Climate change is already showing its teeth in certain regions of the world, and is on course to have an even greater adverse impact – in particular on lower income countries.
Guest blogpost by Tanja Havemann and Samiksha Nair from World Bank.
These countries are set to spend US$70-100 billion per year through to 2050 to adapt to the environmental changes wrought by climate change, according to World Bank estimates. People living in these countries will see their health, food security, productivity, and overall quality of life disproportionally impacted.
Yet, within this global threat lie opportunities for disproportionately high social and environmental impact and well as economic growth. In fact,more than US$6 trillion is at stake.
In the developing world, the market size in 15 emerging clean technology sectors – including renewable energy, energy efficiency, sustainable agriculture, clean water, and waste management – are estimated to reach up to US$6.4 trillion over the coming decade, according to a 2014 World Bank report. More importantly, US$1.6 trillion of that sum represents business opportunities for Small and Medium-sized Enterprises (SMEs), which are key drivers of high-quality job creation and competitiveness in technology sectors.
Within the sub set of emerging markets, Sub Saharan Africa will experience a 4-fold increase in total energy demand by 2040. More than 25% of this is expected to come from renewable sources, with large increases from solar and wind, according to a 2015 report by McKinsey & Company. On top of that, annual revenue from smart municipal solid waste management technology is expected to experience a 12.2% Compound Annual Growth Rate (CAGR) – primarily in emerging markets, according to IBM supported research (2014). This points to a coming surge in job creation; GreenCape estimates that the waste sector employs ca. 29,000 people and is worth over US$1bn in South Africa alone. SMEs in particular are set to benefit from these new opportunities, including agricultural technology that can help reduce post-harvest losses and improve household resilience, micro-grids to support affordable energy access in off-grid communities, and products to finance energy efficiency savings.
Capturing this value requires a concerted effort.
Realizing this tremendous potential requires SMEs and entrepreneurs to overcome certain obstacles, many of which can be linked to accessing appropriate forms of finance. ‘Green’ SMEs have to overcome very specific barriers – in addition to the existing traditional hurdles, such as small transaction size and limited capacity to source financing – including perceived technology and business risks, plus local financiers’ inexperience with clean technology products and business models.
So what can be done to tap into this growing market opportunity?
This is where our Climate Technology Program comes in.
The World Bank Group’s Climate Technology Program (CTP), focuses precisely on tapping latent market opportunity in green SMEs. Through a global network of Climate Innovation Centers (CICs) – currently, in Kenya, Ethiopia, Ghana, Morocco, South Africa, Vietnam and the Caribbean – CTP provides local entrepreneurs with the knowledge, capital, and access to markets they require to launch and grow their businesses.
To ease access to finance, CTP offers a menu of instruments to help emerging businesses avoid the so-called “valley of death” in early stage financing – in other words, the gap between small businesses’ immediate resources and the investment floor of most early stage financiers. These instruments include seed capital and de-risking facilities, the establishment of angel networks, and the design and testing of various investment facilitation models to link clean technology SMEs with global investors. Partnerships with social philanthropists and impact investors are essential for effectively growing this market in its early stages.
A couple examples: CTP has recently launched a deal facilitation program in South Africa, while in Kenya, the local CIC is pairing up with a new venture capital facility, designed to de-risk these investments through a first loss feature coupled with technical assistance offered by the Kenya Climate Innovation Center (KCIC).
With the right support and financing, local SMEs can turn climate challenges into opportunities of growth. The market is out there – $6.4 trillion strong. And so are solutions for easing the lives of millions of people impacted by climate change. It’s up to us to kickstart it.
To better understand how an institution such as the World Bank can contribute to bridging gaps related to clean technology financing, CTP is engaging with parties on both sides – investors and SMEs. The design, implementation, and refinement of these and other programs, will be an iterative process, and we look forward to engaging with partners to catalyze development of clean technology SMEs in emerging markets, as well as sharing experiences and learning. We invite interested parties tojoin our Forum Session, which will take place at the EVPA annual event on December 2nd in Madrid. This fast-paced session will be set up as a “Buy-a-Feature” game.
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