Ghana has been grappling with the destructive consequences of illegal mining activities, particularly on farmlands, and threatening food security and the livelihoods of countless farmers.
In addressing this, it is essential to explore innovative financing mechanisms, and one promising solution lies in the issuance of sovereign reclamation bonds.
Such bonds offer a means to fund the reclamation and restoration of Ghana’s destroyed farmlands, promoting sustainable development and environmental stewardship.
As a country, heavily dependent on agriculture, the impact of these activities is severe.
Restoring damaged land requires substantial financial resources.
Sovereign reclamation bonds offer a viable avenue to mobilise capital for this crucial cause.
Understanding Sovereign Reclamation Bonds
These are debt instruments issued by a government to raise funds specifically for land reclamation and environmental restoration projects.
The bonds serve a dual purpose by providing financial support to affected regions and incentivising sustainable mining practices, contributing to environmental preservation, revitalisation of agricultural productivity, and overall economic stability.
How will this work?
In June 2023, the Singapore-based Straits Times reported on an impact investment into a forest restoration project in Ghana (https://www.straitstimes.com/singapore/temasek-owned-firm-to-invest-in-forest-restoration-project-in-ghana).
First, “the Temasek-owned investment platform GenZero will be investing in a forest restoration project in the African nation (Ghana) that can generate carbon credits, which businesses in Singapore can potentially use to offset part of their carbon tax.
In collaboration with Singapore-based AJA Climate Solutions, GenZero will be investing “north of US$20 to US$30 million (S$26 million to S$40 million) to restore about 100,000ha of degraded land in the Kwahu region of Ghana”.
An aerial shot of tracts of degraded lands yet to be reclaimed at Antobia in the Western North Region. Credit: Daily Graphic
Think of Ghana packaging hectares of devastated lands, costing amounts required to restore them and attracting funds from impact investors like GenZero in the real case example provided above.
In summary, it is feasible for impact investors in Ghana’s sovereign reclamation bonds to be paid with carbon credits generated from reclaimed and rehabilitated farmlands.
Carbon credit trading, which assigns a monetary value to greenhouse gas emissions, is a mechanism that incentivises greenhouse gas emissions reduction.
By harnessing the financial potential of carbon credit trading, countries like Ghana can fund critical initiatives, which aim to restore and protect vital ecosystems.
With Ghana’s version, which can operate on the principle of “cap and trade”, the government sets a limit or cap on emissions and issues tradable permits, known as carbon credits, to entities.
The entities can purchase excess credits from future carbon credits generated from the reclaimed lands, creating future sustainable cash flows for Ghana.
The Taskforce on Scaling Voluntary Carbon Markets, with knowledge support from McKinsey, estimates the global market for carbon credits to be worth upward of $50 billion in 2030.
Minister of Lands and Natural Resources, in 2017, reported that about 954,000 hectares of the country’s lands, constituting four per cent of the total surface area, had been degraded.
An estimated amount of GH¢60,000 (c. $5,500) was required to reclaim a hectare of land.
The government needs to establish clear regulations and mechanisms for allocating carbon credit trading revenue to sovereign reclamation bonds.
It requires transparency, robust monitoring and verification systems to be able to raise the required amount of impact funding, potentially in excess of $5 billion, to fix the degraded lands in Ghana.
Ghana’s devastated lands demand immediate attention and robust action.
Sovereign reclamation bonds present an innovative and sustainable financing solution to reclaim and restore them.
By mobilising capital from both public and private sectors, these bonds can enable the implementation of comprehensive land reclamation projects, protecting the environment, supporting farmers, creating youth employment and fostering sustainable development.
With a potential carbon credit market of $50 billion, Ghana may seize the opportunity to test investor appetite for potential sovereign reclamation bonds and embark on a transformative journey towards reclaiming its destroyed farmlands and securing a prosperous future for its citizens.
The writer is a sustainable finance enthusiast, with more than 15 years of relevant capital market experience.