Africa’s forests could help ease its debt burden, Lazard Group says
African nations struggling with excessive debt should look to boost their finances through selling carbon credits with the help of development banks, according to the head of Lazard Inc.’s Sovereign Advisory Group.
The continent is home to the Congo Basin tropical forest, second in size only to the Amazon, and almost a quarter of the world’s mangroves.
African “countries have forests, they have incredible natural assets of great value in terms of carbon preservation,” Thomas Lambert, managing director of the group, said in an interview conducted last week. “This has to be part of the balance sheet.”
Lazard has a unique perch to offer suggestions on debt troubles: It’s been involved in many sovereign restructurings, including ongoing work to help Ghana, Zambia and Ethiopia with reworking their liabilities.
Lambert himself was deputy general secretary of the Paris Club group of creditor countries before joining Lazard in 2011.
A carbon credit represents a ton of carbon dioxide equivalent removed from the atmosphere or prevented from entering it in the first place. Producers of the climate-warming gases can buy the securities to offset their emissions.
Still, while the continent has vast forested areas, making money from them in the form of carbon offsets is complicated.
A string of investigations by climate activists and academics has raised serious questions about some of the offsetting claims attached to such credits.
“Certifying the value of these carbon credits is a complex issue,” Lambert said. “How can they be recognized by the financial community, by the lenders as a tangible asset that has a dollar value.”
That’s where multilateral development lenders like the African Development Bank can step in by providing technical help through supervising the issuance of carbon credits or certifying their validity to make them marketable, according to Lazard.
“The idea of having multilateral development banks backing these kinds of initiatives, where it reinforces the credibility of these assets is absolutely critical,” said Lambert. “It’ll take time, but it’s unavoidable.”
Development banks should also agree to accept carbon credits as repayment for loans they borrow to these countries, Lazard said.
“For example, if the African Development Bank assisted one of its borrowers in the creation of carbon credits, it would accept these credits as currency to repay loans made by it to that country,” according to the financial advisory. “In doing so, it would stand behind the validity of the credit and rely on its institutional and market expertise to monetize it.”
The AfDB didn’t immediately respond to questions on whether it shares this view.
