MENA’s green bonds still need some foundational work, but we’re moving in the right direction, World Bank’s IFC says

Good morning, wonderful people. The MENA conversation on climate is being driven by developments in Washington, DC, where bankers, investors and folks from the development finance community are gathering for the World Bank and IMF fall meetings. The gatherings got underway yesterday, and climate leapt to the forefront of the agenda after US and Germany called for the World Bank to become more active in the industry.

THE BIG CLIMATE STORY GLOBALLY- The US and Germany want the World Bank to overhaul its business model to focus more on climate action, the Financial Times writes. What are they suggesting? That the WB provide better borrowing terms to create incentives for countries to take action on climate issues. Germany also wants the bank to de-risk clean energy investments in developing countries. This comes after US Treasury Secretary Janet Yellen called on the World Bank to establish an “evolution road map” for green finance by December.

The calls come after a series of anti-climate allegations against the World Bank in recent weeks: An Oxfam report last week claimed that the World Bank had ‘misplaced’ up to USD 7 bn in climate funding in 2020 and an influential US activist group accused WB chief David Malpass of being a “climate and development failure” in a release out ahead of the fall meetings. That came after David Malpass, a Trump administration appointee, found himself in hot water after initially refusing to acknowledge that human beings are driving climate change.

Someone’s had a stern word with Malpass: Malpass yesterday said the bank is “working hard” to get more climate finance to developing countries, according to Reuters. Meanwhile, IMF head Kristalina Georgieva said the world needs some USD 3-6 tn to face climate change, calling to leverage development funding to bring in more private sector players. After the initial flap, Malpass had said that the WB would maintain an “intense” focus on climate.

AND SPEAKING OF THE WORLD BANK- We sat down with Emmanuel Nyirinkindi, vice president of cross-cutting solutions at the WB’s International Finance Corporation. Our talk centered around climate finance and the prominent role of green bonds and blended finance instruments. We look at the challenges of obtaining climate funding and what the IFC hopes to see come out of COP27.

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THE BIG CLIMATE STORY in our neck of woods: A pledge of EUR 2 bn from Moroccan expat businesses to invest the country. Much of that investment (which only appeared to make headlines outside the country this week) is going towards renewables, including major projects in the country’s south. We breakdown the details in the news well, below.

PSA- There are 27 days left until COP27 kicks off in Sharm El Sheikh.

*** Take our EV survey: Are you an ex-petrolhead shopping around for your first electric vehicle? EV-curious and wondering what all the fuss is about? Or are you not ready to say goodbye to that sweet smell of benzene as you wait at the gas station?

We want to hear from you: We’re taking the pulse on how the region feels about MENA’s EV transition. Take a few minutes to fill out our short survey. We’ll be back with the results in a couple of weeks.

WATCH THIS SPACE #1- Egypt’s Senate gave preliminary approval yesterday to a bill regulating the auto industry, including electric vehicles (EVs), according to a report prepared by the Senate’s Industry and Trade Committee. The bill would, if passed, set up a Supreme Council for Vehicle Manufacturing, which will set policies for the automotive sector in general, including EVs, and a fund to provide incentives to the industry. We had the details of the legislation here last week.

SOUND SMART- Egypt’s Senate holds no independent legislative powers, but is an advisory council to the House of Representatives. Senate approval is required to change the constitution, adopt international treaties, or push through bills related to the nation’s “sovereignty and territorial integrity.” Otherwise, its day-to-day purpose is to be a consultative body on social and economic development or any bills referred to it by the presidency.

What that means for the auto industry bill: It’s up for a final vote in the Senate today. The upper house of parliament will then notify Ittihadiya and the speaker of the House of Representatives of its final vote on the bill, along with the changes it thinks may be necessary. The legislation can either then go back to committee in the House or straight to the floor for the series of votes required for it be passed or rejected. If passed by the House, the bill would then be signed into law by the presidency, starting a six-month timer for the ministry that “owns” the bill to write and publish in the Official Gazette the executive regulations that would bring the bill to life.

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WATCH THIS SPACE #2- Iraq wants to produce 5 GW of solar energy in 2023, Electricity Minister Adel Karim said during a televised interview on Friday (watch, runtime: 6:02). Iraq has signed solar agreements over the past 18 months with several companies, including UAE’s Masdar and France’s TotalEnergies, lining up total generation capacity of 7.5 GW, he added, saying that more agreements in the renewable energy sector with foreign companies are on the way.

Iraq will likely be reliant on its foreign partners to arrange financing for the projects: The country does not yet have a 2023 budget due to the ongoing political deadlock (more here and here).

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MEANWHILE- Amazon is investing EUR 1 bn to upgrade its EV fleet in Europe over the next five years, the online retailer announced on Monday. “Our transportation network is one of the most challenging areas of our business to decarbonize,” said Amazon CEO Andy Jassy. The company wants to increase its European electric delivery fleet from its current 3k to 10k by 2025. It also wants to roll out 1.5k electric heavy goods vehicles (eHGVs) in Europe “in the coming years.”

Amazon wants to power its own fleet, too: More delivery EVs means more demand for charging stations, driving the retailer to build “hundreds of specialized fast chargers across its European facilities” for eHGVs, the retailer added. By 2025, 100% of Amazon’s operations should be powered by renewable energy. The company says it fulfilled 85% of its energy needs through renewables last year.

AND- The world’s largest clean hydrogen fund reaches EUR 2 bn financial close: Private equity outfit Hy24 reached close on its EUR 2 bn clean hydrogen fund yesterday — the world’s largest, the company said in a statement. Investors in the fund include TotalEnergies, Baker Hughes, Airbus, AXA, and Crédit Agricole Assurances. Hy24 — a joint venture between asset manager FiveT and private equity firm Ardian — also said it plans to raise EUR 20 bn over the next six years to scale up clean hydrogen value chains.

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CIRCLE YOUR CALENDAR-

Cairo Water Week 2022 will kick off on Sunday, 16 October and run for four days. Discussions will revolve around climate change strategies and development plans, sustainable financing solutions, as well as water recycling, among other topics.

The Middle East Facility Management Association’s seminar on sustainable development will take place on Wednesday, 12 October in Riyadh, Saudi Arabia. The event will focus on how tech can help overcome challenges stifling the sustainable development of the facilities management sector in Saudi Arabia. You can register for the event here.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

Are green bonds a MENA climate finance hack? Potentially, the IFC tells us, but it needs some work: With less than 27 days to go before COP27 kicks off in Egypt’s Sharm El Sheikh, questions on how we finance the climate finding gap — which Egypt’s UN High Level Climate Champion Mahmoud Moheildin puts in the tns of USD each year — linger without a definitive consensus. One avenue that is slowly emerging in MENA as a major long-term financing solution has been sustainable bonds. Green debt issuances in MENA grew 122% y-o-y in 2021 to USD 18.6 bn. And while debt markets — particularly in the region — have dried up for much of 2022, green bonds are gaining momentum in the Arab world.

So can bonds be a reliable source of green finance in MENA? Well, the demand and appetite is there, Emmanuel Nyirinkindi, the International Finance Corporation’s (IFC) vice president of cross-cutting solutions, tells us. But much needs to be done for the market to reach its potential. He tells us that building a pipeline of bankable projects, good governance, and capacity building are the key to channeling as much climate financing as possible.

And Nyirinkindi knows a thing or two about the subject: He oversees a range of what the institution calls global cross-cutting functions at the IFC, including public-private partnerships, corporate finance, sustainability, and climate. Before joining the IFC, Nyirinkindi worked at the Ugandan finance ministry, where he introduced PPPs in the electricity and railway sectors and coordinated legal and regulatory reform in infrastructure. We spoke with him during a recent trip to Cairo to dive into the IFC’s plans and hopes for COP27.

Edited excerpts from his our discussion:

The appetite for MENA green financing is and has been strong: We can see a growing appetite for green finance across emerging markets in both MENA and Africa. We recently supported South Africa’s NetBank with a USD 100 mn green bond issuance for the residential housing market.

The green bond market has been developing actively from about 2010, with the IFC being one of the earlier developers and issuers. We've done about 178 issuances worth a collective USD 10.5 bn in about 20 local currencies. The IFC supported CIB in issuing Egypt’s first private sector green bond last year, worth USD 100 mn.

Beyond just green: Blue bonds and loans are also really good examples of instruments that would be good to spur climate action in MENA — and they too are growing.

And they’re important when it comes to mitigation and new tech: Decarbonization technologies are often high cost. But instruments like blended finance can make them much more affordable, especially for the end user. This increases the speed of adoption, particularly in EMs.

The current constraint within wider EMs is the size of the market and the availability of projects that would use green financing — rather than, say, regulation. You need a market for uptake, especially considering the burden that using USD can put on some local markets.

And a lack of bankable projects: There is a general lack of projects that are built to an international bankable standard. It’s a bit of a truism in the development world that there’s a lot of money chasing very few bankable projects.

There’s something like 900x the amount of money available in non-DFI institutions as there is in all the DFIs. We need to create really bankable projects — built to environmental and social standards — to channel that financing effectively.

Governance and capacity building is crucial: We need to build the capacity of policymakers, regulators and the domestic market to support the roll-out of these instruments. Once the market understands how the instruments work, and the projects scale, it speeds up the next set of projects and financing. So guidelines and good governance are key to developing depth of market and pace of market uptake. We work with governments to make sure they have good policies — for example, that any incentives offered are stated transparently and investors can expect to see their returns and have access to FX.

This all helps investors feel more comfortable taking on [risk], especially in green projects, which are often inherently risky. Many involve new technology — like green hydrogen — while wind projects come with their own set of technological risks.

The IFC has three core pillars for COP27: climate finance, decarbonization and energy access, and adaptation resilience. On the climate finance front, we plan to showcase examples of products and instruments.

My hope is that we retain a sense of urgency. We need to speed up action on all fronts, developing bankable projects and financial instruments. Public and private partners need to come together to do this.

We know the [Egyptian government] wants to emphasize and showcase action. There’s the sense that a lot of time has been spent on negotiating and planning, but we need to see the impact on the ground. For the World Bank, emphasizing action aligns with our views that climate and development go together.

I’d also like to see an emphasis on adaptation and more money flowing into this space. I think that a lot of attention — and a lot of the available financing — is going towards mitigation. Many of the big discussions at COP26 focused on funding new technologies. Mitigation has shaped a lot of the dialogue, but we need to look at how to bring the same attention to adaptation — coping with the fallout from climate change that’s already happening. Globally, we’re already facing massive challenges, as we can see in Pakistan and the Sahel in Africa.

For the World Bank, this isn’t an either/or question — both are critical. Of the long-term financing that we’ve made available for green projects, 50% is meant to be allocated to adaptation. And we’re hoping to increase that.

Morocco’s green economy could be in line for a slice of a EUR 2 bn pledge made last week by a number of business groups. Members of Moroccan Businessmen for the World (MEM) — a Moroccan expat business association — and the General Confederation of Moroccan Enterprises announced a EUR 2 bn investment over the next 6-12 months in various sectors, including hydrogen, wind energy, recycling and agriculture, Morocco World News reported on Sunday. They announced the plan during a meeting in Casablanca last week.

Morocco’s Dakhla Oued Ed Dahab province is being eyed for investments in renewable energy, MEM president Karim Ammor said. He notes that the area is a prominent site for upcoming projects. Morocco’s Agriculture Ministry recently issued a tender for a MAD 2.5 bn (USD 227.2 mn) wind-powered desalination plant in Dakhla Oued Ed Dahab in the far south of the country as part of a wider desert reclamation project that would help irrigate 5.2k hectares of land.

There are also plans to invest in a EUR 150 mn plastic-to-fuel plant, said Said Bouharrak, a member of MEM and president of the Durcim Group.

FDI chasing smart policy: Much of the planned investment will come from partnerships with European businesses, including the plastic-to-fuel plant, according to Bouharrak. He noted that the impetus for the meeting follows the launch of Morocco’s new investment charter this year. The charter hopes to raise the share of the private sector in the economy to around 65% by 2035, up from around a third today.

Why you need to take Morocco seriously: From the automotive industry to aerospace, Morocco has a proven track record of turning embryonic industries into national (and export-focused) champions.

MOVES- Mitsubishi Power appointed Adel Al Juraid (Linkedin) as its CEO for Saudi Arabia, according to a company statement published yesterday. Al Juraid previously served as vice president of Mitsubishi Power Saudi Arabia, where he was in charge of running the company's day-to-day operations. His new role comes as the company looks to focus on its renewables operations in line with Saudi Arabia’s Vision 2030, the company said in a press release.

Danish engineering firm Danfoss appointed Mert Kalafatoglu (Linkedin) as head of sales for climate solutions in Turkey, the Middle East and Africa, according to a company statement published last week.

Egypt’s Antiquities and Tourism Ministry started operating a fleet of solar-powered transportation vehicles at historical sites in the southern governorate of Luxor, according to a ministry statement published yesterday. The ministry plans to roll these vehicles at Egypt’s monuments and historical sites “soon,” the statement details

Wind turbines for dessert, anyone? Outlandish as the idea may seem, wind turbine blades could be recycled into gummy bears, Euronews writes, citing research out of Michigan State University (MSU). Wind turbine blades are made of resin-coated fiberglass that often end up in landfills when they reach the end of their use cycle because of difficulties separating the fiberglass from the resin coating. The MSU scientists developed a new resin that can be dissolved and used to help make a range of other products, including candy, sugary drinks, car tail lights, windows, laptop covers, diapers, and countertops — or new wind turbine blades, according to the MSU researchers.