HomeAnalysisPrivate sector’s role in climate adaptation

Private sector’s role in climate adaptation

Tendai Jaravaza
THE role of Africa’s private sector on the climate agenda has become more pressing especially as a driver of climate adaptation and finance.

The manifestation of a successful green economy involves effective and efficient government initiatives, instruments and policies as well as robust governance structures that address current weakness.

These weaknesses include deficient local business capacity, high debt levels, corruption and poor public governance, which lead to unfavourable business environments, illicit financial flows, and none development-oriented Public Private Partnerships (PPPs).

Zimbabwe’s private sector participation in early warning, adaptation, and mitigation mechanisms has contributed poorly to green economy initiatives, hence the need to encourage and finance such participation.

Zimbabwe heavily relies on the global finance mechanisms to address climate change disasters as a result of insufficient domestic financing mechanisms to fund national requirements.

Although advancements in climate related domestic resource mobilisation, such as, the Nationally Determined Contributions, Climate Finance Facility, and Special Climate Change Fund contribute positively to green finance outcomes.

Most private sectors underrate their potential climate adaptation influence on business activities, capital investments, and trade policies on innovative green goods and services, partly due to limited government resources to finance emerging markets.

Private players can participate nationally as capital providers through direct investments; as market facilitators through climate risk insurance, financial services, and data providers.

They can also participate as project developers through provision of clean energy facilities, such as, wind and solar installations and development of new green products and services.

Sectors, such as, agriculture, energy, infrastructure, and water management are most vulnerable to impacts of climate change and, therefore, need implementation of climate adaptation and resilient measures.

These can be up-scaled through activities and investments of the private sector. While most external PPPs have proved to be pro-profit instead of pro-people, domestic partnerships struggle to act as alternatives due to low resource capacity.

Therefore, restructuring external partnerships to focus more on sustainable development could also lead to enhanced domestic resources mobilisation and reduced external public loans.

This is on condition that feasible market rates for project executions and favourable policies on local private companies’ engagement on government tenders are meticulously structured.

The private sector can also be engaged in providing and managing information systems used to disseminate information and capacity building. This can also be through training of entities and other stakeholders on how to manage climate change risks, and influencing the national activities, infrastructure and policies developed to stimulate climate risk reduction.

The impact of climate change varies according to industry where some experience higher impacts than others. Agriculture is a major sector in the majority of African countries.

Extreme weather events have led to a decline in food security throughout the continent. Almost 70% of Africa relies on agriculture as a source of income where more than 80% of Zimbabwe’s rural population relies on agriculture for sustenance.

While the industry accounts for one of the highest greenhouse gas emissions, the overall contribution globally is one of the lowest.

The industry’s urgent focus should be on climate-proofing infrastructure, management and technical aspects of climate disaster reactive tools, resilient crop types, insurance solutions, resilient livestock breeds, research and development, risk management and warning systems, and water resources.

Climate adaptive regulations on use of fossil fuels pose a threat to currently lucrative industries, such as oil, gas, and coal. These industries play a pivotal role in Africa’s infrastructure and industrial objectives.

Currently, fossil fuels account for over 80% of electricity generation where over 30%  of Zimbabwe’s electricity is generated from fossils. However, the continent only contributes 3,7% of global GHG emissions. Despite a sufficient amount of fossil fuels, vast populations in the continent suffer from lack of access to energy due to insufficient capacity and infrastructure to use these energy resources.

Going forward, the climate related constraints of continuous use of fossil fuels coupled with the increase in prices of the same calls for energy alternatives to be considered. Currently, the potential use of hydropower is mostly concentrated in central and eastern parts of the continent. The potential for biomass resources is widely spread throughout all regions in the continent, while the potential for solar energy is available for all African regions and meets the electricity demands of the continent. This implies that renewable energy also provides a cost reduction in energy imports as well as cleans sustainable economic growth.

The insurance industry is one such emerging and evolving sector in the climate change agenda. This stems from increasing incidences of catastrophic climate-related disasters that inflate premiums and pay-outs.

This is unsuitable for most African countries, including Zimbabwe, which are among countries with the highest risk of climate change impact considering that local insurance companies are already operating on their knees due to current economic instability.

The country’s government in collaboration with humanitarian organisations and the African Risk Capacity Insurance Company (ARC) purchased a total of 3,5 million worth  of innovative insurance policy to protect its citizens from drought related disasters.

However, local insurance company participation on the climate agenda is still low. Going forward, there is a need for insurance companies to adjust their approach on the changing climate environment, including enhancing climate risk analysis and channelling resources to incorporate climate risks into their business structure, investments, pricing and underwritings.

Zimbabwe’s major income sources are from agriculture and mineral resources but currently poor governance policies have seen the country losing billions of dollars every year through illicit financial flows.

Ensuring that corporate tax policies are adhered to encourages increase in public revenues which could be channelled to finance climate resilience measures.

The private sector has a role to play in tax compliance as well as participating in other environmental finance mechanisms that help to address issues of land degradation, soil erosion, and various types of pollution and resettlement of community members. Government policies on corporate tax avoidance, evasion and incentives need restructuring to allow optimal revenue collection and subsequently efficient green economy emergence.

Zimbabwe launched a Climate Change Policy  in 2016 whose framework aims to climate-proof all socio-economic development sectors that are most vulnerable to climate related disasters. The limitation of this policy and others, such as, the National Climate Change Response Strategy, is that successful implementation is highly dependent on external funding mechanisms, which may mean increased debt levels while domestic resources and financing are currently low in addition to the fact that public funds management remains frail.

African governments face a three-pronged dilemma of utilising public funds. There is a need to service ever increasing debts while focusing on critical socio-economic developmental issues and simultaneously urgently responding to climate disasters and adaptation and mitigation needs.  Debt cripples Zimbabwe while incapacity to pay back loans coupled with ever increasing interest rates sees the country resorting to further increasing the already unbearable public debt in order to repair climate disasters, such as, cyclone Idai, which bears a cost of more than US$2 billion, and boost adaptation and mitigation mechanisms. Financial barriers account for most unsustainable adaptation measures for businesses in Zimbabwe and the African continent, which require reshaping of current business environments through favourable public policy reforms.

Reduction in Debt-to-GDP ratios to at least 40% , allocation of SDRs to the climate agenda, as well as debt swaps present as assistants to dealing with climate albeit ultimate solutions revolve around establishment of local climate funds, public debt management and transparency, as well as accountability of fiscal structures in the country.

  • Jaravaza writes in her personal capacity. Her interests are in sustainable entrepreneurship and socio-economic policies and activities. These weekly New Horizon articles published in the Zimbabwe Independent are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society (ZES) and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). — kadenge.zes@gmail.com and mobile No. +263 772 382 852.

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