Several lenders in the region may fail if natural disasters reduce the earnings of the forestry and agricultural companies they have lent to, according to a stress test of five of Africa’s financial systems.
Researchers in Zambia, Ghana, Rwanda, Morocco, and Mauritius found that if environmental issues like deforestation and the extinction of pollinators like bees are not addressed, companies operating in some of these sectors may witness a halving of revenues over the next twenty years.
Oswald Mungule, a senior analyst at Bank of Zambia who participated in the study, stated,
“Africa is reliant on nature…if we don’t coordinate in terms of how we are handling the risks that are coming from nature, from climate change, we could start seeing some systemic risks and contagion effects on the financial sector in Africa.”
Laptops 1000The alert is issued in advance of the United Nations COP16 biodiversity summit, which will take place in Colombia in October.
Global leaders are facing increasing pressure to stop the further devastation of important ecosystems.
Building upon a preliminary analysis conducted in 2022, the new stress test is the first to be conducted since a worldwide agreement was made.
It set out at the COP15 in Toronto that year to examine the potential economic instability caused by biodiversity loss.
According to estimations from the World Economic Forum, the natural environment either heavily or modestly influences the economic production of Africa.
The agriculture, mining, and food sectors experienced the most severe obstacles, according to the stress tests, which were organized by the African Natural Capital Alliance (ANCA) in collaboration with the British development agency FSD Africa and the consulting firm McKinsey.
If nothing is done during the next 25 years, mining companies in Zambia and agribusiness companies in Ghana are predicted to see declines in profits of 32% and 50%, respectively, which will put banks in a negative feedback loop.
Dorothy Maseke, head of ANCA and FSD Africa Nature Lead, stated that
“if no nature positive actions are taken, the cumulative expected credit losses (across the five countries) could increase by up to 21% by 2050.”
“It paints a very dire picture.”
