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Tuesday, 1 February 2022

EBRD invests USD 1 bn+ in Egypt in 2021

How Egypt featured heavily in the EBRD’s global green strategy in 2021 … and how it will continue to do so in 2022: The European Bank for Reconstruction and Development (EBRD) had a pretty big year in terms of green financing, with a record EUR 5.4 bn in green investments globally last year. Egypt took up a significant portion of that funding, with the bank having invested over EUR 1 bn in 20 projects in Egypt this year, with 44% of that going toward the green economy, the EBRD said in a press release (pdf) on Sunday. Just to put that into perspective, that’s almost two thirds of the bank’s EUR 1.5 bn investments in 37 projects in the southern and eastern Mediterranean region (SEMED).

And the EBRD is planning to raise its green funding allocations here this year, Heike Harmgart, managing director for the SEMED region told Enterprise in an exclusive. She reveals to us that the bank hopes to at least match last year’s total funding commitment and raise the portion of funding green economy projects to 48% in 2022.

We also spoke with Harmgart on details of the bank’s green financing in 2021, its green funding priorities for 2022 and the outlook for Egypt as host of COP27.

Below are edited excerpts of our conversation:

Breaking down the EUR 1 bn in funding in 2021: The 20 projects that received EBRD funding included small on-lending projects with local partners as well as big infrastructure projects, Harmgart tells us. Eight or nine of the 20 projects were on-lending through small local partners, including green SMEs and value chain projects with local Egyptian banks. The bank provided a USD 518 mn loan that went toward the Cairo Line 1 and Alexandria metro projects.

70% of its investments had a gender and inclusion focus, with inclusion representing an important focus of the bank’s efforts in Egypt last year. Harmgart tells us that green and inclusion “are complementary targets,” and that focusing on developing more on-lending projects outside main cities was a big priority for the bank last year and will likely be important this year as well.

75% of the projects funded by the EBRD in Egypt were in the private sector. The EBRD was the top contributor to private sector financing in Egypt last year. This level is likely to continue this year, she says.

The EBRD is hopeful that it can match or exceed its 2021 investments in Egypt this year. The bank has allocated over EUR 1 bn to Egypt each year for the past three-four years and Harmgart expects that 2022 will be similar.

The EBRD aims to make 48% of its funding in Egypt this year green, with a focus on resilience, mitigation and adaptation. Harmgart explains that the EBRD is becoming more “technical” in its investments this year, focusing on new technologies such as green hydrogen, which it sees huge potential for in Egypt. She also notes that the next phase will likely include more renewable wind and solar energy projects, with a focus on integration of renewables into the grid and private-to-private sector projects. The EBRD is also looking to support zero emissions waste management projects, building on the methane gas pledge, as well as low carbon agriculture.

Private sector focus will remain a priority for the bank’s green funding initiatives: In addition to involving the private sector more in utility-level solar projects and connecting their plants to the grid, the EBRD is working on a “green” desalination project and is developing a project under a PPP model alongside the Sovereign Fund of Egypt and the Madbouly Cabinet, Hamgart said.

On-lending programs, including GEFF (Green Economy Financing Facility), will continue to feature this year. The EBRD is looking at doing more GEFFs and green value chain financing, with a focus on climate change assessments and exposure while helping banks to understand the impact on their operations from a climate change perspective to enable them to provide more green funding.

The bank is also working on tweaking existing green programs, including the Green Cities program. In April of last year, the EBRD announced the inclusion of 6 October City in its EUR 2.5 bn Green Cities program in an effort to make Egyptian cities greener, making it the third Egyptian member city in the program after Cairo and Alexandria. The EBRD has launched projects under the Green Cities cities program this year, identifying policy changes as well as potential investments that could help accelerate green urban living.

On the policy front, the EBRD would like to see more banks factor climate change into their assessments and raise their risk appetite for green funding. Harmgart stresses that climate change assessments are new to the banking sector even in Europe. It will be key for Egyptian banking institutions to get ahead of the curve to mitigate better, she stressed. The EBRD is looking to do more trade financing and identifying green trade opportunities with financial institutions to incentivize banks to take on more risks.

And it would like to see local operators issue more green bonds: Green bond issuance is another area that the bank is looking to develop, Harmgart tells us. With Benban maturing, the EBRD is looking at potential green bond issuances on the horizon.

Egypt’s revised target to source 42% of its energy from renewables by 2030 is very realistic, according to Harmgart, who says that Egypt has excellent wind and solar energy sources and needs to now focus on integrating renewables into the grid, as well as storage, transmission and distribution. She stresses that battery storage and fluctuation management are two areas that the EBRD is hopeful it can help Egypt with.

The EBRD is hopeful that COP27 results in an ambitious NDC and net zero target for Egypt and other North African and African countries. “Egypt is putting together a team for climate leadership, and I think we all stand ready to help them achieve this in time for Sharm,” Harmgart tells us. She stresses that it is key for Egypt to bring all its individual climate change efforts together in an ambitious NDC (Nationally Determined Contribution) and net zero target this year, hopefully leading the way for other African countries to follow suit. “Egypt has done a lot of different individual components successfully, and in 2022, it needs to bring all of these together in a realistic and ambitious NDC and net zero strategy at Sharm,” she tells us.

The bank hopes to see more financing commitments from global financing institutions at COP27, including global pension funds, commercial banks and global finance in general. “The need for financing is too large for a few multilateral development funds,” she tells us, stressing the need for more global players to contribute.

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