UAE announces $4.5bn finance initiative for clean energy projects in Africa

The UAE has pledged $4.5 billion to help speed up the development of clean energy projects in Africa.

Abu Dhabi’s clean-energy company Masdar, the Abu Dhabi Fund for Development, Etihad Credit Insurance, and Dubai-based renewable energy company AMEA Power will provide the funds.

Africa50, an investment platform established by African governments and the Africa Development Bank, has also joined the initiative, the UAE said at the Africa Climate Summit on Tuesday.

The platform, which was founded to help solve the continent’s infrastructure problems, will help to identify initial projects and connect with organisations responsible for putting those into effect, the statement said.

“This initiative builds on the UAE’s track record of commercially driven, innovative blended finance that can be deployed to promote clean energy in emerging and developing nations,” said Dr Sultan Al Jaber, Cop28 President-designate.

It will “prioritise investments in countries across Africa with clear transition strategies, enhanced regulatory frameworks and a master plan for developing grid infrastructure that integrates supply and demand”.

To reduce barriers to investment, countries must restore the financial sustainability of local utilities while modernising basic energy infrastructure, Dr Al Jaber said.

They should also clarify development processes, eliminate the red tape delaying market lead-time and eliminate restrictions to capital flows.

Masdar has pledged $2 billion of equity and will mobilise an additional $8 billion in project finance aimed at delivering 10 gigawatts of clean energy capacity through its Infinity Power platform in the continent by 2030.

AMEA Power will help fund five gigawatts of renewable energy capacity in Africa by the end of the decade, mobilising $5 billion, with $1 billion in equity investments, and $4 billion from project finance.

The Abu Dhabi Fund for Development will provide $1 billion of assistance to address basic infrastructure needs, while the Etihad Credit Insurance will provide $500 million of credit insurance to lower risk and unlock private capital.

The investments will catalyse at least an additional $12.5 billion from multilateral, public and private sources, Dr Al Jaber said.

The latest initiative falls under the UAE's Etihad 7 programme, which aims to raise public and private sector funds to invest in the development of Africa's renewable energy sector. It aims to achieve 20 gigawatts of capacity to supply 100 million people across the continent with clean electricity by 2035.

Africa’s installed renewable energy capacity is set to grow to more than 530 gigawatts by 2040, from about 54 gigawatts in 2020, according to the International Renewable Energy Agency (Irena).

Solar photovoltaic capacity will rise to 340 gigawatts and wind to 90 gigawatts.

On Monday, the UAE Carbon Alliance pledged to purchase $450 million in African carbon credits by 2030, as it seeks to connect the high-integrity supply of African carbon credits to high demand from the Middle East.

A non-binding letter of intent with the Africa Carbon Markets Initiative’s Advance Market Signal was signed by Sheikha Shamma bint Sultan, president and chief executive of the UAE Independent Climate Change Accelerators (UICCA), the climate change organisation said.

Africa could be a key supplier of green hydrogen to Europe, which is currently looking to diversify its energy mix following the reduction of Russian natural gas supplies, according to Rystad Energy.

More than 52 green hydrogen projects have been announced in Africa, with production set to reach 7.2 million tonnes by the end of 2035, the Norway-based consultancy said in a report in March.

Wind turbines operate at the West Coast One wind farm near Vredenburg in South Africa. Bloomberg

Developing countries require about $1.7 trillion per year in the clean energy sector but only managed to attract foreign direct investment worth $544 billion in 2022, Unctad, the UN intergovernmental organisation that promotes the interests of developing countries in world trade, said in its World Investment Report in July.

Africa will play a “fundamental role” in attaining the goals of the Paris Agreement on climate, officials said on Monday at the Africa Climate Summit.

The world must ensure that climate finance is more “available, affordable, and accessible” to all developing countries, including those in Africa, Dr Al Jaber, Kenya's President William Ruto and African Union Commission chairman Moussa Mahamat said.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

UAE announces $4.5bn finance initiative for clean energy projects in Africa

Platform will prioritise investments in countries with clear transition plans, says Dr Sultan Al Jaber