As significant economic agents in Africa, Small and Medium Enterprises are being targeted to drive the climate conversation. However, they need to be empowered before they can play that role effectively, OLUWAKEMI ABIMBOLA reports
The cost of climate change is evident in our lives today and is significantly impacting businesses. While Nigerians are still lamenting about the intensity of the sun these past couple of weeks, South Sudan is going through an extreme heatwave that has seen schools shuttered.
South Sudan’s government closed down all schools as the country deals with a wave of extreme heat expected to last two weeks.
The country’s health and education ministries advised parents to keep all children indoors as temperatures are expected to soar to 45 degrees Celsius (113 Fahrenheit).
They warned that any school open during that time would have its registration withdrawn. The government only announced last week that schools would resume on April 2 after rain reduced the heatwave in the country.
Closer home, the President of the Chartered Institute of Bankers, Ken Opara, in his opening speech at the just concluded 2024 Green Finance Conference, which was held in Lagos, narrated the story of how the output and pace of production of a manufacturer increased following the adoption of sustainable measures, which also curbed emissions.
Still in Nigeria, the Minister for Budget and Economic Planning, Abubakar Bagudu, at a recent event shared how a fishing community in Ilawe, Ogun State, transitioned from open water fishing where the water no longer had enough fish and was taught fish farming.
According to the minister, it resulted in remarkable improvements in outcomes.
“In the north, we found that through a programme with the European Union, as little as an investment of N2m per pastoralist community taught them how to make yoghurt out of milk, therefore, extending the shelve life in a very sustainable manner, deepening their income, tripling it in as little as six months,” Bagudu added.
According to the Organisation for Economic Co-operation and Development, SMEs provide 60 to 70 per cent of jobs in most OECD member countries.
In Nigeria, SMEs contribute 48 per cent to the GDP and 84 per cent of jobs, according to the National Bureau of Statistics.
Recently, the Special Adviser to the President on Presidential Enabling Business Environment Council and Investment, Dr Jumoke Oduwole, disclosed that there were approximately 23.8 million family businesses in the country, responsible for millions of jobs and collectively contributing around $200bn annually to the country’s economy.
According to a new study by fintech firm, Moniepoint, for every two businesses in Nigeria, one is family-owned and they are the lifeblood and future of the economy given their impact.
Given the centrality of MSMEs to the economy, the 2024 Green Finance Conference, with the theme ‘The Role of Africa’s Private Sector in the Paris Agreement on Climate Change’, which was organised by the African Guarantee Fund in collaboration with the Nordic Development Fund, provided a platform for stakeholders across the board to engage.
The Green Finance Conference, which is in its ninth edition, provided a platform for all stakeholders to dialogue and showcase the many advantages that green SMEs can contribute to the economies of Nigeria and Africa.
According to the AGF, climate action, emission reduction, and sustainable investment are no longer optional cost burdens.
“It is inevitable – and essential – that Africa and its private sector stay ahead of the curve. The full implementation of the Paris Agreement, for Africa, requires the active participation of the private sector, particularly Small and Medium Enterprises, who are globally recognised as the key drivers of economic growth in Africa. SMEs make up over 90 per cent of enterprises and account for up to 60 per cent of job creation and economic development.
“Their ability to reduce emissions and mitigate the environmental impact of their operations is a major determinant of Africa’s progress in climate change mitigation and adaptation,” said the AGF.
In 2016, the Nordic Development Fund became the African Guarantee Fund’s fifth shareholder.
Under NDF’s leadership, AGF launched a Green Guarantee Facility to unlock financing for SMEs investing in climate and green growth-oriented economy.
AGF has since then substantially fostered sustainable growth by offering the Green Guarantee Facility to lending institutions to enable them to ease access to finance for Green SMEs.
The Green Guarantee Facility aims to increase sustainable private-sector-led economic growth in Africa, through efficient utilisation of untapped clean energy resources and other climate-resilient development initiatives.
To demonstrate the business case for financing Green SMEs, the Green Technical Assistance/Capacity Development Grant complements the Green Guarantee Facility by capacitating Private Finance Initiatives but also ensuring that there is a pipeline of credit-ready green SMEs that these PFIs can finance.
To facilitate a strong value chain in green financing, there is a need for PFIs to lobby for national, regional, and international policies conducive to all players to support lending in this sector, hence the Green Finance Conference.
The Green Finance Conference is a response to the challenges of climate change within the framework of Nationally Determined Contributions, a climate action plan to cut emissions and adapt to climate impacts).
The conference aimed to analyse opportunities and propose solutions necessary to meet the financing needs of Green SMEs to enable them to acquire skills and technologies that can mitigate the effects of climate change.
The high-level conference was followed by a three-day training on credit risk and product development in green finance, for senior managers of financial institutions.
Some of the objectives of the green finance conference and training include highlighting the challenges of climate change within the framework of nationally determined contributions, showcasing the many advantages that green SMEs can contribute to the economy of Nigeria and strengthening the understanding of the Green Guarantee Facility and its technical assistance component.
Other aims of the conference are to analyse opportunities and propose solutions necessary to meet the financing needs of green SMEs to enable them to acquire skills and technologies that can mitigate the effects of climate change, and increase the ability of financial institutions to address the financial needs of the green SMEs.
Speaking at the conference, the AGF Group Chief Executive Officer, Jules Ngankam, emphasised that the green finance conference was a crucial response to the challenges posed by climate change and to empower banks to be better able to handle the financing needs from that sector of the economy.
He said, “Our aim is to support the banks to improve, increase or develop their green portfolios. Through the combination of our Green Guarantee and Capacity Development support, we are able to bridge the knowledge gap between both financial institutions and their customers. This is not only for the SMEs to understand how the lending process works, but also for the financial experts to learn how they can provide solutions tailored to suit the needs of the SMEs.”
Ngankam said that the $300bn SME financing gap in Africa led to the creation of solutions to reduce the gap.
He remarked, “SME financing gap in Africa is estimated to be around $300bn and to reduce that gap, we offer two main products, financial and technical because we believe that the solution is not only financial. We have a financial solution, but it also needs to have a non-financial solution. When we talk about the SME financing gap, that is the consequence of similar gaps.
“So, the first gap is the information gap. Many SMEs are not able to provide financial institutions with the type of information that they need to be able to do a proper risk assessment. This is where technical assistance and capacity building can be useful. We work together with the SME to do proper bookkeeping.”
He noted that AGF worked with financial institutions to be able to leverage new technology “because now we talk about the big data, we talk about the AI all this technology”.
“How they can leverage also all this technology to be able to do a proper risk assessment based on what type of information they can get from the SMEs?”
Other gaps hindering financing in the sector include the collateral gap, which the fund is trying to address, by standing to replace the collateral that the SMEs are supposed to provide to the financial institution, the tenor gap, which is mainly the mismatch between the needs of the SME and what the financial institutions are offering.
According to the AGF boss, some SMEs may need not just working capital but long-term loans to be able to expand their business.
“So, we also work together with the financial institutions to help them mobilise long-term funding in the financial market and by providing guarantees to the investors. We have a risk gap. This is mainly the gap between the real risk and the basic risk. This is also one of the biggest challenges that we suffer the most in Africa. There is always this misperception where the investor believes that the risk is too high.”
Backed by NDF’s support, AGF has been able to support financial institutions through its risk-sharing mechanism, which is crucial to incentivising banks to provide climate finance to SMEs.
NDF Managing Director, Satu Santala, said, “We are committed to financing green and inclusive low-carbon and climate-resilient growth of African economies to improve the livelihood of communities. Partnerships are at the core of NDF’s approach to climate finance and the African private sector plays a pivotal role in climate action and creating employment.”
Opara noted the important role the private sector plays in climate change in the Paris Agreement, emphasising that the private sector plays a pivotal role in unlocking new growth, job creation and sustainable agriculture.
He said, “We hope that climate change efforts will unlock new opportunities for green growth and job creation, ranging from renewable energy and clean technology to sustainable agriculture. There are countless avenues for the private sector to get the required private solution that deliver environmental, social, and economic benefits.”
A Special Adviser to The Lagos State Government on Climate Change and Circular Economy, Mrs Titilayo Oshodi, speaking on behalf of the Secretary to the State Government, noted the need for more awareness on the effect of climate change.
“It is a resultant factor in how we begin to deal with our environment, how we begin to play, what shots are required of us to keep our environment healthy, to keep it safe and climate-friendly. We need to start to express the inherent opportunities in terms of wealth that is available in the wealth that we generate,” she remarked.
In his comments, the Honorary Consul of Finland in Lagos, Bankole Oloruntoba, emphasised that the provision of technical assistance was key for SMEs to access finance.
Since its inception, AGF said that it had issued a guarantee portfolio of approximately $1.9bn, unlocking more than $3.5bn in SME financing, through partnerships with 200 partner financial institutions in 40 African countries.
