Developing nations faced with huge climate-mitigation bill
Infrastructure investments totalling £470bn are needed across 10 African countries in order to enable national commitments to the UN Sustainable Development Goals (SDGs), while up to £127bn may be required for developing countries to adapt to the impacts of climate change.
The key findings, sourced from two separate reports, highlight the urgent need for nations to unlock new access to capital to help mitigate the most severe climate impacts and foster new growth opportunities that align to the SDGs relating to universal access to drinking water, sanitation and electricity.
The first report, published by the infrastructure organisation Global Infrastructure Hub, outlines that £470bn in infrastructure investment is needed across Morocco, Tunisia, Egypt, Ethiopia, Senegal, Guinea, Côte d’Ivoire, Ghana, Benin, and Rwanda to enable the nations to meet SDG commitments. However, this amount is three times what is expected to be delivered based on current investment trends (£156bn).
The 10 nations examined are part of the Compact with Africa (CwA) initiative, which was initiated under the German G20 Presidency to increase private investment in Africa. On a wider scope, the report notes that the £420bn in required funds is part of a £1.8trn investment need covering telecommunications, airports, ports, rail, roads and water by 2040 across the 10 nations.
The Global Infrastructure Hub’s chief executive Chris Heathcote said: “Today’s report reveals the magnitude of that need at a country and sector level, helping public and private investors to better direct their financing.
“However, the huge challenge of delivering the SDGs is not only a matter of finance, but also of policy reform—we need strong governance and well-planned projects in these 10 countries.”
According to the report, 40% of people living within the 10 CwA countries don’t have access to electricity, while 59% live without readily available drinking water.
An accompanying report from the Global Infrastructure Hub notes that policy drivers in these nations are needed to aim investment into relevant infrastructure. That report highlights Morocco and Rwanda as notable performers, due to improvements to regulatory, investment and competition frameworks.
In related news, developing countries could be faced with up to £127bn in additional interest payments during the next decade, as a result of climate-related risks linked to sovereign credit profiles.
The study from the Centre for Climate Finance and Investment at Imperial College Business School and SOAS University of London – and commissioned by UN Environment – found that vulnerability to climate change has raised the cost of debt by 117 basis points – a common unit of measure for interest rates – in the last 10 years. According to the report, this translates to more than £30bn in interest payments on government debt.
The Centre for Climate Finance and Investment at Imperial College Business School’s director Charles Donovan said: “Our work demonstrates that climate change is not only imposing economic and social costs on developing countries, but it is also amplifying existing risks that are already priced in fixed income markets.
“These impacts will grow. The good news is that investments in climate adaptation can not only reduce social, ecological and economic harm, but can buffer against fiscal impairments. But to be effective, these investments need to be made now.”
The report found that for every ten dollars that developing countries pay in interest payments, an additional dollar is attributable to climate vulnerability. If these additional costs were instead put towards climate adaption responses, the equivalent to one-fifth of the Amazon rainforest could be restored.
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