The director of the climate and resources division of the UN Economic Commission for Africa (UNECA) said Saturday that the continent must issue 'green debt' to balance budgets and increase climate resilience.

In an interview to Lusa by video-conference from Addis Ababa, the headquarters of UNECA, Jean-Paul Adam said that "the price and profit are often similar, but as most major investors have some objective related to individual goals in line with the Paris Agreement, and several countries have promised to invest in sectors that allow a reduction in carbon footprint, this 'green market' is an excellent opportunity for Africa," he stressed, noting, however, that this market is still very little developed on the continent.

"A green bond is just like the usual bond, but with the difference that there is a promise that the funds will be invested in sectors that contribute to the Sustainable Development Goals (SDGs) or are in line with the Paris Agreement targets to reduce emissions, or to protect areas or regions from climate change," explained the director of the technology, climate change and natural resource management department at UNECA.

Cape Verde was one of the countries that already issued 'green debt', in this case a municipality, which sought funds in international markets for social purposes, but Angola is also preparing to issue this type of debt at the end of the year.

"The goal is for the funds to be invested in sectors that contribute to environmental protection and climate resilience," he explained, noting that one of the advantages is that since there are institutional investors that have to invest part of the funds in sectors that contribute to the environment, this can be a very attractive option for African countries, which are facing economic problems as a result of the covid-19 pandemic and, more recently, the consequences of Russia's invasion of Ukraine.

Apart from the Cape Verde experience and the more developed markets of South Africa, Egypt, and Morocco, few African countries have issued this type of debt, which is linked to environmental objectives and which repays investors also in accordance with the commitments made by the debt issuer.

Of the $539 billion issued in 'green debt', only $8 billion was issued in Africa, which is less than 1% of the total market.

Asked about the reasons for the lack of use of this instrument that can bridge the difficulty African countries face in accessing international markets, Jean-Paul Adam replied that ignorance and complexity are the main reasons.

"The first reason for the low use of this market by African countries is that we have to recognize that these economies are very dependent on extractive industries, and investors and countries tend to look at what they have rather than what they could have," he said, also admitting that there is a lack of technical capacity to launch this type of debt, which is more complex precisely because it is still in its infancy on the African continent.

"The processes around green bonds are very complicated, there is no harmonized protocol, and so each time they issue, African countries have to discuss specific objectives with investors, and that creates an additional workload and effort compared to the usual debt issuance," he explained.

In addition, states can act as issuers of debt, which can then finance small and medium-sized enterprises that would otherwise have no access to the international market: "You can use this structure to create a new opportunity for SMEs, because an investor may consider it risky to invest directly in an SME, but the government can issue that debt and then channel it into small loans for various small businesses," concluded the UNECA official.