Green financialization and de-risking in Zambia’s renewable energy transition

By Simone Claar and Franziska Müller

Zambia’s has a history full of hopeful prospects and broken dreams. In the 1980s and again in the early 2010s, Zambia experienced an economic upswing. Labelled as an emerging middle-income country and called the new ‘African Tiger’, a mix of copper extractivism, an aspiring tourism sector, as well as political stability led to an impressive rise. However, the phase was short-lived, as Zambia’s political economy remains fragile: dependent on the price of copper and the world market, it is regularly on the verge of state bankruptcy due to a significant foreign debt burden. A history of structural adjustment programs in exchange for IMF loans and dependency on billion-scale Chinese loans means that Zambia became the first African country to declare bankruptcy in the wake of the Covid pandemic, first asking for a moratorium, and later for restructuring its Eurobond loans and Chinese loans. In this context, Zambia’s dependence on development financing is highly evident and deeply anchored in the state structures. Zambia’s political economy of energy and the ongoing energy transition reflect this tedious situation. Rising energy demands and lack of investment mean that widespread load shedding has become a frequent phenomenon. Climate change and recurring droughts negatively affect hydropower performance, which makes up 95 per cent of installed capacity. The current roll-out of renewable energy is a beacon of hope. Nevertheless, its financial structures give rise to the assumption that Zambia may also be the first African state where the miracle of green capitalism and “white magic” (Girvan 1978) is becoming manifest, resulting in both shiny solar panels and a loss of political and economic sovereignty. Analyzing Zambia’s energy transition’s political and financial toolbox, we delineate how green financialization and de-risking are executed based on blended development finance. 

The ways in which development finance is made attractive to the financial market are undergoing major changes. We share Gabor’s (2021) assessment that we are dealing with a paradigm shift towards a ‘Wall Street Consensus’: a turn towards usability, scalability and bankability of development finance, with green capital, channeled into aspiring markets. However, many countries cannot promise large profits because they lack the financial capacity and access to the global financial market and are therefore deemed risky destinations for foreign investment. De-risking initiatives and green financialization are promoted as a cure in such contexts. Opening the “de-risking” toolbox results in a carefully chosen mix of risk insurances, securitization of financial products, and reliance on market-creating policies such as green funds and auction instruments. Zambia is an excellent example of how different policy and financial instruments interact in the context of sustainable development goals, here in particular SDG 7′ Access to Energy’ and finally result in green financialization on both a macro and micro level (Mawdsley 2016). 

So, what does this mean in the case of Zambia? Our research explored two renewable energy programs: the transnational “Global Energy Transfer Feed-In Tariff program” (GETFiT) initiative and the rural-focused “Beyond the Grid Fund For Zambia” (BGFZ). Transnational companies and Western development agencies have orchestrated both, albeit to a lesser extent, the Zambian state. 

Deutsche Bank developed the blueprint for GETFiT in 2011. It is designing and implementing de-risking measures which provide a favorable environment for international private sector participants by lowering uncertainty and financing costs for renewable energy investments in Sub-Saharan African nations. If investment experiences political, economic, or structural risks and the state is unable or unwilling to release the debt, multilateral banks serve as lenders of last resort for these credits. Four pillars – a premium payment on top of each kilowatt hour, technical assistance, a risk mitigation facility, and financial support – guarantee a risk-adjusted level playing field for international investors. GETFiT was first implemented in Uganda in 2013. In 2017, it was introduced in Zambia, and is currently expanding to other African countries.    

The Swedish government issued the Beyond the Grid Fund For Zambia (BGFZ) in 2016 and addressed an often neglected issue: facilitating rural access to energy by creating off-grid solutions. The fund also awards money based on social impact. In 2017, funding was approved for four companies offering off-grid opportunities, such as solar homes systems, solar cookers, or solar-based grid systems. All four companies rely on micropayment systems, such as pay as you go, pay to own or prepaid systems, which require constant access to mobile money on the customers’ side.

In our research, we investigated the tenders’ structure and results in more depth and provided a close-up of Zambia’s transition process. Both programs exert transnational market-oriented strategies, which result in financialization on a macro and micro level. This comes at a price. Despite the overall successful roll-out of renewables, we could detect a lack of domestic participation, economic sovereignty, and political ownership. 

In practice, this means that the main GETFiT financer KfW’s has huge political influence and prolongs Zambia’s financial dependency by deepening financial support and risk guarantees. The GETFiT process lies in the hand of international firms, like Norwegian tech consultancy Multiconsult and a British Law Firm. The tender structure pleases transnational bid winners, all the more as only companies with an annual turnover of 25 mills US-$ were accepted as bidders. The BGFZ aims for local participation in the planning and implementation process, which is laudable. Yet, the fund manager is based in Europe, and local shareholders are absent in the fund’s governance.

Moreover, the local consumers experience daily life’s financialization. They need continuous access to mobile money to qualify as “good customers”. Disciplinary techniques apply, which are already well-known from the larger microfinance debate. In contrast, poorer clients are still sidelined and may become the new “energy subalterns”.

Our research has revealed how financialization reframes Zambia’s energy transition as a market-oriented, transnationally orchestrated endeavor that lacks a sufficient level of domestic ownership. Both programs feature and facilitate market entry for FDI and blended finance, thereby prolonging and deepening Zambia’s dependence on foreign capital inflow, which goes hand in hand with side-lining African companies.

Both renewable energy programs demonstrate how public finance is utilized for opening the market for private transnational capital to fulfil the SDDs in the long run; in line with the World Bank’s “Maximizing Finance for Development” Agenda.

To conclude, Zambia’s energy transition demonstrates the implications of green financialization and how it shapes the energy-development nexus in the Global South. The developments which we have seen in Zambia have some general repercussions. The roll-out of de-risked green capitalism contributes to a racialized capital formation that considers the African continent a terrain where the geophysical potential for renewables can be unlocked, and investors’ interests are met, yet at the expense of domestic energy interests and sovereignty over own transformation processes. To deepen our knowledge on such developments, critical finance research should engage with postcolonial studies and racial capitalism, for instance, by mapping and comparing de-risking initiatives, tracing green finance flows, and exploring how the post-covid recovery and the recent Glasgow agreements are probably speeding up such processes.

Dr. Simone Claar is research group leader of ‘Glocalpower’ at University of Kassel and focuses among others on green capitalism and green finance in her research.

Dr. Franziska Müller is professor for Globalisation and Governance of Climate Politics at University of Hamburg.

Detailed Analysis in the Open Access article: Carsten Elsner, Manuel Neumann, Franziska Müller & Simone Claar (2021) Room for money or manoeuvre? How green financialization and de-risking shape Zambia’s renewable energy transitionCanadian Journal of Development Studies / Revue canadienne d’études du développement.

Photo: A1 MW small hydropower plant in Shiwang’andu, Zambia. By UNIDO/Flickr.

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