EBRD supports Egyptian SMEs with $175m in green finance

The European Bank for Reconstruction and Development will provide $175.5 million in green finance to invest in Egyptian small and medium businesses, supporting the decarbonisation of the country’s economy.

The new funds will be made available to local financial institutions to on-lend to the private sector for climate change mitigation and adaptation projects. It is the second phase of the multilateral lender’s Green Economy Financing Facility (Geff) programme, which is also supported by the EU and the UN’s Green Climate Fund.

The main goals of the financing facility are to translate pledges made at Cop27 “to projects on the ground” and “help green the Egyptian economy”, said Heike Harmgart, managing director for the EBRD’s Southern and Eastern Mediterranean region, at the green finance event in Cairo on Tuesday.

“Moving towards a low-emissions development pathway can help Egypt build climate resilience and strengthen its competitiveness,” said Christian Berger, head of the EU delegation to Egypt.

The event was attended by government officials, banking representatives, development partners and members of the private sector.

At the UN climate change conference hosted in Sharm El Sheikh in November, Egypt touted some of its national initiatives, such as the Nexus of Water, Food and Energy (NWFE) programme, and strengthened its commitments to mitigate and adapt to climate change.

For example, Egypt accelerated its goal to source 42 per cent of its energy from renewable sources by 2035 to five years earlier. The country currently has an estimated 20 per cent in renewable energy capacity.

“To accelerate progress towards the green transition, international co-operation is key,” Minister of International Co-operation Rania Al Mashat said at the event on Tuesday. “The concept of green finance is coming in very forcefully in all of our strategies.”

Investment in cleaner energy worldwide matched spending on fossil fuels for the first time ever after reaching $1.1 trillion last year, a report from research group BloombergNEF said on Tuesday.

The EBRD is Egypt’s lead partner on the NWFE energy pillar, committing $1 billion of private renewable finance, $300 million in sovereign finance and $3 million in grants.

Egypt was able to secure development finance of $10 billion per year on average over the past three years, “despite being very tough years globally when it comes to financing”, Ms Al Mashat said.

Minister of Environment Yasmine Fouad said the EBRD’s green financing facility has helped support the private sector, reform Egypt’s banking sector and integrate a climate finance portfolio.

Last year, the Egyptian government set priority areas for decarbonisation, such as renewable energy, green hydrogen, alternatives to single-use plastics, waste management and nature-based solutions, Ms Fouad said.

The industrial sector, which contributes 28 per cent of Egypt’s carbon dioxide emissions, is another area of focus. “We need to look at how a green value chain can be fully integrated in the industrial sector,” Ms Fouad said. “We need to go down at the level of SMEs and start at a very early stage.”

EBRD investments
Since EBRD started investing in Egypt in 2012, it has provided more than €10 billion ($10.8 billion) in financing through more than 160 projects across the country.

Last year in Egypt, the bank invested more than €1.3 billion in 25 projects, with nearly 60 per cent of all investments being green.

Its Geff programme, running in Egypt since 2017, has invested €240 million to support resource efficiency, climate adaptation and the circular economy. Local banking partners include the National Bank of Egypt, Banque Misr, Ahli United Bank and QNB Al Ahli.

Globally, the programme operates through a network of more than 170 financial institutions across 28 countries, supported by almost €5 billion of EBRD finance.

Along with funding from co-financing partners, it has enabled more than 218,000 green investments and avoided about 9.5 million tonnes of carbon dioxide emissions per year.

While the first phase in Egypt focused on all businesses and mainly mitigation efforts, the second will focus on the SME sector and adaptation technologies.

The extension of the facility in Egypt will provide finance and advice for private sector businesses and even households looking to invest in energy efficiency or renewable energy.

Sustainability in the banking sector
Before Cop27, the Central Bank of Egypt issued binding regulations for banks to have a sustainable finance strategy.

Walid Ali, the central bank’s head of sustainability, said it is now a mandate that all banks have a dedicated sustainability department and green finance reporting to the chief executive.

Banks are also required to report on their sustainability activities and hire an environmental expert to evaluate any large corporate project before financing.

The new lending facility comes at a time when Egypt is suffering from the economic fallout of the Russia-Ukraine war, including soaring inflation, a higher import bill, declining foreign currency reserves and a depreciating pound.

The International Monetary Fund has approved a $3 billion loan for Egypt, provided it enacts reforms and commits to a permanent shift to a flexible exchange rate.

However, banking representatives on Tuesday said they were ready to step up and help the most vulnerable segments of the economy make a green transition.

“Obviously the elephant in the room is FX shortage,” said Karim Kamal, head of support functions and sustainability at the National Bank of Kuwait.

“We believe that the government has a plan towards easing that short-term crisis and once this is resolved, [we will see] a pickup in Capex lending.”

Egypt needs the EBRD programme “more than ever”, said Tarek Fayed, assistant chief executive of QNB Ahli. “SMEs are a very important part of the fabric of Egyptian society,” he said. “It has most of the population, whether in the formal or informal sector.”