Authors : Nathalie Picarelli, Manuela Ravina da Silva, Lulit Mitik Beyene, Eduardo Malasquez Carbonel, Michiel Jean M Van Acoleyen
Site of the publication : World Bank Open Knowledge Repository
Type of publication : Report
Date of publication : December 2023
Benin’s socioeconomic development will increasingly depend on climate action
Worsening climate change impacts will make it harder to improve living standards equitably and sustainably. Despite having amongst the lowest greenhouse gas (GHG) emissions globally – at only 0.05 percent of global emissions – Benin is one of the most vulnerable countries to climate change, ranking 152 out of 181 countries for extreme climate vulnerability.
While its GHG emissions are expected to increase with development, Benin’s main challenge is its vulnerability to climatic shocks. Future dry and wet periods are likely to become more extreme, with more droughts and a higher risk of floods.
Under a 2.7°C global warming scenario (i.e., business as usual), by 2070 98 percent of Benin’s territory is expected to be exposed to extreme temperatures – one of the most exposed countries by percentage of landmass worldwide. Natural wealth has also declined in recent decades, with deforestation amplifying the negative effects of climate change.
This Country Climate and Development Report (CCDR) proposes that Benin focuses on building a resilient economy, with investment and policy options primarily targeted at adapting to climate change risks. The dependence of Benin’s economic structure on agriculture and informal employment makes its development path highly vulnerable to climate change in the absence of proper adaptation.
The government and the private sector need to be better prepared to deal with climate change – building adequate institutions and governance structures will be crucial. While all sectors will have to become more resilient, this is especially urgent for agriculture and land use, urban and network infrastructure, and human development (education, health). Mitigation efforts should focus on avoiding carbon lock-ins and reducing deforestation.
Investing in renewable energy whilst expanding the population’s access to electricity should be a priority for Benin. A higher share of renewable energy can bring about co-benefits for other sectors (agriculture, water, transport, and forestry).
To maintain its growth trajectory, Benin needs to pay special attention to its most vulnerable people, including women. To protect the poor and vulnerable the just transition should focus on reconciling development and climate goals while addressing inequality (income and gender related), and spatial exclusion.
Worsening climate change impacts will make it harder to improve living standards equitably and sustainably. Despite having amongst the lowest greenhouse gas (GHG) emissions globally – at only 0.05 percent of global emissions – Benin is one of the most vulnerable countries to climate change, ranking 152 out of 181 countries for extreme climate vulnerability
Private and public institutions still need to mainstream climate action
Benin has established its climate change commitments and strategic objectives. The country’s commitments to climate action are set out in its Nationally Determined Contributions (NDC), updated in 2021. It has also made important efforts to establish a climate change legal and policy framework that supports NDC implementation.
The Law on Climate Change was enacted in 2018, the National Adaptation Plan (NAP, 2022) outlines key adaptation measures, and the National Climate Change Management Policy (PNGCC, 2021-2030) aims to guide Benin towards becoming a climate-resilient country with sufficient adaptive capacity and mechanisms to respond to climate risks and ensure low-carbon growth.
However, institutional arrangements for adaptation, risk management and mitigation need to be more joined up. Reflecting the cross-cutting nature of climate change, multiple institutions are engaged in climate change matters. While sectoral ministries have translated the strategic orientations into their planning documents, from agriculture to health, some governance structures need to be reinforced given their key role for climate resilience.
Private firms and financial institutions are mostly aware of the need to prepare for a changing climate, but need to take more action. Close to three in four Beninese firms face significant risks from climate change. While firms of all sizes indicate facing environmental risks, smaller businesses are more concerned about overall climatic volatility, whereas larger firms view input supply as a key challenge.
While almost all agricultural firms fear exposure to environmental risks – especially changing temperatures and water scarcity – manufacturing and services firms display less concern. Only one in two Beninese firms indicate already having invested in adaptation measures, highlighting the elevated need for the private sector to bolster climate resilience. Firms’ investments in mitigation measures appear to be less widespread, and primarily focus on reducing waste or chemical use.
The financial sector has yet to incorporate measures to manage the high exposure to climate-related risks. Climate shocks have the potential to translate into significant financial risks for the Beninese financial sector, especially the banking sector. To date, there is no mandate to systematically integrate climate-related risk analysis into the supervisory activities of key financial oversight agencies.
The Regional Council for Public Savings and Financial Markets (AMF-UMOA), the regulatory and supervisory authority for capital markets in WAEMU, has not yet introduced climate risk disclosure guidelines for corporates. The Central Bank of the West African States (BCEAO) is not yet exploring the potential of greening the central bank’s operations, including monetary policy.
However, awareness is growing amongst the regional authorities. In 2020, the Banking Commission of the West African Monetary Union (BC-WAMU) released a guide on environmental and social risk management for banks and financial institutions which includes a section on climate risk. The guide provides recommendations on how banks can identify and assess climate risks, as well as how they can develop appropriate risk management.
Adapting to climate change requires a resilient growth model
Without any additional adaptation effort, modelling for this report estimates that average annual GDP losses will increase over time and could reach up to 19 percent of GDP by 2050.
The estimated loss of real GDP due to climate change increases from an average range of 7-9 percent in the 2030s to 11-19 percent by 2050 compared to the baseline and across both climate scenarios. This entails an equivalent loss in real per capita income. In the hot/dry scenario, GDP per capita is projected to be over 18 percent lower by 2050.
Climate change affects the Beninese economy principally through changes to labor productivity. Effects of higher average temperatures on labor heat stress, human health, and availability of water supply and sanitation all reduce labor productivity, with productivity losses from labor heat stress the main driver of economic losses.
Negative shocks to output through damage to physical capital stock are much less pronounced, likely owing to the low capital stock at baseline. At the sectoral level, agriculture stands to be significantly impacted.
Building a resilient economy will require investing in key sectors and a resilient labor demand and supply. Investing in a resilient agricultural sector, reversing deforestation and improving water management, while supporting the development of agribusiness, will be the cornerstones of sustained economic growth despite climate change uncertainty.
Without any additional adaptation effort, modelling for this report estimates that average annual GDP losses will increase over time and could reach up to 19 percent of GDP by 2050
Resilient labor demand will mean adapting infrastructure, networks and cities to climate change to allow a thriving private sector to develop, including through higher value-added services.
Summary of adaptation actions
- Adapt agricultural approaches and techniques. Benin’s drive to diversify agricultural exports offers synergies to adapt to changing climatic conditions. Invest in sustainable food production models by:
(1) implementing appropriate climate-smart agricultural techniques such as conservation tillage and using drought-resistant crops, in line with the Ministry of Agriculture, Livestock, and Fisheries (MAEP) strategy on sustainable agriculture;
(2) promoting efficient irrigation systems and water harvesting infrastructure; and
(3) investing in agricultural mechanization.
- Restore and protect forests. Enable the regeneration of 300,000 hectares of forest cover to restore degraded lands; strengthen early warning systems and fire risk monitoring; promote agroforestry systems in 15% of all classified forests; and strengthen land tenure security.
- Invest in water resource management. Increase supply through the construction of hydraulic structures and allow for multifunctional use to meet the needs of various sectors (agriculture, livestock farming, water supply, etc.).
This means (i) protecting catchment areas; (ii) conserving knowledge, monitoring and securing of recharge areas; and (iii) implementing specific schemes to facilitate preferential water infiltration through secured aquifer recharge areas, such as establishing protection perimeters with regulated zones and zones declared non-constructible.
- Plan for sustainable cities and coastal management. Build resilience to urban flooding through effective land-use and urban planning. Consider more sustainable funding mechanisms for local governments, earmarked for climate resilience investments.
Integrate water management and sanitation into expansion plans for cities and peri-urban areas to reduce sanitation risks caused by frequent flooding. Protect coastal areas through a combination of hard and soft interventions, including nature-based solutions.
- Protect network infrastructure to keep people and markets connected. Adopt multimodal transport for a more resilient and greener transport sector. Incorporate climate-resilient design parameters systematically into transport infrastructure.
Conduct a thorough criticality analysis of the road network to ensure that climate-related events do not disrupt links essential to agriculture and other economic activities. Protect digital networks to allow them to increase connectivity in rural areas and boost people’s access to climate finance, insurance, and early warning systems.
- Strengthen the resilience of health service delivery and reinforce emergency preparedness. Build the capacity of health personnel to diagnose, treat and manage climate-sensitive diseases; increase community-level preparedness and response plans; develop surveillance, an early warning system, information and research on climate-sensitive diseases and an appropriate response; install a financing mechanism for climate change-related health interventions; and adapt health infrastructure, equipment, products, and services.
- Ramp up efforts for a more climate-resilient education system. Accelerate the development of resilient school buildings; strengthen capacity in the Ministry of Education and mainstream climate change within the education sector’s policies and plans.
Mitigation can avoid carbon lock-in and create opportunities for inclusive growth
The energy transition is an opportunity to embrace a less carbon-intensive development path. Most emerging and developing economies need to find the right balance between development needs and a lower carbon path. With more than half the population lacking access to electricity, achieving universal access to electricity by 2030 is Benin’s main priority.
The Benin Least-cost Electrification Master Plan (2021) expects that by 2030, 76 percent of the population will be connected to the electricity grid. To achieve this, the government plans to progressively increase the share of renewable energy (RE) in the energy mix as it expands production. The target is to reach between 20-30 percent RE penetration in the energy mix by 2035 and 33 percent by 2045. Overall, production expansion plans for 2045 will require financing of around US$2.6 billion (or 15 percent of 2022 GDP).
Co-benefits from the use of renewable energy could be sizeable, especially in telecoms, water management, and transport. A greener energy grid can reduce the emissions from ICT expansion. Benin is performing well at a regional level but there is still room for improvement as 20 to 40 percent of mobile sites do not have access to a reliable grid.
Digital technologies could in turn support climate change mitigation in the energy sector by facilitating the transition to RE, enhancing energy efficiency, and enabling demand-side flexibility. Co-benefits could also exist from decarbonizing the transport sector to reduce negative externalities.
Road transport’s GHG emissions multiplied by six between 2000 and 2021. Even though in comparison with regional peers the current level of per capita transport emissions remains extremely low, they are increasing and will continue to rise as urbanization progresses.
Mitigation can also bring about new opportunities for forests and land use. To reduce carbon emissions from land use, deforestation rates will need to slow in the short term and stop altogether in the long term, with continued investment in sustainable forest management.
Developing carbon financing opportunities for forest production and conservation offers a high-value opportunity for increasing and conserving carbon stocks, and reversing deforestation.
To support this, in the context of Article 6 of the Paris Agreement, Benin adopted two decrees in December 2022 to enable projects to access carbon credits managed under the Ministry of Environment and Transport in charge of Sustainable Development (MCVT), and the Ministry of Environment and Forests (MoEF).
To help meet energy demands, the government aims to improve fuelwood production, while expanding the use of clean fuels and efficient technologies. Much of the forested area is used for fuelwood and charcoal production, which support 46 percent of the national energy consumption.
Summary of mitigation actions
- Deepen the energy transition. Implement the energy sector least-cost plan; respect generation planning and competitive procurement principles and ensure regular updates with a focus on reaching universal access by 2030. Create a favorable investment climate for investment in renewable energy.
- Take advantage of co-benefits in key economic sectors. In the transport sector for example, develop a clean mobility strategy for the country; encourage e-mobility private investments through a friendly framework; analyze financing possibilities and schemes; and rehabilitate and modernize public road transportation (light public transportation).
- Seize mitigation opportunities for forests and land use. Ensure the large-scale reforestation aims indicated in the government’s Forest Policy (2023-2032) are accompanied by an investment plan and sustainable fuelwood strategy; expand and develop rural fuelwood markets in the most important areas of uncontrolled exploitation; introduce a system of labeling, and testing standards and protocols, to ensure adequate stove and fuel performance and provide targeted incentives to promote a localized supply chain; and create and manage new national parks, marine protected areas, and biodiversity reserves through community-based approaches.
Protecting the poor and vulnerable, especially women, is key to sustaining the transformation
Benin’s vulnerable populations and households face disproportionate risks from climate change, potentially delaying a sustained economic transformation. The negative impact on human capital – particularly in outdoor sectors such as agriculture – could be large if no action is taken.
Between half a million to 1 million additional people would remain in poverty by 2050 in the absence of adaptation action. Women and unskilled workers stand to be the most affected. Rural areas display higher poverty incidence rates than urban ones: 20 percent vs. 17 percent, respectively.
Actions to reduce the negative impact of climate change through resilience and adaptation would help mitigate this effect.
Social assistance and labor market programs have an important role to play in addressing household vulnerability to shocks and facilitating a ‘just transition’. Benin can:
- Expand the productive and adaptative social protection program to reach vulnerable groups affected by climate change, especially women.
- Build the resilience to climate shocks of women and female-headed households. This could involve building female agency on climate change-related issues, targeted social protection programs, cash transfers, safety net projects, greater financial inclusion, supporting livelihood diversification, and support to develop the skills needed to succeed in the green economy.
How to fund and finance climate action?
Climate interventions involve significant investments, but the benefits outweigh the costs. In this CCDR we estimate that strict additional financing needs in Benin amount to an annual investment of 0.1 percent of GDP to 2030, rising to 0.3 percent of GDP to 2040 and 0.8 percent of GDP in 2050. This would be an annual average of 0.3 percent of GDP over the entire period and would cost US$2.7bn by 2032.
This calculation assumes higher levels of public investment as a share of GDP, averaging 8 percent for the 30-year period, compared to historical averages of 5 percent of GDP between 2012-2023, most of which will require financing and will involve both adaptation and mitigation action. Indeed, adaptation costs can be hard to separate from other development needs, as development and adaptation are self-reinforcing.
The costs of climate adaptation identified in other strategic documents are all encompassing. The NDC estimated investment needs for mitigation at about US$8.6 billion, with US$5.1 billion coming from the government and the private sector, and the remaining US$3.5 billion expected to be mobilized from the international community.
Investment needs for adaptation were estimated in the NDC at approximately US$1.8 billion, of which US$ 578 million (32 percent) would be public funding and US$1.2 billion would require international support (68 percent). Meanwhile, the NAP estimates investment needs for adaptation of about US$4.2 billion over a 10-year horizon.
There are at least three potential avenues for financing climate action as described in this CCDR:
(1) Increase revenue (such as through a carbon tax) and make public spending more efficient to create fiscal space for adaptation.
(2) Tap into concessional and blended finance and disaster risk financing. Benin is already using innovative financial instruments to finance its development agenda. In this context, the country should maximize the full range of concessional and semi-concessional financing available, including new sources of climate funds. Several new financial institutions are expanding the scope of their activities to Africa, creating the potential for new blended financing.
In addition, Benin can explore deploying more innovative financial structures from these concessional and semi-concessional resources, including thematic bonds and sustainability-linked bonds using its ESG framework. Disaster risk financing is also an attractive option for Benin and involves proactive planning to better manage the cost of disasters and ultimately mitigate long-term fiscal impacts.
The NDC estimated investment needs for mitigation at about US$8.6 billion, with US$5.1 billion coming from the government and the private sector, and the remaining US$3.5 billion expected to be mobilized from the international community
(3) Leverage corporate investment. Crowding in private sector financing will require deepening the financial sector. While bank credit accounts for 82 percent of total private domestic funding, the credit structure has remained broadly the same over the years, with most credit focusing on short- and medium-term financing.
Relatively little progress has been made in private sector financing on capital markets in general, and green financing in particular, at the WAEMU level. In this context, to enable private financing to flow, while continuing to support the deepening of financial markets, public resources are also required to de-risk projects, provide concessional credit, and backstop against certain shocks.
Public-private partnerships also provide a critical tool to advance private sector involvement and technology transfers for mitigation projects and more resilient infrastructure. The authorities promoted PPPs as a mean of financing for 61 percent of planned investment in the first Government Action Program (2016–21) and have set the target at 52 percent for the second Government Action Program (2021–26).
Strengthening the PPP framework, creating a knowledge-sharing mechanism to improve capacity to mobilize the private sector, and establishing a pipeline of potential PPPs, are all important next steps
Key policy actions are identified to maximize synergies and unlock potential gains
