Can Development and Green Financing Be Creative?
Teddy Mugabo, CEO of the Rwanda Green Fund, speaks to Governance Matters about the challenges African countries face in obtaining support for green development, and showcases some of the innovative financing models her organisation has developed and implemented.
A conservation ethos is nothing new for Rwanda. More than five decades ago, Dian Fossey’s efforts to save the mountain gorilla shone an international spotlight on “the land of a thousand hills”, introducing to the rest of the world the wonder and beauty of this corner of the Rift Valley. Today, Rwanda is taking a lead in another challenge facing our planet: climate change, and more specifically the use of innovative forms of financing to usher in radical new solutions.
More than a decade ago, the Government of Rwanda adopted a green growth and climate resilience strategy. The intention was to protect the environment and address the challenges of climate change, while advancing economic development and taking advantage of the opportunities that climate action offers to advance sustainable growth and development. Critical to that effort has been the creation and the work of the Rwanda Green Fund, which serves as the country’s green financing vehicle.
“In 2009, a study assessing the economics of climate change estimated that climate-related losses could cost Rwanda 1% of its GDP each year by 2030. The Government recognised climate change as a risk to our development, underscoring the need to put this issue at the front and centre of our thinking,” the CEO of the Rwanda Green Fund, Teddy Mugabo, told Governance Matters. “The above considerations were crucial to the development of the Green Growth and Climate Resilient strategy which identified the Rwanda Green Fund as a financing vehicle that would be instrumental in reaching our country’s green growth and development targets.
In 2012, the Fund was established with a mandate to mobilise the finance needed to support the Government of Rwanda in achieving its climate ambitions. Rwanda’s commitment to tackling climate change was strengthened in May 2020 when it became the first African country to submit its updated climate action plan — officially known as a Nationally Determined Contribution (NDC). The updated NDC has an ambitious target of reducing greenhouse gas emissions by 38% compared to business as usual by 2030. The plan has also identified 24 priority adaptation interventions across 8 sectors of the national economy.
To achieve this goal, the Government estimates it will require US$ 11 billion in investments, comprising US$ 5.7 billion for mitigation and US$ 5.3 billion for adaptation. “Mobilising this level of financing will require unprecedented development partnerships, with particular attention given to green investments from private sources,” Mugabo said. “The Fund’s role is to act as a catalyst for both domestic and international sources of green and climate finance.”
In 2009, a study assessing the economics of climate change estimated that climate-related losses could cost Rwanda 1% of its GDP each year by 2030. The Government recognised climate change as a risk to our development, underscoring the need to put this issue at the front and centre of our thinking. - Teddy Mugabo
Instruments of Change
Over the past decade, the Fund has mobilised close to US$ 250m from different partners — both nationally and internationally — of which 10% has been invested in the private sector. “However, this has not gone far enough. Looking back, we realised that we did not support the private sector enough,” Mugabo said. “We conducted a market assessment and we came to the conclusion that we have to be even more innovative in terms of the financial products we are offering. For example, many of the technology projects we are looking to support are very young and not sufficiently advanced to take advantage of the R&D support we put in place. There is, therefore, a pressing need for targeted strategies that ensure we are including the full range of solutions within our programmes in order to meet the national climate ambition.”
The Rwanda Green Fund, in partnership with the Development Bank of Rwanda, is designing a private sector facility that will provide financial products catering to the entire business lifecycle, starting from sensitisation, through ideation, incubation, acceleration, and finally fostering scaling up. These areas will be delivered under the Rwanda Green Investment Facility (RGIF).
“This facility has two arms,” Mugabo explained. “The first is a project preparatory facility that offers reimbursable grants for start-ups that need business development support and seed capital. The idea is to provide lower amounts to support projects at an earlier stage of development. The second, designed to cater to the next stage, will offer credit as well as debt guarantees to encourage risk-averse banks to help with business funding.”
The facility will have a mandate to catalyse private investments in Rwanda, with a unique and specific focus on blended finance by providing financial instruments to projects that are commercially viable — but not yet bankable — in the green sector. The Government of Rwanda plans to launch this green investment facility at COP27 in November this year.
Mugabo is proud of the Fund’s successes. “To date, we have been able to support more than 46 projects,” she said. “One of the most successful investments was a US$ 2.4m investment in the Nyandungu Urban Wetland Eco-Tourism Park project. This was a heavily degraded wetland, located in the capital city of Kigali, but today — after supporting this six-year project which was implemented by the Rwanda Environmental and Management Authority — it has been transformed into Kigali’s first urban eco-tourism park. The Government of Rwanda has now signed an agreement with a private sector operator to manage the park.
“Besides the benefit to the environment, the creation of this eco-tourism park has provided social and economic benefits to the community and served as a powerful tool for educating the public about effective wetland management practices for Rwanda. It has also been important to demonstrate practical lessons on the creative use of wetlands, including new tourism opportunities.”
Another, more modest, investment was a US$ 180,000 research and development grant given to a startup called Ampersand, an electric motorcycle company. “This was crucial to initiating electric mobility in Rwanda,” Mugabo said. Ampersand has since been able to attract US$ 6.6m in equity venture capital and US$ 9m in venture debt, and the company has also opened a new project in Kenya. “This is something that we value because, through catalytic investment, Rwanda has been able to position itself as a leader in promoting sustainable mobility,” Mugabo said. “This initiative also influenced Rwanda’s transport policy review with changes to incorporate smart mobility including proposals on incentives for electric mobility such as tax exemptions for importing electric cars.”
The Rwanda Green Fund also learned key lessons from a US$ 1.5m grant-funded project to construct an electronic dismantling facility, dedicated to recycling e-waste from across the country. The successful execution of the project attracted an investor and the project is currently managed under a public-private partnership arrangement. “Using public funds to leverage private sector investment provides scope for transformational private sector-led green projects,” said Mugabo. “Thanks to our support, the facility is mitigating carbon emissions, creating green jobs, and providing an enticing business opportunity.”
Partnering and Managing For Success
The Fund is dedicated to building good relations with other domestic and external stakeholders. “The Fund received GBP 32m provided by the U.K. Government in the first year of operationalisation which was promptly put to work for the public and private sector as well as non governmental organisations. From the outset, the Fund focused on growing both providers and recipients of climate finance,” she said. “Fund support from the Government of Rwanda through counterpart funding was also instrumental.
“Our three main roles as the Fund are to mobilise, manage, and monitor. It is important that we demonstrate the highest standards of transparency with our partners. Good governance of the Fund is central to its proper functioning, and we are diligent in providing quarterly reports on the progress of project implementation and organising field visits to monitor projects.”
Africa’s Unique Challenges: Is the World Ready to Go Beyond Rhetoric?
It is imperative, says Mugabo, that reliable global partnerships underpin green financing for development. This is particularly crucial for Africa. Mugabo was clear that she “cannot speak for the whole of Africa”. Nevertheless, she offered a forthright challenge to the developed world.
“There are a lot of discussions now about how Africa can access funding for climate change,” she said, “but there is a deeper question: does that funding even exist? Every time a COP meeting comes around, we talk endlessly about the developed world providing funding but only a fraction of what is pledged materialises. Before we talk about access, we need to talk about how we can ensure those countries stand up to their commitments by being transparent about available climate finance.”
Another problem she highlighted was the difficulty of convincing funding bodies that projects meet the criteria for environmental support. “When we apply for funding,” she said, “we are often told that what we have put forward is a development project, not a climate change project. That narrative has to change. Across Africa, we have to address adaptation now. Most of the time, people want projects that mitigate, that provide carbon reductions, but we are experiencing climate change impacts already. The fact is you cannot dissociate development and climate change. The people we are trying to support, the most vulnerable to climate change, are also the poorest.
Most of the time, people want projects that mitigate, that provide carbon reductions, but we are experiencing climate change impacts already. - Teddy Mugabo
“If you can secure funding, then you often have the problem that it is too slow. For all the rhetoric about the urgency of climate change, you can put together a US$ 32m proposal and find that it takes two years or even longer to get it up and running. We need to have conversations about realistic timelines for climate finance. In fact, that is why I try to emphasise the role of the private sector because it is often apparent that the traditional setting is not transformational enough for what we need to do.”
Mugabo believes that the fund she leads can provide inspiration for other African countries. “I believe that a lack of a national fund presents real issues,” she said. “Without one, it is difficult to coordinate your funding activities. We are able to make sure that people are not doubling up on the same research, or we can suggest to people who come to us with an idea that is already in hand that they might be able to adapt that project into something that complements ongoing efforts.
“I also believe that developing countries need to do more to tap into capital markets. Where this support exists, there is a danger that it is being accessed by countries that need the help less but happen to be better positioned. This does not stop there. Africa should be able to make the most of growing markets in carbon credits, for example. We need to think about the technical assistance that is provided to developing countries to make sure they are ready for these opportunities.”
Teddy Mugabo is the Chief Executive Officer of the Rwanda Green Fund. As CEO, she plays a key role in supporting Rwanda to achieve its ambitious climate action goals and fast-track green growth. Prior to her appointment as the CEO at the Fund, Teddy served as the Head of Business Development. She is an Eisenhower Fellow and has a post-graduate degree in Climate Change and Development from the Institute of Development Studies, based at the University of Sussex in the U.K.