Natural disasters are occurring with greater frequency and severity in Africa, with floods and droughts particularly devastating. Given governments' increasing fiscal constraints, the private sector has a critical role to play, and interest in increasing adaptation investments that will help Africa adapt economically to the new climate reality.

A solar-powered crop irrigation system that prevents crops from being decimated by drought. A crop insurance policy that guarantees farmers a livable income if yields fall dramatically due to a weather-related event. When we think of priority actions to take to adapt to climate change, such examples may not be the first ideas - but they should be, argues the IFC in a new Africa-based study that shows what the private sector could gain by making investments that reduce the damage caused by natural disaster-induced climate change.

While climate change causes many types of natural disasters, including biodiversity loss, landslides and fires, this study focuses on the most frequent and economically damaging to infrastructure and livelihoods, namely floods and droughts. Among the 43 African countries analyzed, all have experienced at least one drought or flood since 1990. The study concludes that there are in total up to $100 billion in potential initial adaptation investment opportunities, or $5 billion per year between now and 2040. This is an upper bound estimate, dependent on the investment being commercially viable with the necessary technologies available and a favorable investment climate.

A perhaps surprising result of the research is that much of the most promising investment opportunities are in low-income countries, including Eswatini, Malawi, Namibia, Niger, and Mauritania. In each of these countries, potential commercially viable investments could amount to more than 1% of their GDP in the initial year.

By addressing this topic, IFC distances itself from many previous climate adaptation estimates, which are cost-based or focused on traditionally public sector-driven investments - energy or transport infrastructure reviews, for example. In addition, the estimates include a clear definition of the investments covered and the methodology used, something that other studies often do not reveal. With African governments' budgets stretched and little fiscal space, public investment will not be sufficient to meet the continent's climate adaptation needs, further underscoring the need for private sector investments.

No continent has been more affected by climate change-induced natural disasters than Africa. Between 1990 and 2019, Africa experienced 1,107 floods and droughts, leading to 43,625 deaths and at least $14 billion in damage to crops, livestock, and property. The devastation has been greater even though Africa is also the continent that has contributed the least to climate change, responsible for only 3.8% of global greenhouse gas emissions.

When estimating potential initial investment opportunities on a country-by-country basis, a long-term return on investment of 8% was assumed, which is a threshold that IFC uses when considering whether to give the green light to new investments. For the purposes of the study, it was also assumed that floods and droughts in Africa will remain at current levels until 2040, although, as noted earlier, they are quite likely to become more common and severe, so the need for investment is likely to be even greater in most countries, in proportion to the greater severity of natural disasters.

The study provides disaggregated calculations for floods and droughts. While floods tend to have a more detrimental economic impact on affected populations as single events, droughts have been more common in Africa during the period studied (1990-2019). Cumulatively, droughts and floods have reduced African countries' GDP levels by 0.7% and 0.4%, respectively, since 1990, on average.

Climate adaptation action in Africa is an area with significant real and perceived investment risks that can serve as a disincentive to investors. These include uncertainty about the frequency and severity of future natural disasters and difficulties accessing adaptation technologies and long-term financing in many of the economies examined. This is where development finance institutions like the IFC can play a role by promoting more investment-friendly environments. For example, they can design risk-sharing facilities that encourage the private sector to invest more in green technologies, as well as smart and disaster-resilient platforms, infrastructure and services.

One example of an initiative that IFC has already taken to support private investment in climate adaptation is Netafim, a company specializing in micro-irrigation technologies that installed solar-powered drip irrigation systems on plots of land across farms in Niger. In addition to receiving the necessary equipment, farmers were trained in how to use the irrigation systems, while local traders, suppliers, and engineers benefited by being involved in the sale, distribution, and maintenance of the solar pumps and irrigation systems.

Niger, a low-income country with an economy heavily dependent on agriculture, is highly vulnerable to droughts and floods that can be devastating to crops. Severe flooding in the 2022 rainy season claimed some 200 lives and destroyed more than 30,000 homes.

There is an urgent need to increase investments in climate adaptation in Africa. It will be essential to keep in mind that climate adaptation is an investment opportunity for the private sector, not just a cost - and that Africa is where the need and potential are greatest. (Read here the original text)