Calls for a common African currency to tackle climate crisis

African Development Bank President Dr Akinwumi Adesina. [Boniface Okendo, Standard]

The First Africa climate summit in Nairobi intensified calls for a common African currency to address climate finance gaps.

A section of African ministers and experts indicated that currency could stimulate economic growth, enhance access to capital markets, and reduce risks for international investors, all while promoting regional cooperation.

Speaking during the ministerial panel discussion Dr Mohammed Adam, state minister of finance in Ghana emphasised the need for Africa to utilise its own currency in trade and leverage private sector funds to complement public finance in responding to the climate crisis.

He stated: "With a single currency, intra-African trade would become more efficient, reducing trade barriers and transaction costs. This would stimulate economic growth and create additional fiscal space for investments in climate resilience and renewable energy projects."

"Africa should use its currency to trade and tap into private sector funds to complement public finance in response to the climate crisis," he said.

Dr Monique Nsanzabaganwa, the deputy chairperson for the African Union Commission, highlighted the long-standing goal of a common African currency as a symbol of unity and strength.

"The goal of a common African currency will be a pillar of African unity, a symbol of the strength that we hope will emerge from efforts to integrate the continent," she said. "A unified currency could make African nations more attractive to global investors."

She added, "A larger, more stable market would encourage foreign direct investment, leading to increased access to capital markets. These funds could be channelled towards green bonds and climate finance initiatives, helping us bridge the climate finance gap."

Barbara Creecy, the Minister of Environment, Forestry, and Fisheries from South Africa, drew attention to the critical issue of climate finance for Africa. She pointed out the stark disparity, saying, "Currently, about half of the climate finance globally comes from the private sector. But in Africa, it makes up only 14 per cent of the total flows."

She highlighted, "Climate projects often involve long-term commitments, and a common currency could provide greater confidence in the stability of investment returns, encouraging more significant flows of climate finance.

She explained that by eliminating the need for foreign exchange reserves and reducing currency risk, African nations would free up fiscal space that could be allocated to climate projects, renewable energy initiatives, and climate resilience programs. This would be a game-changer for our efforts to combat climate change.

Soipan Tuya, the CS Environment, emphasized the need to address Africa's debt burden in the context of climate action. She said, "The multinational development banks have to reconsider Africa's debt approach, enabling African countries to tackle climate change challenges without burdensome debt."

The discussions at the summit revolved around the importance of reforming financial systems to enable post-disaster reconstruction, strengthening the African Adaptation Initiative, and delivering the UNFCCC Loss and Damage Fund. Additionally, leaders highlighted the necessity of financial investments in universal coverage of early warning and early action systems for disaster risk reduction.

Africa faces a significant adaptation funding gap, with the African Development Bank estimating the cost of climate-related disasters to be between USD7 billion to USD15 billion annually, projected to rise to USD50 billion by 2030.

To address these challenges, African countries need to raise USD124 billion annually by 2030, but they currently receive only USD28 billion a year. The summit aims to emphasize the urgency of prioritising adaptation investment as a development imperative for Africa and the world.

Furthermore, the summit aims to secure commitments towards the delivery of the USD100 billion funding target and greater support from Multilateral Development Banks for climate adaptation.

Private capital, estimated at USD630 billion per year, was identified as a potential source of investment, particularly in agriculture.