Creating Jobs and Redefining Climate Finance in Africa/Malawi

26-06-2014

Most countries in Sub-Saharan Africa face significant challenges in-order to achieve the essential requirements for sustainable development such as reducing poverty, achieving the Millennium Development Goals (MDGs), changing unsustainable and promoting sustainable patterns of consumption and production, and protecting and managing the natural resource base of economic and social development. Poverty remains one of the most important social challenges on the continent with gender inequalities, unemployment, environmental degradation, food insecurity, and climate change contributing to and exacerbating poverty. Moreover, in most African countries agricultural exports and donor aid remain the key drivers of growth hence these countries are highly vulnerable to external shocks (including adverse weather conditions, and unpredictable and unreliable aid flows) whose impacts are further exacerbated by their weak implementation capacity to steer reforms within and across sectors. With the aforementioned issues in mind, nothing short of new innovative approaches and paradigms can put Africa on a sustainable development path.

Climate change is not only an environmental issue but actually a developmental issue that is globally considered as one of the most serious threats to sustainable development. Climate change therefore poses as an additional developmental challenge to Africa by making it impossible for the continent to achieve the Millennium Development Goals (MDGs), increasing poverty and increasing food insecurity. Moreover, since the vulnerability of communities to the impacts of climate change are influenced by poverty levels; socio-economic and political marginalisation; rapid population growth; increased pressure on natural resources (especially land and water); limited livelihood opportunities; and illness, it therefore becomes apparent that different strategies need to be deployed in-order to assist different communities to diversify their livelihoods and adapt to climate change. Whilst global policy makers have created many climate finance instruments such as the Clean Development Mechanism (CDM) to provide financial assistance to individuals and organisations to develop climate change mitigation and adaptation projects that also promote sustainable development, the Intergovernmental Panel on Climate Change’s Fifth Assessment Report suggests that such instruments have had limited or no effect in terms of poverty alleviation and sustainable development due to their inadequate focus on the structural inequalities and needs for equity among poor and non-poor people.

Creating jobs and reducing unemployment is without a doubt a major concern for many African governments, such as Malawi. With Africa’s high population growth rate and a burgeoning youth population, creating jobs is of utmost importance not only because unemployment can exacerbate poverty, inequality and the over-exploitation of natural resources, but also because unemployment can lead to social unrest, migration and security problems both internally and regionally hence affecting the perceptions and prospects for trade, investment and tourism on the continent. Whilst capital intensive sectors such as mining are able to attract foreign investors and improve the GDPs of countries, United Nations Development Programme MDGs Progress Reports (for Zambia, Tanzania, etc.) highlight that such sectors offer few employment opportunities for local communities hence do not address the fundamental problems of reducing inequality and creating jobs for the masses.

The good news is that Africa has the resources to turn things around and actually create the necessary jobs for its population whilst addressing the challenges as presented and exacerbated by poverty, unemployment, and climate change. For example, whilst the region has persistent energy (electricity) deficits which adversely affect the region’s economic growth, rate of industrialisation, and the productivity of capital and labour, studies by the World Wide Fund for Nature (Critical Materials for the Transition to a Sustainable Energy Future) and The International Renewable Energy Agency (Africa’s Renewable Future) show that the continent actually has sufficient renewable and non-renewable energy resources that can satisfy its local demand multiple times and also enable the export of energy to other world regions. The problem in this case is not a lack of resources but rather a lack of effective institutions and good business models to effectively utilise the potential.

In a similar way, the Global Entrepreneurship Monitor Global Report (2013) shows that Sub-Saharan Africa is the region with by far the highest number of people involved in early-stage entrepreneurial activity with countries such as Nigeria, Zambia, Malawi, Ghana and Uganda leading the world rankings. The continent therefore has a significant number of innovative and determined entrepreneurs that can create the much sought after jobs, as it is mainly a lack of government support and lack of financial backing that stand in the way of transforming these entrepreneurs and SMEs into viable inclusive businesses and social enterprises that can address the inequality and unemployment that is hampering the development of the continent. It therefore makes sense to develop and explore alternative financing modalities that are better suited to the socio-economic context of African societies and enterprises.

In Malawi, Seeds of Opportunity is a Non-Governmental Organisation that has set up the Job Creation Revolving Loan Fund (JCRLF) as a strategy to support the growth of inclusive businesses and social enterprises that have a high development impact and provide services to low-income consumers. The JCRLF provides an ideal framework to mobilise various resources such as donations and remittances from well-wishers and people in diaspora, to be directed towards the development of initiatives and enterprises that can create the desperately needed jobs to foster Africa’s development and investments.  With this in mind, once operational, the JCRLF (see model below) will be able to mobilise funds globally online and directly through refundable and non-refundable donations to be channelled to Malawian cooperatives, SMEs, social enterprises and individuals so that they will have the opportunity to access soft loans at below market interest rates which they can use to initiate projects and enterprises that create 1 or more jobs within 9 months of receiving the concessionary funding. The Fund is further sustained by loan repayments and donations from partners and well-wishers hence ensuring that the scope and benefits of the Revolving Fund continue to increase. Since in developing countries, poverty, unemployment, inequality and food insecurity are inextricably linked to a communities’ vulnerability to the impacts of climate change, the JCRLF therefore also intrinsically reduces the vulnerability of communities to various climate change impacts.

Whilst the approach adopted by the JCRLF cannot address all the sustainable development shortfalls in Malawi and Africa, it however can help in addressing some fundamental financing challenges by providing new avenues to mobilise financial support that can promote the development of inclusive businesses and social enterprises. Additionally, the JCRLF can also be linked to existing African development strategies in that the Revolving Fund is also a source of climate finance that can be a catalyst to leverage private resources and open new economic opportunities that can transform communities by aligning them to development pathways that can improve their resilience to the social, economic and political impacts of climate change.

Job Creation Revolving Loan Fund (JCRLF) Model

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