Private Sector Development – Catalyst of a Sustainable Africa?

Amid critical contemporary environmental challenges, the convergence of climate financing and sustainable business practices have collectively heightened the pivotal role of private sector in environmental sustainability. The convergence has also highlighted the pressing need to address climate change and close Africa’s climate financing gap. Consequently, this has led to increased private sector involvement in climate change mitigation.

Africa faces the most significant impacts of climate change despite contributing the smallest global share of Greenhouse gas (GHG) emissions. According to official UN figures, Africa contributes about 3.8% of total global emissions compared to China (23%), the US (19%), and the European Union (13%). At the forefront of Africa’s immediate action on adaptation and mitigation is the private sector. Armed with innovation, investment capacity, and market, the private sector is an indispensable driver of economic growth through private enterprise development.

During COP27, Joab Okanda, Christian Aid’s Pan African advisor emphasized Africa’s unique potential as home to “39% share of global renewable energy resources, including 60% of the world’s best solar resources.” To fully mobilize these resources and catalyze climate mitigation, private sector development will be key.

The IMF’s report, “Mobilizing Private Climate Financing in Emerging Market and Developing Economies” states that achieving net-zero emissions requires an estimated annual investment of $3.5 trillion from global private financial institutions between 2022 and 2050. The private sector must meet these financial commitments with actionable strategies aligned with sustainability objectives, including investing in renewable energy, sustainable practices, green job creation, and the promotion of sustainable supply chains.

The 2023 'Africa Environmental Outlook' report by the United Nations Environment Programme highlights the financial imperative, revealing Africa's substantial climate financing gap, amounting to an annual requirement of $213.4 billion from the private sector i.e., .6.9% of the continent’s total GDP. Increasing the capacity for private sector enterprises requires the sector to implement scalable solutions, particularly in clean technologies and innovation which ultimately reduces GHG emissions and amplifies supply chain sustainability.

Environmental, Social and Governance (ESG) criteria are now critical factors influencing investment decisions. Green bonds and climate-related financial products are gaining traction. For instance, the United States and Europe are injecting significant capital into climate technology to meet net-zero emission targets by 2050. The US Inflation Reduction Act allocates over $370 billion for climate change mitigation, while the EU Green Deal envisions channeling more than €1 trillion in public and private funds into sustainable investments.

The private sector’s role in climate mitigation investment in Emerging Market and Developing Economies (EMDEs) is set to increase, with 80% of investment needs projected to come from the private sector, as per the International Energy Agency (IRENA). As private sector investment assumes the lion’s share of climate mitigation, private sector development becomes increasingly pronounced - driving climate finance and sustainability.

The inaugural Africa Climate Summit (ACS) in September 2023, hosted in Nairobi, marked a pivotal moment in climate action with nearly USD 26 billion in commitments, with a major share coming from the private sector. With the participation of 17 African heads of state and various stakeholders, the summit emphasized Africa's unique strengths for climate action. These strengths include abundant renewable energy sources, essential natural resources, a youthful workforce, and extensive forest coverage.  

Sub-Saharan Africa, where 40% of adults have access to mobile internet services (GSMA, 2022), is poised to leverage digital technologies to accelerate socioeconomic growth and climate resilience. The GSMA, in partnership with key organizations, highlighted the need to unlock finance for youth-led climate initiatives, aligning with the African Development Bank's commitment of £793.6 million to support such ventures under the African Adaptation Acceleration Programme.

For businesses, embracing sustainability is not just altruistic; it's smart financial planning and the foundation for sustainable business growth. The private sector must evolve beyond traditional profit-driven approaches that risk greenwashing and short-term sustainability efforts to collaborative, and value-driven models that ensure climate resilience.

As the world looks to the private sector to lead the transition to net-zero emissions, private sector development is the vanguard that facilitates the knowledge, skills and infrastructure needed for sustainable practices within developing economies. The ACS showcased the private sector's central role in the broader narrative of economic growth, environmental sustainability, and shared prosperity across Africa and catalyzed significant investments.

With the just ended COP28 in Dubai United Arab Emirates (UAE), which focused on energy transition, accelerating innovation, and the link between climate and nature, it is evident that profit and sustainability are now intertwined, ushering in a new era of climate-conscious business practices. The private sector development mandate is clear: optimize strategies for a net-zero future and increase capacity for private sector enterprises to drive economic growth in the context of climate change.