Gaping investment holes in climate-friendly projects is one of the major barriers facing Kenya in its drive towards greening the economy.
The other is a highly disproportionate climate finance portfolio, where only a few sectors receive the lion’s share of investments as many others barely scrape by. These twin challenges have given rise to fragmented efforts, which can at best only partially address climate issues.
What Kenya needs instead is a fully integrated approach, where green finance is ramped up in a structured way and different sectors are each given their fair share of attention and resources.
Currently, climate finance also known as green finance is disproportionally heavy on renewable energy, largely solar, wind and geothermal. On the other hand, other key sectors such as agriculture, forestry, transportation, clean cooking and water and waste management are dramatically underfunded.
It doesn’t help that Kenya’s economy is deeply rooted in climate-sensitive sectors such as agriculture, energy, tourism and wildlife. This has effectively put East Africa’s economic powerhouse at high risk whenever climate-related disasters such as droughts and floods occur.
There has been a steady pick-up in the intensity and frequency of such disasters in recent years, estimated to cost the economy an equivalent of up to 2.8 percent of its GDP every year.
While the country has lined up a number of climate mitigation and adaptation measures as outlined in its climate action blueprints, financing remains a big puzzle that will require innovation to solve.
Kenya desires is to increase investments in green projects to drive green growth and development, and achieve a low-carbon economy. At the same time, it looks to strengthen the resilience of existing infrastructure projects to withstand climate-induced shocks.
While there has been a steady increase in flow of climate investments in recent years, it is still considered a trickle compared to required volumes.
Climate investments in Kenya totalled Sh243.3 billion ($2.4 billion) as of 2018, according to a report I supported under KCIC Consulting. Out of the Sh243.3 billion green investments, Sh144.3 billion came from the public sector (59 percent), with private investors putting in Sh98.9 billion, and accounting for 41 percent of the share.
For Kenya to meet the goals outlined in its nationally determined contribution (NDC), both public and private climate finance should be scaled up. Kenya targets to slash its greenhouse gas emissions, the culprit behind global warming and climate change, by 32 percent by 2030. However, if the finance flow maintains the same scale and speed, the country will no doubt fall short of reaching this rather ambitious goal.
To this end, we need to see a steady pick-up in climate financing instruments such as green bonds, alongside creation of green financial products among commercial banks with support from development finance institutions.
A total of Sh180.4 billion went into green energy investments as of 2018, making it the single most financed sector. Coming at a distant second was water and the blue economy, which attracted only Sh15.3 billion in green investments, far short of the Sh100 billion needed per year.
Third placed is forestry, wildlife and tourism, and food security having attracted Sh14 billion in climate investments in the review period. This is a drop in the ocean compared to the Sh49 billion spending plan the sector requires annually. Kenya urgently needs sustainable and regenerative agriculture, given that the sector ranks first in greenhouse gas emissions (40 percent), largely through livestock enteric fermentation, manure and fertiliser application.
The volume of green finance flow into manufacturing stood at Sh11.9 billion as of 2018, and Sh9 billion for health, sanitation and human settlements. Drought and flood risk management attracted Sh2.4 billion against the required annual budget of Sh17.4 billion while clean transport attracted the least amount at a paltry Sh200 million.
These green investment gaps alongside the skewed structure should trigger commercial banks, the government and private investors to redirect their attention towards areas most in need of improvement if we’re to have holistic interventions.
Here, the private sector could play a crucial role in filling deep investment gaps and rebalancing sector investments, with the right support.
For instance, the government may roll out incentives and subsidies to create a more attractive enabling environment for private investment in the underfunded climate industries.
Pretty much every sector of Kenyan economy is exposed to climate change, and therefore climate mitigation and adaptation efforts should be given top priority. The time to scale up climate finance is now, for better climate results.
This article was originally published by the Business Daily