Agriculture plays a dominant role in the economies of sub-Saharan African countries though productivity has historically lagged behind other regions. In the past two decades, agriculture has been re-prioritized in policy and governments are increasingly mobilizing funding from diverse sources to finance agricultural development projects. EPAR previously published research in May 2021 describing the development financing landscape in sub-Saharan Africa with a focus on major international financial institutions (IFIs). This dataset has been updated and expanded to reflect project funding as of May 2022 with a new emphasis on climate-related work as a subset of all agricultural financing. The revised dataset provides a deeper view on one aspect of climate development finance.
Emerging Emphasis on Climate Within Agricultural Financing
Our focus on climate spending within agricultural financing is motivated both by increasing threats from climate change to small-scale producers and by the resulting pressure on governments and international organizations to take swift action and to mobilize public and private resources to support climate adaptation and mitigation in low- and middle-income countries.
The Organisation for Economic Co-operation and Development (OECD) has long tracked official development assistance (ODA). In recent years, the OECD began tracking project-level data on climate-related ODA in all sectors. OECD’s database reveals increasing commitments from all funders for climate-related agricultural work in SSA in the last decade (Figure 1).
Figure 1. Climate-related funding to sub-Saharan Africa for agriculture projects, 2000-2019 (in 2019 $ USD)
Constructing a Novel Agricultural Financing Database
Building on earlier work, EPAR constructed a dataset on International Financial Institutions’ (IFI) financing of agricultural projects tagged for climate components. We specifically focus on funding from multilateral development banks (MDB) – a type of IFI that is funded by donor countries and provides grants and concessional loans to low- and middle-income countries. The database covers three major MDBs, the World Bank (WB), African Development Bank (AfDB), and International Fund for Agricultural Development (IFAD). The database helps answer the following research questions:
- What proportion of agriculture-related lending across the three multilaterals of interest has a climate component?
- Which countries are borrowing most for climate-related agricultural projects? Is the amount of borrowing correlated with a country’s climate risks
As in our previous work, we collected data on current1 financing projects from each of the selected multilaterals’ websites and used project sector data to categorize projects related to rural agriculture economies. We also used a keyword search method to identify climate-related projects, which is more replicable than OECD climate tagging methods that vary across funding institutions and rely on donor reporting. Additional data processing included standardization of funding amounts to 2019 USD and annualization of financing amounts based on project duration. Our dataset ultimately contained 1,846 unique projects (Figure 2).
Figure 2. Projects identified as being related to climate, rural agricultural economies, and on-farm activities among all multilateral financing projects.
Analysis of Climate-Related SSA Agricultural Financing
Among the 505 multilateral funding projects related to rural agricultural economies that were active in May 2022, 89 (18%) have a climate component. In terms of dollars committed to climate-related projects, IFAD commits 3.5%, or $20.6 million, of its average annual funds to climate-related projects; the World Bank commits 11.5%, or $590 million of agriculture-related funds, to similar projects, while the AfDB commits 29.8% and $243 million of agriculture funding to climate-related projects (Figure 3).
Figure 3: Proportion of climate-related (orange) rural agricultural spending by multilateral institutions.
At the country level, annual average borrowing amounts from these IFIs for climate-related rural agricultural economy projects varies widely across sub-Saharan Africa. The largest borrowers include Ethiopia ($150 million), Nigeria ($105 million), and Kenya ($102 million). Botswana and Zimbabwe borrowed the least for climate-related rural/agriculture work: $542,000 and $216,000, respectively. The proportion of climate-related rural agricultural borrowing as a proportion of all rural agriculture borrowing also varies substantially across sub-Saharan Africa (Figure 4). The Seychelles and Eswatini have devoted the largest proportions of active rural agricultural borrowing toward climate investments (100% and 69.8%, respectively) as of May 2022. Many countries devote between 15% and 30% of rural/agricultural borrowing to climate-related projects (N = 14) and several countries in our dataset have not received any multilateral financing for climate-related rural/agricultural economies projects (N = 15).
Figure 4: Proportion of average annualized borrowing (2019 USD) for climate-related rural agricultural economies projects among all rural agricultural funding by country.
A simple OLS regression between the climate-related proportion of a country’s annual rural agricultural borrowing and its level of climate risk as measured by its average 2000-2019 Climate Risk Index (CRI) from Germanwatch2 did not detect any relationship.
Novel Contribution and Future Directions
This work provides a snapshot of current funding for rural agriculture from three IFIs to sub-Saharan Africa. Our descriptions of climate-related financing within the agricultural sector may, to some extent, reflect government and IFI priorities in response to growing climate threats. The EPAR IFI dataset is a rich resource of project-level information with agricultural and climate tags that may be utilized for analyses beyond our own. In the future, we aim to update this work to include projects from additional types of donors (bilaterals, private donors) and incorporate additional drivers of financing and measures of climate risk.
The technical report and dataset for this work can be accessed here.
1 Project data were collected on May 4, 2022. Project data published on the multilaterals’ websites after this date are not included in our analysis nor are projects that had closed by that date.
2The CRI is an established index that indicates an historical “level of exposure and vulnerability to extreme weather events, which countries should understand as warnings in order to be prepared for more frequent and/or more severe events in the future” (David Eckstein et al., 2021). The CRI does not include vulnerability to slow-onset changes like rises in sea level or warming ocean temperatures. The 2021 CRI report includes a 2019 index as well as an average 2000-2019 index for each country. In this analysis, we use the average 2000-2019 index to capture historical risk and reduce the impact of large single-year climate events on our analysis.
Credits
By Helen Ippolito
Summarizing original EPAR research by Didier Alia, Leigh Anderson, Kelsey Figone, Basil Hariri, Helen Ippolito, and Federico Trindade.