AFRICA – The African Development Bank Group and international accounting organisation KPMG South Africa have launched a report setting out an innovative approach to mitigating the foreign currency risks that often undermine the delivery of energy infrastructure projects across the continent.
The report was launched during this week’s Africa Energy Summit in Dar es Salam, Tanzania, where African heads of state and government, multilateral development banks, private sector, development partners, policymakers, and civil society representatives gathered to explore opportunities to leverage Africa’s natural resources to drive sustainable economic growth and bridge the continent’s funding gap.
The report, “New Mechanism for Mitigating Currency Risk to Support Africa’s Energy Transition”, argues that African countries can overcome foreign currency volatility and convertibility risks which threaten the affordability and sustainability of privately financed Independent Power Projects (IPPs), by pooling together their mineral resources into a “non-circulating currency” backed by a diversified basket of Africa’s critical commodities.
Non-circulating currency offers an alternative to traditional reliance on US dollar and Euro-denominated financing, and guarantee levels of exchange rate stability that are typically absent with the local currencies of participating countries.
The concept for the new financing mechanism was developed by the African Development Bank as a means of leveraging Africa’s vast critical minerals’ endowments, which it estimates constitute roughly a third of the quantity needed to drive the global energy transition.
Auguste Claude-Nguetsop, partner and head of financial services at KPMG Southern Africa, said:
“The demand for critical minerals will continue to grow exponentially over the next 30 years, and Africa’s role in the global energy transition cannot be overstated. To unlock this potential, it is essential to implement innovative financing mechanisms that address currency and convertibility risks. By leveraging Africa’s resource wealth, we can create an environment that attracts investment at lower costs and accelerate infrastructure development.”
According to the report, successful deployment will reduce the cost of capital for clean energy projects, encourage cross-border financial cooperation and integration, and strengthen Africa’s bargaining position in global resource markets.
These outcomes, the report stresses, will help to significantly narrow the continent’s $400 billion annual funding gap, support the attainment of the continent’s sustainable development goals, and ensure long-term energy security and economic prosperity.
Wale Shonibare, director, energy financial solutions, policy and regulations, at the African Development Bank, said:
“Africa’s green energy future depends on unlocking innovative financial solutions that empower the continent to harness its vast mineral wealth. The proposed currency convertibility mechanism will play a crucial role in stabilising investment flows and accelerating sustainable development.”
The report concludes by emphasizing the benefits of the new mechanism for both lenders and borrowers, as well as outlining the required next steps on the journey to full implementation.
“The economic impact of leveraging Africa’s critical mineral wealth is profound,” affirmed Frank Blackmore, lead economist at KPMG South Africa. “By addressing financial constraints and mitigating currency risks, we can unlock new economic opportunities, enhance industrialisation, and drive sustainable growth across the continent.”
- Download the “New Mechanism for Mitigating Currency Risk to Support Africa’s Energy Transition” report
The post African Development Bank and KPMG present new financing model to leverage Africa’s mineral wealth for accelerated energy transition appeared first on Caribbean News Global.
