By Oyintarelado (Tarela) Moses
This week, the African Development Bank (AfDB) convenes its annual meetings in Accra, Ghana under the theme of Achieving Climate Resilience and a Just Energy Transition for Africa. As countries throughout the region experience the effects of climate change, from floods in Kwazulu Natal, South Africa to severe droughts in parts of Ethiopia, Kenya and Somalia, the meeting will be one of many litmus tests for how African countries perceive the climate adaptation and mitigation finance gaps, as well as how they plan to mount just energy transitions.
Working with external partners that already exist within AfDB governance is one approach to addressing climate finance gaps existing in the region. AfDB’s governors represent 54 African regional member countries and 27 non-regional member countries. African governments hold 60 percent of the voting power, with Nigeria, Algeria, and South Africa as the top regional member shareholders. Non-regional members hold a 40 percent share; the U.S., Japan, and Germany hold the top non-regional member shares, while China holds one percent of the voting powers. Considering China’s longstanding connection with the AfDB and its role as a major source of energy finance to the continent (albeit mostly in the fossil fuel sector), how could the AfDB work with China to increase African climate finance?
As China’s energy development finance is primarily demand-driven by several “pull” factors, African countries’ demands for renewable energy will determine how much China’s financing for solar and wind picks up in the coming years.
China and the AfDB have a partnership dating back to 1985 when China became a non-regional member. In 2014, AfDB and the People’s Bank of China, China’s Central Bank, established the Africa Growing Together $2 billion ten-year fund. This fund has provided co-financing for several projects, including $50 million to a rural electrification program in the Nigeria Electrification Project in 2018 and $20 million to the 50-megawatt Malagarasi hydropower plant in Tanzania in 2021. In 2016, China contributed around $97 million to the African Development Fund, AfDB’s concessional fund. The Export-Import Bank of China (CHEXIM), China Development Bank (CDB), and the Agricultural Bank of China have also signed joint MOUs with AfDB that promote co-financing and collaboration on AfDB priority areas.
Since 2000, China has contributed to energy finance in the region, mostly to fossil fuel sectors. According to the China Global Energy Finance Database, Africa was the destination of 20% of Chinese policy bank energy finance from 2008-2020, around $46 billion in signed loans for coal, oil, gas, hydropower, geothermal, solar, wind, and other energy projects with an unspecified technology type. However, financing for renewable energy projects was relatively limited. CHEXIM contributed $361 million and $611 million in total loans for the solar and wind sectors respectively, while no lending from CDB to those sectors has been recorded. This finance included a $293 million loan signed in 2013 for the Adama Wind Farm II project in Ethiopia, a $136 million loan signed in 2016 for the Garissa Solar Power project in Kenya and a $70 million loan signed in 2020 for the Mafeteng Solar PV Power plant in Lesotho.
During the same time, AfDB loaned $1 billion to solar power projects, $461 million to wind projects, and $386 million to projects with both solar and wind components to regional members, which indicates more appetite for renewable energy finance than China has been willing to meet so far.
As China’s energy development finance is primarily demand-driven by several “pull” factors, African countries’ demands for renewable energy will determine how much China’s financing for solar and wind picks up in the coming years. However, recent events may dampen demand: Europe’s pivot from Russia to Algeria, Egypt, Angola, Senegal, and Nigeria for access to oil and gas; regional fiscal and debt constraints; and advocacy for a just energy transition that emphasizes the need for some fossil fuels as a bridge to cleaner energy. Concomitantly, China’s commitment to step up support for clean energy and guidance associated with greening the BRI may help China overcome some of the barriers for extending renewable energy finance overseas. On the climate adaptation finance side, China’s decision to increase investment for climate-resilient infrastructure projects at home could encourage the same type of overseas financing in BRI projects, but this will take time.
As these “push and pull” factors engage in a tug of war with current events, the AfDB meetings will likely highlight how the Bank plans to work with external partners to address regional climate challenges. For China, there are many established avenues from which they can engage in supporting climate resilience and just energy transitions in Africa.
Oyintarelado (Tarela) Moses is the Data Analyst and Database Manager for the Global China Initiative at the Boston University Global Development Policy Center.
