Innovative Financing Mechanisms for CRMs Development

Most OACPS countries face significant challenges in accessing international financial markets due to high borrowing costs and perceived investment risks. This bottleneck hinders the necessary investments in critical raw materials (CRMs) crucial for renewable energy equipment and electric vehicles (EVs).

Hervé LOHOUES, Lead Economist, Country Economics Department (ECCE),
African Development Bank (AfDB),

According to AfDB’s Hervé LOHOUES, options of innovative financing instruments include:

  • Blended Finance
    Blended finance combines concessional funds (from public sources) with private sector capital to reduce investment risks and enhance project bankability. This approach can attract private investment by mitigating risks associated with CRM projects in high-risk countries. For instance,the AfDB’s Africa Growing Together Fund (AGTF) partners with China to blend concessional and non-concessional funding to support large-scale infrastructure projects in Africa.Another example is the Alliance for Green Infrastructure in Africa (AGIA). This is an African execution-led solution that seeks to generate, finance, and execute projects with the private sector, to accelerate the Continent’s transition to Net-Zero through a cohesive and inclusive approach to climate finance. The Initiative is led by the African Development Bank, African Union Commission (AUC) and Africa50. The goal is to raise USD 500 million of early stage blended finance capital to catalyze up to USD 10 billion green infrastructure opportunities for private sector investment in Africa.
  • Green Bonds and Climate Bonds
    Issuing green bonds and climate bonds can raise capital specifically for projects that have environmental benefits, including those in the CRM sector. These bonds appeal to investors looking for sustainable investment opportunities. In 2018, the AfDB issued a $500 million green bond to finance renewable energy projects, demonstrating the potential of green bonds in mobilizing resources for sustainable initiatives.
  • Public-Private Partnerships (PPPs)
    PPPs can mobilize private investment while leveraging public sector support for CRM projects. These partnerships can share risks and rewards, making investments in high-risk areas more attractive. The AfDB has supported several PPP projects in the energy sector, such as the Lake Turkana Wind Power project in Kenya, which combines public funding and private investment to develop renewable energy infrastructure.
  • Development Finance Institutions (DFIs) and Multilateral Development Banks (MDBs)
    DFIs and MDBs can provide long-term financing and guarantees to reduce the perceived risks of investing in CRM projects. They can also offer technical assistance and capacity building.The AfDB’s African Development Fund (ADF) provides concessional funding and technical assistance to the continent’s low-income countries, supporting projects that contribute to economic development and poverty reduction.
  • Sovereign Wealth Funds (SWFs)
    Countries can establish SWFs to manage revenues from natural resources. These funds can be used to invest in CRM projects, ensuring that resource wealth contributes to long-term economic stability. The Minerals Investment Fund in Ghana recently invested about US$33 million in a lithium project.
  • Impact Investment Funds
    Impact investment funds target projects that deliver social and environmental benefits alongside financial returns. Such funds can support CRM projects that align with sustainable development goals. The AfDB’s Sustainable Energy Fund for Africa (SEFA) supports small and medium-sized renewable energy and energy efficiency projects, demonstrating how impact investment can drive sustainable development.