OPEC FUND QUARTERLY 1 2025 Mission 300 Joining forces to connect Africa to The OPEC Fund for International Development
electricity See page 14
SIDS SUMMIT 2025 Mobilizing international support for an urgent global task
The future of multilateralism is clearly in question. Professor Cédric Dupont, Geneva Graduate Institute
Could tariffs bring down the shutters on the Global South?
The OPEC Fund Quarterly is published four times a year by the OPEC Fund for International Development. The OPEC Fund works in cooperation with developing country partners and the international development community to stimulate economic growth and social progress in low- and middle-income countries around the world. The organization was established by the member countries of OPEC in 1976 with a distinct purpose: to drive development, strengthen communities and empower people. The OPEC Fund Quarterly is available free. If you wish to be included on the digital distribution list, please contact us via opecfund.org . Back issues of the magazine can be found on our website. The contents of this publication do not necessarily reflect the official views of the OPEC Fund or its Member Countries. Any maps are for illustration purposes only and are not to be taken as accurate representations of borders. Editorial material may be freely reproduced, providing the OPEC Fund Quarterly is credited.
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EXECUTIVE EDITOR Nadia Benamara EDITOR Axel Reiserer EDITORIAL TEAM Angus Downie, Howard Hudson, Mahdi Rahimi, Axel Reiserer, Nicholas K. Smith PHOTOGRAPHS Abdullah Alipour Jeddi (unless otherwise credited) PRODUCTION Iris Vittini Encarnacion DESIGN Robin Turton, More Tea Design Ltd PRINTED IN AUSTRIA Print Alliance HAV Produktions Gmbh
This publication is printed on paper produced from responsibly managed forests. Front cover illustration: Oleksandr Drypsiak/Shutterstock; klyaksun/Shutterstock; Soloma/Shutterstock; Tarikdiz/Shutterstock; Robin Turton
CONTENTS
5-19 TARIFFS AND TRADE Cover story: What does the new world order of taxes, duties and levies mean for the Global South?
6-10 The impact of tariff changes on low-income and middle-income countries 11-13 WTO: The guardian angel of trade 14-15 Powering up Africa: OPEC Fund joins Mission 300 to help connect the continent to electricity 16-17 Navigating the new climate era: Wall Street wades into uncharted waters 18-19 Op-ed Gernot Wagner: To help scale climate finance, MDBs must seek replicable leverage
Tariffs, Trade and Development
IN OTHER SECTIONS
In the Field 20-21 The OPEC Fund in Côte d’Ivoire: Tracing the cocoa value chain from farm to factory – and beyond
Development News 28-31
Review 38-41 Interview Jostein Hauge: The economist discusses his book The Future of the Factory: How Megatrends are Changing Industrial- ization
New OPEC Fund projects in Burkina Faso, Egypt, Malawi, Montenegro, Paraguay, Türkiye and Uzbekistan Events 32-37 32 The Water Development Financing Forum for MENA in Kuwait 33 The Financial Afrik Award, Côte d’Ivoire 34–35 The World Goverments Summit in Dubai 36 The AlUla Conference for Emerging Market Economies in Saudi Arabia 37 The OPEC Fund mission in Indonesia; Vienna hosts International organizations
Spotlight 22-27 22–24 When small means
vulnerable: The OPEC Fund’s initiatives to address the multiple
The Back Page 42 The OPEC Fund 2024 results: A record year as a statement of intent
challenges faced by Small Island Developing States 25–27 A pplying AI for the future of SIDS The case for developing island knowledge economies
EDITORIAL
WHEN TRADE IS JUST A GAME
Dear Reader, A few weeks ago, the Americans established a new trade route with China and exchanged key scientific discoveries, enabling both to economically advance in a mutually- beneficial way. The French and Japanese, not wanting to be left out, worked to establish their own trade connections with the two superpowers in order to better their respective economic futures. This wasn’t something that happened in the real world of course, but a scenario this editor was playing out in a video game: Civilization . Earlier this year, the seventh version of the long-running video game series was released, commonly known as Civ 7 . Debuting in 1991, Civilization is a strategy game which functions much the same way as a complex board game: each player represents a civilization, embodied by a historical figure who acts as advisor and in-game avatar. Players take turns moving their pieces to harvest resources, build cities, battle opponents and discover new technologies. All of which with the goal of advancing from the Stone Age to the Space Age. Yet what makes the Civilization series unique is the different pathways to “winning” the game. Besides the military-style victory found in many strategy games, one can win the game by achieving a cultural, scientific or an economic victory. It’s that last one that seems most relevant at the moment. The global economy is the biggest story of the year and the one that affects everyone on the planet. Yet winning Civ 7 in an economic way is often the hardest to accomplish (not unlike in the real world). By the
end, the victor must be the first to establish a World Bank office in each capital city. Getting there requires a long process of resource management, cooperation, conflict de-escalation and technological development. The Civilization series has a lot to teach us about the current moment, especially as it relates to international trade. Everyone will be familiar with the strain that comes from a price increase to a commodity such as gasoline or a product such as an iPhone, but not everyone will be familiar with the macroeconomic impacts of what can happen during a trade war. In the real world, we are all just “along for the ride” when it comes to the decisions world leaders make. But video games like Civilization offer the player a chance to enact their own “what-if” scenarios when it comes to trade policies (trust me that this is more fun than it sounds). Want your civilization to get rich quick? Open up merchant-friendly road and sea routes. Don’t like the neighboring player and want to flex your might? Invade, don’t trade! Want to see what happens, as I did, if the USA and China cooperate more? Each of the various scenarios offers a lesson for today’s world. Playing the game in a way that promotes free trade boosts the economy for everyone, which sometimes creates economic rivals but helps guard against conflict, since no one wants to bite the hand that feeds them. Positioning yourself as a hermit kingdom on the other hand may dampen your opponent’s economic prospects but often at the expense of your own too, plus every other player will be mad at you.
In this issue, we take a look at what will likely be the 2025 Word of the Year: tariffs. The T-word doesn’t feature prominently in Civ 7 , though it was a mechanic in an earlier version of the game, where applying a trade tariff rewarded your civilization with more gold, but penalized you with reduced production. In this latest issue of the OPEC Fund Quarterly we look into how increased tariffs will impact low- and middle-income countries, as well as what it would look like if those tariffs were cut (p. 8). The World Trade Organization evolved from the idea that trade generates global prosperity. As the world seems to be moving away from the long-established multilateral trading system, find out if the international organization is able to meet the moment (p. 11). It’s not all doom and gloom though. “Climate technologies can only get better and cheaper over time,” writes Columbia University Climate Economist Gernot Wagner (p. 18) in an op-ed for our magazine. “The task for MDBs and climate finance more broadly is to speed up the all-but-inevitable.” On page 20 we travel to Côte d’Ivoire to look at a success story in action: how the country’s cocoa supply chain is delivering its goods around the world.
International trade might be a difficult game in the world of
Civilization , but in our civilization it is one that can easily be won, if only the players can play together. We wish you a profitable – and tariff- free – read.
Nicholas K. Smith, Editor
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COVER STORY
TARIFFS AND TRADE IN THE GLOBAL SOUTH
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TARIFFS, TRADE AND DEVELOPMENT
When used hastily, they can wreak havoc in many ways – for both developed and developing economies By Angus Downie, Senior Economist, OPEC Fund WORD IN THE DICTIONARY” WHY TARIFF IS NOT “THE MOST BEAUTIFUL
T ariffs, or taxes, duties or levies on imports and exports, have been placed center stage following the Trump administration’s imposition of sweeping tariffs on goods from countries across the world, wiping off trillions from stock markets around the world and unleashing a global trade war. When used prudently, tariffs can play a crucial role in shaping balanced international trade and economic development. However, when used hastily, they can wreak havoc in many ways – for both developed and developing economies. A large part of the reason for the Trump administration’s tariff increases is explained by an attempt to protect US workers, create more employment and place “America First”. However, by reducing foreign competition, not only is US consumer choice limited but local quality can fail to keep up with
Large tariff increases tend to hurt local consumers at the expense of domestic industries, while developing countries lose out from foregone revenues.
foreign improvements. Large tariff increases therefore tend to hurt local consumers at the expense of domestic industries, while developing countries lose out from foregone trade revenues driven by lower market access via their exports to developed economies. This effect is particularly pronounced when tariff increases are unilateral rather than reciprocal. Changes in tariff policies can significantly affect low-income and middle-income countries, albeit in different ways due to variations in
their economic structures and trade compositions and relations. Low-income countries typically rely on exporting raw materials and agricultural products, whereas middle-income countries are more involved in the production and export of manufactured goods and services. This article delves into some of the impacts of tariff changes on these two country groups, focusing on how they influence trade balances, economic growth and social welfare – all generally for the worse of these countries.
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Issues about US tariffs
They are large The scale of the Trump administration’s tariffs launched on “Liberation Day” are huge – the highest US trade barriers since Smoot-Hawley in 1930. 1
The importer pays Tariffs are a tax levied on goods that cross the border. Although the importer pays, who bears the ultimate cost is more complicated. 2
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High tariffs undermine sentiment Higher import prices raise production costs for domestic firms, offsetting the increased output of those that benefit from protection. Higher costs for shoppers reduce their real incomes and hence their spending power. This effect already seems visible in a plunge in US consumer sentiment. 4
Initial small net effect If imposed at the current levels, US tariffs could raise around
US$600 billion for the US Treasury. However, this is less than one third of the expected US$1,865 billion US federal government deficit in 2025.
Tariffs do not resolve fiscal pressures, which are a much larger problem.
Dual interest rate effect The damaging effects of tariffs on the supply capacity of the US economy puts upward pressure on US interest rates (which set lending rates globally). At the same time, rising investor uncertainty stemming from President Trump’s actions lowers investment decisions and imparts downward pressure on rates through lower credit demand. 7
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Inflationary impact #2 Following the COVID-19 pandemic-related rise in prices, a tariff induced price increase would lead to further, higher wage demands and second- round effects. 6
Inflationary impact #1 US goods imports account for
approximately 10 percent of GDP. An average 10 percentage point increase in tariffs is likely to raise consumer prices by around 1 percentage point, according to the Federal Reserve Bank of Boston, adding further pressure
onto the Federal Reserve’s 2 percent inflation target.
Tariffs are not the solution #2 The USA has a trade deficit because it persistently consumes more than it produces at full employment. To cut the deficit requires efforts to generate a recession, which would reduce demand for imports – but this is politically unrealistic. 9
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Tariffs are not the solution #1 The USA is a very closed economy: total goods trade was 19 percent of GDP in 2023, compared with 53 percent in Canada. This is despite President Trump’s rhetoric that imports are destroying US jobs and “killing America.”
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Illustration: Antonov Maxim/Shutterstock; javieruiz/Adobestock
TARIFFS, TRADE AND DEVELOPMENT
Differences in trade composition
Low-income countries often depend on a few key low value-added commodity exports and face challenges in trying to move up the value chain such as limited industrialization, weak infrastructure (particularly energy) and low labor productivity. In contrast, their imports largely consist of essential goods, including machinery, pharmaceuticals and food products that cannot be produced domestically due to the limitations above. Middle-income countries, in contrast, have more diversified economies. They export a combination of raw materials, manufactured goods and, increasingly, services such as IT, tourism and financial services. They also import intermediate goods for production, making them more integrated into global value chains. These differences in trade structures mean that changes in tariff policies affect each group in distinct ways.
percent of the US trade deficit covered just three countries: South Africa, Nigeria and Ghana. These countries’ primary exports, notably platinum and crude petroleum, are critical resources for which there is high demand in the USA, which would appear to make tariffs self-defeating. However, many Sub-Saharan African countries that displease President Trump have had broad, sweeping tariffs imposed upon them – South Africa for example due to its land reform policies, highlighting that tariff policy may be dictated by more than economics. Furthermore, by imposing tariffs on South Africa, it is effectively imposing tariffs on most of Southern Africa: Zimbabwe and Botswana, which are landlocked, and Namibia, which does not have access to sophisticated ports, all tend to trade through South African ports. There would be negative economic repercussions for most of the region. Meanwhile, now that the USA is waging a trade war on China, this will likely slow China's already under performing economy. More substantial decreases are not ruled out should the USA increase tariffs further or bring in more measures such as ending the US designation of Permanent Normal Trade Relations (successor to the most-favored nation status) with China, which dates back to 2000 and is under renewed attack from within the US political system. Weaker growth in China could be particularly felt by Sub-Saharan African countries such as Zambia, Angola and the Democratic Republic of the Congo, which rely on Chinese demand for copper, oil and cobalt. A weaker Chinese economy would likely dampen demand for these commodities, potentially leading to lower prices on global markets and revenue losses for African exporters. More broadly, Africa collectively could also suffer from any bid to alter or repeal the US trade deal, the African Growth and Opportunity Act (AGOA).
Impact of tariff increases
exporting intermediate goods that are processed elsewhere. If tariffs increase in key markets their competitiveness declines and multinational corporations may shift production to countries with more favorable trade regimes. On the import side, middle-income countries often rely on foreign inputs for their manufacturing sectors. Tariff increases on these inputs also raise production costs, reducing competitiveness in domestic and international markets. While these countries have more policy tools to adapt compared to low-income countries such as trade diversification and industrial upgrading, these take time to implement so rising tariffs still pose significant short-term challenges.
Low-income countries When tariffs rise in developed
economies, low-income countries suffer disproportionately due to their reliance on exporting primary commodities. Higher tariffs on their exports of goods reduce demand in developed economies because of the higher price consumers face. This leads to lower export revenues, which undermines the trade balance (the net of exports and imports) assuming that low-income countries’ imports remain relatively stable. Given that these nations have limited fiscal space and low industrial diversification, they struggle to adjust to these shocks. Additionally, since low-income countries import a large share of their capital goods, higher tariffs on these products can slow industrial development. Increased import costs raise production expenses, making it harder for local businesses to compete. This can lead to slower economic growth, reduced foreign investment and weaker employment opportunities. Ultimately, we can expect to see these negative effects reflected in stagnating or decreasing GDP per capita, which in many OPEC Fund low-income partner countries is already very low. Middle-income countries For middle-income countries tariff increases on their exports, especially on manufactured goods, can disrupt their integration into global supply chains. Many middle-income nations rely on
Africa caught in the crossfire Many observers decry the tariffs
imposed on Sub-Saharan Africa as the USA runs only a small trade deficit with the continent – US$7.4 billion in 2024 compared to a deficit of almost US$300 STOP
billion with China in the same year. Of this, around 85
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COVER STORY
A US trade war on Beijing could slow the Chinese economy by 0.7 percent in 2025.
Impact of tariff reductions
approved by the United States in 2000. After completing its initial 15-year period of validity, AGOA was extended in June 2015 by a further 10 years to 2025. Similarly, the European Union’s Everything but Arms (EBA) scheme that was launched in 2001 removes tariffs and quotas for all imports of goods (except arms and ammunition) coming into the EU from all low-income countries. Middle-income countries For middle-income countries, tariff reductions can enhance competitiveness by lowering the cost of imported
inputs and improving access to global supply chains and markets. Given their more diversified economies they are better positioned to take advantage of trade liberalization. Lower tariffs on manufactured goods and services enable them to expand exports, increase investment and integrate further into global supply chains. In addition, many countries have successfully pursued efforts to reduce or offset the impact of tariffs, although past performance is no guarantee of future success (see next page).
Low-income countries The rush by the Trump administration to impose blanket tariffs on a wide range of countries counteracts the positive development effect that reducing tariffs can have. Lower tariffs as offered by developed economies have benefited many low-income countries by improving market access to developed economies for their exports: Sub-Saharan Africa’s trade was boosted enormously by the Clinton administration’s African Growth and Opportunity Act (AGOA),
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TARIFFS, TRADE AND DEVELOPMENT
What options can be used to reduce or offset tariffs?
Exemptions from duties These may be harder to secure compared with President Trump’s first term given that he has promised “no exceptions”. Moving production from China to elsewhere in Southeast Asia may not shield firms from tariffs, particularly if President Trump follows through with his threat of applying “reciprocal” tariffs to those Southeast Asia countries.
Tariff engineering #1 This includes tweaking products to change their official classification. Duties can vary significantly even when merchandise appears similar. Simply adding a layer of fabric on a shoe insole or adding pockets below the waist on a blouse can move a product into a category for which tariffs are lower.
Tariff engineering #2 Changing where a product ostensibly comes from. Although the raw material can be processed in one country, most of the production can take place in China, with the finished goods then sent back to the original country for testing and packaging. Designing supply chains so that just enough production happens in a place that benefits from lower tariffs is cheaper than shifting manufacturing in its entirety and allows firms to be nimbler if new tariffs are imposed.
Other options The “first-sale” term, created by a US court ruling in 1988, allows importers to value goods based on the price charged by the manufacturer, rather than the higher ones charged by middlemen prior to import. To preserve cash, companies can also delay the payment of tariffs by using “bonded warehouses” that allow companies to store goods without paying duties until they are sold, as well as “temporary import bonds” for goods that are set to be re-exported.
Since 1990, only 34 middle-income economies have moved up to high-income status.
In conclusion
However, excessive reliance on tariff reductions without complementary policies (such as industrial development and technological upgrading) can leave middle-income countries vulnerable to external shocks. For example, if they rely too heavily on
Tariff changes have varied effects on low-income and middle- income countries due to differences in trade composition and economic structures. While higher tariffs generally harm both groups by reducing export competitiveness and raising import costs, the specific impact depends on their trade profiles. Low-income countries, with their dependence on primary goods, struggle more with external shocks, while middle-income countries face challenges in maintaining their position in global supply chains. Conversely, tariff reductions can create opportunities but also expose domestic industries to stiff competition. Not surprisingly, to maximize benefits, both country groups must adopt policies that enhance industrialization, diversify trade partners and invest in infrastructure and human capital. There are also options to help reduce or offset the impact of tariffs, but these can be complicated and are not a permanent or viable solution for all low-income countries. With all the uncertainty that has recently been generated, further disruptions can be expected, with low-income countries and to a lesser extent US consumers paying the price of President Trump’s unorthodox approach.
importing high-tech products while exporting low-value goods, they may face long-term developmental challenges as highlighted in the World Bank’s World Development Report 2024: The Middle-Income Trap 1 published in August 2024. It finds that as countries grow wealthier, they usually hit a “trap” at about 10 percent of annual US GDP per person – equivalent to around US$8,000, which is in the middle of the range of what the World Bank classifies as “middle-income” countries. Since 1990, only 34 middle-income economies have managed to shift to high-income status – and more than a third of them were either beneficiaries of integration into the European Union or of previously undiscovered oil.
1 https://www.worldbank.org/en/publication/wdr2024
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COVER STORY
WTO THE GUARDIAN ANGEL OF TRADE
F ollowing World War II, the USA and the UK took the lead in establishing a system of multilateral institutions which would guarantee peaceful and prosperous development: The UN was founded in 1945 to maintain international peace and security. The World Bank and the International Monetary Fund were set up in 1944 at the Bretton Woods conference with the aim of rebuilding the postwar economy and promoting international economic cooperation. Delegates in New Hampshire also recommended the establishment of a complementary institution to govern international trade, recognizing the growing importance of trade in an increasingly interlinked world as well as drawing lessons from the Great Depression. Prior to the war, international trade had significantly declined due to massive increases in tariffs which had led to a slowdown in the global production of goods and services. Born out of the ambition to use trade’s capacity to generate prosperity, today the World Trade Organization faces its sternest test By Axel Reiserer, OPEC Fund
A cornerstone of the multilateral trading
system is the most-favored nation status . It says that the best access conditions that have been conceded to one country must automatically be extended to all other participants in the system.
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TARIFFS, TRADE AND DEVELOPMENT
World Trade Organization’s global membership
Members Members, dually represented by the European Union (EU) Observers Non-participant states Not applicable
Marrakesh, 1994: The signing of the agreement establishing the World Trade Organization, which came into existence on January 1, 1995
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Negotiations were launched to set up an International Trade Organization as a third pillar of the economic order of the free world (the Soviet Union chose a different development model in which participation in global trade long played a negligible role and imposed its will on the countries in its sphere of influence). However, the effort eventually failed as the US Senate refused to ratify the 1948 Havana Charter as the founding document of such an international trade body. Attention then turned to the General Agreement on Tariffs and Trade (GATT), which aimed to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its goal was the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.”. Initially signed by 23 countries in 1947 and in force since 1948, GATT developed over the course of nine “rounds”, which gradually reduced or eliminated tariffs, before later covering areas such as anti-dumping and non- tariff measures. While the average tariff levels for major participants were
about 22 percent in 1947 they had fallen below 5 percent when the final “Uruguay” Round started in 1986. Lasting until 1994, the Uruguay Round would become the most ambitious GATT negotiation, covering new areas such as services, capital, intellectual property, textiles and agriculture – some of the most politically sensitive sectors given politicians’ protective instincts. The wide scope reflected developments in the global economy as well as the political push to promote free trade as an engine of growth and prosperity. The facts supported this approach: The past 75 years have seen exceptional growth in world trade. Merchandise exports have grown on average by 6 percent annually. On average trade grew by 1.5 times more than the global economy each year. Total exports in 2023 were 250 times the level of 1948. With 123 participating countries the Uruguay Round was also the largest GATT negotiation and the first in which developing countries played an active role. It concluded with an agreement in Marrakesh on the “Establishment of the World Trade Organization (WTO),” which came into existence on January 1,
1995. Today the WTO has 166 members, accounting for 98 percent of world trade, and is based in Geneva with some 800 staff. The WTO operates the global trade rules, provides a forum for its members to negotiate trade agreements and to resolve trade problems. WTO agreements require governments to make their trade policies transparent by notifying the WTO. All WTO members must undergo periodic scrutiny of their trade policies and practices. Special provisions support developing countries to build their trade capacity, handle disputes and implement technical standards. WTO members operate a non- discriminatory trading system that spells out their rights and obligations. Each member receives guarantees that its exports will be treated fairly and consistently in other members’ markets; and each member promises to do the same for imports into its own market. The system also gives developing economies some flexibility in implementing their commitments. A cornerstone of the multilateral trading system is the most-favored nation status, called Permanent Normal
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COVER STORY
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The WTO Headquarters in Geneva
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Trade Relations in the USA. It says that the best access conditions that have been granted to one country must automatically be extended to all other participants in the system. This allows everybody to benefit, without additional negotiating effort, from concessions that may have been agreed between large trading partners with bigger negotiating leverage. In case of trade disputes, WTO members may invoke the Dispute Settlement Understanding. Since 1995, 634 disputes have been brought to the WTO and over 350 rulings have been issued. The most recent submission was filed
However, the body has not been able to form a quorum to hear cases since end-2019 and has long been attacked by the USA – even before the current administration – citing infringements of national sovereignty. WTO decisions are typically taken by consensus among all members and ratified by their legislatures. While this has led to criticism about the efficiency and time-effectiveness of the system, the current WTO Director-General Ngozi Okonjo-Iweala recently said in a Financial Times podcast: “We’re a little bit proud that this is one organization where the voice of the smallest member is as impactful and important as the biggest. We don’t have a system where big shareholders decide what happens. There’s equality of treatment.” She also rejected claims that current political developments will cause lasting damage to global trade: “We need to not hyperventilate over the issue of trade policy and tariffs and take a deep breath, because the WTO has mechanisms with which to deal when members have issues with one another… We do have evidence that globalization may have slowed down, but it is still there.”
Instead, she predicts the emergence of “more regionalized supply chains,” especially in the Global South, with regional and bilateral trade agreements: “Even the big ones like the African Continental Free Trade Area are based largely on WTO rules,” she said. “We welcome them.” This is already happening, following recent shocks such as the COVID-19 pandemic and Russia’s full-scale invasion of Ukraine. These were major blows, but it seems that the Trump administration’s apparent aim of enforcing a whole new global economic order will have even deeper consequences. Professor Cédric Dupont of the Geneva Graduate Institute, expert in trade, law and the WTO, says: “The future of multilateralism in trade is clearly in question. Essentially it will depend not on the United States, but on other countries: to what extent are other countries going to continue working together within the WTO? There might be danger for the WTO with an inflationary spiral of customs duties, but maybe it’s also an opportunity for other countries to show this is not how problems should be resolved.”
by China on March 5, 2025 regarding the US decision to
increase tariffs on goods originating from the People’s Republic from 10 to 20 percent. A ruling at first instance can be appealed by either side.
Ngozi Okonjo-Iweala, Director-General, WTO
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Photo: WTO
CURRENT AFFAIRS AFRICA
OPEC Fund joins Mission 300 with a financing pledge of up to US$2 billion By Axel Reiserer, OPEC Fund “CONNECTING PEOPLE TO ELECTRICITY” POWERING UP AFRICA
F rom the time we wake up in the morning until we hit the pillow at night, our daily life is dependent on electricity. Electricity means we can switch on the light in the morning, take a warm shower and find food in the fridge. Electricity allows us to connect to the internet. Neither businesses nor schools nor hospitals can function without electricity. When her village Matipwili lost electricity access, her daughter’s performance at school immediately suffered, Mashavu Ali, 45, a mother of eight from Tanzania, told the New York Times . She also had to shelve her own plans to open an ice cream business: “What to say, eh? It remains an idea,” she sighs.
While more than 90 percent of people across the world have access to electricity, the picture is entirely different in Sub-Saharan Africa. According to the World Bank, roughly 600 million people in the region lack access to electricity. The Ghanaian poet Nora Anyidoho writes: I speak for the sons and the daughters studying by candlelight, I speak for the mothers, the fathers, the entrepreneurs whose dreams flicker in dreariness. I speak for the nations, seemingly draped in half-darkness. I speak to flip the switch.
Flipping the switch is precisely what the Mission 300 initiative is planning to deliver across Sub-Saharan Africa. The OPEC Fund joined the initiative with a pledge of up to US$2 billion at a summit in Dar es Salaam, Tanzania, in January 2025. The event was attended by, among others, World Bank President Ajay Banga, African Development Bank (AfDB) President Akinwumi Adesina, Asian Infrastructure Investment Bank (AIIB) President Jin Liqun, United Nations Deputy Secretary-General Amina Mohammed and several heads of state from across Africa. Mahmoud Khene, Director, West and Central Africa, attended on behalf of OPEC Fund President Abdulhamid Alkhalifa and said: “We strongly support
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CURRENT AFFAIRS
20 countries and has already kicked off in Burundi, Rwanda, Sao Tome and Principe, Somalia and Tanzania. In Western and Central Africa, the Nigeria Distributed Access through Renewable Energy Scale-up project will benefit over 17.5 million people, or 20 percent of the country’s currently unserved population, replacing over 250,000 polluting and expensive diesel generators. The new Regional Emergency Solar Power Intervention Project, covering Chad, Liberia, Sierra Leone and Togo, also focuses on increasing electricity access for millions of consumers by boosting grid-connected renewable energy capacity, as well as regional interconnections and transmission. In addition, efforts to support regional cooperation through programs in support of the West Africa Power Pool are making it possible to supply cheaper and more reliable electricity to 14 countries in the sub-region. The OPEC Fund’s Regional Director Khene said: “Energy equals growth equals development. Our job is to provide access to vital electricity for the whole life cycle from households to businesses and from hospitals to schools. And it has to be energy that is reliable, clean and affordable. The focus of Mission 300 on Sustainable Development Goal 7 is perfectly aligned with the OPEC Fund’s vision and approach. We look forward to supporting this groundbreaking initiative not only with our financing, but also with our knowledge and expertise from almost 50 years of engagement in Africa.”
Multilateral development banks joined forces (and hands) at the Mission 300 Summit in Dar es Salaam
the approach taken by Mission 300 with a focus on renewable energy and energy efficiency and see this as a win- win-scenario to become a real game changer.” The World Bank launched Mission 300 in April 2024 in a bold move with AfDB to secure access to electricity for 300 million people in Sub-Saharan Africa by 2030. Flipping the switch for more Africans, either through connections to the electricity grid or distributed renewable energy solutions, such as mini-grids powered by solar panels and stand-alone solar installations, could be transformational for people’s well-being, environmental protection and various aspects of the region’s economy. To put Africans on a more prosperous course, the pace of electrification needs to triple. Greater access to electricity will also strengthen the region’s climate adaptation and resilience by improving the functionality of critical emergency services, such as hospitals and shelters, and promoting climate-resilient agriculture via solar irrigation systems, refrigeration and food processing facilities. While the World Bank has pledged to connect 250 million people to electricity, AfDB’s share will be 50 million. About half of the target is expected to be reached through connecting people to the grid, while the other half will mostly come through the expansion of distributed renewable energy systems, including mini-grids and standalone solar. Financing remains a key challenge. The World Bank expects to spend US$30-40 billion on the plan, President Ajay Banga said in Dar es Salaam, while AfDB will provide US$10-15 billion.
However, much more is needed. AfDB President Adesina called for active involvement from a wide range of stakeholders: “This is mission critical,” he said. “Our mission here is to say we need everybody. We can’t have a situation where Africa does not have enough electricity.” According to the Rockefeller Foundation, a private philanthropic organization, that is part of the initiative, at least US$90 billion are needed and expected to come from multilateral development banks, development agencies, finance institutions, private businesses and philanthropies. At the summit in January, Nigeria, Senegal, Zambia and Tanzania were among the first countries that committed to reform their electric utility companies, push renewable energy integration and raise national electricity connection targets. Early programs are already building momentum; for instance in Eastern and Southern Africa, the Accelerating Sustainable and Clean Energy Access Transformation program aims to connect 100 million people in
“To succeed, we must embrace a simple truth: no one can do it alone. Only through collaboration can we achieve our goal.”
Ajay Banga, President, World Bank
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CURRENT AFFAIRS CLIMATE ACTION
NAVIGATING THE NEW CLIMATE ERA Wall Street wades into uncharted waters – but qui bono ? By Howard Hudson, OPEC Fund
A warning in bold comes halfway through the 2025 report Introduction to Climate Intuition by J.P. Morgan Bank: “The financial, social, and ecological effects of climate change will be unevenly distributed across industries, countries, and communities. Such inequalities, or even the perception of present or growing future inequalities can fuel social unrest and conflict.” In other words, climate change will strike in many ways and, given the suffering and sacrifice in store, people will react strongly to any perceived injustice. After the last two UN Climate Change Conferences, it is clear that the Global South is seeking a just transition and a just settlement. Broken commitments will no longer be tolerated – and the UN Loss and Damage Fund is just the tip of the iceberg. Parisians bled for “Liberty, Equality, Fraternity” in the late 18th century and the people of Saint Petersburg fought for “Peace, Land and Bread” in the early 20th century. A decade ago, the United Nations pledged to “Leave No One Behind” by 2030. But what if the Sustainable Development Goals, adopted by all 193 United Nations member states, are missed by a mile? What if climate change spirals out of control? What if crops fail, wars spread and billions of people die? There are so many “what ifs”, but one thing is clear: We are entering new and uncertain times. Penned by Dr. Sarah Kapnick, former
Chief Scientist at the National Oceanic & Atmospheric Administration, a federal US agency with (until recently) a US$6.6 billion annual budget, the report aims to bridge the gap between today’s scientific assessments and tomorrow’s policy planning. Now writing for a bank,
the bottom line is to position her clients “to not only mitigate risks but also seize opportunities in this New Climate Era.” Overall the report makes a compelling case about the need to understand and prepare for uncertainty. Most helpful are clarifications about key elements, which you would expect to be more clear-cut by now, given the length of UN negotiations. In an astonishing revelation Kapnick writes: “The Paris Agreement did not clearly define how global temperature should be measured.” The consequences are severe: “As a result, it and the passing of a 1.5°C threshold can be interpreted several ways.” She then shares four major scenarios, with various degrees of wriggle-room: 1. January to December average; 2. P robability of 1.5°C being more than 1.49°C for a given set of years; 3. 20-30 year average; 4. 1.5°C in 2100 after “overshoot” (and potential technological “pullback”). Kapnick says: “The general definition of practice is to use the third definition: 20-30 year average temperature. This is due to natural variability in climate causing multi-year or multi- decade departures due to volcanoes and fluctuations in ocean currents. A multi-decade average smooths out these ‘natural’ fluctuations. The World Meteorological Organization recently spelled out definition #3 as reaching
Sarah Kapnick
Sarah Kapnick is Global Head of Climate Advisory at J.P.Morgan, where she advises the bank’s clients on climate, energy, biodiversity and sustainability topics. Previously, she was appointed by the US President as Chief Scientist at the National Oceanic and Atmospheric Administration (NOAA), where she oversaw the development of scientific strategies for climate intervention, greenhouse gas monitoring, marine biodiversity, climate macroeconomics and climate security.
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CURRENT AFFAIRS
Global mean temperature increase by 2100
CAT (Climate Action Tracker) warming projections are shown below. The nationally determined contributions (NDCs) are commitments that countries make to reduce their greenhouse gas emissions as part of climate change mitigation.
Policies and action Real-world action based on current policies 2030 targets only Based on NDC targets (temperatures continue to rise after 2100) Pledges and targets Based on 2030 NDC targets and submitted and binding long-term targets Optimistic scenario Best case scenario and assumes full implementation of all announced targets including net-zero targets, Long-term Climate Strategies and NDCs
+4°C
+3.4°C
+3.2°C
+3°C
+2.7°C
+2.6°C
+2.7°C
+2.2°C
+2.4°C +1.9°C
+2.1°C
+2.1°C
+2°C
+1.7°C
+1.5°C
+1.5°C Paris Agreement Goal
Status 2023: 1.3°C warming
+1°C
+0°C
Pre-industrial average
Source: Climate Action Tracker
1.5°C ‘over decades’ as the benchmark for the Paris Agreement when predicting temperatures over the next decade.” Consider the implications for a moment. By this rationale, international authorities will not formally confirm the 1.5°C breach until mid-century, which begs the multitrillion-dollar question: How can we plan for the future if our final assessments are decades out of date? More helpful are the graphics on macroeconomic trends, i.e. the parallel upticks in global population, oil production, agricultural productivity, GDP and atmospheric CO 2 concentrations. These have largely been enabled by technological advancements, says the author – but by the same token many in the international development community are now banking on future technologies to rein in overshoot. “Current country policies, when taken together, are projected to result in
about 2.7°C of warming,” says the report, citing the Cologne-based Climate Action Tracker. Unlike the more linear rise of global temperature change, Kapnick notes that wildfires and heatwaves occur in non- linear ways. Higher temperatures bring a higher probability of extreme weather events, but they remain difficult to predict and pinpoint. “For example, the likelihood for the most extreme heat waves has been growing at a more rapid pace than changes in lesser heatwaves and average temperatures,” says Kapnick. “This isn’t due to unrealistic forecasts of future climate, but is a simple mathematical fact of how shifting distributions affect probabilities of extreme events and our perception of risk above a specific threshold. In other words, while average temperatures inch up steadily, extreme events like heatwaves are happening at a faster pace.”
Circling back to the beginning, one more troubling aspect is the core term of “intuition” – which appears in the headline and eight times throughout the brief. Some readers may ask why, in these most turbulent times, the report leads with nebulous feelings over concrete facts. Perhaps this is Kapnick’s way of nudging us towards more innovative decision-making or a way of flagging that the old world of relative certainty and stability is over. To paraphrase US political strategist Lee Atwater, perhaps perception really is reality.
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OP-ED
TO HELP SCALE CLIMATE FINANCE, MDBS MUST SEEK REPLICABLE LEVERAGE
Combining public priorities with private investments is the key to climate action – but speed is of the essence By Gernot Wagner
T he temptations are all too real. Headlines come to those with creative, innovative, first-of-its-kind solutions. But successful climate finance means the opposite: boring, replicable leverage of limited public funds to channel profit-seeking investments in the right direction. Saying this out loud feels like stating the obvious. I am not the first to recognize that charity can’t solve where the profit motive points in the opposed direction. The math couldn’t be clearer: Charitable dollars, almost by definition, can only amount to a portion of the profits earned from activities that benefit from the status quo. That goes for individual efforts as much as for multilateral development banks (MDBs) and other funds spending taxpayer dollars at home or abroad. Throwing one’s hands in the air – writing off charity altogether – of course, is not the answer either. There is plenty of good even the most limited of donor funds can do and there is indeed a name for this search for leverage
that has found its way into most any MDB conversation around climate and development: blended finance. This call for blending public and private funds begins with the understanding that one alone can’t do. Public funds on their own are too small to fix it all, while leaving private funds to their own devices would, if anything, exacerbate the problem. The answer then lies in combining public priorities with private investments. The devil, of course, is in the details. For one, there is a fundamental difference between investments aimed at helping people cope with higher temperatures and more extreme weather events leading to everything from more frequent and intense droughts to floods due to the burning of fossil fuels and to transitioning away from fossil fuels altogether. Traditionally, investments in climate resiliency have been seen to be in the purview of public finance. Climate risk affects us all – one of the original reasons why society does not do
enough to cut carbon dioxide and other greenhouse-gas emissions in the first place. It is only fair, thus, to look to governments for help building the kind of infrastructure or invest in more heat- resistant crops that improve people’s lives. That need not be the case. Private investors will increasingly face the kind of incentives that lead them to invest in resilience measures the world over. That goes for insulating one’s home to better protect against heat. It also goes for increasing crop yields on a hotter planet. One such private mechanism is insurance. If homes in certain areas face ever higher insurance premiums due to increased flood and wildfire risks, or they effectively become uninsurable altogether, the market may well work as intended. That kind of adaptation, of course, will be highly disruptive, which is once again where governments and public funds enter the picture. For one, private insurance helping guide society toward more positive outcomes assumes the existence of
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OP-ED
“Climate technologies can only get better and cheaper over time. The task for MDBs and climate finance more broadly is to speed up the all-but-inevitable transition.”
Gernot Wagner
Gernot Wagner, Climate Economist, Columbia Business School
Gernot Wagner is a climate economist at Columbia Business School, New York, where he is Faculty Director of the Climate Knowledge Initiative. He holds degrees from Harvard and Stanford universities and has authored several books, including Climate
Shock and Geoengineering: the Gamble. For more see: gwagner.com
times those returns in northern Africa. The difference is sovereign country risk, real or perceived and overcoming it is a fundamental – and fundamentally unsolved – challenge in development finance. Blended finance means that governments or MDBs take on some of the risk to help channel private investments to where it is most needed. That logic, of course, extends well beyond solar panels, though the history of solar power is instructive here for another reason. Forty years ago, solar power was a hundred times more expensive than it is today. Climate technologies like solar, wind, batteries, electrolyzers and others, by and large, are indeed just that: technologies. They can only get better and cheaper over time. The task for MDBs and climate finance more broadly is to speed up the all-but- inevitable transition. Saudi Arabia, after all, has a net-zero carbon emissions goal of 2060, a mere decade after Europe’s. Saudi Arabia also has ample access to cheap, patient capital to finance the necessary investments. But time – speed – is of the essence. For MDBs to play a lead role means working with governments as well as private funders and to help propagate the kind of ideas, technologies and financing models that we know work. Scale and speed, in the end, is anything but boring.
insurance markets. Homeowners in California and Florida losing their fire and flood insurance is one thing; living in a developing country and never having had any access to insurance in the first place – and therefore being fully exposed to the elements – is quite another. That is where policy should step in and where MDBs can play a crucial role of helping build the kind of institutions that allow for market forces to play a role in guiding society to better outcomes. In part, that means money spent on supporting local governments, for
example to help them set up insurance markets, or to step in as insurer of last resort. In part, it means sharing lessons learned elsewhere to avoid making the same mistakes and to propagate best practices – turning one-off, creative experiments into replicable templates. The second big area for blended finance is helping cut greenhouse-gas pollution in the first place. The need is clear: While foreign private investors might ask for 6 or 8 percent returns for their solar power investments in northern Germany, they require three or more
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