The African Development Bank puts the cost of climate change in Africa at $5 billion to $7 billion annually — projected to rise to $50 billion by 2030. Yet the continent gets just 3% of global carbon finance.
Maris receives climate investment from a range of Development Finance Institutions. Here we examine four characteristics of successful investment partnerships, which – if replicated more widely – could help more climate funding reach the places it needs to go.
PATIENCE AND RISK-APPETITE
Even among investors claiming a big risk appetite, with a mandate for long-term investment, much of Africa remains a step too far.
Dutch and French development banks FMO and Proparco were our two biggest investors when we set up the Maris Fund in 2009. Long before “climate finance” was a thing, their patience and appetite for risk allowed us to build ETC, South Sudan’s biggest sustainable forestry operation – where we’ve planted more than 3 million trees – and Equator Energy which operates more than 35 MW of C&I solar power across the continent with another > 20 MW signed and set to come into production over the next 12 months.
Their continued support and follow-on investments after the Maris Africa Fund transitioned to Maris Ltd, a permanent capital investment holding company, allowed us to capitalise Agris, our agriculture and forestry division and to start Equator Mobility, Kenya’s first electric van and car fleet operator. De-risking early stage investment in greenfield or brownfield agriculture and forestry projects – which could make a significant contribution to climate change adaptation and mitigation – is one of Agris’ biggest challenges and only a few investors truly understand early-stage investment in agriculture.
Among them is AgDevCo, who are supporting Agris’ joint venture with Granot to build one of the leading avocado plantations and research hubs in East Africa at our flagship Ndabibi farm in Naivasha, Kenya. This is the largest avocado project outside South Africa to be developed in one go and has the potential to boost East Africa’s entire avocado industry with research and development. AgDevCo’s USD 8m mezzanine loan is flexibly structured to support new avocado orchards, which take three to four years to reach maturity. More investors need to align their investment horizons with the time trees take to grow.
MARRYING PUBLIC AND PRIVATE INVESTORS
Climate-focused, impact finance allows us to harness the significant appetite for foreign direct investment among businesses who need two things to venture into African markets: an experienced local partner and a reduction in early-stage risk. Public investors must make sure their shareholder agreements are sufficiently accommodating for private investors to come on board.
The Granot-Agris JV represents this world-leading avocado producer’s debut into the East African market and is a great example of how impact investment unlocks bigger private investment. Granot brings the expertise and supply chain Kenya needs to become a world-leading avocado producer and their investment will create jobs and drive research and development. Their commitment to sustainability and knowledge-sharing will help other Kenyan producers put climate change adaptation and mitigation strategies into action immediately.
More widespread loan guarantees would facilitate greater flows of public and private finance – like that provided by USAID to Equator Energy, which unlocked private solar projects supplying electricity-grids in three cities across Somaliland and Puntland. That’s three cities, which without this support, would still be running on diesel-powered generators. Local currency guarantees, long-neglected, can bring local institutional investors into the mix and first loss protection or simplified investment insurance for smaller projects would encourage more investors to take on Africa risk.
TARGETED TECHNICAL ASSISTANCE
AgDevCo, Proparco and FMO are providing technical assistance to Agris to help us develop our research and development, sustainability and carbon reduction strategies. These don’t always generate direct short-term returns, making them otherwise difficult to finance, but they are critical to the success of our businesses and long-term returns, as well as helping us achieve greater environmental and social impact.
LOOKING AT THE WIDER LANDSCAPE…
Improvements to the broader investment landscape are urgently needed to increase flows of all types of finance to the African continent. We know what they are: stronger institutions, stable regulation, more investment in research and development. For carbon credit and biodiversity projects specifically, we need greater transparency over the entire ecosystem, particularly with standards and verification bodies. A large, widely- funded regulator with standardised criteria would enhance trust and thereby investment.
The UK’s Enterprise Investment Scheme provides a good model of an investment structure that would incentivise nervous investors to make climate positive investments in Africa by enhancing the upside and reducing risk. To really stimulate private sector capital flows this could be taken as far as using climate positive investments as a tax write off. Nothing should be off the table at this stage.