Mobilizing private finance: Unlocking the potential of Rwanda's businesses to drive climate change adaptation

Mobilizing private finance: Unlocking the potential of Rwanda's businesses to drive climate change adaptation

There is a strong expectation that the private sector will provide a large share of the US$100 billion per year in climate finance that world leaders have pledged to mobilize by 2020 under the UN Framework Convention on Climate Change (UNFCCC). Globally in 2014, two-thirds of the US$361 billion in financial flows relevant for mitigation in 2014 came from the private sector. Yet as little as 8% of that was invested outside the country where the finance originated – and only a small fraction reached the Least Developed Countries (LDCs).

It is thus important to whether it is realistic for LDCs to expect significant flows of private climate finance. This policy brief examines that question for Rwanda, focusing mainly on adaptation. It draws on a literature review and on interviews with 25 key stakeholders from ministries, agencies, international organizations, the private sector and civil society.

There are several practical challenges in boosting privatesector investment in Rwanda – in adaptation and overall. Along with the high cost of credit (interest rates up to 20%), there is the fact that the country is landlocked, which increases transportation costs and makes Rwanda dependent on its neighbours to facilitate trade and attract investments. Despite substantial efforts to ramp up power generation, the electricity supply is still inadequate, and exports are mostly limited to a few commodities.

Key findings:

  • Rwanda has prioritized private-sector investment in development and climate-related activities. It has laid out a clear vision in key policy and planning documents, but it has yet to create a strong enabling environment for private-sector investment in adaptation
  • little private climate finance for adaptation has been mobilized to date. Greater efforts and tailored incentives are needed to raise private-sector awareness of both climate risks and business opportunities related to adaptation. Development partners can play a key supporting role here
  • foreign direct investment plays a tiny role in Rwanda’s economy, and it is unlikely to make a major impact on adaptation in the country. Increasing FDI may be important to Rwanda from an economic perspective, but to increase private-sector investment in adaptation, the government and development partners should focus on empowering the Rwandan business community – much of it small and medium enterprises

 

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