AVCA 2022 Roundtable — Sponsored by FinDev Canada and LeapFrog Investments
Africa is the continent most vulnerable to the effects of climate change, even though it is responsible for only 2–3% of global carbon emissions. Several overlapping causes contribute to Africa’s unique vulnerability to the impacts of the climate crisis:
· Several African economies are heavily dependent on rain-fed agriculture;
· The Agriculture sector’s centrality to the continent’s economic activity — it accounts for 15% of Africa’s GDP, rising to 23% when localised to sub-Saharan Africa;
· The importance of the Agriculture sector as a source of employment; and
· The continent’s low adaptive capacity, due to low socioeconomic growth and high levels of poverty.
Climate change is a universal concern. However, the world’s poorest nations are expected to be disproportionately affected by the adverse impacts of climate change, as they lack the financial, human, and technological resources to mitigate and adapt to these disadvantageous effects. African economies face systemic risks that will have tremendous social and economic impacts. The climate crisis not only poses a threat to human health and safety, as well as food and water security, but it also threatens to jeopardize Africa’s development gains by increasing levels of extreme poverty.
The changing climate requires urgent action from all governments around the world, along with greater international cooperation and coordinated solutions. In Africa, governments also face the challenge of meeting the projected costs of climate adaptation to achieve a net-zero transition by 2050. In Sub-Saharan Africa in particular, governments need to invest 1.5 times more than advanced economies as a share of GDP to support economic development and build low-carbon infrastructure. Overall, the cost of Africa’s transition to net-zero by 2050 is estimated at approximately US$2.8 trillion.
That said, there is a unique opportunity here for the private sector, and particularly for private capital investors, to support Africa’s governments with the transition to net-zero by financing the development of low emission energy solutions that can also propel Africa’s economic growth. Recognising the vital role that private capital can play in accelerating Africa’s net-zero transition, the African Private Equity and Venture Capital Association organised its first ever Net-Zero Roundtable discussion at the AVCA 2022 Annual Conference in Dakar, Senegal. The Roundtable brought together African and global fund managers, institutional investors, and policymakers, who discussed the opportunities and challenges that net-zero presents, the role of private capital allocators in realising the energy transition vision, and the actions needed to ensure that the industry aligns with net-zero targets. Key takeaways from the discussion include:
· AFRICA’S PARADOX: LOWEST CONTRIBUTOR, MOST VULNERABLE. Roundtable participants emphasised the fact that Africa is the lowest contributor to carbon emissions, but is also the continent most vulnerable to the physical risks of climate change. ‘’How Africa is affected by climate change is not acute, it’s slow, and a lot of insecurity that we see on the continent is driven by climate change, and the changing resources as a result of slow-moving climate impacts.’’ Tariye Gbadegesin, Managing Director and Chief Executive Officer of ARM-Harith Infrastructure Investment, noted.
· AFRICA REMAINS THE LEAST ENERGISED CONTINENT. According to the African Development Bank, over 640 million Africans have no access to energy, corresponding to an electricity access rate for African countries at just over 40 percent, which is the lowest in the world. Consequently, the question that should be at the centre of the conversation about the net-zero transition in Africa is how the continent can transition with energy access at such low levels. Ensuring access to affordable, reliable, sustainable and modern energy for all (SDG 7) constitutes a critical first step in accomplishing several development goals, and achieving the net zero targets. “A pathway to net zero by 2050 is not possible while there are still people who live in energy poverty,’’ noted Damilola Ogunbiyi, CEO and Special Representative of the UN Secretary-General for Sustainable Energy for All.
· SEIZING THE OPPORTUNITY OF THE ENERGY TRANSITION. Beyond the numerous challenges, enormous opportunities also emerge from the continent’s journey to electrification and its transition to net zero. Specifically, emerging technologies looking to leapfrog the generation and consumption of energy have been the focus of venture capitalists, and other types of investors, in Africa. Africa’s growing population and its low levels of electrification present a once in a generation opportunity for investors to build resilient businesses that drive economic development. In the same vein, there are opportunities within African infrastructure, associated not just with the generation of energy, but also with its transmission, distribution, and storage. ‘’We need to think about the planet and the need to reduce global carbon emission. However, this doesn’t need to be a problem. This could be an attractive opportunity if approached the right way.’’ Joseph Nganga, Executive Director for Power & Climate and The Global Energy Alliance for People and Planet at The Rockefeller Foundation, noted.
· NET ZERO SHOULD BE INTEGRAL TO INVESTMENT APPROACH. Private capital investors should increase their engagement with the net zero transition by integrating climate change into their investment strategies. From a fundraising perspective, private capital investors are expected to be able to explain how they invest in line with the net zero transition. A net zero alignment is also increasingly important from an investment and exit perspective. Companies should have a clear plan on how they will reduce emissions over time, as this is a crucial determiner of their attractiveness over a 5-to-10-year time.
· A CALL FOR COUNTRY-SPECIFIC APPROACHES. It was also argued that the energy transition should be customised to the specific needs and requirements of every country. In developing countries specifically, two steps are essential towards the energy transition. Firstly, access to electricity and clean cooking should be provided, along with sufficient energy to power socioeconomic development. Secondly, decarbonization should be pursued by local communities to support global net-zero goals.
· DATA TO DRIVE DECISION MAKING. Roundtable participants suggested that better data and analysis will give political leaders the confidence to take bold decisions regarding the net zero transition and move faster into implementation, although there must be room for flexibility, given the unprecedented scale of the energy transformation at hand.
Overall, the private sector remains vital in driving Africa’s energy transformation. However, more bankable projects with enough risk mitigation are considered essential for attracting private investors and unlocking climate finance on the continent. Conversations such as the AVCA-hosted Roundtable are a crucial first step towards engaging more investors with Africa’s journey to net zero.
 African Development Bank, 2019. Climate Change in Africa
 The Conversation, 2015. Why Africa is particularly vulnerable to climate change
 Oxford Business Group and AVCA, 2020. Private Equity & Venture Capital in Africa: Covid-19 Response Report
 World Meteorological Organization, State of the Climate in Africa 2019
 McKinsey & Company, 2022. The net-zero transition: What it would cost, what it could bring
 PWC, 2021. Africa Energy Review
 African Development Bank, 2019. Light Up and Power Africa — A New Deal on Energy for Africa