OPEC Fund Quarterly - 2023 Q4

OPEC FUND QUARTERLY 4 2023 The OPEC Fund for International Development

AFRICA PLUS

Development for the people, by the people

OPEC FUND AND AFRICA Dedication and compassion COP28 A historic, yet disputed agreement

INVESTING IN CHINA In the land of the Red Dragon

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.

EXECUTIVE EDITOR Nadia Benamara EDITOR Axel Reiserer

PUBLISHERS The OPEC Fund for International Development Parkring 8, A-1010 Vienna, Austria Tel: (+43-1) 51564-0 Fax: (+43-1) 51392-38 www.opecfund.org

EDITORIAL TEAM Howard Hudson, Basak Pamir, Nicholas K. Smith, Julia Zacharenkova PHOTOGRAPHS Abdullah Alipour Jeddi, Carlos Opitz (unless otherwise credited) PRODUCTION Iris Vittini Encarnacion DESIGN Robin Turton, More Tea Design Ltd PRINTED IN AUSTRIA Druckerei Odysseus This publication is printed on paper produced from responsibly managed forests.

FRONT COVER PHOTOS: kehinde – stock.adobe.com; Kehinde Olufemi Akinbo/Wirestock Creators – stock.adobe.com; peopleimages – stock.adobe.com; RovingPhotogZA/Shutterstock.com; Serhii – stock.adobe.com

CONTENTS 4/2023 AFRICA IN FOCUS Special Feature: An in-depth analysis of the continent's challenges and potential in uncertain times 6-51

6-9 Leiden University's Ayokunu Adedokun: The need for strong leadership in Africa and beyond 10-15 Interview Khaled Al-Zayer and Mahmoud Khene: A long and winding road 16-25 Africa economic outlook: Stormy weather ahead 26-29 Entrepreneurship: A powerful catalyst for growth and development 30-33 Interview Friedrich Stift: “We have entered long-term

African entrepreneurship 26-29

commitments and we stand by them.”

34-39 How to

reverse Africa’s resource curse 40-43 Moving mountains:

The urgent need to flood grassroots with climate finance 44-45 Cracking the nut of a continent’s self-sufficiency 46-49 Interview Eniola Harrison and Annie Mutamba on shaping a postive African narrative 50-51 Africa in my blood: Valentina Walden shares her reflections

IN OTHER SECTIONS...

In the Field 52-53 Cameroon: The Rice Value

Spotlight 56-59

The OPEC Fund @ COP28: Projects, partnerships and panels at the UN Climate Change Conference in the UAE Events 60-65 60-61 DFI Portfolio Management Conference 62 Trade Finance Forum in Vienna 63 MENA Climate Week, Riyadh 64 World Bank Annual Meetings Special Mission 66 OPEC Fund Director-General visits China

Chain Development Project aims to make Cameroon food self- sufficient by 2035 Development News 54-55 New OPEC Fund projects in Albania, Armenia, Azerbaijan, Benin, Bosnia & Herzegovina, Libya, Rwanda and West Africa

EDITORIAL

THIS TIME FOR AFRICA

Dear Reader,

tremendous opportunity. The continent has a make or break role to play in whether the world can achieve the pledges and targets put forth at the COPs over the years, which is why we’re devoting this issue of the OPEC Fund Quarterly to the many ways Africa can help meet those goals. We’ll hear from Leiden University’s Ayokun u Adedokun on the stakes many African countries face from food insecurity, extreme poverty, shaky governance and inadequate access to basic services. Crucially, he offers four policy solutions that offer a way out (see page 6). Since inception, roughly half of the OPEC Fund’s operations have benefitted African countries. On page 10, we hear from the institution’s Mahmoud Khene and Khaled Al-Zayer, public sector directors for the Africa region who are focused on the many lessons and experiences drawn from their decades of development work. Sprinkled throughout the issue, you’ll find some examples of the OPEC Fund’s African operations over the years, which have supported the energy, water & sanitation, education and agriculture sectors, among many others. Chances are, you carry a piece of Africa around in your pocket every day. The continent is a primary source of many of the minerals needed in today’s

Africa, it has been said many times before, is a continent of great opportunities but also great challenges. For African countries, the recently concluded UN Climate Change Conference (COP28) in Dubai was an especially critical one in how it would be able to address those challenges. After all, Africa as a region produces only a small share of greenhouse gas emissions compared to its continental neighbors, and yet is greatly affected by the climate change those emissions cause. Africa’s future therefore, has much to gain, or lose, on the conference’s outcomes. “The COP is the scoreboard, not the game,” writes Bill McKibben, a frequent climate contributor to the New Yorker magazine. A brief look at the past few COPs (or UNFCCC Conference of the Parties) and it might seem like the score should be pretty high already. During the Paris climate summit in 2015 (aka COP21) the world agreed to “pursue efforts to limit the temperature increase to 1.5 degrees C above pre- industrial levels”. At last year’s climate summit in Egypt (aka COP27), the big news was the agreement over a loss and damage fund that would help developing countries experiencing the worst impacts of climate change. At the most recent conference, held in

the United Arab Emirates (aka COP28), one big outcome was the following sentence: “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner.” Yet that’s only one half of the scoreboard in a game that everyone agreed is football, but doesn’t quite realize that it’s not the o jogo bonito (Brazil’s beautiful game) variety with its slow action and single-digit scores, but rather gridiron football comprising quick action, hard-fought progress and a scoring system that accumulates swiftly and mercilessly. The focus of COP28’s Global Stocktake, a reality check on climate action, is energy-related. While the inclusion of the phrase “transitioning away from fossil fuels” is what made the headlines, the other mentions of energy are also important in the struggle towards enabling sustainable development for everyone. New calls to triple global renewable energy capacity and double the rate of energy efficiency by 2030 are also critical, especially for a world where 760 million people lack access to electricity, according to the International Energy Agency’s World Energy Outlook 2023 . Eighty percent of those people live in sub-Saharan Africa.

As a whole, Africa is a place of tremendous challenges, but also

smartphones and solar energy panels. Historically, the continent has been exploited for its riches, but on page 34, we learn how mineral-rich areas can reverse the resource curse. Developing countries feel the effects of climate change all the more acutely compared to richer, more resilient nations who have the resources to weather the storm, in some cases quite literally. Combating frequent droughts and rising seas highlights the need for boosting climate finance everywhere. Find out how grassroots efforts can play their part on page 40. What does it take to shape the story Africa tells about itself? We sit down with Eniola Harrison and Annie Mutamba, strategic communication consultants and co-founders of African Communications Week, who explain on page 47 how nuanced and non-

stereotypical storytelling can help drive the continent’s development. For some visitors, the many hallmarks of places from the shores of the Mediterranean to the tip of the Cape of Good Hope evokes an outpouring of wonder and awe. The OPEC Fund’s Eastern & Southern Africa Analyst Valentina Walden shares her reflections on travelling across the continent in her formative years in a thoughtful essay on page 50. And of course, for an overview of the OPEC Fund’s many activities at COP28, see our special spotlight section beginning on page 56. We wish you a satisfying read as you weave through these and other worthwhile stories in our latest issue.

Developing countries feel the effects of climate change all the more acutely compared to richer, more resilient nations who have the resources to weather the storm.

Nicholas K. Smith, OPEC Fund

PHOTO: Arrowsmith2/Shutterstock.com

The interwoven threads of the continent’s challenges: food, climate and poverty insecurity

PHOTO: peopleimages – stock.adobe.com

SPECIAL FEATURE

The continent faces a patchwork of challenges that may unravel in the absence of African leadership and international support By Ayokunu Adedokun, Assistant Professor of Public Policy and International Development at Leiden University, the Netherlands O n September 25, 2015, the United Nations General Assembly

officially adopted the 17 Sustainable Development Goals (SDGs). Every African country joined in this unanimous decision by the 193 UN member states. Since that time, the continent has made significant progress in many key areas. Primary school enrollment now exceeds 80 percent in Africa, according to the United Nations educational, scientific and cultural organization, representing one of the highest global increases. There have been substantial reductions in maternal and child mortality rates, along with over 70 percent reductions in diseases such as HIV/AIDS, tuberculosis and malaria. In terms of economic forecasts, Africa is set to post 4 percent GDP growth in 2023 and 2024, outperforming the global average of 3.2 percent, according to the African Development Bank (see page 16). The continent has also made remarkable progress in gender equality, ranking second only to Europe with 17 female parliamentary heads, while leading the global business sector with women holding a quarter of board positions. This progress can be attributed to a heightened political commitment to the SDGs, strategic integration of goals into national policies, credible international support, technological advancements, community-driven initiatives and diversification beyond traditional sectors. Despite these successes, Africa’s journey towards achieving the SDGs has been uneven across regions and sectors. Reports from the World Bank, African Development Bank, Brookings Institution and Mo Ibrahim Foundation highlight significant ongoing challenges, particularly regarding inclusivity and sustainability. In this piece, I pick out the interwoven threads of Africa’s challenges, focusing on food, climate and poverty, before presenting brief policy recommendations based on various theoretical and empirical insights.

In Africa around 20 percent of the total population,

or 280 million people, live in

chronic hunger – more than double the share of other regions.

AYOKUNU ADEDOKUN

Assistant Professor of Public Policy and International Development at Leiden University (the Netherlands); expert in global conflict, peacebuilding, democracy, corruption and anti- corruption policies; advisor to governments and international organizations.

Ayokunu Adedokun, Leiden University, Assistant Professor of Public Policy and International Development

The far-reaching impacts of food insecurity Although we are living in the most prosperous era in history, food insecurity is a growing concern. Almost 30 percent of the global population, 2.4 billion people, faced moderate or severe food insecurity, according to UN estimates from 2022. Tipping the scales from uncertainty to suffering, 900 million people, almost 10 percent of the world’s population, are going hungry every night. The situation is particularly grave in Africa, where

around 20 percent of the total population, or 280 million people, live in chronic hunger – more than double

the share of other regions. To put this into perspective, the figure for Asia is 9.1 percent, followed by 8.6 percent in Latin America and the Caribbean, 5.8 percent in Oceania and less than 2.5 percent in North America and Europe. Africa also has the highest burden of acute food insecurity, with 16 out of 24 countries in the world classified as hunger hotspots by the UN Food and Agriculture Organization (FAO) and World Food Programme (WFP) located on the continent. Food insecurity manifests itself differently between and within regions and countries. Across Africa, 38 nations face acute food insecurity, topped by five conflict-affected countries: the Democratic Republic of the Congo (with 25.8 million people affected), Nigeria (24.9 million), Sudan (20.3 million), Ethiopia (19.9 million) and South Sudan (7.8 million). Together, these five countries account for almost two-thirds of food insecurity across the continent. Beyond violent conflict, various factors are driving this rise, including poverty, weak institutions, poor governance, extreme weather and limited access to modern technologies. The COVID-19 pandemic and the war in Ukraine further deepened these trends, with supply chain disruptions of food and fertilizers. Food insecurity in Africa has a far-reaching impact and is closely intertwined with climate and poverty insecurity. For example, food insecurity depletes resources and increases

The ripple effects of climate insecurity Climate change poses an existential threat to current and future life on earth. We are witnessing more frequent heatwaves, droughts, wildfires and expanding deserts as water access declines. Natural disasters are becoming more common, glaciers are melting and sea levels are rising globally. According to a recent report by the Intergovernmental Panel on Climate Change (IPCC), more than 3 billion people, over 40 percent of the global population, are classed as “highly vulnerable”. Yet climate change affects different regions, countries and cities in different ways. Despite contributing the least to global warming, Africa is the most vulnerable region worldwide. Currently, 17 of the 20 countries most threatened by climate change are in Africa, and climate change impacts national budgets across the continent by 2 to 9 percent, according to the UN Economic Commission for Africa (UNECA). The frequency of floods, storms and droughts in the region has increased massively, from 85 recorded events in the 1970s to over 540 between 2010 and 2019. Some areas bear the heaviest burden of climate insecurity, with North Africa and West Africa particularly vulnerable, expecting temperature increases of between 1.5°C and 3°C.

Climate change insecurity in Africa has several causes, including deforestation, land degradation, over-reliance on rain-fed agriculture, rapid urbanization with population growth, dependence on fossil fuels and weak adaptation and mitigation policies. This insecurity is closely linked with food scarcity, poverty and health concerns. Climate change reduces agricultural productivity, impedes poverty reduction and exacerbates socio-economic inequalities. For example, East Africa has lost almost 2 million livestock in a year due to recurrent drought and low-response capacity. Climate change also exacerbates malnutrition, heatstroke and disease outbreaks, including malaria and cholera. This complex interplay between climate change insecurity and issues of food and poverty underlines the need for integrated policy approaches. How poverty perpetuates the cycle of insecurity Global extreme poverty decreased from 2 billion people in 1990 to 682 million people in 2022, with the highest reductions in East Asia and the Pacific, Latin America and the Caribbean, and South Asia. Factors contributing to this trend include the rapid economic growth of developing countries, improved access to education and healthcare,

vulnerability to environmental changes, exacerbating climate

insecurity. Malnutrition arising from food insecurity also impacts physical and cognitive development, leading to increased childhood illness and mortality. Moreover, food insecurity contributes significantly to poverty, creating or reinforcing cycles of hardship and vulnerability. In Ethiopia, Kenya and Somalia recurrent droughts have severely impacted agricultural productivity, leading to food shortages and increased poverty, particularly in rural areas.

SPECIAL FEATURE

Here are four key policy recommendations: 1. Invest in sustainable economic development – by promoting education, entrepreneurship and job creation – particularly in the most impoverished areas of central Africa. Setting up social safety nets and conditional cash transfer programs will also protect vulnerable populations in the wake of so-called natural disasters. 2. Ensure governance and policies are inclusive, transparent and accountable at all levels. Channel aid and trade through established institutions to ensure benefits reach the intended populations. This is particularly important when tackling political instability in parts of North Africa and the Sahel. 3. Encourage regional cooperation in climate action plans , particularly in the Sahel and Nile Basin. Cooperation is key to managing shared resources and addressing cross-border environmental challenges. Strengthening partnerships with international bodies for technical and financial support in climate adaptation and mitigation strategies is also crucial. 4.Develop agricultural policies that support climate-resilient and sustainable farming practices, especially in East and Southern Africa, which are facing the most severe climate shocks. Investment in research and development of drought- resistant crops and efficient water management systems will also reap dividends. While Africa is facing massive challenges, recent changes in the global landscape and geopolitics may work in the continent’s favor. It has considerable resources and as Europe seeks to diversify its energy supply, investment plans will be adjusted accordingly. To seize this moment, governments will however need to learn from past mistakes, when investors were frightened and revenues were squandered. Adonis Pouroulis, CEO of the energy group Chariot, which is active across the continent, recently told the Financial Times : “This century is Africa’s century.”

and work towards the Millennium Development Goals and the Sustainable Development Goals. The decline in global extreme poverty from 1990 to 2022 was not, however, universal. Sub-Saharan Africa is now the primary region for extreme poverty. In 1990, only 13 percent of the extremely poor lived there. By 2022, this rose to 62 percent, or 426 million people. Currently, 23 out of the 28 poorest countries globally are in Africa. The disparities between regions in Africa are significant, with Central Africa having the highest extreme poverty rate at 54.8 percent, followed by Southern Africa at 45.1 percent, Western Africa at 36.8 percent and Eastern Africa at 33.8 percent. The causes of extreme poverty in Africa are complex and multifaceted, including economic factors such as high unemployment rates, low productivity and limited access to credit. Weak institutions and governance, wars and conflicts, climate change and environmental degradation, poor infrastructure, lack of access to services and inadequate health and education services are also significant contributors. Extreme poverty in Africa is closely linked with food insecurity and climate change. Countries such as Niger and Chad in the Sahel region face extreme poverty due to a combination of climate change and food scarcity. Malnutrition and a lack of clean water lead to widespread diseases, perpetuating poverty. To address these challenges, comprehensive and integrated policy strategies are necessary. These strategies should address extreme poverty, climate change and food insecurity concurrently to foster sustainable development across the continent. A four-pronged agenda for action Food, climate and poverty insecurities in Africa are interconnected and pose significant challenges to individuals, countries and the international community. To paraphrase Martin Luther King Jr.: “Insecurity anywhere is a threat to security everywhere.” However, there is no one-size-fits-all solution to these challenges, which require a nuanced approach that considers the diverse regional and national differences of Africa.

Gambia RURAL INFRASTRUCTURE DEVELOPMENT PROJECT AND THE OPEC FUND Approved: October 2011 Completed: May 2020 Total project cost: US$10 million OPEC Fund financing: US$10 million

T he project helped alleviate poverty by increasing the productive capacity of economic activities in rural and peripheral areas through the provision of economic and social infrastructure to rural communities. With poverty and food insecurity widespread, nearly half of Gambia’s 2 million population live in poverty, 40 percent of which in rural areas. Gambia requires investment in physical infrastructure, services and productive activities. Despite the emergence of the COVID-19 pandemic, the project was successfully implemented and added basic infrastructure in five impoverished rural regions. This included construction of school buildings and provisions of safe water supply. Because of the success, in June 2023 the government requested a second phase of the program.

OPEC FUND PERSPECTIVES

A LONG AND WINDING ROAD

OPEC Fund Africa Directors Khaled Al-Zayer and Mahmoud Khene reflect on the continent’s climate and development challenges, its vast potential and their most memorable experiences in the field By Axel Reiserer, OPEC Fund

OPEC Fund Quarterly : When did your involvement in Africa start and what have been the business highlights to date? Khaled Al-Zayer, Director, Eastern & Southern Africa: My involvement with Africa started 16 years ago when I joined the OPEC Fund as a Public Sector Operations Officer. Until 2021 I was responsible for a portfolio consisting of Egypt, Ethiopia, Eritrea, Sudan, Mauritius, Malawi and Kenya. During that period, I prepared and presented to the Governing Board projects for approval for a total value of US$935 million. Mahmoud Khene, Director, West & Central Africa: As a child of the

MAHMOUD KHENE Mahmoud Khene is Regional Director, West & Central Africa at the OPEC Fund, which he joined in 2002. Prior he held senior advisory positons in his home country Algeria, working on the reform of the health system. He is a graduate of the University of Vienna, the University of London and worked as a Researcher at the Austrian Academy of Sciences. KHALED AL-ZAYER Khaled Al-Zayer is Regional Director, East & Southern Africa at the OPEC Fund, which he joined in 2007. Prior he worked at Saudi Aramco in Business Services and Planning. A native of Saudi Arabia, he holds degrees in business and economics from the King Fahd University of Petroleum and Minerals in Dhahran and the University of Oregon, USA.

continent, the immensely rich and diverse cultural and civilizational heritage, tumultuous history, vast potential and intricate development challenges facing Africa and its peoples have

SPECIAL FEATURE

As a child of the continent, the immensely rich and diverse cultural and civilizational heritage, tumultuous history, vast potential and intricate development challenges facing Africa have always been at the core of my interests both

professionally and personally.

Mahmoud Khene, OPEC Fund Director, West & Central Africa

always been at the core of my interests both professionally and personally. I thus feel I have somehow

The OPEC Fund team’s recent visit to the Temane power plant in Mozambique

Malawi NATIONAL CANCER CENTER AND THE OPEC FUND Approved: June 2014 Total project cost: US$14.75 million OPEC Fund financing: US$13.15 million

always been involved, in one way or another. At the OPEC

cooperation and solidarity, with a special emphasis on the most deprived regions and countries. From the outset, African nations received the most attention from OPEC Fund member countries and the continent received the bulk of our financial support. As an institution of the South, we leverage our strategic position and fruitful cooperation established over the years with partner countries and development finance institutions to optimize financial flows to Africa while achieving more sustainable and greater development impact. OFQ : The OPEC Fund is now in the second phase of its 2030 Strategic Framework. What does that mean for the engagement in Africa? KAZ: The second stage focuses on implementation and impact. The OPEC Fund’s operational approach reflects the need to maximize development impact and ensure greater relevance to our partner countries. Our public and private sector teams will seek solutions for our partner countries based on an assessment of their development priorities and our capacity to deliver.

Fund, and on a more operational level, I wish to highlight the first successful PPP operation – the US$2 billion Temane 450 MW power plant in Mozambique signed in 2019 – sponsored by our public and private financing windows. OFQ : What is the OPEC Fund’s historic and present role in Africa? KAZ: The OPEC Fund’s relations with Africa date back to 1976, when we signed our first ever loan with Sudan, a balance of payment agreement for US$7 million. Since then, we have come a long way: To date, the OPEC Fund has provided US$13.3 billion in financing in 48 countries through 912 private and public sector projects in all areas of the economy where we offer support. Our role is to provide financial resources and work closely with our partner countries to address their needs and contribute to the achievement of the United Nations’ Sustainable Development Goals (SDGs). MK: The OPEC Fund was established in a particular historical context as a means to foster South-South

T he center is dedicated to cancer diagnosis, classification, treatment, rehabilitation, training and research, focusing on the cancers prevalent in Malawi. It offers adult oncology and palliative care services to the central and northern regions of Malawi, with plans for nationwide expansion following the completion of its radiotherapy unit. The completed facility will include patient wards for cancer patients, an outpatient unit, administrative offices, laboratories, radiology facilities, radiotherapy units and nuclear medicine infrastructure. The project is expected to be finalized by January 2024. An oncologist says: “The center has been a real game-changer. We now have easy access and a collaborative environment that allows us to diagnose and treat various forms of cancer effectively.” A patient says: “The care and

support I received have been life-changing. On a scale of one to 10, I personally give it a nine. Not only did they provide me with treatment, but they also offered emotional support that helped me navigate this challenging phase. ”

PHOTO: PIU

SPECIAL FEATURE

OFQ : What are the sectors you are particularly looking into, where do you see promising developments and what split do you envisage between public and private sector projects? KAZ: The OPEC Fund’s financing will be focused on strengthening sustainable and climate-resilient infrastructure, deepening its commitments to developing human and institutional capacity, while ensuring equitable economic opportunities in its partner countries. Food security will also be a focus area in Africa. MK: The public sector is indeed called upon to provide critical financing to promote an enabling environment conducive to catalytic private capital investments. Innovative financing instruments will certainly help in the process and are actually being considered actively. OFQ : Africa is rich in resources, yet poor by average living standards. How can this gap be closed and a situation created where Africa becomes the first beneficiary of its own wealth? KAZ: Closing the wealth gap in Africa and ensuring that the continent benefits from its resources will require sustained efforts and international collaboration. A multifaceted approach should include

measures to improve governance, combat corruption, diversify economies, invest in infrastructure, promote education and workforce development, enhance regional integration and trade, attract responsible foreign investment, address poverty through social safety nets and foster public-private partnerships. MK: It is important to note that there is no one-size-fits-all solution. Each African country has unique challenges and opportunities, so tailoring our strategies to individual country contexts while focusing on transparency and accountability are crucial for success. By addressing these areas, Africa will be able to unlock its full economic potential and improve the living standards of its people while fostering long-term development and sustainability. OFQ : In a hugely competitive global economy are there industries or sectors where Africa is leading with technology and know-how? How can such efforts produce stronger results? KAZ: Africa has seen significant growth and innovation in sectors such as mobile banking, agriculture, renewable energy, health tech and e-commerce. To strengthen its position, investments are needed in research

and development, education and skills development, infrastructure, fostering of public-private partnerships, establishment of supportive regulatory frameworks, improvement of access to capital, cross-border collaboration and entrepreneurship. Africa has the potential to lead in various technology- driven sectors, but continued commitment as well as addressing unique regional challenges will be key to achieving stronger results and sustaining growth. MK: Africa’s strongest capital is its youth. The critical challenge will be to create the conditions to tap into the next generation’s formidable innovative thrust. OFQ : Africa has been promised billions of dollars for climate action, yet actual transfers are falling far short. Can Africa cope with the climate crisis by itself? If not, how can the needed funds be mobilized? KAZ: A multi-pronged approach is essential to mobilize

funds to address the climate crisis in Africa. This involves engaging with international climate finance mechanisms, developing comprehensive climate investment plans,

Lazarus McCarthy Chakwera, President of the Republic of Malawi, at the opening ceremony of the Nkhata Bay Water Supply Project

AND THE OPEC FUND

Malawi's water sector faces significant challenges. The country is predominantly rural with limited access to safe water and adequate sanitation facilities, particularly in remote areas. Water scarcity, uneven distribution and unreliable access to clean water are persistent issues. Inadequate infrastructure, pollution and waterborne diseases further compound the problem. Malawi: Water sector projects

MZIMBA INTEGRATED URBAN WATER AND SANITATION PROJECT Approved: September 2015 Completed: June 2019 Total project cost: US$22.8 million OPEC Fund financing: US$14.9 million T he project involved rehabilitating, upgrading and expanding the existing water supply system in the town of Mzimba and the provision of solid and liquid waste management facilities to provide reliable and sustainable potable water and sanitation services. Achievements included an upgrade of the water treatment plant capacity from 1,500m 3 to 12,000m 3 per day, installation of 36.96 kilometers water transmission pipelines and 109.4 kilometers water distribution pipelines, installation of 3,270 new water connections including 30 communal water points, construction of a solid waste management facility and 13 sanitation facilities in public schools and markets. TESTIMONIAL

KARONGA TOWN WATER SUPPLY PROJECT Approved: March 2018

NKHATA BAY WATER SUPPLY PROJECT Approved: September 2018 Total project cost: US$30.5 million OPEC Fund financing: US$12 million T he project involved rehabilitating, upgrading and expanding the existing water supply system and provision of solid and liquid waste management facilities to provide reliable and sustainable potable water and sanitation services. The new water supply system has been extended to cover an area of 316km 2 . Achievements included the upgraded of the water treatment plant capacity from 1,450m 3 to 18,572m 3 per day, installation of 15.3 kilometers water transmission pipelines and 250 kilometers water distribution pipelines and construction of 23 sanitation facilities in public schools and markets. Installation of 5,000 new water connections is underway including 135 communal water points to extend water supply to low-income areas and households. TESTIMONIAL

Total project cost: US$26.7 million OPEC Fund financing: US$15 million T he project will extend water supply services and is expected to benefit more than 184,000 people at Karonga Town and surrounding areas. The objective is to improve health and livelihoods through access to a potable and sustainable water supply. It includes the construction of a raw water pipeline, upgrading of the water treatment plant from 12,400m 3 /day to 28,872m 3 / day, installation of 33 kilometers water transmission pipelines and construction of five storage tanks with total capacity of 10,000m 3 .

The water treatment plant site under construction at Karonga Town

“We used to suffer amidst plenty. We

“We had to travel four hours to get piped water. Since the project was completed we now enjoy uninterrupted

couldn’t comprehend the dry taps, with Lake Malawi a stone’s throw away. We had to be forced to resort to unprotected water

supply of water.” Sarah Moyo, local resident from Mzimba

sources which was putting us at risk of contracting water borne diseases such as cholera. Now we never lack tap water.”

Tilumbe Gondwe, Teacher, St. Joseph Primary School

SPECIAL FEATURE

Failing to meet the Paris targets will have potentially devastating consequences for Africa.

fostering public-private partnerships, issuing green bonds, mobilizing domestic resources through innovative financing mechanisms, participating in carbon markets, exploring climate

heart. The first is the construction of the Cancer Treatment Center in Lilongwe, Malawi, approved in June 2014 (see page 12). The project was originated and financed by the OPEC Fund. It is the first dedicated cancer treatment facility in the country which serves as a referral center and will provide radiotherapy and chemotherapy that was not yet available in the country. The center is expected to provide cancer treatment for more than 2,000 patients per year and to save the lives of thousands of people. The second project is the Social Fund for Development in Egypt, approved in 2009. The project supported women- led households, poor families, university graduates and small businesses and farmers. It helped to cut unemployment and provided financial means to improve the livelihoods of about 14,000 families. Because of the success of the first phase, two extensions were approved in 2015 and 2019, respectively. MK: I just returned from an inspirational mission to Senegal where the OPEC Fund envisages supporting an ambitious urban modernization program. Designed within the framework of a wider decentralization effort, I was happy to see that national development efforts are increasingly inclusive in their approach in an attempt to reach out to their populations beyond the traditional strongholds, and that the participatory approach pursued truly takes into account the legitimate interests and aspirations of the beneficiaries. Development from the people, for the people. This is indeed very encouraging. Every development impact that makes a positive difference in the lives of people is in itself a source of satisfaction. I believe this holds true for any dedicated and genuinely motivated development practitioner. I would consider it a true privilege, because personal commitment towards a noble aspiration and the capacity to take effective action, regardless of its value, strength and extent, remains always just one very minor step on the long and cumbersome path leading to a more balanced, just and sound world. A world where the integrity and dignity of all forms of life are safeguarded. The journey is uncertain, and the way is infinitely long.

International Monetary Fund, Special Report on Africa, October 2023

insurance, facilitating technology transfer and enhancing local community involvement. Climate change is a global challenge and collective efforts are crucial to ensure that Africa and other vulnerable regions can build resilience and adapt to a changing climate. OFQ : What will a failure to meet the Paris Agreement targets mean for Africa? And if Africa suffers, can the world ignore it? MK: Given its vulnerability to the impacts of climate change, failing to meet the Paris targets will have significant and potentially devastating consequences for Africa. Since 2009, developed countries have committed to mobilize US$100 billion per year for adaptation and mitigation projects in developing countries. Yet this promise has never been fully met in any year, even though the historical responsibility on this matter lies with developed countries: It is estimated that the African continent is responsible for just 4 percent of historic global greenhouse emissions. Adaptation finance in support of structural and behavioral change is a priority for Africa given its vulnerability to the climate crisis. However, global climate finance flows have to date mainly focused on mitigation activities, cutting greenhouse gas emissions and fighting other pollution. There is some good news, though: Adaptation finance saw the largest percentage growth between 2017 and 2020 and in US dollar terms increased from US$30 billion in 2017– 2018 to US$49 billion in 2019–2020, driven mainly by financing from bilateral and multilateral development finance institutions. Ignoring Africa would be detrimental to global efforts to combat the worldwide climate crisis. For example, most African countries depend on fossil fuels for their energy needs and without access to adequate climate finance they would not be able to implement their transitions to low-carbon and climate-

resilient economies. Rather, they would most likely intensify their fossil fuel dependence to meet their growing energy needs, thereby undermining efforts elsewhere in the world. Climate change and the ensuing devastating effects of vast scale migration on local economies and above all on the well- being of migrants will pose critical challenges to African nations and the rest of the world, in particular Europe. OFQ : Africa is also exposed to disruptions in global supply chains, most notably in food supply. Given the choice is between globalization and reshoring, which development model will be better for Africa in the long run? KAZ: Africa faces challenges and opportunities in the context of global supply chain disruptions and the ongoing debate between globalization and reshoring. To determine a development model that works for Africa, a balanced approach that leverages both globalization and regional development strategies is crucial. Africa can benefit from global supply chains, while simultaneously focusing on regional integration, infrastructure development and sustainability. Ensuring that the benefits of economic growth are widely shared and that local industries are competitive and adaptable is essential for long-term development and resilience. Ultimately, the right model will vary by country and region, but the principles of balance, sustainability and inclusivity should guide development efforts in Africa. OFQ : What was your biggest achievement and what do you see as your proudest moment during your service for the benefit of Africa? KAZ: During my 16 years at the OPEC Fund I have had the opportunity to lead or join hundreds of projects in Africa. Out of all those, I will mention two projects that are the closest to my

AFRICA’S ECONOMIC OUTLOOK

MEDIUM-TERM FORECAST: STORMY WEATHER

Pan-African challenges amid a turbulent global environment underline the need to improve coordination and resilience By Angus Downie, OPEC Fund, Senior Economist

O ver the course of 2023, the impact of the COVID-19 pandemic has faded, the world has largely adjusted to the energy price shock caused by the war in Ukraine, while the rise in inflation caused by supply-chain disruptions has been slowed by tightening monetary policy. However, while the global economy has shown tremendous resilience, the recovery from the shocks of the past few years remains slow and uneven. Energy and food security remain elusive for many households, prices are still high, and financial stability cannot be taken for granted – particularly given persistent high interest rates and shadow bank concerns. More recently, a new war in the Middle East has further complicated an already uncertain outlook. In a special report on Africa, the International Monetary Fund (IMF) said in October 2023: “The crises have underscored the continent’s ongoing vulnerability and the need to build resilience.” The report was published

on the occasion of the IMF/World Bank Group annual meetings in Morocco – the first time in 50 years the institutions held their conference in Africa. An uncertain economic outlook Given this backdrop, the global economy will be shaped over the next few years by the interplay of several key factors including economic policies, elevated

advancements – possibly rounded off by other “black swan” events such as new global health scares. In line with the IMF’s World Economic Outlook of mid-October 2023, the near term global recovery remains slow, with increasing regional gaps and little room for policy error. The IMF expects global growth to slow to 3.0 percent in 2023 (from 3.5 percent in 2022) and 2.9 percent in 2024, below the historical (2000–19) average of 3.8 percent (see Chart 1). “The global economy is limping along, not sprinting,” said IMF Chief Economist Pierre-Olivier Gourinchas. Meanwhile, advanced economies are expected to slow to 1.5 percent in 2023 (from 2.6 percent in 2022) and 1.4 percent in 2024 as policy tightening

debt stocks, geopolitical tensions, climate change and technological

Crises have underscored the continent’s ongoing vulnerability and the need to build resilience.

starts to bite. Emerging market and developing economies are forecast to see a modest decline in growth to 4.0 percent in both 2023 and 2024 (from 4.1 percent in 2022).

International Monetary Fund, Special Report on Africa, October 2023

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PHOTO: NickJulia/Shutterstock.com

Global inflation is forecast to decline steadily, to 6.9 percent in 2023 (from 8.7 percent in 2022) and 5.8 percent in 2024, due to tighter monetary policy aided by lower global commodity prices (see Chart 2). Core inflation (which excludes food- and energy-related costs) is generally expected to decrease more gradually and in most cases inflation is not expected to return closer to 2 percent until 2025. Monetary policy actions and frameworks are significant driving forces at the moment to keep inflation expectations anchored, as reflected in the tightening of monetary policy across many countries – developed and developing.

Real GDP growth (percent change)

e estimate f forecast

Emerging and developing economies Advanced economies World

Economic driving forces Looking at the major economic

indicators, and taking on board the IMF’s forecasts and expectations, the OPEC Fund is cautiously more optimistic for an improvement in headline growth next year given the following: • Economic growth is expected to benefit from an acceleration of the digital transformation along with advances in artificial intelligence, innovation, 5G, technology and biotechnology. These are likely to accelerate across some countries and many industries, driving productivity gains and reshaping labor markets. • As countries intensify their efforts to tackle climate change , investment into renewable energy will continue to grow. Allied to this, an increased focus on environmental, social and governance (ESG) fundamentals will help to underpin sustainable growth in partner countries. • Many governments will continue to implement fiscal stimulus measures to support businesses and individuals affected by the cost-of-living crisis and lingering effects from the pandemic. • Following the lead of the US Federal Reserve, some central banks may hold interest rates at current levels, which could indicate forthcoming cuts that signal a normalization of the interest rate environment across many economies. • Reforms will remain an important element in building the foundations for sustainable growth. • Efforts to create more resilient supply

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Source: IMF

chains (such as through near-shoring) will continue, with diversification and local production playing a role in reducing vulnerabilities to supply chain disruptions. • Finally, demographic change will continue to have a large effect: aging and shrinking populations in some developed countries are lowering demand but this will be offset to some degree by growth of the middle class and of populations overall in emerging economies. Risks to the outlook Despite the more optimistic outlook for growth next year, there are several risks that could undermine the growth picture: • Trade tensions between major economies like the US and China could persist, leading to potential disruptions in global supply chains and trade patterns. • Geopolitical risks, political developments , war, resource scarcity and sanctions could further impact

global stability and trade. • If inflation remains entrenched, central banks’ monetary policies will remain tighter for longer, constraining growth. • Cybersecurity , data breaches and misconduct will have far-reaching adverse economic and financial consequences. • Efforts to reduce carbon emissions, switch to renewable energy sources and adapt to the effects of climate change may be more urgent and costly than expected, stretching resources and straining national budgets. • Healthcare infrastructure and international cooperation could still be tested with the emergence of new pandemics. External environment: Challenges and opportunities The OPEC Fund and its partner countries are facing a changing external environment – one where rapid and sometimes unforeseen developments are

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Inflation (percent change)

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AND THE OPEC FUND

Madagascar INTEGRATED GROWTH POLES PROJECT

Approved: December 2014 Completed: September 2020 Total project cost: US$16 million OPEC Fund financing: US$15 million

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2022 2023e 2024f

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Source: IMF

T he project supported the revitalization of areas with high growth potential in promising sectors such as agribusiness and tourism. It combined the rehabilitation of key infrastructure, the improvement of the business environment and activities to support the growth of small businesses and entrepreneurship and the strengthening of local governance. In urban areas, the project made it possible to modernize and extend the distribution network and make production more reliable. In the Ambanja district with more than 37,000 inhabitants, the project supported the energy transition from a thermal power plant to a hybrid system with solar PVs. The project also provided initial access to electricity to some 3,000 households in rural areas, with the numbers expected to rise to 10,000. The project led to an improvement of living and working conditions, access to information and telecommunications and improvements in public life thanks to access to electricity.

taking place. Amid the worsening effects of climate change, debt-level stress and progress stalling or reversal on the Sustainable Development Goals (SDGs), there are challenges ahead. At the same time, a shift in the geopolitical and economic landscape, as well as advances in technology, present opportunities that the OPEC Fund is striving to meet by mobilizing more funds to meet partner countries’ needs. The OPEC Fund’s Strategic Framework 2030 provides a robust approach to stimulate operations to deliver increased lending and support to address both challenges and opportunities. Limited progress towards the SDGs Global crises continue to imperil the UN’s 2030 Agenda for Sustainable Development. Poverty reduction, food security, health and employment efforts are all falling behind. The SDG financing gap in low- and middle-income countries increased significantly during the COVID-19 pandemic and could reach

US$4.3 trillion per year by 2025. With constrained public funding there is a clear need to mobilize more private capital for SDG financing. In parallel, there is a greater focus on development effectiveness to ensure funding delivers results. Supporting partner countries to achieve the SDGs is critical for the OPEC Fund to achieve its mandate. Intensifying climate crisis As the impacts of climate change continue to worsen, financing demands remain unmet. At least US$4.4 trillion in annual finance flows are required to avoid the worst impacts of climate change. Despite the seemingly dramatic scale of the funding gap, it represents less than 5 percent of global GDP. The

OPEC Fund is leading by example – taking credible climate action is crucial to nurture an ecosystem that drives climate investments where they are needed the most. The OPEC Fund is

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