INTRODUCTION

The clarion call from international investors for developing African Countries to address challenges bedeviling their economy especially in the wake of the Covid-19 pandemic has become major concern and subject for national discuss. The issues trails from weak financial policies, implementation constraints, infrastructure deficit and lack of adequate regulatory frameworks in the energy sector. The need to bridge the infrastructure funding gap in Africa has become one of the major concerns for financial policy makers across the continent.

In 2018, the World Bank published an online report on public private partnership in infrastructure investment, which reveal that more government support fueled about 37% increase rate in private sector investments in developing economies. Despite the increase involvement of private participation in closing the funding gap in low and middle income African countries with industries operating in the agricultural and energy sector, it is still the second lowest level of investment in the past 10years.

While governments and their agencies are still grappling with the catastrophic effect of the Coronavirus outbreak, smaller nations are seeking for debt reliefs and extension from both the World Bank and the International Monetary Fund (IMF) with financial aids to help them resuscitate their growing economy, thus there is a collective lack of funding to establish and maintain productive infrastructure for financing power, water and transportation projects in response to exacerbating climate change within the continent. The IMF has fearfully predicted a long global recession leading to worries about an unprecedented global food insecurity, with concerns that agricultural production maybe dislocated by containment measures that constrain workers from planting, managing and harvesting critical crops.

GREEN BONDS AND STRUCTURE OF FINANCE

Bonds are debt instruments, evidencing the payment obligation owed by the issuer of the bond to the holders. As a tradeable debt security, it can be listed both in the local and international stock exchange market. They offer sovereign borrowers an alternative source of finance to loans, with the possibility of reaching a wider spectrum of potential and prospective investors. The return on investment is usually to pay the interest calculated by reference to a fixed (“coupon”) on the face value of the amount of the bond at a predetermined date. In a green bond, the issuer borrows money from the market in exchange for a commitment to repay and apply the proceeds to projects with environmental benefits. Green bonds provides institutional investors with long-term maturities, in line with their liabilities, relatively stable and predictable returns for their risk exposures. They also ensure that local and international investors (e.g. pension funds, hedge funds, and asset managers) looking for exposure to local currency denominated debt are increasingly participating in the domestic debt markets as well.

THE BOND MARKET IN AFRICA

Since, Africa has been viewed as one of the most vulnerable and weak regions to the world’s epileptic weather conditions, with its slow economy and security issues, there is an indispensable use of capital market design in boosting investment opportunities and raising capital for the financing of energy and other agro-allied products. The purpose is to incentivize the traditional industry players to make use of green bonds as an alternative source of finance and close the infrastructure funding gap.

The Central Bank of Nigeria recently introduced several lending options and policies targeted at industrial processors in the agricultural and renewable energy projects. Accordingly, the CBN’s policies were aimed at positioning Nigeria to become self-sufficient in terms of creating investor opportunities across key market areas in the country thereby dampening the effects of exchange rate movements on local prices. The regulatory body has budgeted the sum of N500 billion fund for financing dealers and manufacturers in the renewable energy sector of the economy. In 2017, the Nigerian government successfully issued green bonds of N10.69 billion ($30 million) which was oversubscribed and eventually became the first African country to issue a green bond. A similar move was made in 2019 to undertake a second issuance targeted within three framework, namely renewable energy, afforestation and transportation. Through the offer the federal government of Nigeria sought to raise N15 billion to finance the three key project with green credentials. The purpose of the bond was aimed at reducing greenhouse gas emissions by 20% (unconditionally) by 2030 as stipulated under the Paris Agreement signed in 2016.

In recent years, private investors have demonstrated clear interest in the capital markets of sub-Saharan Africa, by raising capital with green initiatives. Meanwhile, some domestic capital markets are making significant contributions to closing the funding gap of African institutions and sovereigns that are seeking considerable debt finance targeted for new and existing clean renewable energy projects.

KEY INCENTIVES FOR INVESTORS

The process guiding the issuance of green bonds are fair and logically transparent that promotes integrity based transactions in the development of green bond market. One of the unique facts about green bonds is that they offer investors the option to diversify their portfolio with not only income-based decisions but environmentally based ones as well.

Green bond investors are exempted from paying certain taxes imposed by government on interest from the green bonds they hold. The tax incentives available for green bond subscribers and issuers includes:

1) Reception of tax credit as against interest payments, so issuers do not have to pay interest on their green bond issuances.

2) Reception of cash rebates from government in subsidizing their net interest payment. This is in form of direct subsidy.

3) Exemption from paying income taxes on interest from the green bonds they hold or have subscribed to.

CONCLUSIONS

The role of private investment in green bond cannot be overemphasized. Institutional investors across the globe must rise up to the challenge of taking advantage of the huge investment opportunities in Africa in green project financing. The African economy is still evolving, climate investment opportunity in the region has been deepened by increasing urbanization and the environmental needs for adequate climate infrastructure to support urban life community and encourage the green life ecosystem.

Green bond issuance in Africa is gradually becoming the direction for prospective investors, large corporations are beginning to see the potential benefits in participating actively in the African bond market. It is therefore, imperative for African leaders to provide more incentives for international investors in green finance as a way of promoting cleaner planet where green life and afforestation activities are heavily encourage.