Japan will encourage companies to pursue decarbonization projects in Africa through a new financing and insurance framework designed to mitigate potential risks of doing business on the continent.

Japan’s state-owned Nippon Export and Investment Insurance (NEXI) will partner with the African Export-Import Bank (Afreximbank) this month to support the region’s decarbonization efforts. The two sides are expected to sign the agreement as part of the two-day Tokyo International Conference on African Development starting Saturday in Tunisia.

The conference will focus on economic development and cooperation in post-coronavirus Africa. Japan is preparing to announce measures to promote decarbonization in Africa at the event, which it will lead with the World Bank and others.

NEXI has invested in the Nairobi-based African Trade Insurance Agency as well.

Many businesses hesitate to make inroads into Africa, owing to political instability in parts of the continent. At least 30 of 54 African countries are rated in the riskiest of eight tiers by the Organization for Economic Cooperation and Development. Japan is looking to help insure loans by Afreximbank and big Japanese banks to decarbonization-related businesses on the continent through the new deal.

More than 90% of certain loans could be guaranteed by NEXI under the framework.

The framework is expected to apply to Japanese companies as well as African state-owned businesses. It will cover the development of renewable energy, including solar, wind and geothermal power, as well as transition projects aimed at reducing emissions in stages, such as through switching facilities in heavily coal-reliant countries like South Africa to run on natural gas.

The push for decarbonization is growing in Africa. Toyota Tsusho is involved in wind power in Egypt, as is Mitsui & Co. in Morocco. While economies in the region have slowed amid the COVID-19 pandemic, demand for electricity is expected to increase over the medium to long term as growth accelerates.

China has also actively financed infrastructure development in Africa. But it has been accused of leading recipient countries into a “debt trap,” taking control of key infrastructure when borrowers fail to repay their loans. Japan sees decarbonization as the next pillar of its cooperation with African countries and a way to bolster diplomatic ties.

Afreximbank serves as the key trade finance institution for governments in Africa. It plays a central role in sourcing coronavirus vaccines for the region. It has locations in Ivory Coast, Nigeria, Zimbabwe, Uganda, and elsewhere, and has extensive business contacts in the region.

Original article published by Nikkei Asia


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