Q1 2023 - (released May 2023)
SA's quarterly Private Equity & Venture Capital magazine
Africa's climate crisis:
AFC and GCF partner to launch Innovative Infrastructure Fund for a resilient future
by Michael Avery
Climate change is not just a distant threat for Africa, but a present reality that poses significant challenges to the continent’s infrastructure.
Rising temperatures, erratic rain patterns, flooding and extreme weather events are all taking a toll on critical existing infrastructure, and hindering the development of new infrastructure projects. To address this urgent need for climate-resilient infrastructure, Africa Finance Corporation (AFC), Africa’s leading infrastructure solutions provider, has partnered with the Green Climate Fund (GCF) to create the Infrastructure Climate Resilient Fund (ICRF), an innovative finance instrument that aims to integrate climate-resilient measures into infrastructure planning, design, construction, and operation.
The GCF’s commitment to the ICRF is not only its largest equity investment in Africa to date, but also its biggest commitment to an Africa-wide multi-country programme. With a target fund size of US$750m, the ICRF represents a pioneering effort to catalyse the development of climate-resilient infrastructure across Africa and create a new asset class in the African investment landscape. By blending concessional capital into the fund, the ICRF aims to attract commercial capital from institutional investors, including African pension funds, sovereign wealth funds and insurance companies, to finance climate-resilient infrastructure projects in the region.
Samaila Zubairu, President and CEO of the AFC, is optimistic about the transformative impact of the ICRF on Africa’s infrastructure development. He believes that the fund will leverage the untapped pool of institutional capital to provide climate finance at scale, bridging Africa’s infrastructure deficit and unleashing its economic potential. The GCF’s commitment as an anchor investor in the ICRF is expected to encourage other patient commercial capital providers to join the effort, despite the perceived risks associated with investing in Africa.
One of the key features of the ICRF is its focus on climate-resilient transport and logistics, energy systems, economic zones, and telecommunication and digital infrastructure. These sectors are critical for Africa’s economic growth and development, but are also highly vulnerable to the impacts of climate change. The ICRF aims to support both greenfield and brownfield infrastructure projects that incorporate climate-resilient measures from the planning stage to ensure that they can withstand the changing climate conditions in Africa.
The need for climate-resilient infrastructure in Africa is urgent and pressing. The continent is already grappling with an infrastructure deficit in terms of quantity, quality and accessibility, and climate change exacerbates these challenges. The ICRF is expected to benefit up to 50 million people directly, and 144 million people indirectly, by building reliable infrastructure services that can withstand the impacts of climate change. The fund will target 19 countries in sub-Saharan Africa, including Benin, Cameroon, Chad, Côte d'Ivoire, The Democratic Republic of the Congo, Djibouti, Gabon, The Gambia, Ghana, Guinea, Kenya, Mali, Mauritania, Namibia, Nigeria, Rwanda, Sierra Leone, Togo and Zambia.
The GCF’s investment in the ICRF is not just about providing financial support, but also about catalysing further financing from private sector investors and pension funds. Private investors have been hesitant to scale the investment barriers posed by climate-resilient infrastructure in Africa, but the GCF’s first-loss equity investment aims to de-risk participation and encourage more private capital to flow into the sector. The ICRF is expected to create a model for local banks and financial institutions to engage in climate finance and mobilise African pension funds and other private investors to view climate-resilient infrastructure as a viable asset class in Africa.
GCF Executive Director, Yannick Glemarec is enthusiastic about the partnership with AFC and the potential of the ICRF to transform Africa’s infrastructure landscape. At the announcement of the fund, he said that the “ICRF is a pioneering fund that will catalyse the development of climate-resilient infrastructure across Africa. GCF’s first-loss anchor investment in ICRF will mobilise African pension funds and other private investors to invest in climate-resilient infrastructure as a new asset class in Africa. It will also serve as a model for local banks and financial institutions to engage in climate finance. I’m delighted that GCF is partnering with AFC on GCF’s largest equity investment in Africa to date.”
The GCF’s $240m equity investment will support the incremental cost required to integrate adaptation and climate-resilient measures into climate-proofing infrastructure, thereby de-risking participation of commercial institutional investors to mobilise funding at scale, and it has committed a further $13,7m in grant financing.
By blending concessional capital into the fund, the ICRF will attract commercial capital to climate-resilient infrastructure in Africa, with the first-loss position of concessional capital from the GCF encouraging the flow of private capital to climate-resilient infrastructure investment opportunities.