Unlocking Climate Finance Potential for Climate Adaptation: Case of Climate Smart Agricultural Financing in Sub Saharan Africa

An additional 2.4 billion people – representing a one-third increase in the global population – will occur between 2013 and 2050 (FAO 2013). Further, the Food and Agriculture Organization (FAO) approximates the additional population will translate into a 60% increase in demand for agricultural production. Undoubtedly, agriculture is well-positioned to be a reliable basis for economic growth and poverty reduction. Conversely, the ongoing global environmental concern of climate change has adverse impacts on agriculture that is also a contributing factor to the drastically changing weather and climatic patterns. Consequently, for agriculture to satisfactorily feed the growing population, the current agriculture practices need to spiral into more adaptive hence sustainable practices. A breakthrough hinged on climate-smart 2064 E. M. Mungai et al. agriculture (CSA) approach that encompasses three perspectives: increasing productivity in a sustainable manner, enhancing adaptation/resilience, and mitigating the emission of greenhouse gases (GHGs) as emerged as a way to realize food security and achieve the developmental goals. Notably, 56% of Africa’s population will reside in urban areas by 2025 and half of the projected population growth will be in Sub-Saharan Africa (UNDESA 2019 and 2014). This entails that agriculture, specifically in Africa, has to undergo a major transformation to fulfill the intertwined challenges of achieving food security, reducing poverty, and responding to climate change without depletion of the natural resource base. Despite the common consensus on the potential for climate-smart agriculture in Africa, there is a conspicuous paucity in wholesome quantifiable empirical evidence. To fill this gap, this chapter looks into the potential for climate-smart agriculture in 14 select countries in SubSaharan Africa (SSA) representing East, West, Central, and Southern Africa. World Bank (2015) estimates that about 48% (approximately 450 million people) of Africa’s population live in extreme poverty, i.e., less than US $1.25 in a day. Also, 63% of Africa’s population lives in rural areas, wholly dependent on agriculture as a source of living (World Bank 2015). More than 60% of the African population works in the agricultural sector that accounts for about 25–34% of the continent’s gross domestic production (GDP). Conceivably, agriculture looms large in the African economy. Unfortunately, a collective report by FAO, IFAD, and WFP (2014) revealed that agricultural production is low leading to high food insecurity. A reason attributed to sluggish income growth, high poverty rates, and dilapidated infrastructure in the rural areas that impair market access. A situation further exacerbated by weak policies, civil unrest, periodical disease outbreaks, overlapping rules, poor coordination, and inept collaboration among institutions within the climate-smart agriculture realm. One in four people remains malnourished in Africa with a high prevalence of stunted and underweight children due to poor dietary quality and diversity, mostly among the poor. Increasing agriculture’s adaptive capacity will be necessary to prevent a slide back into poverty and hunger. Growth in agriculture is the most viable and equitable strategy to spur economic growth in Africa by reducing poverty and enhancing food security in Africa. However, it has to overcome the climate change-related challenges. For instance, Barkhordarian et al. (2012), Radhouane (2013), and IPCC (2014) postulated that the annual rainfall in Sub-Saharan Africa will possibly decrease by about 4–47% resulting in droughts and increased salinity. It resonates with Intergovernmental Panel for Climate Change observations that crop and fodder growing periods in both western and southern Africa will likely shorten by an average of 20% by the year 2050. Resultantly, there will be a 40% decline in cereal yield and an additional reduction in cereal biomass for livestock (Lobell et al. 2011). According to Hoerling et al. (2006) western, central, and southern Africa will record a decline in the mean annual rainfall of 4%, 5%, and 5%, respectively. In the rest of Africa, drought conditions will not only be more frequent and intense but also more long-lasting leading to an increase in the arid and semiarid area approximately to about 5–8% by 2080 (Elrafy 2009). As a factor attributed to the sensitivity of the current farming systems to drought, the cumulative crop yield decline across the continent is 101 Unlocking Climate Finance Potential for Climate Adaptation: Case of... 2065 forecasted at 50% by 2020. Thornton et al. (2008) contend that the net revenues from crops may likely fall by about 90% by 2100. Further, both agropastoral, pastoral, and mixed-crop livestock systems will potentially be affected by a constraint of animal feed and water in addition to advancing pest severity and disease distribution (Thornton et al. 2008). Against such a grim picture, there lies an excellent opportunity with CSA for transformation by collating agriculture, economic growth, and climate change under the umbrella of sustainable development. Four agroecological zones in SSA serves as case studies for underlying CSA investment potential. To facilitate CSA adoption in developing countries, respective governments’ have claimed their right to public grants with lesser regard to private financing (Pauw 2014). The latter predisposition of the developing countries is in line with the United Nations Framework Convention on Climate change (UFCC) principle of “the polluter pays.” The approach implies that developed countries should play a greater role in providing climate adaptation finance for being major contributors of climate change. Bindingly, developed countries pledged US $100 billion every year from 2020 onwards (UFCC 2011). A target that Pauw et al. (2015) doubts if it will be met, actually UNEP FI (2009) postulates that public funding cannot sufficiently finance climate change adaptation costs. Pauw (2014) proposes that the private sector can supplement but not substitute public investment in climate finance. Observations by UFCC (2007) approximated the global private sector investment and financial flows at 86%. Further, SER (2011) cite that 90% of the population in emerging economies depends on the private sector as a source of income. Pauw and Pegels (2013) argues that the private sector can play a potentially significant role in adaptation engagement. As a result of the private sector potential, it was included as one of the finance sources. However, as put forward by Surminski (2013), the evidence base – reasonable activity, predictable returns and acceptable risk for private sector investment – is limited (Christiansen et al. 2012). This chapter will contribute to the extant literature in twofolds. First is a pioneering academic exploration into quantifying the investment potential and the funding gap in climate-smart agriculture in Africa. This is unlike recent work of Tran et al. (2019) that focused on determinants for the adoption of CSA technologies in developing countries and Pauw and Pegels (2013) with a reflection on the role of the private sector in developing countries. This chapter also digresses from a study by Zougmoré et al. (2018) and Nciizah and Wakindiki (2015) that looked into the prospects and the achievements of CSA in Africa. Secondly, unlike past generalizations on the areas that need climate financing, this chapter will identify the financial, regulatory, and policy barriers hindering private sector investment into CSA projects in Sub-Saharan Africa. In general, this work will add to the ongoing research on the conceptual clarity of private sector engagement in climate adaptation in developing countries (Pauw and Pegels 2013; Pauw 2014). Based on the selected sample, this work found out that the highest climate-smart agriculture finance potential (in USD billion) lay with Ethiopia at USD 26 billion, distantly followed by Nigeria at USD 17 billion, and further down is Kenya at USD 9 billion which is almost the same case for Madagascar at USD 8 billion. Interestingly, CSA was termed as more investor-friendly, receiving a cumulative investment of 2066 E. M. Mungai et al. USD 79 billion in the 14 countries. Notwithstanding the CSA potential, the sector faces several challenges including inadequate financing, weak policies, and knowledge gaps within the key institutions. Nonetheless, there is a 98% untapped climatesmart agriculture investment potential that the private sector can exploit through climate financing. The remainder of this chapter proceeds as follows. The second section will provide an elaborate literature review while the following section will look into the methodology that was used to come up with the conclusions and recommendation. Finally, the chapter will conclude by presenting the conclusion and recommendations.