Context
CFA is a 4-year programme funded by the UK Department for Business, Energy & Industrial Strategy (BEIS).
Aims to identify and develop pipelines of bankable climate-related projects that can attract investment at scale from the private sector.
In 2017, Nigeria took part in the inaugural pilot CFA process The CFA initiative has since been extended to Mexico, Colombia, Peru, South Africa & Turkey.
Stakeholders involved
- Conceiver: Ian Callaghan Associates
- Funder: UK Government (BEIS)
- Neutral convener for the CFA process: Nigerian Economic Summit Group
Problem
- In middle income countries, a large proportion of green projects need to be financed from private sources as government funding sources are constrained.
- Three key barriers to private investment include: lack of pipeline of investment-ready projects, projects are seen as “risky” investments, and regulatory obstacles.
- There is also a critical gap in skilled transaction intermediation, i.e. firms which can assist project and business promoters to bring together the different forms of financial and non-financial support that are often required to be combined to bring schemes to market
Innovation
- New supply chain for climate finance which involves a ‘transformation’ phase where physical assets are turned into paper assets/term sheets that institutional investors from external markets would be willing (and permitted) to invest in.
- These highly rated paper assets such as green bonds are created via aggregation and de-risking of the physical assets that are deemed to be investment-ready. These paper assets are then distributed into mainstream institutional investment markets.
Timeline
Results and impact
- The pilot CFA initiative in Nigeria identified 15 projects worth approximately USD500 million for a range of sectors including emission reduction technologies, solar power, hydro, biogas, energy from waste, smart agriculture etc.
- To date, five projects seeking total investment of more than USD80 million have pre-qualified to receive guarantee instruments and are being considered further by potential investors.
- CFA facilitated engagement from various actors, namely the commercial banks in Nigeria and significantly improved dialogue between public and private sector actors, as well as their understanding of how to identify ‘bankable’ projects.
- CFA is able to mobilise investment from global institutions which deepens the pool of capital available for green projects specifically in development markets such as Nigeria.
Key lessons learnt
- The support of the Federal Governments of UK and Nigeria was an important precondition for the success of the CFA and must be maintained in the CFA Nigeria process going forward, in particular to help de-risk investments in SDG and NDC aligned projects.
- Establishing a relationship with all Ministries in Nigeria was key to the implementation of the CFA as well as with the private sector in the target country.
- Climate finance space lacked skilled intermediation. It was imperative for Nigeria to embed a neutral entity that could help financiers steer through the finance supply chain so that CFA could perform its function.