Impact of Climate Financing on Industrial Sector Growth in Selected Countries in Sub-Saharan Africa

Abstract

This paper examined the impact of climate financing on industrial sector growth in selected Sub-Saharan African countries, focusing specifically on how different components of climate finance, namely Climate Equity Investment Funds, Climate Loans (Debt), and Climate Bilateral and Multilateral Grants/Aid, influenced industrial sector growth between 2009 and 2024. The study adopted a longitudinal research design and utilized secondary panel data across five Sub-Saharan African countries, South Africa, Nigeria, Kenya, Ethiopia, and Senegal. The fixed effects regression model was employed following the result of the Hausman test, which confirmed the existence of correlation between country-specific effects and explanatory variables. Findings revealed that Climate Loans and Climate Grants had a statistically significant and positive impact on industrial sector growth, indicating their effectiveness in supporting infrastructure development, technological upgrades, and capacity-building. In contrast, Climate Equity Investment Funds had a negative and statistically insignificant impact, suggesting that equity flows remained too volatile or inadequate to support sustained industrial transformation. Based on these outcomes, the study recommended that national governments collaborate with institutions such as the African Development Bank, Green Climate Fund, and national development banks to expand concessional loan access and scale up blended equity financing. Additionally, ministries of environment and industry should work with United Nations Industrial Development Organization and United Nations Economic Commission for Africa to attract and effectively manage climate grants. Strengthening institutional capacity and aligning climate finance strategies with industrial policy objectives were also recommended to ensure the long-term sustainability of industrial growth in the region.