From the conversations at this week’s SADC Sustainable Finance Forum to next week’s G20 Sustainable Finance Working Group, leaders are discussing how to create the virtuous cycle of demand for green infrastructure in Africa. Blended finance is acting as a game-changer, helping drive down risk for green projects and stimulate demand for buildings and power plants that save us money and shore up our long-term resilience.
The urban population in Africa is expected to double from 700 million to 1.4 billion by 2050. This growth is already creating immense demand for new housing and other infrastructure—while straining local water, power, and other resources.
Green infrastructure projects—from green buildings that consume fewer resources and are built to higher environmental standards to renewable energy power plants—are a way to allow African cities to grow in a more sustainable way.
While reducing reliance on finite natural resources, green projects will also create new markets and new jobs on the continent (the green economy will create up to 3.3 million new jobs in Africa by 2030, according to Shortlist and FSD Africa). A bonus is that certified green buildings are at least 20 percent more water and power efficient than their traditional counterparts, reducing utility bills for homeowners on a continent where disposable income is limited.
However, despite their many clear benefits, the demand for green infrastructure projects is still moderate in Africa. Investors’ enthusiasm is often tempered by higher upfront costs and the perceived risk of investing into nascent green sectors. In many African markets, investors, developers and homeowners in have yet to grasp the practical benefits offered by these solutions, from the convenience of solar grids in rural locations to the long-term savings from green buildings.
This week, IFC convened the SADC Sustainable Finance Forum in Cape Town with international thought leaders and senior decision makers from government, financial sector regulators, banking associations, financial institutions, stock exchanges, and investors in the SADC region. In a few days’ time, I’ll join other leaders at the G20 Sustainable Finance Working Group in Johannesburg.
In both settings, many conversations will center around how to ignite the virtuous cycle of demand for green infrastructure.
Of the solutions we often discuss, one stands out. Blended finance – the strategic use of public or philanthropic capital to help mobilize private investment – is an important way to help drive growth in green infrastructure projects in Africa. Here’s how.
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- Blended finance can help de-risk green investments.
Using concessional funds, such as those from donors or development partners, alongside commercial capital can help reduce the perceived and real risks associated with investing in nascent green sectors.
If you were to fly over Mocuba, in central Mozambique, you would look down on 500 acres of solar panels powering 64,000 homes and small businesses in this remote community. This project, the country’s first large-scale solar plant, happened thanks to blended finance.
In 2018, IFC brokered a financing package of $55 million to support the developers of the solar plant, Scatec Solar, and Mozambique’s electricity utility, Electricidade de Moçambique. The package included $19 million from IFC’s own account and a syndicated loan of around $17 million. The Climate Investment Funds (CIF) also came on board, contributing a total of $19 million.
Combining concessional funds with IFC’s own helped reduced project costs, leading to lower energy tariffs and buoying customer demand. Ultimately, this helped ignite a successful project. In the wake of Mocuba’s success, more renewable energy solutions in Mozambique have come underway, including the 19MW Cuamba Solar plant, in Niassa province, which began operating in September 2023.
2. Blended finance can help developers and businesses access financing for green products.
Blended finance can help banks create green lending products by helping mitigate the risk of on-lending in the sector.
IFC has over the past year partnered with three of South Africa’s largest retail banks – Absa, Standard Bank and Nedbank CIB — to support the development of green certified buildings. Each deal was backed by the Market Accelerator for Green Construction (MAGC) program, which provides blended concessional finance from the UK government along with IFC advisory support. Through the program, borrowers who certify their buildings green are eligible to receive a percentage of the building loan amount back as a rebate.
This is another powerful example of how concessional financing is helping stimulate demand in the market by driving down the upfront risk for developers to go green. Once developers and home-owners experience the lower running costs of green buildings, we anticipate that this demand will perpetuate.
3. Blended finance is often the only way to get new large-scale green projects off the ground
Through the Scaling Solar program, IFC helped Zambia procure 75MW of solar power through a competitive bidding process, resulting in one of the lowest solar tariffs in Africa at the time. The project used technical assistance from IFC to streamline the procurement process, and concessional funding from CIF to de-risk investment for the first two solar projects under the program. Eventually, private developers were attracted to the project. But it wouldn’t have come off the ground without this blended approach.
Zambia’s solar success is just one of many mega green projects that relied on blended finance to take off. Once momentum builds, green infrastructure speaks for itself. But blended finance often plays a critical role in getting the ball rolling.
As development actors, governments, and private investors embrace more innovative financing models, we could help ignite a greater shift towards sustainable practices on the continent. By working together with purpose and creativity, we can do more than fund individual projects—we can reshape markets, accelerate green transitions, and unlock unprecedented levels of economic growth and resilience.
