Green Growth in Ghana - Under the Climate Envelope 2013 and the SPSD II 23 May 2013 Embassy Accra, Ghana 1
Concept Note Envisaged support to: Green Growth in Ghana Under the Climate Envelope 2013 and the SPSD II Accra April, 2013 1
Table of Contents 1. Introduction... 1 Key Strategic Questions Summary of conclusions regarding envisaged support 2. Conclusions from preparatory analyses... 2 Experience of previous support Key findings from sector analysis Conclusions of the assessment of the ten budget support principles 3. Preliminary overview of envisaged programme support... 4 Justification for the support Outline of support strategy Preliminary budget Organisation and Management structure M&E Harmonisation Risks
1. INTRODUCTION Key Strategic Questions Q1: Danida has earlier supported initiatives in Ghana that would impact positively on climate, environment, and people s livelihood through an energy sector support programme, a climate change adaption programme as well as other interventions within the water and transport sectors. Is the timing right for a private sector led Green Growth intervention supporting the establishment of a Climate Innovation Centre (CIC) in Ghana? Q2: The Embassy is continuously striving to ensure that the Danida support to private sector development and the Danida business instruments and IFU are closely linked and that synergies are harvested where possible. How best to ensure realisation of the potential synergies between the envisaged green growth activities and the on-going private sector development activities in the country programme? Summary of conclusions regarding envisaged support The Government of Ghana recognises the social and economic impacts and the development challenge arising from climate change and a National Climate Change Policy Framework is expected to be presented before the cabinet soon. Previous experiences and results achieved in the Energy Sector Support Programme and a Climate Change Adaptation Programme have been mixed and indicate that private sector involvement could enhance the longer term sustainability. In general few climate-change related initiatives in Ghana involve the private sector. Furthermore the private sector is also not represented on the National Climate Change Committee, whereas it does include civil society representatives. Within the Green growth agenda the Danida Support to Private Sector Development Phase II has provided grants to business advocacy cases within organic agriculture and on reducing import duties on solar panels. Based on experiences from support to private sector development there is now a readiness in Ghana, both in Government and private sector, to exploit the opportunities within the Green Growth agenda. Ghana presently is performing well in addressing the policy and the strategic levels regarding climate mitigation and adaption, however it is imperative that the execution of policies and strategies follow promptly, which is an area where Ghana still needs to improve. The World Bank based InfoDev has identified Ghana to hold considerable potential for success-fully implementing a CIC based upon the preliminary sector analysis and an internal assessment. The CIC will be partly funded under the Climate Envelope for 2013 and will be aligned with the private sector development programme. There is potential to build on the CIC lessons learned in Kenya. Supporting Green Growth in Ghana will enable the possible establishment of a Climate Innovation Centre that will work to reduce poverty and address challenges arising from climate change by i) strengthening the opportunities for the private sector to increase their uptake of climate technologies and create jobs, ii) supporting and strengthening research and development in the area of climate change in becoming 1
more demand responsive towards private sector needs and iii) creating an enabling environment for innovation, technology and knowledge transfer in Ghana. With the establishment of the IFU operated Climate Fund in November 2012 the opportunities of increasing collaboration between Danida and IFU will be scaled up with the possible establishment of a CIC in Ghana. The two initiatives are seen as supplementary and will open up another avenue for creating synergy across the country program in Ghana, including Support to Private Sector Development, the Danida Business Partnership/Finance and IFU. 2. CONCLUSIONS FROM PREPARATORY ANALYSIS Experience of previous support Among the major interventions supported by Danida relating to energy and climate is an Energy Sector Support Programme implemented from 2000-2005 which included support to renewable energy development and a Climate Change Adaptation Programme in Northern Ghana. The results achieved under the two programmes have been mixed and indicated that private sector involvement could enhance the longer term sustainability. Danida has supported private sector development in Ghana for almost ten years in two programme cycles. Both programmes have supported the business enabling environment and the latest programme Support to Private Sector Development, Phase II (SPSD II) has an additional specific focus on supporting enterprise growth and job creation. Some of the main Results of Phase I (together with other partners) were a significant reduction of the number of days required for registering a business (from 85 to 2 days), an increase in the number of commercial courts from six to twelve, promotion and implementation of business advocacy in all 10 regions etc. Within the Green growth agenda the SPSD II supported business advocacy cases within organic agriculture and on reduction import duties on solar panels. Some of the Challenges encountered were i) a lack of basic skills to follow the guidance for application and an underestimation of the need for public education and awareness raising; ii) a lack of capacity of the private sector to carry forward initiatives such as the Ghana Business Code due to the very nature of the private sector vastly being informal. Based on experiences from Phase I and II there is a readiness in Ghana, both in Government and private sector, to exploit the opportunities within the Green Growth agenda and to work through the formal sector to facilitate transfer of climate technology and knowledge and to design windows of opportunities (matching grants facilities) for the informal sector to enable micro and small companies to tap into the possibilities of low-technology green growth opportunities. Key findings from sector analysis The Government of Ghana recognises the social and economic impacts and the development challenges arising from climate change. In 2008 the Ministry of Environment, Science and Technology was reconstituted and endowed with greater responsibility for coordinating climate change activities across Ministries, Departments and Agencies. The Ministry of Finance and Economic Planning has become more strongly involved in overseeing climate related finance flows, and the National Climate 2
Change Committee has been strengthened and given the mandate to develop a National Climate Change Policy Framework, which is yet to be approved but is proposed to: i. Raise awareness among decision makers about climate change impacts and their management; ii. Create climate-resilient and low-carbon economic growth aligned with national plans & budgets; iii. Provide a mechanism for implementing and financing the policy framework, iv. Create the foundations for the development of detailed sector specific implementation plans; v. Link and harmonise existing climate change initiatives and opportunities. The Government of Ghana is committed to the promotion of sustainable and renewable energy. Ghana is one of the first countries to partner with the UN initiative Sustainable Energy for All which seeks to ensure a more sustainable future by transforming the world s energy system by 2030. In addition, Ghana has developed an energy strategy setting a goal of renewable energy constituting 10% of national energy generation by 2020. To reach this goal, the Parliament in 2011 passed the Renewable Energy Act, providing the legal and regulatory framework necessary for enhancing and expanding the country's renewable energy sector. Development partners have a number of on-going and pipeline programmes and projects on green growth and climate, including: EU: The 11 th European Development Fund which is to start from 2014 will include a considerable focus on green growth and climate agendas as approximately 20% of the budget is expected to be allocated for these areas. UNDP in Ghana has a portfolio of 12 projects i.e. Safe use of hydrocarbon refrigerants and support to an Integrated Plan for Energy Efficiency, Climate Mitigation and Ozone Depleting Substance Reduction. UNEP and Risø are supporting Ghana under the Green Facility provided by Denmark within sustainable rubber plantations, urban composting, urban bus transit system in Accra etc. Only few climate change-related initiatives in Ghana involve the private sector and attempt to suit their needs. Similarly there are no private sector representatives on the National Climate Change Committee, but it does include civil society representatives. Ghana s climate innovation system has a multitude of actors: research, technological development and education institutions, some technology support and regulatory agencies such as Ministries, Departments, Agencies, some SME s, and a considerable number of banking and non banking financial institutions. However, efforts are underfunded and not coordinated and Ghana s innovation system is as a consequence relatively small and underdeveloped compared to other middle income countries. In summary the sector analysis finds that there is: i. Lack of systematic involvement of the private sector in green growth and climate change activities; ii. A clear need for increased funding for innovation and a need to build capacity for innovation; 3
iii. A disconnect between climate research and development, innovation, and private sector actors; iv. A need to deepen sensitisation and awareness creation on green growth and climate change; v. No clear coordination framework for the implementation of the various climate interventions; vi. Lack of effective arrangements to monitor and evaluate the various interventions. The World Bank/IFC based InfoDev has identified Ghana to hold considerable potential for successfully implementing a CIC based upon the sector analysis and an internal assessment model of need, benefit and capabilities. Ghana is clustered with other countries where preparation for CICs has been started, scoring higher on capabilities than Ethiopia and higher on need than South Africa and Vietnam. There is potential to build on the CIC experiences in Kenya. In November 2012 IFU established a Climate Investment Fund with the view to support Danish companies enhancing climate investments in DAC countries. The fund is expected to grow from initially DKK 100 Million to DKK 500-700 million within a few years. The fund will support investments in wind mill parks, solar energy, and biogas installations where Danish companies can deliver equipment and know-how. Embedding the CIC within the Business Team at the Danish Embassy in Accra will add to the opportunities of collaborating across Danida instruments (SPSD II, Danida Business Partnership/Finance) together with IFU. Conclusions of the assessment of the ten budget support principles The envisaged support to a CIC and a Green Growth initiative are joint initiatives under the auspices of SPSD II for which the assessment has already been made. Moreover, the coming General Budget Support Programme, phase 3 that will be presented for the Programme Committee on 13 June will address comprehensively the ten budget principles. 3. PRELIMINARY OVERVIEW OF ENVISAGED PROGRAMME SUPPORT Justification for the support The programme is a bilateral intervention under the Climate Envelope 2013 which supports the implementation of mitigation and adaptation activities in developing countries in support of preparing for a new global climate agreement. The bilateral interventions under the envelope are all integrated into country sector programmes to ensure synergies with on-going activities. This programme is thus integrated with the SPSD II and aims at supporting private sector led green growth in Ghana. The development objective of the envisaged programme is to reduce poverty through inclusive private sector led economic growth and job creation and to address challenges related to climate change and environmental degradation through the growth of local markets for climate technology products and services. The proposed programme is in line with Denmark s strategy for development cooperation The Right to a Better Life and addresses key Danish priorities such as green growth and poverty reduction. Ghana is a lower middle income country with a fast growing economy and population, although several key development indicators still resemble that of lower income 4
countries. Economic growth provides for increasing incomes especially within the middle-higher income segment of the society and is yet to translate into a significant increase in formal jobs for the poorer segments. The fast economic growth is also associated with certain negative side effects such as health problems due to air pollution, rising pressure on agricultural ecosystems that sustain livelihoods, deforestation and environmental degradation, depletion and waste of resources, and congestion and other transportation inefficiencies. To ensure a sustainable and inclusive economic development it is important to address Green Growth including climate and environmental challenges proactively. Apart from addressing this at the policy and strategic levels, where Ghana presently is performing well, it is imperative that the execution of policies and strategies follow promptly, which is an area where Ghana still needs to improve. Therefore in combination strengthening the opportunities for the private sector to leverage their engagement within the green growth and climate agenda, supporting and strengthening the research and development platforms as well as creating an enabling environment for innovation, technology and knowledge transfer in Ghana is expected to hold a key to addressing both climate, environmental and job creation challenges. The green growth activities supported by the programme will benefit all segments of society including the poorer segments. The CIC will target sectors with a high poverty reduction potential such as water, energy and agriculture which poor people depend on heavily for their livelihoods and income generation. In the long term the impacts of the CIC is not only expected to create jobs but also to facilitate increased access to water, energy, and cheaper/better quality food. Outline of support strategy A CIC is an institution aimed at enabling development through catalysing climate technology research, development, market creation, policy formulation and implementation. More specifically, it consists of locally operated and specialised business incubators which provide private sector entrepreneurs with a comprehensive suite of financing and services. Based on the initial sector analysis InfoDev has been contracted to prepare a fullyfledged business plan for the establishment of a CIC in Ghana. InfoDev is currently undertaking an extensive in-country assessment and stakeholder engagement including a series of workshops, focus groups, surveys, and interviews to explore the key barriers to climate technology commercialisation and assist in the development and design of the CIC business model. The CIC in Ghana will in overall terms mirror the intervention areas of the CICs in Kenya and Vietnam including i) finance, ii) technology commercialisation, iii) venture acceleration, iv) market development, v) policy (advocacy) and have an additional element of vi) regional linkages. The preliminary composition between the six major interventions as well as the preliminary 5 year cycle of implementation is depicted in below table. Preliminary budget The envisaged Green Growth activities have a full budget of DKK 65 million (25 million climate envelope + 40 million unallocated funds from SPSD II). The majority of the 5
unallocated funds (DKK 30-35 million) are envisaged to be allocated for the CIC Ghana, and the remainder (DKK 5-10 million) is planned to be used for supplementary Green Growth activities including supporting the enabling environment for successful implementation of the CIC through advocacy and awareness creation. The full budget for the CIC Ghana is expected to be around DKK 100 million of which Danida is expected to contribute DKK 55-60 million. In addition, there is a funding commitment from the World Bank. CIC preliminary budget allocation plan: Full budget 100 Million DKK 2014 2015 2016 2017 2018 Finance 45-50 million Technology commercialisation 10-12 million Venture acceleration 8-10 million Market development 2-4 million Policy 4-6 million Regional 8-10 million M&E, Outreach & Operation 14-16 million Total 10% 15% 30% 30% 15% Organisation and Management structure The overall governance structure of the CIC is likely to follow the structure of other CICs, and will include: A Governing Council (GC) will be established with representation by the key funding partners including the Embassy in Accra. A Board of Directors (BOD) will be appointed by the GC including representatives from the private sector, universities, think tanks and development partners. A Trust Fund - it is likely that a Trust Fund will be established as it is not currently realistic to identify one single institution in Ghana that has the independence and the broad institutional capacity required to manage a CIC. The Trust Fund will be open to other development partners and banks. A financial management (FM) contract to be tendered for a period of initially five years. The successful FM team (contractor) will be referring to the BOD and act as the secretary to the BOD. M&E Monitoring and Evaluation is highlighted as one of the current weaknesses within the climate agenda and a special effort will be taken to ensure that the M&E framework of the CIC Ghana will support the strengthening and alignment with the country system. Design of the M&E framework will therefore be closely coordinated with Ministry of Environment, Science, Technology and Innovation (MESTI). The M&E framework will include but not necessarily be limited to the following indicators: i. Youth employment opportunities in Climate-Technology SMEs; ii. Incubation and mentoring of start-up entrepreneurs; iii. Leveraging of private capital for CT-SMEs iv. Knowledge transfer from international networks 6
Harmonisation Planning and preparation of the CIC Ghana is carried out jointly with World Bank/InfoDev and the CIC will be open for participation of other development partners and banks in a pooled funding arrangement. In the preparation process special attention will be given to ensure that the support is well coordinated with and complements other development partners programmes and projects in green growth and climate change mitigation and adaptation. Risks The envisaged support to a CIC in Ghana entails a number of risks which will be further assessed and addressed by InfoDev during the business planning: CIC is unable to identify and attract start-up innovation-smes. An Enterprise Map of Ghana prepared in 2012 reveals the story of existing major companies in Ghana. 27 companies account for 62% of Ghana exports. Out of the 50 biggest companies some 27 are Ghanaian based companies of which 15 began life as start-ups in manufacturing, the remainder only ventured into manufacturing after a prolonged period of trading activities. This risk is rated as high. Severe delays in identifying and mobilising a solid Financial Management team and/or poor performance of the Financial Management team. The ideal team will be able to perform instantly in building up the required reporting systems etc. Finding a solid team with sufficient diverse capacities that are readily available will be a challenge, and there is a risk of a prolonged procurement and inception phase as well as a risk of poor performance if capacity is not readily available. This risk is rated as medium-high. Investors and commercial banks are unwilling to co-finance investments in CIC-supported SMEs. The financial market in Ghana is currently not conducive to the long term lending that SMEs would require for investing in climate technologies and other green growth initiatives as the Government bonds are yielding more than 20% on an annual basis, virtually risk free. Interest rates including fees are therefore hovering around 30% pa. which with an inflation around 10% pa. make long term investments very difficult. The willingness of investors and commercial banks to co-finance SMEs will require creative business models where prevailing market conditions are considered and incorporated adequately. This risk is rated as medium-high. The CIC will not be sustainable in the long term. The goal is for the Fund to become a financially self-sustainable operation over time, in the sense that operating revenue can cover the operating costs of the Fund. InfoDev has been requested to assess the opportunities for institutional anchoring of the CIC as well as to carefully study the opportunities for the CIC becoming self-sustained in the longer term. This risk is rated medium-high. Universities are not responding to the need of the private sector. Currently there is a disconnect between the climate research and development and the private sector and there is a clear need to see the collaboration between the university environments and the private sector picking up under the auspices of the planned CIC Ghana. It is believed however that the CIC can be instrumental in getting the universities and private sector operators to collaborate. This risk is rated as low-medium. 7