Climate Insider Brief:

• Recent years in Africa have witnessed significant growth in private sector funding, totaling over $3.4 billion since 2019. Despite this progress, there remains a substantial funding gap of $277 billion annually to achieve the continent’s climate goals by 2030.
• To address this gap, African countries must mitigate risks like currency instability and encourage investors to explore diverse climate initiatives beyond renewable energy. 
• Venture capitalists play a crucial role in providing essential capital for experimentation, with success stories such as MAX and Kubik showcasing the transformative potential of venture capital investment in climate tech.

When Ademola Adesina founded a startup to provide solar and battery-based power subscription packages to individuals and businesses in Nigeria in 2015, he encountered challenges in raising capital. Climate tech was still an emerging field in Africa, and the continent lacked the venture capital ecosystem seen in more developed regions. However, Adesina’s perseverance paid off, and his company, Rensource Energy, has since raised approximately $30 million, primarily from venture capital firms.

The landscape for climate tech startups in Africa has evolved since then, with private sector funding witnessing substantial growth. According to data from Africa: The Big Deal, these businesses have raised over $3.4 billion since 2019, reflecting a notable upward trend. Despite these strides, there remains a considerable gap to bridge, with an estimated $277 billion needed annually to achieve the continent’s climate goals by 2030.

To unlock further financing and address this disparity, African countries must tackle underlying risks such as currency instability, which can deter investor participation. Additionally, investors need to broaden their focus beyond traditional sectors like renewable energy and explore opportunities in flood protection, disaster management, and heat management. Diversifying funding methods is also crucial to support the diverse array of climate initiatives.

The significance of investment in the climate tech sector cannot be overstated. It provides essential capital for experimentation, enabling startups to navigate the uncertainties inherent in climate-related innovations. Venture capitalists, with their tolerance for risk and focus on long-term growth potential, play a pivotal role in this regard. As Brian Odhiambo, a partner at Novastar Ventures, aptly puts it, “Not everything has to succeed. But some will, and those that do will succeed in a massive way.”

Indeed, success stories abound within the African climate tech landscape. Companies like MAX, specialising in electric vehicles, and Kubik, which transforms plastic waste into sustainable building materials, exemplify the transformative potential of venture capital investment. Moreover, these funds facilitate collaboration between traditional and non-traditional sectors, fostering innovation and sustainability.

However, private sector financing in Africa still lags behind public financing, highlighting the need for concerted efforts to attract more private capital. While renewable energy technology garners significant attention, there is a pressing need to support more diverse climate initiatives. Sandy Okoth, a capital market specialist, emphasises the importance of understanding the nuanced funding models required for complex climate adaptation technologies.

Despite these challenges, there are signs of progress. Startups like Wetility, focused on energy access and reliability, have secured substantial funding to expand their operations. Investors are increasingly recognizing the economic benefits of climate adaptation solutions, paving the way for greater private sector involvement. Hetal Patel, director of investments at Mercy Corps Ventures, highlights the growing business case for adaptation investors, signalling a shifting tide in investment patterns.

Moving forward, a collaborative approach between the public and private sectors is paramount to unlocking further financing for climate initiatives. Maelis Carraro of Catalyst Fund advocates for diverse funding mechanisms that blend private and public sector resources. By de-risking investments and fostering innovation across various industries, such collaborative efforts can accelerate progress towards a more sustainable future for Africa and beyond.

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