What is 4IR?

Led by developed nations, the world is already embracing the fourth industrial revolution (4IR). 4IR refers to an era of industrialization characterized by the digitization of the manufacturing sector.

The major components of 4IR include artificial intelligence (AI), big data, the internet of things (IoT), blockchain technology, human-machine interaction, virtual reality, 3D printing, and robotics.

Although considered disruptive, 4IR has benefited major world economies. It has promoted efficiency and quality in production and significantly reduced production costs.

African countries have started to embrace 4IR. For instance, South Africa is implementing AI and 3D printing in medicine, IoT in the supply of goods to consumers, and drone technology to deliver medicine to hardship areas.

The influence of 4IR on disabled people in the workplace

4IR technologies affect jobs in several ways:

• job creation, due to the development of new market niches, such as e-commerce.
• job elimination/substitution, due to automation practices that could make low- and middle-skilled jobs obsolete as machines take over tasks that were previously performed by humans.
• job redefinition/transformation, where new styles of work, such as remote working are embraced.

A high number of workers in Africa provide cheap labor along the industrial and manufacturing value chain. These workers will be significantly affected by 4IR, especially those with disabilities who already face higher unemployment rates.

4IR can further create a divide between highly skilled and non-skilled individuals. Notably, African people with disabilities are more likely than non-disabled people to offer unskilled labor, be self-employed in informal employment, or be in formal employment on a part-time basis. Therefore, they possess inadequate advanced skills needed for 4IR and research shows that they can be easily driven out of employment as they will be less competitive. This is critical as over 80 million individuals in Africa are disabled due to mental health issues, birth defects, diseases or physical impairments.

African people with disabilities have not fully exploited their potential to contribute to 4IR through skills and talents such as critical thinking, creativity, emotional intelligence, and cognitive flexibility. These skills can also be used in the remote work environment, an area that has not been fully explored by this group. This limits them from fully engaging in employment that is geared towards 4IR.

While a number of African countries, such as Kenya, Ghana, South Africa, and Egypt, have developed and manufactured assistive technologies and devices, they are often too expensive for people with disabilities. This makes it difficult for disabled people to benefit from 4IR technologies that will help them in the workplace. Employers implementing 4IR also have minimal knowledge of how to work with people with disabilities, which further excludes them from significantly contributing to the transition to 4IR.

Exploring the potential of 4IR for people with disabilities

Researchers have pointed out that limited data on African people with disabilities makes it challenging to formulate inclusive 4IR-related policies that cater for their needs. There is, thus, a need to conduct extensive research and collect data on the needs of people with disabilities in the workplace. This will help to identify their strengths, weaknesses, and opportunities for change that can be explored to help inform 4IR-related policies and advance 4IR technologies that are inclusive in nature. 

Disabled people’s talents, such as creativity, critical thinking, and emotional intelligence can be explored to enable them gain and sustain employment amidst 4IR. These skills are important for the successful transition to 4IR. It is also important to educate and empower people with disabilities about their potential and the technologies that can enable them to take up competitive roles in the job market given the changes brought by 4IR.

Supporting people with disabilities with a shift to remote work will provide flexible working hours that allow them to practice their special skills and explore their strengths. Remote working will also enable them to comfortably deliver on their tasks without traveling to the office. This is especially important in Africa where public transport providers have implemented minimal strategies to cater for the needs of disabled people.

Affordable assistive applications and devices will further support the inclusion of people with disabilities in the 4IR workplace. Public-private partnerships for purchasing these technologies and devices will improve their affordability. Where possible, employers should purchase assistive technologies to ensure inclusivity and fairness in the workplace.

Finally, employers implementing 4IR are advised to formulate internal processes, regulations and guidelines on how to work with disabled people amidst the digitization of workplaces. This will enhance their incorporation in 4IR workplaces.

The post Including people with disabilities in Africa’s transition to the fourth industrial revolution appeared first on Globaldev Blog.

The current global rate of extinction is at its highest point in 10 million years. We are losing 100 species every day. The primary culprit? The global food system which threatens 86% of species today.

Earth is home to an estimated 8.7 million unique species. Each plays an important role in maintaining balance in our ecosystem.

In 2023, the World Economic Forum ranked biodiversity loss as the fourth biggest global risk over the next 10 years. This loss not only jeopardizes our planet’s health but also carries significant financial, reputational, and business risks. It exacerbates social and economic inequalities and increases pressure on governments and businesses to thwart environmental damage. 

How do investments support biodiversity?

We need financial investments from the private sector and from public organizations  that support actions that “protect, restore, enhance the sustainable use and management of nature, or enable these actions”. Nature-positive finance can support biodiversity in four different ways:

1. Protection  Activities that maintain the current status and condition of biodiversity and ecosystems.
2. Restoration Actions that assist the recovery or preservation of an ecosystem that has been degraded, damaged or destroyed.
3. Sustainable use and management of nature Supporting the use of nature in a way and at a rate that does not lead to long-term biodiversity loss.
4. Enabling conditions Policies, models and sectoral instruments, incentives, data and other tools enabling the aforementioned activities.

Clearly, organizations need to incorporate biodiversity into their investment portfolios. We are already seeing positive moves here. Intensa Sanpaolo was the first Italian bank to issue a green bond in 2017, for which it has developed specific frameworks that comply with the Green Bond Principles, the Social Bond Principles and the Sustainability Bond Guidelines of the International Capital Market Association.

Separately, international finance institutions, like the International Fund for Agricultural Development (IFAD), also embed biodiversity concerns into their investments. IFAD’s ‘Rural Sustainable Development Project in Bahia’ (2014-2022) in Brazil enhanced the local biodiversity of agricultural crops by investing in a Creole Seed Programme, which rescues creole seeds for family production, that restored more than 1,000 hectares of the precious Caatinga biome.

Further, the recently adopted Kunming-Montreal Global Biodiversity Framework (GBF) explicitly calls on actors to use innovative finance instruments to help meet the target of raising $200 billion for nature conservation from public and private sources annually by 2030.

Financial tools to support biodiversity

As organizations increasingly recognize the urgency of integrating biodiversity into investment strategies, various financial tools have emerged as effective means of addressing this critical issue. In this section we examine an array of financial mechanisms driving biodiversity conservation and explore how they’re reshaping the landscape of environmental finance.

Debt-for-nature swaps: These have seen exciting success in a number of countries, including Belize and Ecuador. Debt-for-nature swaps involve an international conservation organization and local organizations purchasing a country’s foreign debt at a discounted rate and converting it into local currency debt. The proceeds from this transaction are then used to fund conservation activities. This approach relies on the willingness of commercial banks or governments to buy debt at less than the full value of the original loan. Many developing countries, that are unable to repay their debts in full, find this approach attractive.

In Belize, a $553 million debt-for-nature swap to protect coral reefs cut the Caribbean country’s external debt by 10% of its GDP. Ecuador completed the highest debt-for-nature-swap, which involved repurchasing US$1.6 billion in bonds, saving US$1.1 billion in debt service repayments with US$450 million invested in conservation activities.

Many of the countries most vulnerable to climate change, with limited access to traditional loans, can enhance resilience and access fiscal resources through debt-for-nature swaps.

Source:  Picture adapted from Dialogo Chino Blog

Green bonds: These are standard bonds, but with a bonus “green” feature and are characterized by flat pricing – meaning that their price is the same as that of ordinary bonds. Green bonds for biodiversity ensure that proceeds from the sale of bonds are invested in projects that generate biodiversity conservation or benefits.

The Responsible Commodities Facility in Brazil is a financing program, managed by an established, dedicated fund management company, that is supported by green bonds. It offers financial incentives to Brazilian farmers to produce soy on already cleared and degraded lands, and aims to discourage further expansion of agricultural land. The program also offers low-interest credit lines to Brazilian farmers who commit to avoiding clearing forests, with the overarching goal of protecting or restoring 1.5 million hectares of natural habitat.

Source:  Picture adapted from Dialogo Chino Blog

Payment for Environmental Services: These mobilize and direct finance from various government funds, including fuel tax and water charges, towards farmers or landowners for providing an ecological service, such as watershed protection.

Some countries have mainstreamed Payment for Ecosystem Services into national policies, including Costa Rica which uses fuel taxes, carbon credits and strategic alliances with the public and private sector to raise capital for forest and ecosystem conservation. IFAD, for instance, has collaborated with the non-profit organization, The Nature Conservancy on the Upper-Tana Water Fund in Kenya. It directed finance from public and private water-dependent organizations to pay farmers to manage their land sustainably and restore degraded land.

Biodiversity credits: Biodiversity credits are an emerging innovative finance mechanism that serve as an asset resulting from investments in biodiversity restoration, conservation, and development. These credits are sold to companies seeking to fulfil their ESG (environmental, social, and governance) commitments. They support endeavors that generate net positive biodiversity gains, allowing companies to undertake nature-positive actions and contribute to long-term conservation and restoration efforts. Biodiversity credits help both the private and public sectors achieve a nature-positive economic system.

Blending opportunities

Blended finance can include a mix of guarantees, grants, concessional loans, equity investments, and insurance to address distinct investment challenges. This approach presents an opportunity to narrow the divide between the requirements of small-scale farmers and investors’ uncertainties regarding how to effectively engage with them in rural areas.

One example is in Maharashtra, India. IFAD partnered with the Government of Maharashtra and employed blended finance to empower women in 1 million households to start and expand competitive businesses.

Prioritizing communities and biodiversity in money at scale

Most investments from international finance institutions include mandatory safeguards which mitigate biodiversity and pollution risks. As part of these safeguards, it is important to ensure that nature-positive investments increase communities’ rights to resources, and they are given an active role in decision making. Engagement with local communities through Free, Prior, and Informed Consent is critical at this stage.

As we navigate the intricate balance between economic development and environmental conservation, these financial innovations will be crucial building blocks for a harmonious coexistence between nature and humanity.

The post Show me the money: recent actions in biodiversity financing appeared first on Globaldev Blog.

The loss of biodiversity, the decline in ecosystem health and the rise in climate change’s adverse impacts are no longer surprising news. The consequent impacts on human wellbeing, from food insecurity and income loss, through to illness and displacement, are also well established.

However, despite all the evidence, government organizations are still woefully slow to adopt decisions and take financial and technical actions that address these problems.

A welcome move in intergovernmental policy, however, comes courtesy of the Kunming–Montreal Global Biodiversity Framework. Adopted under the Convention on Biological Diversity (CBD), the Framework acknowledges the need to motivate people across multiple scales – from individual consumers and producers, through to businesses and policy-makers – to work towards its vision of a world living in harmony with nature by 2050.

The Framework advocates for a whole of society and whole of government approach to achieve its goals and targets. This requires all CBD Parties to align their national policies in this direction.

Adopting this approach involves difficult administrative challenges and needs careful reflection, design, and uptake. But it has the potential to be a game changer because it forces us to look at human society and ecosystems as one socio-ecological system. This is not a new concept, but it certainly could be considered a novel approach in policy-making.

What are socio-ecological systems?

A socio-ecological systems approach to decision-making takes into consideration the interdependence between people and nature. It allows a more nuanced understanding of the factors and actions that affect the integrity and wellbeing of ecosystems and human societies. Furthermore, it helps show how choices and decisions made in one sector affect others in various contexts.

For example, monocropping (growing one type of crop on the same piece of land) may support food security. But it is bad for nature. It results in the loss of biological resources, like plants, animals and minerals, as well as ecological processes. Ultimately, humans lose options to support their health and wellbeing, e.g. plants for medicine or climate/pest resilient varieties.

Socio-ecological systems essentially recognize that, within a landscape or seascape, multiple actors seek multiple benefits from its diverse array of contributions to society and the economy.

Depending on the stakeholder, these non-mutually exclusive benefits could be:

• Relational: i.e. where people have a relationship with different aspects of nature. For example, with a sacred or aesthetically beautiful place. Nature can also be educational, or produce special varieties of crop linked to cultural identities, for instance. Relational benefits, in fact, inform the production, consumption and management habits of populations in different contexts.
• Instrumental: where nature provides a good, such as food, medicine or fiber, or something that helps produce a good.
• Intrinsic: the value of certain resources is that they simply exist.

The uniqueness of the socio-ecological systems approach is that it embraces the diversity of social and ecological dimensions across different types of socio-political, environmental, and economic contexts. Furthermore, it allows informed choices to be made about the trade-offs that arise during human–human and human–nature interactions. That is to say, issues of equity and broader sustainability are embedded in the conceptual design of such systemic approaches.

Socio-ecological systems approaches go beyond the better-known nexus approaches, which look at interconnections between related sectors, such as the food-energy-water nexus) as well as systems approaches within a sector (e.g. agri-food systems or health systems). Nexus and systems approaches still do not adequately factor in the full gamut of activities and inherent values across a landscape or seascape.

On the ground, socio-ecology gives a greater sense of agency to every actor group, including marginalized peoples, such as indigenous peoples and local communities, and others including migrant populations in cities. It empowers them to be part of the solution to biodiversity loss and climate change impacts, and to help ensure a thriving human population. It further allows the space for other non-mainstream planning and assessment models (e.g. inclusive wealth, the degrowth economy and the caring economy) to capture the growth and prosperity of an economy.

What is socio-ecological resilience?

Socio-ecological resilience is “the capacity to adapt or transform in the face of change in social-ecological systems, particularly unexpected change, in ways that continue to support human well-being”.

Simply put, it is a state of anticipatory preparedness that ensures that we can cope and adapt to various disruptions to the socio-ecological system that may arise from natural, social, or economic factors.

This needs to be actively cultivated, however, and it must address several imperatives, including:

• Basic human needs: e.g. food, health, income, and shelter.
• Security-related needs: e.g. access to natural resources, rights, and the agency to take decisions.
• Belonging needs: e.g. sense of place, identity, equity, and fairness.
• Self-esteem needs: e.g. confidence to negotiate and education.

All of these are linked to the health of ecosystems and biological resources, and the capacities, skills, and knowledge of the people using them. Further, achieving socio-ecological resilience requires multiple and diverse sets of actors to collaborate to identify solutions tailored to different contexts.

Aligning human activities towards promoting resilience requires multi-pronged initiatives to ensure that, among others:

• Different sectoral policies do not have conflicting goals.
• Planning and implementation follow principles of co-learning, co-design, peer review, and support.
• Developing inclusive partnerships and co-operation between different actor groups is actively sought and promoted.
• Adequate finance that is required at points of intervention is accessible and fit for purpose.
• Agencies (whether state led or non-state organizations) invest in effective communication measures and reflexive capacity development activities that allow peer learning and learning across different types of expertise.

Although this may seem like an idealistic wish list, it is necessary that everyone is involved to achieve the goal of living in harmony with nature. Many examples across the world show that such an approach works (see, for instance, examples from the International Partnership for the Satoyama Initiative). What we need now is the political will at every scale of implementation to make the feasible a realistic possibility.

The post Why socio-ecological resilience is good for both biodiversity and human wellbeing appeared first on Globaldev Blog.

The United Nations’ sixth sustainable development goal (SDG6) presses for equitable access to sanitation and hygiene for all by the year 2030. Yet, in 2022, 3.5 billion people lacked access to safely managed sanitation, confirming that the world is alarmingly off-track in reaching this target. The world would have to accelerate its efforts, and work up to six times faster to succeed.

Thus, there is an urgent call to funders, government agencies, and non-profit and civil society organizations to not only intensify current interventions but to remain constantly curious for alternative solutions for improved sanitation access. 

One of the main barriers to accessible quality sanitation is its high cost. When households do not have a big enough lump sum to build a complete and safe toilet, they often turn to lower-cost alternatives, including less safe latrines, shared latrines, and open defecation.

Financial interventions are therefore a popular method of increasing sanitation access, and are an alternative to other common interventions, such as behavior change programs (e.g., Community-Led Total Sanitation, which discourages open defecation) and market development (e.g., tax incentives to encourage enterprises to service rural areas).

Sanitation finance interventions aim to either make sanitation facilities affordable or provide financial incentives to encourage safer sanitation. In fact, multiple studies have found that interventions that provide monetary investments, subsidies, or sanitation infrastructure tend to result in more latrine coverage, access, and usage than either Community-Led Total Sanitation or education-only interventions.

Subsidies for sanitation

Early financing approaches in the 1980s often fully subsidized the construction of low-cost sanitation facilities. However, these approaches struggled to remain sustainable, due to the lack of funding for ongoing maintenance, difficulties identifying households in need, perceptions of corruption, the inability to meet user preferences, and the high cost of bringing fully subsidized infrastructure to scale. 

Given the limitations of full subsidies, many interventions now partially subsidize sanitation solutions, using a variety of mechanisms including: cash, vouchers, tax credits, or the provision of facilities themselves. Subsidies can be provided directly to households or to local governments, utility companies, or small-scale operators with the goal of reducing costs for households.

Sometimes, subsidies are provided as rebates or are output-based, meaning that they are only given after certain outcomes are met, such as the active use of latrines. Although funds are typically provided by external organizations, sometimes the funds from purchases by wealthier households are used to subsidize poorer households’ purchases.

Subsidies have successfully increased access to sanitation. For example, International Development Enterprises’ (iDE) Water for Women-funded WASH-SUP2 project and the EU’s GREEN Project found that offering 50% subsidies to households in rural Cambodia increased the likelihood that the household would purchase a latrine by 31%.

Microfinance for sanitation

Besides subsidies, nonprofit organizations have recently started to offer private investments to households to finance sanitation facilities. Households later repay the loan, as well as interest, to the lender. This approach is modeled on microfinance programs, in which Microfinance Institutions administer small loans to support entrepreneurial activities.

In the context of sanitation, microfinance programs have shown to be effective. In Cambodia, researchers from iDE found that households were four times as likely to purchase a latrine with a microloan than with a cash payment on delivery. However, research has also found that although households want to take out a loan to finance sanitation facilities, many (especially poor households) do not have access to microfinancing.

Community-led loans for sanitation

Despite their success in achieving increased latrine coverage, one limitation of sanitation microfinancing is that it often relies on ongoing external funding, which can come with high interest rates and short repayment periods. Community-led development techniques may provide another direction for sanitation microfinancing.

In 2019 and 2020, three Philippine Community-Based Organizations (CBOs), supported by Outreach International (OI) and Outreach Philippines Inc., implemented community-led sanitation loan projects. With community-designed and developed project proposals, they requested funds from OI to build sanitation units for 121 families.

However, instead of providing families with all the funds they needed, the CBOs subsidized 60% of the building costs, with project participants paying the remaining 40% back to the CBO over five years at a 3% interest rate.

The three CBOs have since constructed 118 latrines serving over 722 individuals. As of December 2023, participants have repaid 344,024.00 Philippine Pesos (₱)(US$6,254.98), or 56% of the expected repayment sum.

Using this financing structure, CBOs decided how to administer the loans and structure the repayment. One benefit of this autonomy is that CBOs could choose not only to fund the construction of new latrines, but also their repair and maintenance. The flexibility also allows CBOs to provide grace to households in extenuating circumstances, for example, they paused payments for six months in 2020 during the initial spread of COVID-19. Additionally, one CBO chose to collect payments once a year, while the other two CBOs collected it once a month.

In addition to flexibility in loan structure, community-led sanitation microfinancing allows repayments, as well as any interest accrued, to reside within the community group to spend on other concerns. Thus far, the CBOs have used this recouped capital to provide electricity to their community center and establish broader microloan programs, among other projects. Operating on shorter 2-to-3 month timelines, these loans provide smaller sums of ₱1,000 to ₱2,500 (US$18.18 to US$45.45). The CBOs have supported around 117 households across the three communities and accumulated interest worth ₱84,907 (US$1,543.76).

Community involvement

The importance of involving communities in the development of financing programs is further illustrated by the Sustainable Sanitation and Hygiene for All (SSH4A) program. Since 2008, when the development organization SNV began implementing the program, SSH4A has operated in 135 districts in 18 countries in Asia and Africa. One aspect of SSH4A includes finance mechanisms. In Tanzania, for example, SNV established a revolving fund for entrepreneurs to increase latrine production. Although initially successful, entrepreneurs chose to stop accessing the fund out of concern over defaulting on the loans. This shows how community participation can help ensure users’ concerns are addressed.

Reaching sanitation equity by 2030 requires global investment. Given that affordability is the main barrier to quality sanitation, interventions that alleviate the cost burden for households are an important component of plans to reach this target. Interventions must support sustainable access to sanitation, in order to maintain any gains made over time.

One way to ensure that our sanitation targets are sustainable is to invest in solutions that are authentically community-led. We have seen the benefits of community-led approaches in both our own research in the Philippines and that of others. We therefore hope that more attention is focused on locally driven solutions to sanitation challenges. Scaling these can lead to better outcomes than one-size-fits-all solutions.

The post Safe sanitation: global access is essential, but how do households pay for it? appeared first on Globaldev Blog.

Sovereign Wealth Funds (SWFs)are at the core of considerable policy and academic debate. Once heralded as a powerful vehicle for governments to direct revenues from natural resources such as oil and gas towards development, their purpose is increasingly blurry. This is especially the case in an era marked by climate change. While several studies have explored their strengths and weaknesses, there is surprisingly little evidence regarding their economic impact.

SWFs are state-owned pools of money held by the central bank. Governments invest this money to raise funds that pay for public services, economic development and financial support for citizens. Much of the money in SWFs comes from taxes, royalties, dividends and licences from oil and gas, and to a lesser extent, licences from mining.

Their numbers have rapidly grown since 2000. Over 100 SWFs worldwide now collectively hold USD 8 trillion in assets. However, Africa holds less than 1% of the world’s total in terms of asset value. Further, the capital held by Africa’s SWFs has shrunk by two-thirds since the commodity price boom ended in the 2000s and in response to subsequent shocks, notably the COVID-19 pandemic, as governments tried to maintain their spending.

There are therefore reasons to question their developmental impact which we explore here.

Figure 1: Evolution of the total capitalization of SWFs across Africa

Source: authors’ illustration based on compiled data from the SWFI database and financial reports.

SWFs have three different objectives:

• Stabilization: They can provide a source of money for public expenditure if the economy takes a sudden dip, thereby creating more predictability for government spending over time.
• Intergenerational savings: They transfer wealth across generations – money raised today can be saved for citizens who need it in future.
• Domestic development: They fund infrastructure, development projects and domestic businesses to support economic growth.

The standard policy advice has been to limit SWFs to a stabilization mandate without investing domestically. However, one study argues SWFs should target domestic investment to help economic development. Another suggests they should target export diversification objectives through a mix of domestic and foreign investments.

So what is the best use of SWFs, and especially in the face of climate change? We next consider the evidence for the African continent, drawing on our work for the United Nations University World Institute for Development Economics Research.

Figure 2: Mapping the objectives of SWFs in Africa

Source: authors’ construction based on national sources.

SWFs for stabilization

Stabilization funds are often necessary, but they have limitations and often come at the expense of achieving other developmental objectives. Furthermore, the pandemic has taught us that while stabilization-oriented SWFs can help weather the crisis, many low and middle-income countries are highly unlikely to have a fund of sufficient scale to protect against shocks as big as the pandemic.

So how to build resilience not just for rainy days, but also stormy seasons? Lower-income countries need a robust international monetary system that offers comprehensive assistance during tough times. Without such a system, countries often resort to self-insurance by building up their own (and often too small) fiscal stabilization funds. In many instances, paying off national debts with unexpected windfalls of revenue might be a smarter move (than capitalizing SWFs) to improve borrowing capacity in times of need, especially when global financial support systems are lacking.

Transferring wealth across generations

Citizens may want to transfer wealth to their future selves to fund a comfortable old age, or to future generations for financial security. Nevertheless, there is a case against intergenerational SWFs.

First, citizens with unmet basic needs may well prefer more spending today on child nutrition, basic healthcare, education and cash-transfers to benefit everyone. Many Africans never reach adulthood, let alone old age. The infant mortality rate for Africa is shocking: one out of every 13 children in sub-Saharan Africa dies before their fifth birthday. Of the 20 countries with the world’s highest infant mortality rates, 19 are in Africa. Further, while investing wealth in financial assets transfers wealth across generations, investments in real assets, such as education or healthcare, supports the wellbeing of both current and future generations.

SWFs and the climate challenge

Climate change threatens the future prosperity of intergenerational SWFs. All financial assets are at risk if global temperatures go beyond 1.5 degrees Celsius above pre-industrial levels, with accelerating damage at increases above 2 degrees Celsius.

The potential of SWFs in Africa is even more relevant in the context of the climate crisis, which should influence how governments spend public savings. Climate stress jeopardizes agricultural productivity on the continent, strengthening the case for moving away from fossil fuels. But global decarbonization efforts may also hurt African economies. Carbon-based fuels represent around 40% of African exports—with countries such as Algeria, Angola, Chad, Nigeria and Sudan highly dependent on them (including to fund their SWFs).

Indeed, of the world’s 20 biggest SWFs, 12 originate in savings from oil and gas revenues, including the Libyan Investment Authority (LIA), Africa’s largest SWF and the only African SWF in the global top 20. Africa’s next largest SWF is Botswana’s Pula fund, originating in diamond revenues. Petroleum-based economies—Algeria, Angola, Equatorial Guinea, Ghana, Nigeria and Uganda—constitute most of the region’s remaining SWFs.

Global decarbonization, therefore, also imperils many of Africa’s SWFs. This is why tackling climate change and building SWF resilience go hand in hand. A recent survey indicated that 60% of SWFs believe that accounting for climate change will improve their long-term returns. 

SWFs vs dedicated development funds

It is crucial that we improve our understanding of the trade-offs between SWFs and sovereign development funds (SDFs) or national development banks to promote a climate-resilient transformation of Africa’s economies.

Figure 3: Pros and cons of different resource revenue management options

         Source: authors’ construction

Our research suggests that national development banks offer greater potential than SWFs for stimulating this long-term transformation. However, this is provided that the banks have clear mandates, strong governance, legislative oversight and—not least—proper investment analysis, monitoring and evaluation.

Although starting new development funds, or recapitalizing existing ones, is beneficial, they are no substitute for current public investment. Clear fiscal rules that shape how governments invest are necessary.

However, it is often difficult for governments to pursue a consistent strategy for spending public savings, even with rules in place. SWFs that begin as intergenerational funds often turn into de facto stabilization funds when hard-pressed governments need to maintain spending.

Overall, the standard policy advice when it comes to SWFs may not be suitable for Africa, whose countries are marked by pressing needs for economic diversification and climate resilience.

To rethink the role of SWFs, African countries will need much greater concessional (more affordable) and grant funding from the international monetary system to deal with economic shocks, like climate change. The research we discuss here indicates that international finance institutions and multilateral institutions must take bolder steps towards prioritizing sufficient development finance for future prosperity and climate resilience.

The post Are Sovereign Wealth Funds fit for purpose in Africa? appeared first on Globaldev Blog.

GlobalDev has partnered with the 2024 Oxford Forum for International Development to launch a special series on Conflict and Development. This series aims to scrutinize current manifestations of conflict, mechanisms of post-conflict reconstruction, and the roles of policy, diplomacy, and humanitarian endeavors in fostering resilience and rebuilding communities.

We invite you to draw upon both your research and the research you have access to, to write a blog article on the topic of conflict and development. Blog posts should be around 800 words with a focus on any of the following key points (the list is indicative and not exhaustive):

• Conflict-sensitive development approaches
• Peacebuilding and reconciliation efforts
• Humanitarian assistance in conflict zones
• Economic recovery and development in post-conflict settings
• Gender dynamics in conflict and development
• Environmental degradation and conflict
• The role of technology in conflict prevention and resolution
• Indigenous perspectives on conflict and development
• Youth engagement and empowerment in conflict-affected areas

GlobalDev looks for accessible contributions that make use of existing research to shed light on some of the most urgent policy challenges facing the world today. We do not publish extended abstracts of single research publications or highly technical content, and we very rarely accept op-ed styled contributions. We ask you to discuss and hyperlink as many research sources as appropriate to illuminate the policy challenge you decide to frame your contribution around.

Please read our style guide carefully before writing, and submit your article through our ‘Write for Us’ page. All questions should be submitted to editors.globaldevblog@gdn.int.

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The potential of emissions trading to finance climate change mitigation and adaptation is immense. The global carbon credit market is expected to grow from US$ 402.58 billion in 2022 to nearly US$ 4.434 trillion by 2031, with a massive annual growth rate of 31%.

Meanwhile, Global South countries’ demand for financing mitigation alone, without adaptation in the equation, is estimated to reach US$6 trillion by 2030. To close these financial gaps, “more effectively mobilizing and steering public and private finance to climate-related purposes is of critical importance,” as researchers argued in a 2021 paper.

In the past, Global South countries have been neglected as equal partners in climate finance initiatives, and rather functioned as sites for offsetting the emissions of Global North firms. But since 2015, carbon markets have entered a process of transformation under Article 6 of the UN’s Paris Agreement that, presumably, places Global South countries as equal partners to Global North countries in capturing the climate finance gains from carbon markets.

As emphasized by the Africa Group for Negotiators, however, these new carbon markets also bear risks for formerly neglected countries: “In order to be inclusive, the benefits of Article 6 of the Paris Agreement must be able to accrue to all Parties, particularly those with low historical GHG [greenhouse gas] emissions. These countries have the greatest need for investing in sustainable development while being highly vulnerable to the adverse effects of climate change resulting from GHG emissions that furthered prosperity elsewhere”.

Carbon markets and African agriculture

Debates around carbon markets for financing mitigation and adaptation are hugely relevant to agricultural countries in Africa. The skewed distribution of historical emissions and the future costs of the climate crisis are especially evident in countries that rely heavily on food production for domestic food security, livelihoods, and export revenues.

Hence, transforming food systems sustainably is a core priority for many African countries. For instance, given that agriculture contributes 35% to the African GDP and formally employs over half of its population, the African Continental Free Trade Area (AfCFTA) is planning to massively push for domestic capacity increase in production and processing of food.

Agriculture is also a major contributor to climate change, accounting for around 21% of global greenhouse gas emissions. Opportunities for climate change mitigation in the sector are therefore gaining more and more attention, coupled with the need to adapt agricultural systems to new climate conditions and a growing global population.

New Article 6 carbon markets under UN regulation

The idea of mobilizing global capital for climate action through carbon markets goes back to the Kyoto Protocol in 1997. A vast offsetting industry has since emerged.

The highly contested Clean Development Mechanism (CDM), the carbon offset scheme initiated by Kyoto, has been criticized for its limited effects on real emissions reduction. It has, in addition, resulted in social-environmental destruction, dispossession and the exclusion of local people in the host countries, and created external dependencies towards Global North lead firms investments, labelled as “carbon colonialism”.

Addressing such criticisms, the new carbon market regulation, summarised in Article 6 of the Paris Agreement, promises higher accountability, fair participation of developing countries and a strong focus on sustainability outcomes.

Article 6 outlines a framework for voluntary cooperation between nations to achieve their climate targets. A key aspect of the Article is the ability for countries to transfer carbon credits earned through emissions reductions. A country will receive credits, Internationally Transferred Mitigation Outcomes (ITMOs), in return for enabling emissions reductions in another country through sustainability projects. ITMOs count towards the Nationally Determined Contribution (NDC) of the country that buys ITMOs through the implementation of s the project in the host country (Figure 1).

Importantly, however, the UN has designed a sustainability tool to help prevent these offsetting activities causing social and environmental harm and achieve a positive outcome even beyond the actual ITMOs. 

Figure 1: Transfer of ITMOs: Switzerland purchases carbon credits from Ghana through the implementation of a sustainable rice project to contribute to Ghana’s NDCs through real reductions, adding the emissions of Switzerland to avoid double counting of emissions reductions.

Figure 2: Number of projects by type

Sustainable rice cultivation in Ghana gets Article 6 underway

Generating ITMOs to be traded on global carbon markets is linked to a variety of sectors, usually associated with green energy production and distribution and energy efficiency (see Figure).

According to the UNEPCCC, of 137 pilot projects planned through Article 6, 77% are in collaboration with Asian countries, 13% with African and 6% with the Americas. The first pilot project under Article 6 is a project for sustainable rice cultivation in Ghana, signed between the Swiss and the Ghanaian government in 2022. This project is expected to cover nearly 80% of Ghana’s rice production, saving around 1 million tonnes of carbon dioxide equivalent by 2030 through training smallholder farmers in agricultural techniques that reduce their carbon footprint, use of water and methane emissions.

The agreement allows Ghanaian public and private actors to collaborate in mitigation interventions and exchange carbon credits with Switzerland for payment, while maintaining the development benefits in Ghana (Figure 1). It also aims to ensure that emerging green businesses do not cause environmental harm and respect human rights, thus implementing a holistic approach towards sustainable development and climate-sensitive industrialisation. This cooperative approach is vital in unlocking financial resources that can support climate initiatives, such as the adoption of climate-smart practices in irrigated rice fields.

Ways forward and policy challenges

To date, Article 6 is expected to mobilize capital for sustainable regional development pathways, depending on ongoing negotiation processes and power relations to determine the rules of the game in their implementation.

The question of whether new carbon markets will improve the financing of sustainability transitions in African agriculture is immensely complex, given the various layers of governance, multiple actors involved and its technicality. This is especially relevant for regional economies reliant on smallholder farmers and local supplier networks, given that the CDM neglected the opportunity to develop a sustainable agriculture sector inclusive of local actors.

To ensure strong and inclusive African participation in Article 6 implementation, cooperative approaches must fit local needs and assets. Strong regional and local engagement can increase the ability to implement African countries’ sustainability targets and investment decisions that reduce loopholes for exploitation. In this respect, pan-African collaboration can create long-term structures that reduce global power imbalances and improve institutional capacity to ensure that carbon markets support inclusive sustainable development, especially in core industries such as agriculture.

Capturing the gains of new carbon markets will hence depend on the implementation knowledge, local capacity, and negotiation power of host parties. How these new collaborations will materialize, especially regarding sustainability outcomes, local participation, and equity between states, must be carefully monitored in the decades to come.

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What have loans got to do with climate finance?

Countries in the Global North provide most of their climate finance to countries in the Global South in the form of loans. OECD figures show that in 2021, US$49.6 billion (68%) of public climate finance from countries in the Global North was loaned. Conversely, grants amounted to just US$20.2 billion (28%) in value. These figures follow a long-term trend, whereby loans amounted to more than 70% of public climate finance between 2016 and 2021.

In the context of increasing interest rates, these loans make the cost of tackling climate change even more substantial. A report commissioned by UN Environment found that a country’s vulnerability to climate risks increases the cost of debt repayments: adding US$62 billion of additional interest payments (public and private sector) between 2007 and 2016.

This additional ‘levy’ on their climate vulnerability by both public and private creditors, together with the prevalence of climate finance loans, reduces the Global South’s ability to implement robust climate measures that enhance their resilience to climate change and economic shocks. This is particularly concerning given that the current global climate finance goal of US$100 billion has never been met.

Furthermore, countries must repay these loans during a period of increasing debt distress and rising inequalities. According to the United Nations Conference on Trade and Development (UNCTAD), 59 countries in the Global South faced high levels of debt in 2022 and, according to the Debt Service Watch, Global South countries’ spending on domestic and external debt service in 2023 was over 12 times greater than what they spent on climate adaptation.

Indeed, in 2022, the UN General Assembly recognised that using public debt and external borrowing to address disasters could increase debt servicing, constrain growth and reduce capabilities to invest in long-term resilience measures. It highlighted the role of debt relief, including debt cancellation, in preventing debt crises.

The long shadow of multilateral climate finance loans

Debt as climate finance is not a phenomenon limited to bilateral finance flows between countries. Between 2016 and 2020, only 23% of Multilateral Development Banks’ (MDB) climate finance (excluding multilateral climate funds) was concessional (more affordable finance provided at below market rates).

MDBs determine which countries are eligible for concessional climate finance using OECD criteria for climate-related development finance. But the current criteria inhibit Global South countries’ access to both climate-related development finance and MDB finance.

Many countries in the Global South have proposed multidimensional vulnerability indicators (MVI), which define access to concessional finance based on needs and vulnerabilities. Climate vulnerable countries have also issued many calls for climate finance to be delivered in the form of grants. In the meantime, for all countries to have access to climate finance, UNFCCC climate finance goals must be met in their entirety.

The consequences of paralysing loans

Despite the economic and social impacts of high debts, countries that experience climate impacts often have little recourse but to accept loans. For instance, the estimated total costs of Pakistan’s historic floods in 2022 are a staggering US$46.4 billion. However, limited access to grants has led the country to accumulate more debt. At a financing appeal conference in early 2023, 90% of the finance provided to Pakistan was in the form of loans to be rolled out over a three-year period. These loans amount to US$ 8.7 billion of debt hanging over the country, when what Pakistan really needed was grants.

An International Monetary Fund (IMF) analysis of 11 “natural disasters’’ between 1992 and 2016 shows that debt levels increased in Global South countries when the disasters damaged their Gross Domestic Product (GDP) by over 20%. Specifically, it shows that public debt increased from an average of 68% of GDP in the year of the climate event to 75% of GDP three years later. This analysis further supports the case for grants to be prioritised over loans.

As climate change continues to intensify, along with increased financial vulnerabilities and weakened domestic response capacities, climate finance contributors must start to accurately assess the suitability of loans as instruments of climate finance.

UNCTAD has a set of non-binding Principles on Promoting Responsible Sovereign Lending and Borrowing. In the context of excessive climate finance loans and a lack of grants and confessional finance, it would be key to update these Principles and agree on binding rules for responsible lending and borrowing that apply to both public and private financial flows for development and climate finance.

At the very least, climate finance contributors (bilateral, multilateral, private and financial intermediaries) must ensure that lending terms are fair, transparent and designed in a participatory manner. A lack of parliamentary and public scrutiny increases the chances of irresponsible borrowing and lending. This includes the risk of countries accruing debts that are too expensive or which include coercive clauses, such as resource backed loans, where loans are provided in exchange for future natural resources. The consequence is unsustainable levels of debt.

The prevalence of loans in climate finance further entrenches indebtedness in the Global South where countries face record high debt payments. Numerous civil society organisations highlight the need for climate finance to be provided in the form of grants. It is crucial for countries in the Global South to have access to fair debt resolution and grants, so they can implement robust climate measures.

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What can be done to address the global biodiversity crisis and deliver “nature-positive” solutions for sustainable development? This was the central theme of the 2023 Global Development Network (GDN) conference. Researchers, policymakers and practitioners from across the world came together at the event in Quito, Ecuador, to discuss this conundrum – and potential solutions.

Advocating dramatic action to address potentially devastating losses of flora and fauna might rely on a moral case about respect for species and the intricate relationships between them. We are all part of that global ecosystem, after all. It might equally focus on self-interest, however. The natural world provides numerous essential ecological services, including food, medicine and clean water, without which humanity would be in dire straits.

The latter argument should certainly work well with private sector organizations, which increasingly need to account for both their impact on the natural world and their reliance on its resources in the form of raw materials and other inputs for production processes. The material risks to business that are associated with biodiversity loss are a critical matter for both companies and investors.

What’s more, emerging evidence not only shows that “‘biodiversity risk’” affects the prices of privately issued financial assets, such as equities, research also suggests that it hurts sovereign credit ratings in places where ”partial ecosystems collapse” has harmed fisheries, tropical timber production and wild pollination. Financial markets are no longer ignoring nature.

Food and agriculture

One sector with a particularly substantial impact on nature is food and agriculture. As the World Bank notes, “it is the foundation of food security, yet extremely vulnerable to climate change and a major contributor to greenhouse gas emissions as well as habitat and biodiversity loss.” Managing the trade-offs between ecological conservation and providing enough for everyone to eat is one of the big challenges for nature-positive development.

The GDN conference featured a plenary session on balancing production and conservation goals, at which Jyotsna Puri of the International Fund for Agricultural Development said: “We are already producing enough food for ten billion people, and the food industry contributes to a third of carbon emissions. We need to rethink the food production system to treat nature in its own right.” Elena Lazos Chavero of the Universidad Nacional Autónoma de Mexico added: “What we have to bring in the discussion of sustainable agriculture, food security and biodiversity is food justice and social equity.”

But is Big Food doing enough for sustainability? No, suggests the latest Food and Agriculture Benchmark from the World Benchmarking Alliance which ranks the 350 most influential companies in the sector on their environmental, nutritional and social impact. According to the data, the vast majority of companies fail to recognize their responsibility to protect the Earth and feed the world’s population in an equitable way.

Trade

International trade is another key area for trade-offs. Trade can exacerbate biodiversity degradation, but it also has the potential to support conservation, sustainable use and restoration. Leading a session on nature-positive trade for sustainable development, Marianne Kettunen of TRADE Hub said that international cooperation and the alignment of trade policies with environmental regulations, removal of harmful subsidies and promotion of sustainable practices can help to address the biodiversity crisis.

A report for the UN Environment Programme remarks that the Kunming-Montreal Global Biodiversity Framework (GBF), adopted in December 2022, provides a fresh reference point for the relevance of trade policy to the biodiversity agenda. The increasing focus on the environment and sustainable development at the World Trade Organization also presents an opportunity to discuss where trade policy could support delivery of the agenda – and align it to the UN 2030 Agenda for Sustainable Development and its Sustainable Development Goals – with sustainable trade as part of the solution.

Finance

What about interactions between nature and the financial system? As with climate change in recent years, biodiversity loss is increasingly recognized as a source of financial risk that may threaten financial stability. It thus falls within the mandates of central banks and financial supervisors. A report from the Network for Greening the Financial System recommends that these public authorities start to assess the degree to which financial systems are exposed to the risk, by developing biodiversity-related scenario analysis and stress tests, and dashboards of biodiversity metrics.

The report also calls for “the necessary financial architecture for mobilizing investment for a biodiversity-positive economy.” This challenge was extensively discussed at the conference, including reference to the “Summit on a New Global Financial Pact” convened in Paris by President Macron in June 2023. Its aim was “to lay the foundations for a renewed international financial system, creating the conditions for a financing breakthrough so that no country has to choose between reducing poverty, combating climate change and preserving biodiversity.” 

A key part of the financing agenda is creating new classes of nature-positive assets. These were discussed at a conference plenary on financing biodiversity conservation. Camilo Santa of the Inter-American Development Bank (IDB) cited a number of examples, including Ecuador’s “debt-for-nature” swap, which involves selling “blue bonds” that will funnel money into conservation of the Galapagos Islands, one of the world’s most precious ecosystems. This Ecuadorian case may be a model for other highly indebted but nature-rich countries. The IDB has also helped countries, such as Colombia and Costa Rica, to develop post-pandemic recovery strategies based on natural capital.

The way forward

The ultimate aim of all these projects and programs around biodiversity and sustainable development is to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes. As was broadly agreed by participants at the GDN conference, that must involve a combination of public and private sector initiatives, as well as a variety of carrots and sticks to encourage the required changes in individual and collective human behavior.

Much can be learned from our response to the threat of climate change. For example, the Task Force on Climate-related Financial Disclosures, which galvanized corporate reporting on climate risks, has inspired the Taskforce on Nature-related Financial Disclosures (TNFD). The latter describes itself as “a market-led, science-based and government-backed initiative providing organizations with the tools to act on evolving nature-related issues.” The TNFD has issued detailed guidance for business and finance on how to integrate nature into decision-making.

Governments are also beginning to draw lessons from the response to climate change by providing funding for nature conservation – for example, in Brazil’s National Green Growth Program and the European Green Deal. And representing more of a stick than a carrot is the European Union’s (EU) proposed nature restoration law. As with previous EU legislation to tackle climate change, this law would establish legally binding targets for forest, marine, urban and agricultural ecosystems.

Such initiatives effectively constitute self-imposed pressure on governments to deliver on conservation objectives – and they, in turn, will put pressure on the private sector and society as a whole.

In the end, the case for biodiversity protection can be made on the basis of the economic, social and health benefits of nature. Nature-positive development is good for both people and the planet.

The photograph accompanying the article and titled ‘Before the sun sets’ was captured by Santiago Sainz-Trápaga. It earned 3rd place preserving biodiversity section of the photo contest held by GDN in collaboration with WWF Ecuador during GDN’s 2023 conference on biodiversity and development.

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For research donors interested in international development, recent years have been packed with interesting discussions about how funding could or should change. What is interesting here is the idea that changing the way funding works can have an effect on equity, on opportunity, and indeed on research impact. In other words, many of these discussions contend that research funding could work much better to address development needs. To contribute to this debate, GlobalDev is partnering with the UK Collaborative on Development Research (UKCDR). We’re seeking to bring to the fore the critical knowledge that researchers and funders have generated on funding approaches in recent years. We hope to share existing evidence and evidence-informed opinions on this niche topic, to further illuminate the practice of donors of all kinds (international, national, private and public). We are open to contributions from both research funders and researchers. If you have additional questions you would like to ask (and answer), please write to us.

There are several areas of contention surrounding research funding approaches. To start with, research funders care increasingly about research impact on development policy and practice. Impact, however, is itself a topic of research, with no clear benchmark for how to use it in research funding decisions (which, by definition, happen before any impact is even foreseeable). What is the emphasis on impact doing to the research funding landscape? 

Another area of debate is how close funders should be to the realities their funding aims to illuminate, and how flexible they should be to account for developments on the ground. Can a balance be struck between ambition, scope and a good knowledge of local systems? How is the imperative of closeness to the development setting likely to affect the research funding landscape?

Much debate also continues on who development research funding is really meant for. Large Northern research funders often make it a condition for the funding to be managed by their own national institutions, and ‘helicopter research’ remains common. Most often, researchers in in low- and middle-income countries (irrespective of their qualifications and capacity) are still cornered in the subsidiary role of ‘local partners’ or targeted by ‘capacity building’ budgets. Is there a ‘nationalism’ in the development of research funding practices, and how does it affect research?

Finally, much of the research funded by international donors ends up behind paywalls, with so-called developed country[1] researchers being able to access it much more easily than anyone else. Can the increasing pressure to seriously pursue open-access policies help tackle the systemic inequities in development research?

Here, we’ve outlined just some of the complexities and controversies that arise around research funding approaches. Drawing on their own experience, we invite researchers and research funders to write a blog about the impact of funding approaches on research. Blog posts should be around 800 words with a focus on any of the following key points (the list is indicative and not exhaustive):

1. How, if at all, does an emphasis on research impact affect what research gets funded?

2. To what extent are so-called developing country[2] researchers involved in the funding process and can this be improved upon?

3. As a researcher or funder, can you envision a mechanism for making research funding less fragmented?

4. How can funding approaches better support so-called developing country researchers and help build a more equitable research landscape?

[1] So-called developed countries refer to high-income economies that a GNI per capita of $13,846 or more in 2022

[2] So called developing countries refer to low- and middle-income countries with a GNI per capita of $13,845 and less in 2022

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