AFRICA: taking into account natural capital is taking place little by little

Africa is today at a crossroads in terms of mobilizing the financial resources necessary to achieve its sustainable development ambitions, as well as the fight and adaptation to climate change. The continent must choose between nature-based financing approaches and traditional financing models, which have become obsolete.

According to estimates from the Organization for Economic Cooperation and Development (OECD), official development assistance has stagnated significantly since 2010 and even fallen to its lowest level in Africa, reaching $34 billion in 2022. Access to international capital markets has remained quite restrictive and very costly due to a high perception of risk by investors. However, Africa, which needs $33 billion per year for adaptation to climate change, currently only receives around $6 billion, according to data from the African Development Bank (AfDB).

Africa is not short of options, however. At the same time as mobilizing the private sector, it could take advantage of its enormous potential in terms of natural capital. This asset represents between 30% and 50% of the total wealth of African countries, although it is not often taken into account in economic measures such as the calculation of gross domestic product (GDP). However, this capital presents essential assets to promote inclusive and green growth in the face of climate change.

A rich and varied potential

Natural capital consists of everything in ecosystems except people and their assets. It includes all natural resources that are directly useful to humans or that can be developed technically and economically, such as water, energy, forests, mineral deposits, agricultural land and fishing. It also includes hidden ecosystem services, including air and water quality, protection from natural disasters, pollution control, pollution removal, and wildlife habitat.

Data compiled by the AfDB demonstrate the wealth of African natural capital. About 30% of all global mineral reserves are found on the continent, including 60% of cobalt reserves and 90% of platinum group metal reserves. The continent contributes substantially to the global annual production of six key minerals: 80% platinum, 77% cobalt, 51% manganese, 46% diamond, 39% chromium and 22% gold.

The continent also holds 7% of the world's natural gas and oil reserves. Additionally, Africa has more than 60% of the world's unexploited arable land and is home to 13% of the world's population, 60% of whom are under the age of 25, making it the youngest population in the world. Around 75% of African countries have access to the sea, which offers broad opportunities in the field of the blue economy, the global potential of which, managed sustainably, is estimated at around $1,500 billion.

The climatic component

In Central Africa, for example, natural capital presents many more opportunities. These involve sustainable development of the potential of the Congo basin which represents 530 million hectares of global surface area, 70% of the forest cover of Africa, 6% of the world's forest surface and 91% of the dense humid forests of 'Africa. In terms of energy, the Congo Basin represents 17 million megawatts of renewable energy potential and almost 125,000 megawatts of hydroelectricity.

The second forest lung in the world (after the Amazon), the Congo Basin absorbs 750 million tonnes of CO ₂per year, according to the Central African Forestry Commission (Comifac). This determining role for climate regulation on a global scale can be highlighted by the countries of the sub-region to negotiate debt-nature contracts. This technique, invented by the American biologist Thomas Lovejoy, considered the godfather of biodiversity, ultimately consists of exchanging part of the external debt for local investments aimed at protecting the environment. Debt-for-nature swap is often presented as a technique for debt relief for developing countries. It involves extending payment terms, reducing interest rates, granting new credits at lower rates than conventionally up to the cancellation of debts.

The debt-for-nature mechanism has been expanding for some time in Africa. Portugal announced in June 2023 that it would swap $153 million of Cape Verde's debt for investments in nature. While in early August 2023, Gabon concluded its own agreement, worth $450 million with the Bank of America (BofA), for the protection of part of its marine ecosystem. This is the second operation of its kind on the continent after the Seychelles.

The AfDB Initiative

To improve the consideration of natural capital on the continent, the AfDB launched on September 9, 2021, a new initiative on the integration of natural capital in the financing of development in Africa (Natural Capital for African Development Finance, NC4-ADF ).

This 2-year program promotes best practices for integrating natural capital into the development finance architecture. Another area of ​​intervention concerns ways to get rating agencies to integrate green growth and natural capital considerations into the sovereign and credit risk ratings of African countries.

NC4-ADF is supported by the World Wide Fund for Nature (WWF), the German Federal Ministry for Economic Cooperation and Development (BMZ) through its dedicated agency (Deutsche Gesellschaft für Internationale Zusammenarbeit, GIZ), the United Nations Program for the Environment (UNEP), the MAVA Foundation, the International Institute for Sustainable Development (IISD) as well as the Economics for Nature (E4N) partnership which aims to put natural capital at the heart of economies.