The majority of projects to diversify the energy mix of Senegal under the Emerging Senegal Plan (PSE) have been funded by consortiums of international financiers, along with the government, by way of the sovereign wealth fund FONSIS. This level of funding does not reach the smaller projects—those that will be needed to address rural energy access [1].
Despite many national initiatives spearheaded by the Ministry of Energy, there are very few medium- to large-scale Renewable Energy or Energy Efficient projects under development that aim at tackling the issue of low levels of energy production capacity and very low coverage of the energy grid in rural areas. In addition to the several technical barriers, banks are unwilling to lend to solar companies due to lack of experience and lack of balance sheets of the solar companies themselves, amongst other reasons [1].
The lack of long-term money within the banking system (provided by savings and insurance markets) resulted in a lack of availability of long-term lending, which was needed for capital projects such as power supply. Additionally, commercial banks attempted to minimize risk by restricting lending to large established businesses operating in proven technology areas. This all meant that new operators trying to borrow to implement new technology solutions were either unable to borrow or given prohibitive rates and unmanageably short tenors [1].
Key policies and governance approach
In 2013, the government established the sovereign wealth fund FONSIS, with a board of directors and complete autonomy. Its aim is to support government long-term development plans by offering equity to aligned projects. A sister fund, FONGIP, offers guarantees to projects with the same alignment guidance. The funds have highly expert staff, operating under an independent compensation structure from the government [1].
Senegal has also put in place a series of economic reforms as part of the Emerging Senegal Plan (ESP), adopted in 2014, to accelerate progress towards becoming an emerging economy by 2035. The ESP aims to promote fiscal consolidation, increasing public savings to support higher public investment in human capital and public infrastructure; and envisages structural reforms to attract foreign direct investment (FDI), boost private investment and drive export diversification. It focuses on four key sectors to unlock inclusive growth, including energy, agriculture and land, ICT and transport [2]. Senegal also put in place a five-year Priority Action Plan (PAP) for the period 2014- 2018 to operationalise the ESP strategic plan. The cost of the PAP was estimated at 9.7trn CFAF, out of which 5.7trn CFAF was already secured (8% from the private sector) [2].
The Republic of Senegal is also a member of the International Platform on Sustainable Finance (IPSF) [3].
Initiatives and Development Plans
The Government of Senegal currently supports the investment facility promoted by the SUNREF project (Sustainable Use of Natural Resources and Energy Finance), which was set up to encourage green investment projects. SUNREF is financed by AFD in partnership with SGBS banks (Senegal programme) and ORABANK (regional programme), and is implemented by enterprises that wish to promote energy efficiency and renewable energies in their production processes [4].
The European Investment Bank (EIB) has worked with Senegal since 1966, and has invested in infrastructure and climate action projects that enhance connectivity with the country’s neighbours, boost trade and foster sustainable growth. EIB is also supporting affordable solar power generation and sustainable urban transport in Senegal. Through its longstanding relationship with SONES, the national water company, it has ensured access to safe water in Dakar and other urban centres across the country [5].
Thanks to EU support, EIB brought electricity to the Casamance region - one of the poorest rural areas in the country - with a €13 million grant for the Senegal Electricity Modernisation project. The financing will contribute to improving farmers’ lives.
Additionally, through its financial intermediaries, such as BAOBAB Senegal and investees of Grameen Crédit Agricole Foundation, EIB provide farmers and micro-entrepreneurs - especially young people and women - with much-needed access to finance that enables them to start their own businesses [5].
- Senegal is one of the most politically stable African countries, with an economic growth rate of 6%. While the volume of committed climate finance is growing rapidly, it is far less than what is needed to achieve the Paris Agreement targets. There are also well-documented challenges in accessing climate finance. In particular, barriers in dealing with a complex international architecture that is not necessarily responsive to national priorities or cognizant of country-specific constraints.
- National Financing Vehicles (NFV) could be seen as an innovative mechanism to attract and accelerate access to climate finance.
- Working with the private sector, NFVs can be designed deliberately to address risks that hold back private (co-) investments in climate and green growth projects, and while their track record is still limited, early experience, shows that these mechanisms can be effective [1].
[1] GGGI (2019). Review of GGGI’s Experience to Design and Operationalize National Financing Vehicles to Finance Climate and Green Growth Policy Implementation. [Online]. Available: https://gggi.org/site/assets/uploads/2020/01/GGGI-Technical-Report-No.-9.pdf.
[2] Deloitte (2017). Invest in Senegal A competitive investment destination in West Africa. [Online]. Available: https://www2.deloitte.com/content/dam/Deloitte/za/Documents/africa/za_ASG_Country%20Reports.
[3] European Commission (2009). The Republic of Senegal joining the International Platform on Sustainable Finance (IPSF). [Online]. Available: https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/200902-press-release-ipsf-senegal_en.pdf.
[4] Green Economy Coalition (2018). The Green Economy Barometer 2018 Senegal. [Online]. Available: https://www.greeneconomycoalition.org/assets/reports/Barometers-2018/Senegal-GE-Barometer-2018-Final-WEB.pdf.
[5] EIB (2021). Senegal and the EIB. [Online]. Available: https://www.eib.org/en/projects/regions/acp/senegal/index.htm.