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The UK has agreed to guarantee $2bn of the debt the African Development Bank (AfDB) has extended to governments on the continent, allowing the lender to free up finance for climate-related projects.

The additional lending capacity will be used to fund projects for climate resilience and renewable energy, Akinwumi Adesina, president of the Abidjan, Ivory Coast-based bank, said in interview last week. 

“That allows us to transfer some of our own assets, which we have on our sovereign loan books to the private sector,” he said.  “It will allow us to free up $2bn of additional financing headroom for the bank.”

The guarantees are a step towards meeting a financing gap that Africa, the continent worst hit by climate change, needs to meet to finance the strengthening of infrastructure such as roads and bridges. At the same time, its abundant solar and renewable power resources favour the development of greener energy. 

African leaders estimate that adapting to climate change — by fortifying coastlines against rising sea levels, combating desertification and building climate-resilient roads and bridges — would require an annual $33bn, according to the Global Center on Adaptation.

Earlier this month, Bloomberg News reported that the UK is considering guaranteeing at least $1bn of SA debt as part of an $8.5bn climate finance deal designed to cut the nation’s reliance on coal and drive a shift to green energy, citing people familiar with the situation. 

Some of this amount would apply to debt provided by the African Development Bank, the people said, asking not to be identified because the talks aren’t public. 

Adesina reiterated plans to help SA raise the $40bn his bank estimates the country needs to transition from coal. That plan, he said, would “leverage” off the $8.5bn offered to SA by the UK, US, Germany, France and the EU.

Still, he said, about $11bn in grants, concessional finance and guarantees would be needed to give effect to the plan, which Adesina said wouldn’t see SA incur more debt. 

“You cannot get to net zero with zero financing,” Adesina said. “We have a great plan, it’s a fantastic plan,” he said, without explaining how taking on further debt would be avoided. 

More stories like this are available on bloomberg.com


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