How Uganda Govt Can Attract Private Money to Fight Climate Change

AfDB shows innovative financing tools it should focus on for green growth cash

Kampala, Uganda | THE BLACK EXAMINER | The Ugandan Government must adopt innovative financing tools, including green bonds, carbon markets, debt-for-nature swaps, and blended financing to urgently secure additional private resources needed for addressing the climate change crisis in Uganda. According to the African Development Bank (AfDB), Uganda faces a substantial climate financing gap, estimated at an average of US$3.4-$4.0 billion annually, which could be partially closed through increased private sector involvement.

An efficient and business-friendly environment is crucial for attracting international investors capable of supporting significant climate projects. Uganda is making strides in liberalizing its investment environment, with free capital markets and streamlined business establishment procedures.

The Ministry of Finance, Planning, and Economic Development has indicated that climate change leads to a loss of up to 3% of Uganda’s GDP, underscoring the importance of climate finance for targeted climate adaptation and mitigation efforts.

Uganda’s climate financing needs, as reported by the Africa Economic Outlook, have surged to US$37.4-$43.6 billion for the 2020-2030 period, compared to the earlier estimate in its Nationally Determined Contribution (NDC) under the 2015 Paris Agreement. This revised figure now demands an annual investment of approximately US$3.4-$4.0 billion.

To meet these financial requirements, 85% of the financing should come from international partners, with the remaining 15% sourced locally from both the government and private sector entities. However, the AfDB notes that between 2019 and 2020, Uganda only mobilized an average of US$785 million per year in climate finance, accounting for roughly 21% of its annual needs.

Most of Uganda’s climate finance comes from international partners as publicly available finance, but this needs to change. The government should pave the way for investors by identifying attractive projects, facilitating private equity funds in the country, and improving the investment climate.

The AfDB suggests building the technical capacity of experts in climate project structuring and creating a supportive regulatory and institutional framework to enhance the business environment. Multilateral banks and development finance institutions could offer valuable support in these efforts.

The AfDB recommends the establishment of a “Green Growth Industrial Development” facility coupled with a green industrial fund to boost Uganda’s industrialization aspirations by providing blended finance supported by business development services.

The private sector plays a critical role in addressing the climate financing gap, especially given the current estimated gap in climate financing and Uganda’s vulnerability to climate change. Climate change is expected to bring about extreme weather events, such as droughts and floods, which could have severe economic consequences. To ensure resilience and mitigate these effects, private sector involvement is crucial, but this requires significant mobilization of resources.

To address this, Uganda has launched a climate change financing framework and established a Climate Finance Unit in the Ministry of Finance to enhance the mobilization and management of climate finance resources. The government recognizes key priority areas for climate funding, including building climate-resilient infrastructure and promoting low-carbon development.

In conclusion, Uganda must focus on incentivizing the private sector to provide the required financial resources to address climate change. The private sector can play a significant role in bridging the climate financing gap, making it a key partner in addressing the climate change crisis and ensuring the country’s long-term sustainability and economic growth.

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