Funmi Dele-Giwa of digital payments company Onafriq asks whether we need new technology and Africa-centric apps.
Funmi Dele-Giwa of digital payments company Onafrik asks whether new technologies and an Africa-centric approach can help the continent overcome global economic and environmental constraints.
Following the recent COP28 summit, which brought together world leaders to address the pressing issue of climate change, African leaders have highlighted the role of finance in shaping the continent's future, particularly with regard to climate and the environment. is attracting attention.Wale Shonibare, Director of Energy, Financial Solutions, Policy and Regulation african development bank, went so far as to suggest that the continent needed to “build a new financial architecture.” But does Africa really need a climate-centric financial architecture? And if so, what should it look like?
The most obvious answer among African leaders is that change is urgently needed as vulnerable populations suffer. They not only believe that more efforts are needed to ensure that Africa, as a developing country, is in a position to build resilience to climate change, but also that countries still have measurable targets and guidelines. Progress is slow because there is no agreement on this. Furthermore, Africa is held to almost the same standards as developed countries, even though it accounts for only 4% of global greenhouse gas emissions and is one of the regions most affected by climate change. .
Africa will change in the short term
African Development Bank Group President Dr. Akinwumi Adesina also warned that the EU's new carbon border tax could cost Africa up to $25 billion a year. The tax could put significant pressure on Africa's trade and industrialization progress by imposing penalties on value-added exports such as steel, cement, iron, aluminum and fertilizers. He further stressed that Africa's energy shortages and dependence on fossil fuels could force Africa to export raw goods to Europe. This could lead to further hollowing out of African countries.
Given these concerns, it is likely that a comprehensive financial architecture will be needed to address these challenges. Public-private partnerships are key to enabling new financial architectures such as the Pan-African Payments and Settlement System (PAPSS).
However, there is still a need for the rest of the world to take steps to close the adaptation gap with quality financing so that Africans are not left behind.
One important aspect of these warnings is the impact on Africa's ability to participate in the global energy transition. The continent has received only 2% of the total global investment in renewable energy of USD 3 trillion over the past 20 years. This trend will have a negative impact on Africa's competitiveness in exports to Europe. A Fair Trade in Energy Transition (JTET) policy is therefore needed to enable Africa to pursue its renewable energy ambitions without compromising its trade prospects.
Digitalization is an important aspect
It could also be argued that Africa's best trade opportunities lie within the continent itself. The new African Continental Free Trade Area (AfCFTA) is estimated to increase intra-African exports by more than 80% by 2035, according to reports. This presents a compelling case for exploring how intra-African trade can contribute to global investment and create financial bridges. gaps needed for sustainable development across the continent.
Digitalization is another important aspect to consider regarding the topic of African financial architecture. Digitalization of payments and the facilitation of cross-border and intra-African payments play a key role in the continent's economic growth and are consistent with AfCFTA's goals of promoting sustainable trade and economic integration. Here, private sector as well as public sector efforts can play a vital role in shaping a financial architecture that is not only resilient to climate-related challenges, but also promotes sustainable development.
Another point to consider is the potential impact of rapid decarbonization on commodity exports, which could effectively result in a staggering US$150 billion reduction in commodity exports. This further highlights the need for a financial architecture that balances environmental sustainability and economic resilience.
Impact on African fintech
The climate crisis is also impacting African fintech. African fintechs are as vulnerable to disruption as the average African business or individual. The digital infrastructure that fintechs rely heavily on could be at risk as climate change intensifies. Therefore, for African fintech companies to properly address these challenges, they must adhere to appropriate systems and governance.
Despite these challenges, African fintech has been able to provide solutions to some of the challenges facing the continent, enabling the provision of financial solutions that were previously unavailable. By building climate resilience into their technology infrastructure, companies can ensure continuity and contribute to Africa's broader efforts to mitigate the effects of climate change. Seeing fintech businesses as part of the solution to Africa's funding gap can contribute to climate resilience and accelerate decarbonization.
The call for a climate-centric financial architecture is becoming more compelling as Africa grapples with various climate change challenges within a complex financial landscape. However, it needs to be a collaborative effort involving both the public and private sectors. There also needs to be a focus on intra-African trade, digitization and sustainable business practices. Although the African continent faces many challenges, it is also a region rich with opportunities for investment and growth. But truly capturing these opportunities may require building a financial architecture that aligns with these values to position Africa as a key player in sustainability.
Funmi Dele-Giwa is Onafriq's General Counsel, Head of GRC and Group Company Secretary.
