Africa Capital Markets Report 2026

9. Mobilising private finance for climate mitigation and adaptation

Abstract

This chapter examines how African jurisdictions use public policies and institutions to mobilise private sector finance for climate mitigation and adaptation, including the role of domestic and regional capital market development in addressing constraints related to financing tenor, currency and investor participation. It reviews the main policy channels, institutions and barriers to private investment, and examines the design and governance of co-investment and risk-sharing instruments, including challenges related to additionality, project pipelines, monitoring and accountability. The chapter concludes with policy considerations to enhance the effectiveness, transparency and scalability of public interventions. The analysis draws on questionnaire responses from Mauritius, Uganda and Zambia, and an interview with the Bank of Ghana.

Key messages

• African countries are increasingly recognising the importance of domestic and regional capital market development for climate finance mobilisation. The draft Southern African Development Community (SADC) Financial Market Development Strategy Framework identifies capital mobilisation as a strategic goal, while Mauritius, Uganda, Zambia and Ghana are advancing on the issuance of green bonds, sustainable finance frameworks and related market initiatives. These efforts could help address the continent’s reliance on external finance, which accounts for 87% of climate finance flows to Africa.

• A shortage of investment-ready projects is a major barrier to mobilising private climate finance. Fewer than 12% of submissions to the Uganda Development Bank Climate Finance Facility met investment-readiness criteria. In Uganda and Zambia, limited project preparation capacity also constrains smaller and subnational adaptation investments, which often lack the scale and documentation needed to attract private investors.

• Better consolidation and disclosure of climate-related public financial exposures may support climate finance mobilisation. Consistent recognition of expected losses and the disclosure of guarantees and other public commitments improve transparency and risk management. Mauritius reports contingent liabilities in budget documentation, while Zambia tracks them through public finance and public-private partnership review processes without consolidated disclosure. Uganda tracks exposures across several institutions but lacks a consolidated register for climate instruments, and climate guarantee exposures are not yet included in its annual debt bulletin.

• Standardised project preparation and competitive allocation of public support can improve project bankability and the use of public funds. Zambia’s solar auctions offer pre-selected sites and standardised documentation, reducing the work required of individual bidders. In Uganda’s Global Energy Transfer Feed-in Tariff (a top up on the price developers receive for the electricity they sell), developers compete by bidding a strike price: the fixed price per unit of electricity they would accept for the power they sell. The lowest bids win, revealing the minimum public support investors need, so the state pays no more than necessary.

9.1. Introduction

Climate investment in Africa remains below the levels required to meet climate goals despite strong recent growth. According to the International Energy Agency's (IEA) Announced Pledges Scenario (APS), clean energy investment would need to increase by a factor of 2.4 in North Africa and 1.8 in sub-Saharan Africa relative to 2024 levels, even though investment has grown by 16% and 14%, exceeding GDP growth of 3.3% and 2.2% in each region, respectively (OECD, 2025[1]). The APS only assumes governments meet their announced climate commitments and is not a pathway that aligns with achieving the Paris Agreement goals, including limiting warming to 1.5°C. Investment on that basis would need to be higher. Public finances alone cannot close this gap. Constrained public budgets, high debt levels and competing development priorities limit what governments can fund directly, and a large share of the public funds deployed for climate investment in Africa is borrowed rather than granted. How the gap is closed carries consequences for fiscal sustainability as well as financial market development.

Two constraints hold private investment back. At the individual project level, expected returns may not compensate investors for the risks they are asked to carry. Guarantees, co-investment, concessional capital and other risk-sharing instruments address this by changing the risk-return profile. At the market level, domestic capital markets remain insufficiently developed to supply long-term financing at scale, regardless of the merits of any single project. Addressing this challenge requires capital market development, standardisation and instruments that connect domestic savings to climate investment.

African countries are increasingly recognising the importance of financial market development for climate finance mobilisation. The draft SADC Financial Market Development Strategy Framework identifies capital mobilisation for regional transformation as one of its strategic goals (SADC, Forthcoming[2]). Under this goal, the draft proposes actions to adjust portfolio and solvency rules as well as stewardship codes to increase long-term equity and sustainable allocations, develop a mutual‑recognition framework for collective investment schemes, channel savings through bonds, sustainability‑linked bonds and blended infrastructure financing, launch carbon-linked bonds and sustainability sukuk, issue catastrophe bonds, and strengthen supervisory convergence and capital-market innovation.

9.2. Policy channels to mobilise private sector finance

9.2.1. Public institutions mobilising private sector finance and main limiting factors for capital mobilisation

Governments can mobilise resources for climate mitigation and adaptation through four broad policy channels: (i) regulatory frameworks for infrastructure and renewable energy investments, (ii) fiscal policy and direct public investments, (iii) capital market development, and (iv) instruments for co-investments and risk-sharing. Public institutions play multiple direct and indirect roles across these.

Public institutions’ role

Under their respective ministries of finance, Uganda and Zambia have climate finance units that co-ordinate climate finance mobilisation. Uganda’s Climate Finance Unit is working to strengthen institutional co-ordination, develop and implement a green taxonomy, track annual nationally determined contribution (NDC) finance flows against estimated needs of USD 28.1 billion by 2030 and facilitate investor matchmaking forums.

Mauritius, Uganda and Zambia mandate environment ministries to oversee national adaptation plans, provide technical assistance and assess investment needs. In Uganda, the Ministry of Energy and Mineral Development supervises programmes for the renewable energy feed-in tariff and biofuels blending.

National development banks and development finance institutions in Mauritius, Uganda and Zambia support private-sector climate investment through concessional finance, project preparation, risk-sharing and structured finance. In Mauritius, the national development bank supports small and medium-sized enterprises (SMEs), in Uganda, the Uganda Development Bank provides financing for climate-aligned SMEs and infrastructure projects and in Zambia, development finance institutions provide project-preparation support for climate-related investments.

Central banks adopt sustainability-related objectives, supporting green finance through disclosure guidelines and integrating climate risks into their monitoring activities in Mauritius, Uganda and Zambia. The Bank of Ghana developed sustainability principles and a sustainable finance roadmap, which were integrated into its banking supervision activities. Banks in Ghana integrated these via governance, risk management and disclosure practices.

In Mauritius, the national statistics agency collects macroeconomic and sectoral data, including data on climate-related investment flows. In Zambia, the UNDP Biodiversity Finance Initiative and co-operating partners provide technical assistance, biodiversity finance support and project structuring assistance, including support for green finance market development. In Uganda, the Kampala Capital City Authority is identified as a key subnational actor. Uganda’s Ministry of Finance reports that the government has mobilised over USD 600 million for urban climate resilience and is exploring municipal bonds, public-private partnerships (PPPs) and carbon credits under its strategic plan.

Mauritius’s public insurer offers catastrophe insurance and risk-pooling mechanisms for real estate and vehicles, although coverage remains partial and data collection on insured assets is limited. Uganda’s Insurance Regulatory Authority regulates the insurance sector, including agricultural index insurance pilots, and provides actuarial oversight for climate risk insurance products.

Table 9.1. Public institutions’ responsibilities across the four policy channels

	Regulatory frameworks for infrastructure and renewable energy investments	Fiscal policy and direct public investments	Capital market development	Co-investment and risk‑sharing
Ministry of finance	-	Design of fiscal programmes, climate tax systems, budgetary activities; expenditure structuring, co-ordination with line ministries	Financial regulation, instruments supporting capital market development and standardisation (sustainable bond frameworks)	Instrument design, issuance of guarantees
Line ministries	Policy setting (climate/sector related), regulatory activities, mechanism design	Channelling investments, overseeing SOEs and agencies	Instruments supporting capital market development and standardisation (sustainable bond frameworks)	Instrument design, issuance of guarantees
Central Bank	-	Providing a stable economic environment	Financial regulation, climate risk analysis	-
National development bank	-	Fund administration, intermediation of public funds, technical assistance	Creating standardised instruments for replication, introducing new lenders to the market, building expertise, incorporating sustainability-related criteria	Assessment, instrument design, co-investing, issuance of guarantees
Export credit agency	-	-	-	Assessment, instrument design, issuance of guarantees
Securities regulator	-	-	Improving transparency and market integrity, preventing greenwashing, supporting the access of companies to public markets and the development of institutional investors	-
Other public institutions (state-owned enterprises, agencies for SMEs, agencies for development, etc.)	-	Channelling investments	Creating standardised instruments for replication, introducing new lenders to the market, building expertise, incorporating sustainability-related criteria	Assessment, instrument design, co-investing, issuance of guarantees

Source: OECD Questionnaire – Mobilising private finance for climate mitigation and adaptation.

Limiting factors

Across all four policy channels, structural, institutional, and market-based factors constrain private investment in climate-related projects. In the surveyed African jurisdictions, restrictive access to finance, insufficient data and limited project design capacity rank among the highest barriers. Uganda identifies restrictive lending conditions, such as 16‑20% interest rates, short tenors and land-title collateral as its most significant barrier. Ghana reports that banks have limited access to development finance institution funding and other external support for climate-related lending.

Uganda ranks the lack of capacity to design investable projects as its second most significant barrier, reporting that fewer than 12% of submissions to the Uganda Development Bank’s Climate Finance Facility met investment readiness criteria.

Zambia reports uneven project preparation capacity but ranks it below several other constraints. It cites Copperbelt Energy Corporation (CEC), which has demonstrated stronger technical and financing capacity in renewable energy projects, including solar power plants.

Zambia also highlights insufficient data and metrics to evaluate projects’ climate risks, performance and bankability. Uganda identifies the absence of mandatory environmental, social and governance (ESG) disclosure as contributing to information and transparency gaps.

Zambia highlights how exchange rate volatility affects project costs, debt and foreign investor returns. In Uganda, revenue uncertainty stems from currency mismatch: power purchase agreements (PPAs) are denominated in US dollars while revenues are collected in domestic currency, increasing liquidity risk for renewable energy developers. Uganda reports that most international climate finance is hard-currency denominated and that domestic foreign exchange hedging instruments are absent. In Zambia, bankability depends on credit quality and the enforceability of off-take arrangements, but revenue uncertainty is less binding where structured arrangements involve ZESCO, a state-owned power utility, and other power sector participants.

In Zambia, stakeholders highlight uncertainty around evolving climate finance, ESG, and carbon market frameworks. Uganda reports a lack of unified co-ordination among ministries responsible for climate finance, while some regulations remain under development.

Limited availability of insurance and risk-transfer mechanisms constrains investment. In Uganda’s agricultural sector, subsidy allocations are exhausted mid-season while agricultural index insurance remains at pilot scale.

Across African jurisdictions, complex permitting, procurement and contracting processes can increase costs and delays, discouraging investment. These challenges are particularly relevant for smaller projects, green infrastructure and emerging technologies, limiting their scalability and comparability. Uganda and Zambia highlight the need for standardised templates, faster environmental approval, more efficient documentation and streamlined multi-agency licensing.

9.2.2. Policy channels

Policy channel 1: Regulatory frameworks for infrastructure and renewable energy investments

Regulatory frameworks reduce investment risk by making project rules predictable over their lifespans, which matters most where payback periods are long (OECD, 2022[3]).

In Ghana, authorities have introduced sustainability principles for banks, including a climate-related financial risk directive and a sustainable finance roadmap, while financial regulators have developed green bond guidelines and a green taxonomy. Mauritius reports that the Ministry of Finance and the Ministry of Environment, Solid Waste Management and Climate Change jointly assess whether instruments are appropriate given local market conditions, institutional capacity, regulatory frameworks and macro-financial risks.

Zambia notes that renewable energy and adaptation infrastructure projects typically entail high upfront costs and extended repayment periods. Uganda similarly reports that biochar, cold-chain and mini-grid projects may require investment horizons of 10-20 years, while green Micro, Small, and Medium-sized Enterprises (MSME) loan maturities rarely exceed seven years.

Policy channel 2: Fiscal policy and direct public investments

Through spending, taxation and direct investment, governments influence which climate investments proceed, including through carbon pricing and tax incentives for low carbon activities.

As climate investment needs grow and fiscal pressures increase, governments must balance climate objectives with fiscal sustainability. The design of the instruments used to do so is examined in section 9.3.

Policy channel 3: Capital market development

Capital markets connect savings to climate investment and can supply long-term financing at a scale that project-level instruments cannot. Savings from capital markets are currently mostly external: 87% of climate finance flows to Africa originate outside of the continent (CPI, 2024[4]). This creates two challenges in the jurisdictions reviewed. The first is tenor. Green MSME loan maturities in Uganda rarely exceed 7 years, while payback periods run between 10 and 20 years. The second is currency. When financing is raised abroad, power purchase agreements are often denominated in US dollars while revenues are in local currency. Uganda reports that domestic hedging instruments are unavailable.

Guarantees can address both of the two challenges for individual projects but they do not resolve the underlying financing gap, and additional foreign capital can increase currency risk. Deepening the domestic institutional investor base can address both. Where domestic markets remain too small to support large issuances, regional capital market integration can provide greater scale and liquidity (AfDB, 2025[5]). For example, the SADC's development of an Exchange Gateway connects participating stock exchanges to facilitate cross-border investment and enhance liquidity (SADC, Forthcoming[2]). More recently, the launch of the East Africa Exchanges 20 Share Index in 2025 may also help advance this objective (Nairobi Securities Exchange, 2025[6]).

In Zambia, the Securities and Exchange Commission supports market-based climate finance mobilisation by developing and supervising green bonds and sustainability-related disclosure frameworks. Mauritius promotes sustainable investment products and green bond issuance through its capital market framework. In Uganda, the Capital Markets Authority is developing a Sovereign Green Bond Framework and exploring sustainability-related reporting requirements for listed companies. Ghana reports ongoing collaboration among financial sector regulators on initiatives including green bonds, sustainable finance standards and a green finance taxonomy to support the development of climate-related capital markets.

Policy channel 4: Instruments for co-investments and risk-sharing

The strategic use of public financial instruments, including guarantees, concessional loans, grants and minority equity investments, represents an additional channel through which resources can be mobilised for climate mitigation and adaptation. Section 9.3 includes detailed information on design, challenges and governance.

African jurisdictions do not provide a disaggregated overview of the amounts of private sector finance mobilised. Zambia reports that a unified national tracking framework for climate-related investment is still under development. Evidence from Uganda between 2021 and 2025 indicates that climate finance was mobilised via grants and grant-like instruments, with support focused on both cross-cutting activities that generate mitigation and adaptation co-benefits and, to a lesser extent, mitigation-specific investments. In Zambia, grants supported mitigation and adaptation activities, predominantly donor-funded and programme-based.

Global adaptation finance remains well below estimated needs, especially in vulnerable developing countries (OECD, 2025[7]). Mitigation and adaptation investments differ significantly, with adaptation projects often facing greater challenges in generating clear and stable revenues, particularly where benefits are public or diffuse.

In Uganda, adaptation finance comes from government sources alongside support from multilateral development banks (MDBs). Mitigation activities, such as green energy and technology projects, are often supported by grants, especially in the early stages. Cross-cutting climate finance is supported through government expenditure and blended-finance mechanisms. Between 2015 and 2025, blended finance accounted for USD 257 million (0.72% of total climate finance flows) and government expenditure represented approximately USD 6.55 billion (18.3% of total commitments).

While guarantees are widely used across OECD countries, their use is limited in Zambia, mainly for mitigation projects through PPPs and infrastructure financing, with fiscal exposure assessed on a case-by-case basis. In Uganda, adaptation-related financing includes results‑based payments and insurance instruments, while agricultural index insurance remains at pilot scale.

Zambia reports that development and commercial banks use debt, mezzanine, and equity instruments to support climate-related financing. Insurance instruments are also used, including through the African Risk Capacity initiative and other disaster-risk financing mechanisms.

9.2.3. Trade-offs across policy channels

The role of each policy channel will vary across jurisdictions, reflecting differences in institutional capacity, market conditions and economic circumstances. As no channel is likely to be sufficient on its own, governments will often need to combine them. Their relative strengths and limitations can be assessed through three considerations: political feasibility, stability and predictability, and the size and accessibility of the financing base.

Political feasibility

The political feasibility of climate finance policies depends on their compatibility with domestic institutions, market structures and administrative capacities. Instruments that can be integrated into existing policy frameworks, adapted to local conditions and targeted at clearly identifiable market failures may face less resistance than reforms that require substantial changes to regulatory systems, public institutions or patterns of resource allocation. Public investments and private sector finance mobilisation instruments may offer greater flexibility than reforms requiring broader institutional or legislative change.

Mauritius highlights the role of co-ordination between finance and environmental authorities in selecting instruments while Uganda emphasises the need to adapt financial instruments to an MSME-dominated economy with shallow capital markets and land-title collateral constraints. Zambia assesses instruments against domestic financial-sector depth, regulatory requirements and implementation capacity. In Ghana, efforts have focused on working through existing financial sector institutions, including sustainability principles, climate-risk directives and sustainable finance standards rather than creating entirely new financing structures.

Stability and predictability

Mechanisms for mobilising private sector finance may offer greater stability and predictability than regulatory measures or tax incentives, as public commitments are often defined contractually and extend over a project's life. This can provide investors with greater certainty, particularly for long-term infrastructure and energy investments. Their effectiveness will depend on credible fiscal frameworks, transparent management of contingent liabilities and clear rules governing the provision and withdrawal of public support.

Mauritius reports that it monitors contingent liabilities associated with climate-related support mechanisms through the national budget framework and that support schemes are generally time bound. Uganda links support mechanisms to predefined facility periods. Zambia notes that public support is generally linked to programme cycles and monitored through existing public finance processes.

Size and accessibility

The effectiveness of the policy channels depends not only on the availability of finance but also on its accessibility. While all channels can mobilise investment, they differ in their ability to reach smaller projects, SMEs, municipalities and adaptation investments, which are often fragmented. Capital market development can provide access to large pools of private capital, but it may be less accessible to smaller projects that cannot absorb the costs of due diligence, legal structuring and monitoring.

Uganda identifies project preparation capacity, high borrowing costs and collateral requirements as major constraints. Fewer than 12% of submissions to the Uganda Development Bank's Climate Finance Facility met investment readiness criteria. Mauritius reports that a first-loss public guarantee facility for small‑scale green enterprises experienced low uptake because commercial banks faced overly complex administrative reporting requirements. Zambia similarly highlights project preparation capacity constraints, noting that project preparation capacity remains uneven. Ghana points to limited access to development finance and a shortage of investment-ready projects as key barriers.

9.3. Instrument design, project origination and governance

9.3.1. Instruments for co-investments and risk-sharing

This section examines how public financial instruments can be designed and governed to mobilise private sector finance effectively. It considers the main instruments used, their additionality and incentive effects, project preparation and investment readiness, and the governance and fiscal risks associated with public support.

Guarantees and other risk-sharing instruments

Guarantees and other risk-sharing instruments help mobilise private capital by transferring specific risks from private investors to the public sector. Common instruments include credit and risk guarantees, first‑loss capital, revenue and off-take guarantees, and foreign exchange risk solutions.

Their effectiveness depends on addressing identified investment constraints. Revenue and off-take guarantees can reduce concerns about future cash flows while contractual, regulatory and political risk instruments can strengthen investor confidence. Foreign exchange risk solutions can support investment where local capital markets are underdeveloped, although they also transfer risks to the public sector.

Efforts led by MDBs and development finance institutions (DFIs), including the World Bank Group's guarantees platform, aim to standardise these instruments and increase their use. Uganda uses portfolio guarantees, including through facilities supported by the African Guarantee Fund (AGF), to reduce lender risk while requiring commercial banks to retain at least 50% of the underlying exposure. Mauritius reports that, for a utility-scale solar project, a guarantee mechanism embedded in a power purchase agreement (PPA) was used as it optimised the use of public fiscal resources.

Concessional capital

Concessional capital provides financing on terms that are more favourable than those available from the market to make projects viable or mobilise private investment. This may involve below-market pricing, subordinated risk positions or longer maturities. Instruments include concessional loans, subordinated debt and junior equity. How much concessionality is warranted and whether any is needed at all are separate questions treated in section 9.3.2. Table 9.3 records which principles each jurisdiction applies.

The Uganda Development Bank's Climate Finance Facility provides concessional and blended finance to climate-related investments, helping address high borrowing costs and limited access to long-term finance. Zambia reports that concessional loans and guarantees have both been considered in renewable energy financing projects to address affordability and perceived risk constraints, with concessional debt prioritised where it directly reduced financing costs while preserving private sector risk exposure.

Grants and grant-like instruments

Grants and grant-like instruments provide wholly or partially non-repayable support where projects generate insufficient revenues to attract private sector finance or where benefits largely take the form of public goods, as is often the case for climate adaptation investments. Unlike concessional loans or equity, grant and grant-like instruments cover costs that project revenues cannot recover. Common approaches include viability gap funding, which covers the difference between commercial revenues and total project costs, and results-based finance, which links payments to independently verified outputs or outcomes. The effectiveness of these instruments depends on their design, with performance-based approaches generally preserving stronger incentives for efficient delivery.

In Uganda, results-based financing is used alongside other public support mechanisms to support renewable energy access and clean cooking initiatives. Ghana similarly highlights the need for financial support, capacity building and advisory assistance to strengthen project pipelines and improve access to climate finance.

9.3.2. Opportunities and challenges among the instruments for co-investment and risk‑sharing

Additionality and market terms

Additionality is central to instrument design. It tests whether public intervention changes an outcome that the market would not otherwise reach. The test is difficult because it rests on a counterfactual: whether a project would have proceeded, and on what terms, without public support, which cannot be observed directly.

What the test guards against differs by market. Where private sector finance is plentiful, the concern is that public money funds projects commercial lenders would have financed anyway. In most African markets, there is far less private finance to displace public support. Private sources provided 18% of climate finance flows to Africa in 2021‑2022, against roughly half globally, and 87% of flows came from outside the continent (CPI, 2024[4]). Mobilisation per public dollar is also lower: USD 0.37 in low-income countries against USD 1.06 in lower‑middle‑income countries (Engen, 2019[8]).

The public sector may provide capital on concessional terms or on market terms. Where public and private actors participate with the same ranking and on equivalent risk-return terms, such participation may be described as pari passu. Concessional support means the provider accepts terms a private actor would not. This may be a matter of price through a below-market interest rate, a grant element or a guarantee priced below its fair value. It may be a matter of risk position, through a first-loss or subordinated position taken on terms that do not compensate for the risk, or a maturity longer than the market will hold at the same price. Support on market terms means the provider invests on terms consistent with those that a private financier would accept for a comparable level of risk. Such support may be provided on a pari passu basis, but market-based participation does not necessarily require identical pricing or contractual terms. In African jurisdictions, that provider is frequently not the national budget but an MDB, a vertical climate fund, a bilateral donor or a national development bank’s on-lending resources raised from those sources.

Concessional support transfers a subsidy to the recipient. Its size depends on concessionality. Whether it was needed depends on an additionality assessment. The two are separate. A larger concession does not necessarily have a greater effect on private investment. The provider may lend at below-market rates to a borrower that a commercial lender would have funded on its own. In this case the subsidy would be real, no private sector finance is mobilised, and the borrower would obtain cheaper capital. Additionality may receive less attention than concessionality because a subsidy is attractive to a recipient whether or not it is required, which makes over-provision the path of least resistance.

In Africa, concessional support is often financed through borrowed resources. Climate finance to the continent arrives mainly as debt, and debt still accounts for 36-43% of climate finance even in countries assessed as being in debt distress (CPI, 2024[4]). This raises what is at stake when additionality is wrong. A concessional loan is cheaper than a commercial one but it is not free: it is repaid and it adds to the debt stock. Where such a loan funds a project that private lenders would have financed anyway, the result is not only a subsidy that had little impact, but a public liability taken on for a project that needed no public money.

The size of the concession is measured as the difference between the terms the provider provides and the terms a private financier would have offered in a comparable case. Table 9.2 sets out how this is done for each instrument, and why the comparison is more difficult in most African markets.

Table 9.2. Measuring the concession by instrument

The cost of a concession is observable for grants but rests on valuation assumptions for guarantees or equity stake. The benchmark a concession is measured against is uncertain in most African markets

	How the concession is measured	What the measurement requires	Africa-related consideration
Grant	The full amount transferred None of it is repaid	The amount itself No further assumption is needed	Cost is directly comparable across countries and providers No region-specific difficulty
Concessional loan	The present value of the interest forgone over the life of the loan (difference between the rate charged and the “market rate”) A maturity longer than the market offers adds further value	A comparable market rate for the same borrower and tenor Available where a private quote or a comparable transaction exists	The benchmark depends on the currency. In the three months prior to January 2026, Uganda's average lending rate was 18.3% on shilling credit against 7.6% on foreign‑currency credit1. A dollar loan at 8% therefore looks heavily discounted against local rates, but the borrower actually takes on an exchange-rate risk. The concession could be measured against the rate for the same currency and tenor. Few private lenders offer the tenors climate assets require, so that comparison often has no market transaction to draw on
Guarantee	The present value of the difference between the fee charged and a fee that would compensate the state for the expected loss	An estimate of the probability of default and of the recovery rate. Both rest on assumptions that are difficult to agree	Default histories are short. Estimates rest on assumptions Much of the risk sits with the off-taker or sovereign and is correlated across projects Holding a portfolio does not reduce it in the way standard pricing assumes2
Equity	The difference between the price paid by the state and the value a private investor would place on the same stake	A valuation No posted price exists; i.e. estimate depends on valuation assumptions	Shallow domestic equity markets and few comparable transactions leave no observable price, and uncertain exit routes make assumed exit values speculative

Note: The market rate refers to rates commercial lenders would charge. The concession is measured at the point of commitment.

1. Weighted average lending rates for the three months to January 2026 (Bank of Uganda, 2026[9]).

2. Standard guarantee pricing assumes defaults are largely independent, so that a portfolio diversifies the risk. Where a single state-owned utility is the sole off-taker, the assumption does not hold. Off-taker risk ranked among the top three sector-specific risks reported for clean energy projects in Kenya and Senegal, where both utilities carry high debt (IEA, 2025[10]).

Source: OECD drawing on IEA (2025[10]), OECD Questionnaire – Mobilising private finance for climate mitigation and adaptation.

One feature affects the benchmarks used to assess the size of concessions in Table 9.2. Country-level risk, rather than project or technology specific risk, drives most of the cost of capital in African markets. The country-level component of the cost of capital accounts for 60‑90% of the total weighted average cost of capital for African solar plants, compared to 10% in advanced economies (IEA, 2025[10]). Therefore, concessional support largely compensates for sovereign and macroeconomic risk rather than project‑specific risk.

Where concessional finance funds a large share of a market, the observed market rate already reflects it, so the benchmark is not independent of the support being measured. The IEA records a lower cost of capital for utility-scale solar in Kenya and Senegal (8.5‑9%) than in South Africa and other emerging economies (9.5‑11%) due to around half of the projects surveyed in the two countries being financed by international institutions on low-cost debt. Energy businesses borrowing domestically in those markets report rates above 15%.

Table 9.3. Establishing additionality: evidence and minimum private participation in three African jurisdictions

	Evidence required	Minimum private participation	Source of the rule
Mauritius	Quantified gap between project revenues and costs after cost optimisation For debt and mezzanine, written statements from financiers that they would participate only with a junior tranche, longer tenor or reduced pricing	Minimum sponsor contribution for grants, minimum private co-financing for debt Thresholds not fixed and described as depending on policy and circumstances	Internally developed principles, aligned with the OECD DAC Blended Finance Principles
Uganda	Quantified financing gap, confirmation that commercial finance is unavailable on comparable terms, climate relevance verified against the National Green Taxonomy For guarantees, written lender statements that credit would not be extended without cover	Commercial banks retain at least 50% of loan risk unguaranteed (UDB Climate Finance Facility) Guarantee coverage capped at 50% (African Guarantee Fund) First-loss tranche capped at 10-15% of facility, with banks providing 85-90% (Uganda Energy Credit Capitalisation Company) 20-30% co-financing for viability gap funding and results-based finance	MDB facility agreements and development bank credit policy No single national framework; one committed for 2026 under the National Climate Finance Strategy
Zambia	Financial models showing viability gaps (grants) Investor letters, lender term sheets or credit-committee conditions (debt) Evidence of funding gaps or lender requirements that cannot be met commercially (guarantees)	Guarantee coverage remains partial, with an uncovered private share Sponsor equity and lender exposure required in PPP and project-finance structures Thresholds set by sector, instrument and project risk	Internally developed principles, the OECD DAC Blended Finance Principles and the DFI Enhanced Principles

Source: OECD Questionnaire – Mobilising private finance for climate mitigation and adaptation.

Two patterns stand out in how additionality tests are set and applied across the surveyed jurisdictions. First, the tests are largely inherited from external financing arrangements rather than domestically set. Uganda reports that its thresholds come from MDB facility agreements and development bank credit policies, and that a single national framework is not yet in place. Where the test travels with the money, a government has limited ability to apply a consistent standard across providers or to weigh additionality against its own priorities. Only Uganda reports quantified thresholds, which vary by facility rather than following a common rule.

Second, the administrative cost of applying the test can matter as much as its design. Case-by-case evidence is proportionate for large transactions and disproportionate for small transactions. Mauritius reports that a first-loss guarantee facility for small green enterprises saw exceptionally low uptake because commercial banks found the administrative reporting requirements too complex. Uganda reports that its green economy financing facility required borrowers to provide evidence of green outcomes through independent verification, which banks found disproportionate to the incentive on offer. This caused uptake of borrowing to fall below projections. In both cases, the apparatus protecting the subsidy may have cost more than the subsidy was worth. Programme-level assessment offers an alternative. Eligibility criteria such as a sector, a maximum loan size, a borrower category such as MSMEs or a technology listed in a national green taxonomy, are set once for a class of investment for which finance is demonstrably unavailable. Applications are then checked against documentary criteria, rather than assessed case-by-case, against a judgement about what the market would have done. Uganda’s National Green Taxonomy may provide a classification layer that such an approach requires.

Investment readiness

The availability of private capital and the efficiency with which it is mobilised are not the only constraint on climate-related investment. Where private investors are willing to finance a given type of project, a shortage of well-prepared, investment-ready projects can be the binding constraint. A project is investment ready when its technical design, permitting status, revenue structure and documentation are advanced to a point that a private financier can appraise and price it without disproportionate additional work. Without this preparation, capital that would otherwise be available may not flow.

In much of Africa, this is not one constraint among several but the dominant one. Fewer than 10% of African infrastructure projects reach financial close, and around 80% fail at the feasibility or business‑planning stage (McKinsey, 2020[11]). While these figures relate to the broader infrastructure sector, they highlight the importance of project preparation. Uganda states that its main obstacle is not the availability of capital but the absence of a bankable pipeline, and it attributes its low mobilisation ratio to that shortage.

Better prepared projects also tend to require less public support to reach financial close, since much of the cost and uncertainty a public instrument would otherwise offset is instead resolved before the project reaches the market. Zambia uses utility-scale solar auctions to offer bidders pre-selected sites, standard contract documentation and pre-arranged finance and insurance, so that each bidder does not need to repeat this work. Resolving these development-stage uncertainties, such as site and resource quality, land rights and permitting, environmental and social impacts, grid connection and tender and contract design through better project preparation can reduce the risks priced by investors (ESMAP, 2023[12]). Public and concessional support can then be more closely targeted at risks that cannot be eliminated through project design or efficiently borne by private investors, such as off-taker payment risk or political or breach‑of‑contract risk.

Mauritius, Uganda and Zambia identify project preparation as a priority and all three report acting on it. What separates these countries from the OECD economies is who pays. Donors and vertical climate funds finance preparation primarily, rather than national budgets. Zambia reports that early-stage support comes through donor readiness grants and concessional preparation support rather than a domestic seed capital facility. Mauritius reports that fiscal constraints limit its role to business facilitation and co-ordination between public agencies. Uganda has designed a national Project Preparation Facility but has not yet brought it into operation. Preparation capacity therefore follows donor programme cycles rather than budget cycles, which impacts whether the capability outlasts the initial intended programme capacity.

Uganda estimates that 180 to 220 projects received preparation support between 2021 and 2025, that 15‑25% of them reached signed financing, and that of roughly 120 applications screened by its development bank’s climate facility, fewer than 12% met readiness criteria. It states that these are compiled from institutional reporting rather than a central record. Mauritius reports three projects supported and one financed. Zambia reports that tracking exists only through individual donor programmes and is not centrally consolidated.

Uganda reports that most adaptation measures lack commercial revenue streams, leaving public finance as the primary source, and Zambia reports that adaptation projects remain harder to commercialise and still need grant or concessional support. Both countries describe subnational adaptation capacity as the weakest link. District proposals identify real vulnerabilities but are rarely developed to a standard that a financier can appraise. The same gap appears in fragmented markets, such as smallholder agriculture, off-grid solar and MSME lending, where appraisal and origination costs are largely fixed while individual projects are small, so the cost per dollar invested deters private origination. Standardisation and aggregation address this directly. Common contract templates and appraisal criteria spread a fixed preparation cost across many transactions rather than incurring it afresh each time, and bundling small projects creates a ticket large enough to justify appraisal. Zambia's solar auctions, which offered bidders pre-selected sites and standardised documentation, and Uganda's national green taxonomy and standardised project checklist, are the clearest examples reported.

Table 9.4 sets out the roles the states in Mauritius, Uganda and Zambia take in project preparation, and who funds each.

Table 9.4. Public sector roles in project preparation in Mauritius, Uganda and Zambia

	Uganda	Zambia	Mauritius
The state prepares the project. A public body carries out feasibility work and permitting, then tenders the result	A Climate Finance Unit in the Ministry of Finance co-ordinates origination with sector ministries. An inter-ministerial committee reviews concept notes and issues the endorsement letters the climate funds require. District climate committees do the same in 14 pilot districts	A Climate Finance Unit in the Ministry of Finance works with the environment and sector ministries on mitigation pipelines. Subnational preparation runs through national programmes and utilities rather than provincial facilities	Dedicated internal teams reported at national level for both mitigation and adaptation. Funded from national budgets, with donor readiness grants covering part of the staffing
The state pays for preparation carried out by others. Consultants do the work; the state meets part of the cost	Climate fund readiness and preparation grants finance feasibility studies, consultations and impact assessments. A UK‑funded accelerator (£12.6m) took eight low-carbon projects to investment readiness	External advisers used for feasibility studies, green bond frameworks, PPP preparation and transaction design. Early-stage support comes through donor readiness grants rather than a domestic seed-capital facility	External consultants contracted project by project. Funded overwhelmingly by donors and the vertical climate funds, not national budgets
The state supplies its own expertise. Public staff advise applicants directly and the capability stays with the state	Agricultural extension services support climate-smart agriculture origination. District programmes pair external technical assistance with local implementation and central policy oversight	The dominant model is hybrid: public institutions provide policy direction, co-ordination and approvals while private advisers carry out technical work	Government provides business facilitation and co-ordination between agencies, explicitly in place of financial support, given fiscal constraints. Funded from national budgets and donor technical assistance
The state builds capability reused across projects. Standards, appraisal methods, contract templates and metrics developed once and applied many times	A National Green Taxonomy and a standardised project checklist used to present projects to investors, applied to around 25 projects. A national Project Preparation Facility is designed but not yet operating	A Climate Finance Strategy and Green Growth Strategy are building institutional capacity. Long-term systems for project tracking and preparation are described as needing further consolidation	Not reported

Source: OECD Questionnaire – Mobilising private finance for climate mitigation and adaptation.

Two points follow. First, preparation support is a transfer of public value in the same sense as a grant. When the state pays for feasibility work, the recipient obtains something it would otherwise have bought and that amount belongs in any account of what public support costs and what it mobilises. Second, the capability is reusable. Project types recur (flood protection, irrigation, mini-grids, climate‑smart agriculture) so engineering standards, appraisal methodologies and contract templates developed for one project serve many. This makes a standing public capability cheaper over time than repeated case‑by‑case preparation. Regional evidence may support the case for spending on preparation. For example, the New Partnership for Africa’s Development (NEPAD) Infrastructure Project Preparation Facility approved 106 grants worth USD 115 million between 2004 and 2022, and USD 11 billion of investment financing was raised subsequently for the projects concerned (AfDB, 2025[13]).

Control, governance and related incentives

Once public support is committed, two governance questions follow. The first concerns how much control the state retains over the use of its support; the second concerns keeping private parties exposed enough to appraise and monitor a project carefully rather than shifting risk onto the public balance sheet. The instrument determines the first. Equity provides continual influence. The Uganda Development Bank holds equity in investee enterprises for at least ten years to anchor co-investment whereas grants, loans and guarantees provide control only through conditions set in the contract at the outset.

Second, all three jurisdictions rely most on risk retention, which requires the private party to keep an uncovered share so a lender or sponsor stands to lose from poor performance. Uganda reports quantified thresholds and they vary by facility (Table 9.3). It also applies performance conditions most systematically, releasing district grants and results-based payments only against independently verified delivery. Time limits apply everywhere but follow the funding cycle rather than market maturity. Mauritius reports that schemes are time-bound because they depend on fund availability and Uganda aligns facility periods with the tenor of the underlying MDB agreements.

Two features distinguish governance in the jurisdictions reviewed. First, these safeguards are contract terms agreed with external providers rather than national rules. Uganda states that its thresholds come from MDB facility agreements and development bank credit policy with a national framework committed for 2026. Where the discipline travels with the money, standards vary between facilities; a government cannot apply a consistent rule across providers and the safeguard leaves when the programme ends. Second, the body assessing whether support is warranted is frequently the body rewarded for deploying it. Uganda's No Objection Process and inter-ministerial review of concept notes are the clearest reported instances of a screening gate sitting outside the institution providing the finance.

Fiscal transparency, accounting and outcome measurement

Instruments become costly at different moments, for example, a grant and a loan at disbursement compared with a loan throughout its tenure or a guarantee only on default. Unless accounting brings these costs onto a comparable footing at the point of decision, a guarantee will appear cheaper than a loan serving the same purpose at lower expected cost, simply because it requires no cash at the outset.

Tracking at an institutional level is near-universal because credit risk management requires it, and the drop-off comes at consolidation and again at disclosure. Mauritius reports contingent liabilities in the budget documentation while Zambia tracks them within public finance and PPP review processes without consolidated disclosure. Uganda tracks exposures across several institutions but holds no consolidated register for climate instruments. PPP commitments enter the debt sustainability analysis while climate guarantee exposures do not yet appear in the annual debt bulletin. Because guarantee use remains limited in both Uganda and Zambia, the conventions that matter, such as recognising expected loss at issuance, provisioning, ceilings and consolidation, can be established while the portfolio is small and both jurisdictions prepare to scale up.

Measurement is at an earlier stage. Uganda is the only surveyed jurisdiction that tries to track private capital mobilisation. Before such a ratio becomes a target, the denominator must be defined. At face value, a grant and a concessional loan of the same size appear to contribute equally, although the grant is spent in full while the loan is largely repaid and leaves a debt obligation behind. Comparison requires measuring the public contribution at its intrinsic value. The intrinsic value is measured by the difference between the terms the state provides and those a private financier would have offered.

Ex-post review is similarly partial. Uganda's first State of Climate Finance Report establishes a baseline across 1 620 projects but states that it includes no crowding-out analysis and has not reviewed climate‑specific fiscal exposure. Because these systems are recently designed rather than reformed, there is an opportunity to adopt consistent conventions from the outset.

Combining climate adaptation with other social and environmental benefits

Adaptation returns arrive as avoided losses rather than revenue and accrue to all firms and citizens protected at once. Where private capital does come in, the revenue comes from the objectives bundled with resilience. Uganda identifies carbon and ecosystem service payments for nature-based solutions and agricultural adaptation as the route to investable revenue, conditional on better measurement. Its district investments in irrigation, solar boreholes and wetland restoration each pair resilience with a productive output.

Adaptation needs are local, but recurring project types may be identified, including flood management, irrigation, coastal protection, drought-resilient agriculture. Much of the preparation cost is the same each time, covering engineering standards, models estimating the losses the investment would avoid, benefit metrics and contract templates. These can be built once and reused across sites, even though every site differs. Individual districts cannot justify developing this expertise for only one or two projects, and both Uganda and Zambia report that district proposals identify real vulnerabilities but are rarely worked up to a standard a financier can appraise.

9.4. Key policy recommendations

Authorities could consider prioritising the competitive allocation of public support wherever the deliverable can be specified. Competitive allocation can help reveal additionality through price. Bidders compete on the support they require, and the winning bid provides an indication of the minimum support the market is willing to accept. This approach could help address two weaknesses associated with case‑by‑case support negotiations. First, a complex exchange of information between the applicant and the public authority is not needed, as the bidding is focused on the price. Second, the body assessing whether support is warranted is often the body responsible for deploying it. Uganda's Global Energy Transfer Feed-in Tariff auction and Zambia's solar tenders illustrate how this approach can work in Africa. Standardised documentation, appraisal criteria and contract templates can reduce transaction costs and improve comparability across projects. This approach could also be extended to guarantee capacity and concessional lending volume, with banks bidding on the smallest fee subsidy required to deliver a defined volume of eligible lending, to results-based payments for verified emission reductions; and to programmes that aggregate and bundle smaller projects into standardised portfolios that can be financed at scale.

Capital market development may help address tenor and currency mismatches that public-support instruments may be unable to resolve on a transaction-by-transaction basis. Green MSME loans in Uganda rarely have tenors exceeding seven years, while payback periods may range from ten to twenty years. Power purchase agreements are often denominated in dollars while consumers’ revenues are in local currency, with no domestic hedging available. In such cases, a guarantee can bridge an individual transaction but may not create long-dated local-currency funding. Developing a deeper domestic institutional investor base could help expand the availability of long-term financing. The regulatory framework for pension funds and insurers may also be adjusted to permit long-dated allocations, as proposed by the draft SADC Financial Market Development Strategy Framework. Benchmark sovereign issuance, such as Uganda's planned sovereign green bond, could help establish a pricing curve that corporate issuers may use as a reference. Where domestic markets are too small to support such developments individually, regional integration may offer the scale needed to support market development.

Strengthening frameworks for contingent liability recognition, provisioning and consolidation may help ensure that exposures are appropriately managed. Recognising the expected loss of a guarantee at issuance can help avoid the perception that guarantees are costless and facilitate comparisons across instruments. In African markets, the cost of capital is often shaped more by country risk than by project or technology risk, as a result the credibility of the public balance sheet can influence the borrowing costs. Concessional support in the region is often provided through borrowing rather than grants and may add to the balance sheet regardless of whether it mobilises private capital. Consistent recognition, provisioning and disclosure can provide development partners and private co-investors with enhanced transparency of existing public commitments.

National frameworks for assessing additionality and minimum private participation may help promote greater consistency across facilities. Thresholds inherited from individual climate finance providers may not always be aligned with national priorities and may lapse when programmes end. Uganda's commitment to developing a national framework in 2026 offers one possible example. Where transactions are small, programme-level eligibility criteria for defined classes of investment may be preferable to conducting additionality assessments on a case-by-case basis.

Adaptation outcomes may warrant assessment on their own terms. Reporting outcomes by benefit dimension, such as assets protected or expected losses avoided, may be preferable to relying on a single mobilisation ratio. Pooling project preparation expertise within a national body serving subnational authorities, or a regional body where exposure is shared across borders, could help spread the fixed costs of such expertise across a larger portfolio of projects.

References

[5] AfDB (2025), Annual Development Effectiveness Review, https://www.afdb.org/sites/default/files/documents/publications/ader_2025_en_web.pdf.

[13] AfDB (2025), NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF), https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/nepad-infrastructure-project-preparation-facility-nepad-ippf.

[9] Bank of Uganda (2026), State of the Economy Report, https://bou.or.ug/uploads/Final_SOE_March_2026_47bb280937.pdf.

[4] CPI (2024), Landscape of Climate Finance in Africa 2024, CPI, https://www.climatepolicyinitiative.org/publication/landscape-of-climate-finance-in-africa-2024/.

[8] Engen, A. (2019), Blended finance in the poorest countries, https://media.odi.org/documents/12666.pdf.

[12] ESMAP (2023), How to Unlock Pipelines of Bankable Renewable Energy Projects in Emerging Markets and Developing Countries, https://documents1.worldbank.org/curated/en/099120623171525006/pdf/P1742020cf52b60e6096b80854984124388.pdf.

[10] IEA (2025), How a high cost of capital is holding back energy development in Kenya and Senegal, https://www.iea.org/commentaries/how-a-high-cost-of-capital-is-holding-back-energy-development-in-kenya-and-senegal.

[11] McKinsey (2020), Solving Africa’s infrastructure paradox, https://www.mckinsey.com/capabilities/operations/our-insights/solving-africas-infrastructure-paradox.

[6] Nairobi Securities Exchange (2025), East African Securities Exchanges Association (EASEA) Unveils the East Africa Exchanges Market Index, https://www.nse.co.ke/wp-content/uploads/Press-Release-The-East-African-Securities-Exchanges-Association-EASEA-has-officially-launched-the-East-Africa-Exchanges-EAE-20-Share-Index.pdf.

[1] OECD (2025), Africa Capital Markets Report 2025, OECD Capital Market Series, OECD Publishing, Paris, https://doi.org/10.1787/7d26e1d3-en.

[7] OECD (2025), Scaling finance and investment for climate adaptation: Input paper for the G20 Sustainable Finance Working Group, OECD Publishing, Paris, https://doi.org/10.1787/eeec8b52-en.

[3] OECD (2022), OECD Blended Finance Guidance for Clean Energy, OECD Publishing, Paris, https://doi.org/10.1787/596e2436-en.

[2] SADC (Forthcoming), Draft Financial Market Development Strategy Framework, https://sadc.int/.