Engaging the private sector to implement REDD+ Investment plans

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CAFI supports policy reforms through ambitous and cross-cutting National Investment plans. Yet these efforts need to be complemented by an engagement of the private sector, both local and international, in the region. This involvment could for example take the shape investments by the private sector in savannahs or degraded forests, as per this call for proposal of the DRC National Fund. CAFI is currently investigating partnerships between governments in the region, private investors and itself to build deforestation-free green economies in Central Africa.  

A significant number of private sector companies already recognize the importance of reducing deforestation in their supply chains of agricultural and wood commodities. A report by Supply Change shows that private voluntary commitments to address deforestation now span over 400 companies across palm oil, timber, soy and beef (among other) supply chains, representing over US$ $96 billion in trade.

Central Africa holds a huge potential for private investors, and a number of investment opportunities, in particular in agriculture, energy and small forestry industries, would yield a return and contribute to the development of a deforestation-free green economy. 

However, a range of perceived and real risks prevents private investors from engaging in Central Africa. CAFI partnerships with the private sector will help reduce these risks through six key actions :

1. Support targeted government reforms to improve the business climate and reduce risks

Countries in Central Africa have exceptionally poor business environment, as evidenced by the World Bank Doing Business Index. The Central African region best ranking is 164 (Gabon), while the poorest is 185 (Central African Republic). Efforts currently supported by CAFI focus on land tenure, transparency, and simplification of forest and natural resources governance (such as permitting and taxing). To operationalize the CAFI private sector partnership, additional targeted actions could be introduced, e.g. the simplification of visa requirements (on-line visa application, already introduced in Gabon), or the establishment of Special Economic Zones in selected provinces, which in partnership with local authorities would reduce incidental charges, corruption risks and administrative harrassment.  

2. De-risk funding 

Different donors and development finance institutions can drive the process by providing various types of funding, including :

• credit guarantees
• viability gap funding
• first loss equity
• concessional loans for financial institutions that extend loans and other financial products to the private sector (farmers, households, cooperatives, companies etc.)
• seed funding
• grant funding for technical assistance
• capacity building 

CAFI is currently exploring with DFIs the provision of de-risking instruments either via existing facilities or by setting up a new one.

3. Set up incubators-accelerators to develop investment projects 

An incubator-accelerator – i.e. a project development facility – can identify local business companies that foreign investors can invest in, and if necessary provide technical assistance to build local capacities in terms of accounting etc. The incubator-accelerator will also identify viable projects and develop them to maturity, moving them through the stages required to get to market since available and accessible investment capital is not the only critical constraint, but also the lack of investment-ready projects.

4. Mobilize capital from a variety of investors 

CAFI will seek to tap into existing Funds already working in Africa, or new Funds in the process of being launched by asset managers (both equity and microfinance funds). Working with established Funds has two benefits : funding is already mobilized, and cross-over learning between Central Africa and other regions is facilitated. The option of a 'side-letter' between CAFI and one or several existing Funds will be considered. In such a case, CAFI, through CAFI funding or specific DFI funding, would make a contribution to a specific Fund. In return, the fund would commit to invest  a percentage of its y capital (e.g. 10% of its 600 million US$ assets under management) into Central Africa, based on the CAFI deforestation-free concept. This way, the CAFI funding would leverage additional US$ in private funding. De-risking could be proposed in exchange of the leverage or cap on return for the CAFI funding.  

5. Attract multinational companies to source from Central Africa

Mobilizing multinational companies could be made in different ways :

1. Multinational agribusiness companies could be interested in Central Africa to ensure deforestation-free supplies, as Central Africa holds a considerable part of Sub-Saharan Africa's unused agricultural potential. For instance, the Republic of Congo can expand its agricultural land by 700%, DRC by 150%, without converting intact forests. The World Economic Forum may help facilitate a dialogue with relevant multinationals. 
2. Mining companies operating in the region may also be potential partners, as these may be subject to national requirements about locally investing  a share of their profits.

6. Reach out and inform about the investment environment

Central Africa is not easily accessible to foreign investors due to language barriers and reduced exposure to tourism. In addition, the region has a reputation problem, although not all perceived risks are real. Readily available and accurate information can therefore be provided to the wider investment community about the green economy zero-deforestation investment opportunities offered by the CAFI private sector partnership, as well as about information about legal, fiscal and institutional settings.

Useful links

• Tropical Forest Alliance's Africa Palm Oil Initiative - a multi stakeholder initiative to foster transition of the palm oil sector to a sustainable driver of long-term, low-carbon development in the region in a way that is socially beneficial and protects tropical forests of the region. The Marrakesh Declaration has already been signed by three CAFI partner countries : the Central African Republic, the Democratic Republic of the Congo and the Republic of Congo.  

• Consumer Goods Forum - 400 large retail and manfacturing companies interested in sourcing sustainably

• New York Declaration on Forests -  a political declaration that grew out of dialogue among governments, companies and civil society, spurred by the Secretary General’s Climate Summit, where world leaders endorse a global timeline to cut natural forest loss in half by 2020, and strive to end it by 2030

• High Carbon Stock approach - a methodology that distinguishes forest areas for protection from degraded lands with low carbon and biodiversity values that may be developed, developped together with NGOS and companies

• Partnership for Forests - an initiative to support public private partnerships for forest-related commodities (in Central Africa: timber, cocoa, rubber and oil palm)  

• Trase - a sustainability platform that enables governments, companies, investors and others to better understand and address the environmental and social impacts linked to the supply chains of commodities that most affect deforestation