to focus on projects that are anchored in technology, education, health and environmental outcomes. There has been a lacuna in this field of mobilisation in the African continent — a missed opportunity to mobilise additional climate finance from private individual donors and philanthropists in the global village.  

Second, African countries should impose a fine penalty for corporate greenwashing, similar to how personal information protection policies have done. For example, in South Africa, the Protection of Personal Information Act imposes a 10% annual turnover fine on entities that breach the policy. 

About two-thirds of publicly listed companies on the continent are registered in South Africa, Morocco and Egypt, but none of these countries has specific laws or policies prohibiting and penalising greenwashing. This phenomenon should be understood as false advertising and marketing that seek to present an environmentally friendly image of a business to the public. Although some governments on the continent might request that a company disclose its environmental information, there is weak enforcement and no repercussions, making greenwashing a loophole.  

African governments could borrow policy and enforcement techniques from the EU. Australia has penalised Vanguard, Active Super and Mercer a total of $37.7 million, with similar cases recorded in the US and EU. The African continent is a playground for greenwashers, partly because of weak or no policies and a lack of enforcement. The capital from penalising greenwashing enterprises could contribute to green reserves scheduled to finance the low-carbon transition.  

The low-carbon developmental paradigm provides an opportunity to reverse the learned experience in the era of development finance, conditional aid and foreign assistance in the form of loans. It is an opportunity for the continent to leapfrog and a disruption for new, innovative players to outcompete conventional imperialist enterprises, a chance for the continent to contribute secondary and tertiary products to global green value chains. 

But the present climate finance trajectory seems to replicate erstwhile development finance issues that placed the continent in this underdeveloped position. Therefore, the continent needs to formulate innovative ways to finance and steer its low-carbon developmental trajectory. 

Neo Letswalo is a research associate for 4IR and Digital Policy Research Unit, Department of Politics and International Relations, University of Johannesburg.

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