FSD Africa, in partnership with UMOA-Titres (UT), commissioned Genesis Analytics, a consulting partner, to develop a study that determines the feasibility of deploying a financial instrument to address climate change, environmental and/or waste management challenges in the city of Saint-Louis, Senegal.
Both the physical and socio-economic characteristics of the city make it vulnerable to climate change. Numerous government and donor-led resilience interventions have been implemented in Saint-Louis. However, there has been little participation by the private sector at scale.
The UK government through the Foreign Commonwealth and Development Office (FCDO) has provided support to FSD Africa for the study. The new study will be launched at the 2023 West African Economic and Monetary Union (WAEMU) Government Securities Markets Meetings in Dakar, Senegal. It highlights the opportunities to tackle flooding, coastal erosion, heavy rains, land and ecosystem degradation, fishery decline, and poor waste management, to improve living conditions for the communities living in Saint-Louis.
With an estimated population of 1.1 million people living in Saint-Louis, approximately 80,000 of these live in densely populated fishing neighborhoods, high-risk zones which are constantly under attack from flooding and coastal erosion. Between 2019 and 2020 more than 2,000 people, mostly inhabitants of the fishing district of Guet N’dar, north of Saint-Louis, lost their homes due to the rising sea levels. The World Bank estimates that 10,000-15,000 people in the city are either already displaced or live within 20 meters of these high-risk zones. Furthermore, climate change continues to cause rising sea levels, heavier rainfall and higher temperatures in the city, further impacting the livelihoods of local people.
Saint-Louis is the former capital of Senegal and a UNESCO World Heritage site since the year 2000. The city benefits from programs such as the Safeguard and Enhancement Plan (PSMV), the main legal instrument for the protection of the site adopted in 2008 by the government of Senegal. However, it still faces the effects of climate change with the sea levels on the West African coast rising between 3.5 and 4 millimeters annually, which poses an existential threat. The city has an opportunity to capture a greater portion of the international climate finance flows available globally, through the deployment of Impact Bonds.
Impact bonds, the recommended financial instrument for challenges facing Saint-Louis, comprise Social Impact Bonds (SIBs), Development Impact Bonds (DIBs), or Environmental Impact Bonds (EIBs). Across Africa a high concentration of economic activity and investment in the capital cities has limited the funds available to other regions in need of funding for climate change resilience and adaptation programmes. To deal with these challenges, the study unveils solutions such as the involvement of the private sector through impact bonds to widen the capital pool for various projects.
Climate Policy Initiative (CPI) estimates that the continent requires USD 277 billion annually to implement its NDCs and meet 2030 climate goals. But annual climate finance flows in Africa stand at only USD 30 billion. This gap is likely even wider as countries often underestimate their financial needs, especially in relation to adaptation, due to data and methodological problems in costing their NDCs (UNFCCC, 2021). Time is of the essence; delaying action will cost the continent more in the future.
Evans Osano, Director, Capital Markets at FSD Africa emphasised that climate action requires significant financial investments, “Africa requires USD 2.8 trillion between 2020-2030 to implement its Nationally Determined Contributions under the Paris Agreement. This is the cost of the continent’s contribution to limiting warming to 1.5°C and addressing the biggest impacts of climate change. However, annual climate finance flows in Africa stand at only USD 30 billion with private sector contribution at only 14%. This study is critical in identifying opportunities to attract climate finance flows in addressing climate challenges”.