Africa stands at the crossroads of an economic renaissance and a climate conundrum. With the continent’s share of global trade hovering at a meagre 3 percent, the need to align investment and trade frameworks with sustainable development has never been more pressing. This alignment is critical to unlocking Africa’s full potential while addressing the existential threat of climate change.
Investment and trade laws in Africa are often relics of a bygone era, designed with economic growth in mind but with scant regard for environmental sustainability or social equity. The African Continental Free Trade Area (AfCFTA), the largest free trade agreement in the world by number of participating countries, offers a unique opportunity to rewrite this narrative. By integrating environmental, social, and governance (ESG) principles into its trade protocols, AfCFTA can set a global benchmark for sustainable trade.
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However, the task is herculean. African economies heavily rely on extractive industries, which contribute significantly to greenhouse gas emissions. Transitioning to a low-carbon economy requires both legislative reform and substantial financial investment. According to the African Development Bank, Africa needs $3 trillion in climate finance by 2030 to meet its Paris Agreement commitments. The alignment of trade and investment laws with these goals is both a legal and financial imperative.
Progress in action
Nigeria, as Africa’s fourth-largest economy, is leading efforts to balance energy investments with sustainability goals. On Wednesday, January 22, 2025, Olu Verheijen, special adviser to the Nigerian president, announced that $6.7 billion was invested in the country’s energy sector in 2024. Of this, over $5.5 billion was allocated to upstream oil and gas projects, $400 million was directed toward the Presidential Metering Initiative to close metering gaps in the power sector, and $700 million targeted the clean mobility and clean cooking value chains. These investments highlight Nigeria’s dual focus on economic growth and energy transition.
Morocco has emerged as a trailblazer in renewable energy and green industrialisation. The country’s Ouarzazate Solar Power Station, part of the Noor project, is the world’s largest concentrated solar power plant. Additionally, Morocco’s National Sustainable Development Strategy aims to integrate climate resilience into all economic sectors, aligning trade policies with both international climate agreements and domestic sustainability goals. Through these initiatives, Morocco has attracted significant foreign direct investment (FDI) while solidifying its position as a leader in Africa’s green energy transition.
The challenges
One of the primary challenges is the dichotomy between national sovereignty and regional integration. While AfCFTA aims to create a unified market, individual countries retain the right to implement domestic laws that may conflict with regional sustainability goals. This tension is particularly evident in sectors like agriculture and energy, where subsidies and tariffs often undermine efforts to promote sustainable practices.
Yet, opportunities abound. The growing global demand for sustainable products presents a lucrative market for African countries. For instance, Ghana’s burgeoning cocoa industry has seen a shift towards sustainably sourced beans, catering to the ethical consumption trends in Europe and North America. Similarly, the renewable energy sector, particularly solar and wind, offers immense potential for foreign direct investment (FDI) aligned with climate goals.
“The growing global demand for sustainable products presents a lucrative market for African countries.”
Financing the green transition
One of the biggest barriers to aligning trade and investment laws with sustainability goals is the lack of adequate financing. Africa requires an estimated $3 trillion in climate finance by 2030 to meet its Paris Agreement commitments, yet current investment levels fall significantly short. Bridging this gap will require innovative financing mechanisms that attract both public and private capital.
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Green bonds have emerged as a vital tool for financing sustainability projects across the continent. Countries like Nigeria, South Africa, and Kenya have issued sovereign green bonds to fund renewable energy, climate adaptation, and sustainable agriculture initiatives. Expanding access to these financial instruments can provide much-needed capital for large-scale projects that align with both economic and environmental goals. Similarly, climate funds, both international and domestic, can help mobilise capital for green infrastructure, offering concessional financing options to de-risk private investments in sustainability-driven ventures.
Africa’s participation in global carbon markets also presents an untapped opportunity. The continent has significant potential to generate revenue through carbon credits, particularly in forestry conservation, renewable energy projects, and nature-based solutions. Countries like Gabon and Kenya are leading efforts to develop robust carbon pricing mechanisms, ensuring that sustainable land use and emissions reductions translate into financial gains. If properly integrated into trade and investment policies, carbon markets can serve as a key driver for climate-aligned economic growth.
Public-private partnerships have proven to be an effective strategy for financing Africa’s green transition. Governments alone cannot bear the financial burden of sustainability-focused infrastructure projects, making collaboration with private investors essential. Morocco’s Noor Solar Project, one of the largest concentrated solar power plants in the world, stands as a testament to how blended finance models, where public funds de-risk private investments, can drive large-scale sustainable initiatives. Expanding such partnerships across the continent can accelerate the shift to a low-carbon economy while creating new economic opportunities.
Another critical step is redirecting fossil fuel subsidies towards renewable energy development. Many African governments continue to subsidise fossil fuels, consuming vast financial resources that could be better allocated to clean energy initiatives. By phasing out these subsidies and reallocating funds to renewable energy programs and energy efficiency measures, African nations can create a more sustainable energy landscape while reducing fiscal pressures on state budgets.
By adopting these financing strategies, Africa can unlock the capital needed to implement sustainable trade and investment policies, ensuring that economic growth does not come at the expense of environmental responsibility.
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Policy recommendations
African policymakers must adopt a multi-pronged approach to align investment and trade laws with sustainable development. Incorporating ESG compliance into trade agreements ensures that economic growth does not come at the expense of environmental degradation. Leveraging the AfCFTA framework to harmonise sustainability standards across member states can create a level playing field for green investments. In addition, redirecting subsidies from fossil fuels to renewable energy projects and sustainable agriculture will also be essential. As with the developed countries, strengthening the institutional capacity of trade and investment bodies to negotiate and enforce sustainability clauses in agreements is critical. Encouraging public-private partnerships can provide the necessary financing and implementation for sustainable projects.
Africa has the opportunity to chart a path that balances economic growth with environmental stewardship. Success will require bold leadership, innovative policies, and unwavering commitment from all stakeholders. As the saying goes, “Africa is not the problem; it is the solution.” By leveraging its unique position and potential, the continent can redefine the narrative on sustainable development and trade for future generations.
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