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Rwanda aims to become the Luxembourg of Africa for green finance


By David Whitehouse

Rwanda is planning to build on a partnership with Green Digital Finance Alliance (GDFA) to become a sustainable finance hub for Africa. 

The Kigali International Finance Centre (KIFC) wants to become a “reference for sustainable finance and fintech,” says Ntoudi Mouyelo, KIFC chief investment officer. The aim is to turn Rwanda into “the Luxembourg of Africa for green finance.”

The KIFC in November agreed with GDFA to develop and trial a digital tool to assess the green credentials of small and medium-size enterprises (SMEs). The GDFA, founded by Jack Ma’s Ant Group and the UN Environment Programme (UNEP), uses digital technology to improve sustainable development finance.

Rather than simply excluding sectors of investment, the tool aims to incentivise companies to become greener and more sustainable, Mouyelo says. The tool will measure where companies stand now, and enable investors to assess the extent to which they are making progress. “We want to understand the existing ecosystem,” says Mouyelo, a former executive director at Banque Internationale à Luxembourg. “Investors need a clear view on sustainability.”

The key, he says, is to find ways to incentivise small and medium-sized enterprises to reduce their emissions. “We should not disqualify a polluting company that is making huge efforts to become green,” while promoting investment in other companies which might have a better starting point, but which are doing nothing to improve it. “If someone is making an effort, they should be rewarded.”

Rwanda has been rebuilt under President Paul Kagame since being devastated by genocide in 1994. Kagame has been a leading figure in the development of the African Continental Free Trade Agreement which has been ratified by 41 of 54 signatories. There remain “missing blocks” in attracting investment to Africa, Mouyelo says.

Among them is lack of information, which Mouyelo cites as a major challenge. Investors in Africa often use intermediaries due to limits on their understanding of the local private sector, he argues. The reason why Luxembourg is so good at green finance, he says, is that it has created a user-friendly platform for investors.

Green Metrics

Africa urgently needs  a new international finance centre, according to a survey of African decision-makers by Rwanda Finance, the agency mandated to develop the KIFC, and Africa Legal. Only about a third of respondents said they had previously engaged with such a centre, highlighting the challenges of accessing capital.

Transparency and compliance are key themes for Rwanda, and money coming in must be shown to be making a positive impact, Mouyelo says. The use of technology can make this process “seamless.”

The first step in using the tool is data mining, which determines what data is already available at the user bank. This process is complicated by the fact that banks have data in a variety of formats, located in different departments and with third parties. The tool aims to strengthen the capacity of the bank to work with digital carbon data and convert it into climate metrics. It uses the first version of the harmonized global carbon accounting framework created by the Dutch Partnership for Carbon Accounting Financials (PCAF).

The next step is to increase the capacity of the bank’s staff to identify gaps in the series and ways these can be addressed via data acquisition. The project will model emission savings potential for selected sectors, and build a model that compares a “business-as-usual” scenario with alternative transition trajectories. The projected possible financial savings will be calculated.

The project will not mine historical data sets to develop insights on links between green practices and credit quality. This may be added on if it proves that the historical green data sets are available or can be acquired at reasonable cost.

Economic Rebound

Rwanda offers “good governance, high levels of connectivity, efficiency, transparency, and an ease of doing business which has been internationally recognised” says Nick Barigye, CEO of Rwanda Finance. The country has been an early African mover in terms of environmental protection, banning plastic bags in 2008. In 2019, it became the first African country to ban single use plastics. This year, Rwanda agreed a three-year project in Kigali with Luxembourg which recycles waste to produce energy, fertilizers, construction materials and electric poles.

A national plan which aims to cut emissions by 38% by the end of the decade needs $11bn to realise its ambitions. Rwanda has established Fonerwa, Africa’s largest green fund, to try and attract the investment. Fonerwa’s flagship projects include promoting climate resilient agriculture and sustainable forest management in Gicumbi in northern Rwanda and construction of “Green City Kigali”, intended as a blueprint for other cities. Green City Kigali is planned to have about 30,000 housing units over 600 hectares when complete. The district is intended to have zero carbon emission by 2050 and has the potential to create about 16,000 jobs.

Strong economic recovery and rapid progress on Covid-19 vaccinations look set to provide a tailwind. In the capital, Kigali, almost 90% of the adult population is fully vaccinated and the government aims to raise the nationwide ratio to 60% by the end of 2022. An IMF mission to Rwanda in November predicted that growth for 2021 may reach 10.2%, following a contraction of 3.4% in 2020.

The country plans a green budget statement planned in 2022, and public financial management reforms to track environmental and climate spending. “Policies to attract private sector investment and manage climate change will remain key for more durable, inclusive, and resilient growth,” the IMF mission said.

The country is strengthening green credentials with the construction of a new international airport at Bugesera, southeast of Kigali. According to a report from Airports Council International, the airport will deliver savings in energy used for heating, cooling, and operating the building against international standards, and a reduction in water use per passenger.

The first phase of the project may be complete by the end of next year, and the second phase which would double capacity is planned for 2032. The airport aims to be the first in east Africa to achieve green building certification.

Cherry Picking

The KIFC, established in 2020,  has been scoring early successes. Luxembourg and Rwanda in October signed an agreement to support the KIFC’s development. The accord will be implemented by Lux-Development, Luxembourg’s development cooperation agency. In November, the centre announced the establishment of the $250 million Virunga Africa Fund I, which will invest in African economic and social projects. The fund is managed by Admaius and has the Qatar Investment Authority and the Rwanda Social Security Board as its core investors.

Kigali has started to gain recognition as an international centre, appearing for the first time on the Global Financial Centres Index (GFCI). The index, prepared by the Z/Yen think-tank in London with the China Development Institute and published in September, rates 116 hubs across the world. Kigali ranked fifth in Africa after Casablanca, Cape Town, Johannesburg and Mauritius, while beating Nairobi and Lagos. The ranking takes business environment, human capital, infrastructure, financial sector development, and reputation into account.

“There will be another African Singapore, UAE or Luxembourg at some point,” says Mark Kenderdine-Davies, chief legal o­fficer at UK development finance institution CDC. “Mauritius started on this path some years ago. Rwanda is now firmly on it too.”

A new African financial centre such as Rwanda has the opportunity to cherry-pick everything that has worked well elsewhere, Kenderdine-Davies says. “Rwanda has the advantage of starting anew. It can test market expectations; it can see what international best practice is and apply it straightaway.”

Other countries will be able to leverage on Rwanda’s capabilities, which will be available as “green finance as a service,” Mouyelo says. “We have to share the tools to become a reference. This initiative is for the continent.”

David Whitehouse is a freelance journalist in Paris. He has a PhD in Rwandan colonial history and is the author of In Search of Rwanda’s Génocidaires French Justice and the Lost Decades published by Seraphim in Canada in 2014.

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