Kenya needs extra Sh810bn annually for climate action - World Bank

Kenya will need to mobilise a significant portion of its climate action investment needs from the private sector, in a bid to meet its $62 billion (Sh9.4 trillion) climate financing commitment, World Bank has said.

The global lender said that the country will be forced to look to the private sector, where financing is more readily available, after it emerged that Kenya is currently only willing to mobilise 13 per cent of the amount.

Details contained in World Bank's Kenya's first Climate and Development Report (CCDR), show that the government estimates that delivering its updated Nationally Determined Contribution (NDC) will cost $62 billion (Sh9.4 trillion) and has committed to mobilise resources to meet 13 per cent of the cost.

The multilateral agency says that given the country’s reliance on public sector financing, either directly or as a conduit for international financing from development banks and donors, the government will need to explore a range of options to crowd in new sources of money.

Financing to increase Kenya’s resilience to climate change will require both domestic resources and expanding climate-compatible private investment in existing areas, such as livestock feed and trading.

“While filling the financing gap is imperative for climate-positive development, our estimation of investment needs for a few of key actions. For example, the additional capital investment needed to decarbonize power generation is nine percent of the investments needed without decarbonisation consideration,” the report reads in part.

World Bank says that the country will need around $5.39 billion (Sh810 billion) of additional financing per year.

Kenya is highly exposed to climate change, ranking 41st in the world’s most vulnerable countries, according to the Notre Dame Global Adaptation Initiative.

With its primarily rain-fed agriculture sector, levels of informality in the economy, and a slowdown in the structural transformation of the economy, Kenya is exposed to exogenous climate risks.

According to the report, to achieve and sustain upper middle-income country status, Kenya will need to accelerate the use of public policies, public investments, and private sector financing to increase productivity, reduce regional inequities, and align efforts to boost growth with its commitments to climate action.

“But for this market to grow, the government needs to address existing barriers, including limited access to suitable capital given traditional lending patterns, titling issues, high land costs in urban and semi-urban areas, and the slow adoption of alternative building materials,” said the lender.

World Bank says there are significant opportunities for mobilising private sector financing in the investment areas of restoring forest landscapes, where the economic benefits justify the investment.

The report notes that, however, Kenya is well positioned to accelerate private sector-led growth, and expand and explore the use of climate financing options.

These include carbon markets and risk transfer instruments in the short-term and debt instruments in the medium-term.

In 2018, Kenya invested a total of $1.53 billion in public climate finance and received an additional $0.97 billion in private climate finance, and around 80 per cent of all climate finance tracked flowed to mitigation sectors, such as energy.