Globally, the lead-up to the annual multilateral summit of the Conference of the Parties (COP) on climate change is often characterised by increased discussions on climate change adaptation and mitigation finance. The key concern borders on who should fund it and what states should do with the fund. The operationalisation of the Loss and Damage Fund at the last COP28 and the growing access to the Green Climate Fund underscore the supposed criticality of adaptation and mitigation finance debates. However, even as African nations such as Namibia and Morocco seek to position themselves as leaders in the global mission of transitioning to green industries, it is becoming increasingly clear that a just transition and climate justice for Africa cannot be achieved without a restructuring of the global climate change financial infrastructure.
A “Just Transition” for Africa
For Africa, the just transition has been promoted as abandoning economic growth dependent on carbon-intensive fuel sources, embracing renewable energy and investing in green jobs for citizens, promoting sustainable industrialisation and developing green energy policies. Indeed, much of the international financing for climate adaptation and mitigation has been normatively prescribed for these objectives.
However, a transition from one energy source to another may not be successful without a just transformation of the underlying structural dynamics of the international political economy- especially financial structures. It cannot be a purely technocratic and managerial process.
Moreover, without a reform of the international climate change finance structures, Africa’s low-carbon transition may lead to a significant debt trap on the continent, which could be detrimental to economic and social growth and well-being.
According to the Climate Policy Initiative, Africa’s climate finance needs an average of USD 250 billion annually from 2020-2030 to implement Nationally Determined Contributions (NDCs). The largest existing climate financing regime, the Green Climate Fund (GCF), is disbursed through three mechanisms – grants, concessional loans and equity investments or guarantees. Of the total financial commitments, roughly 53% have been issued as loans, guarantees, and equity investments, while the remaining 47% are made up of grants. Climate financing through repayable investments has been the game of the climate adaptation and mitigation process, which comes with consequences.
According to the Debt Relief for Green and Inclusive Recovery (DRGR) Project, there are currently 47 out of 66 economically vulnerable nations that face threshold insolvency problems if they continue to borrow and invest to meet both climate and development goals. A significant portion of these nations is in Africa. Clearly, giving money to African climate projects does not provide significant structural help to Africa.
Yet, some of the world’s biggest climate funders are reforming to enable greater lending capacity rather than working to prevent greater and more complex debt systems. In its 2024 Spring meetings, the World Bank Group implemented a series of reforms aimed at adjusting the loan-to-equity ratio in order to lend an extra USD 40 billion over the next 10 years.
Changing the rules of the game
High levels of debt and debt distress have made increased borrowing a strategically risky move for African countries. To further complicate matters, those who are forced to focus on immediate adaptation and mitigation needs may be frozen out of international blessings if they are perceived as not participating in the global transition. With the arrangement, African countries are caught between a rock and a hard place.
The Bridgetown Initiative is a call for the overhauling of the international financial architecture from 2022. Launched in May 2024, the third iteration of this call advocates the inclusion of developing nations in the governance structure of international development finance institutions. It calls for moving beyond gross national income (GNI) per capita as a criterion for eligibility for concessional financing, including considerations such as climate vulnerability, biodiversity conservation, and natural capital. The initiative also calls for countries to have access to early intervention for liquidity support without facing stringent conditions.
This approach can lead to more equitable policies and funding decisions that reflect the unique needs of Africa. By shifting away from GNI considerations, finance institutions can tailor financial support to recognise Africa’s environmental challenges, and with early intervention, African states can access crucial resources and stabilise their economies when needed most. These reforms may create a more flexible and supportive system that accommodates the diverse needs of developing countries, especially those in Africa.
Furthermore, debt relief is also a vital institutional reform. As aptly put, “debt relief is not a panacea [for Africa’s development challenges] and needs to be part of a multi-pronged effort that includes new forms of liquidity and development finance.” For many African nations, new forms of liquidity and development finance are not helpful without debt relief, particularly those facing threshold insolvency problems. International finance actors should consider African priorities on debt, using a more extensive and earnest method than is previously and currently the case. The Sustainable Debt Coalition, which includes Angola, Central African Republic, Ghana, Malawi, and South Africa, was launched by Egypt at COP27 and is one platform to engage African countries on the intersections of debt, climate, and development.
By managing existing debts, sovereign debt restructuring as a method of debt relief is helpful here. The Debt Relief for a Green and Inclusive Recovery Project, recently echoed by the Vulnerable Twenty (V20) Group of Ministers of Finance of the Climate Vulnerable Forum, offers significant headway in proposing reforms. Under this debt relief framework, all countries that are deemed to have unsustainable debts are allowed to restructure, taking their SDG and Paris Agreement commitment spending needs into account during the debt sustainability analysis process. This restructuring must be done with the goal of having a reduced impact on the country’s credit rating, as this potentiality causes many African finance ministers to shy away from debt moratoriums, which makes rating agencies give negative ratings to African countries following debt assistance events. Debt relief would give many African countries a fresh start, a return to capital markets and a leg-up in their mitigation and adaptation endeavours.
The call for climate justice is an ethical one. It asks who is responsible for the climate catastrophe and what asymmetries in power and resources have led to the disproportionate harm experienced by the Global South, particularly Africa. For Africa to have the justice it deserves, the existing international dynamics and structures standing between Africa and her embrace of a low-carbon future must be critically re-examined. The current unjust financial regimes must be reimagined and restructured to ensure Africa’s wellbeing and competitiveness if the world is serious about its commitment to transitioning.
