Right at the heart of Nairobi, where matatus belch thick black smoke into the sky and tuk-tuks weave through midday traffic like swarming ants, the future of African climate tech is quietly taking shape — and quietly being starved.
Just behind Giriraj Business Park, a stone’s throw from the city’s industrial smog, sits Octavia Carbon — a startup building machines that do something the average commuter on Thika Road may never have heard of: pull carbon directly from the air. Their devices, powered by Kenya’s geothermal reserves, represent some of the most cutting-edge climate tech on the continent. But while the machines are real, the funding needed to scale them feels more like a mirage.
Every six market days, it seems, a new climate-focused investment fund is announced — complete with bright branding, Western logos, and polished panels at global summits. But in the dusty corridors of African startup life, where power outages interrupt investor Zoom calls and due diligence often drags for months, the money rarely shows up.
A new report by RMI and Third Derivative puts numbers to this disillusionment. Of the €86 billion in global climate venture capital “dry powder” — funds raised but not yet deployed — Africa gets a sliver. Just 1.4% of the world’s climate tech VC lands on the continent. Worse still, nearly 90% of that goes into solar projects. Startups working on grid intelligence, carbon removal, or green hydrogen might as well be pitching to a brick wall.
The math is almost painful: Africa needs $190 billion annually to meet its climate and energy goals. It currently gets $44 billion — 75% of which comes from public institutions like development banks. Private investors, the dominant engine of climate finance in the U.S. and Europe, only account for 18%. “It’s not just a gap,” says Rushad Nanavatty, co-author of the report. “It’s a leak. And €20 billion is dripping out of the bucket every year.”
Africa Has What the World Needs
The tragedy here is that Africa may be the best bet the planet has.
The continent has solar potential capable of powering Earth 50 times over. It holds 30% of the critical minerals needed for batteries, green steel, and clean hydrogen. In the Rift Valley alone, there’s enough geothermal energy to meet the continent’s electricity needs a hundred times over.
By 2050, Africa’s population will reach 2.6 billion. Electricity demand will quadruple. Fertilizer use will rise fivefold. And 70% of the buildings that will exist in 2040 haven’t even been built yet. That’s not just demand — it’s a clean slate. A chance to build green from the ground up, avoiding the legacy baggage of Europe or North America.
“Africa’s infrastructure gaps are often framed as a problem,” says Talash Huijbers, founder of Delta40, a Nairobi-based climate venture studio. “But for climate tech, they’re actually a competitive edge. We’re not replacing old grids — we’re building new ones.”
What’s Stopping the Money?
The barriers aren’t philosophical. They’re structural. Investors often view Africa through a haze of outdated assumptions and red flags that don’t hold up under scrutiny.
- Currency mismatch: Most climate loans come in euros or dollars. But revenues are in naira, shillings, or kwacha. When Nigeria’s naira lost 70% of its value in 2023, repayments on foreign-denominated loans became impossible for many.
- Inflated interest rates: Even when African debt performs well, local companies pay 5–6% more than peers in Asia or Latin America. “Africa risk” remains a deeply embedded, often exaggerated bias.
And that bias has a name: the African risk premium — a financial surcharge applied to African investments that defies both logic and the data.
The Report’s Bombshell
The RMI report calls it what it is: one of the most perverse contradictions in global finance. Despite 40 years of evidence showing that African infrastructure loans are less volatile than those in Latin America or parts of Asia, Africa still bears the brunt of a punitive cost structure that makes climate tech nearly impossible to finance at scale.
What the Data Shows:
- African businesses pay 5–6% higher interest rates than comparable firms in India or Vietnam with similar credit profiles.
- 65% of all impact loans are made in hard currencies, exposing startups to massive forex risk — even though revenues are in local currencies.
- Yet African debt, over the long term, actually outperforms peer markets in repayment consistency.
The Three Layers of the Premium:
- The Perception Tax: Credit rating agencies, many without on-the-ground presence, consistently overestimate risk. When the naira crashed in 2023, startups defaulted — not because they failed, but because their dollar loans tripled overnight.
- The Liquidity Penalty: With domestic savings rates at just 19% (versus 45% in Asia), African banks ration capital by charging more. A solar startup might face 25% effective interest — 9% for currency hedging and 16% loan interest.
- The Innovation Discount: Investors lump all African ventures as “high risk,” regardless of performance. Ironically: i) Pay-as-you-go solar firms in Africa have lower default rates than U.S. subprime auto loans; ii) Kenyan geothermal projects offer more predictable returns than German wind farms.
Real-World Consequences:
- A Nigerian minigrid operator pays $250,000 more annually in interest than a structurally identical project in India.
- Fertilizer startups like TalusAg must promise 3x higher ROI to secure the same financing that Middle Eastern peers receive easily.
- Even African pension funds routinely exclude their own continent from “emerging market” portfolios due to global classification systems.
Breaking the Cycle
The report proposes a few targeted, systemic changes:
- Local-currency guarantee facilities to reduce hedging costs, possibly funded by DFIs or philanthropic capital.
- An African Risk Data Consortium to generate and publish real-time, on-the-ground data — countering outdated rating models.
- Long-duration blended finance vehicles, such as 20-year local climate bonds, to match project timelines and lower costs.
And perhaps most provocatively, the report argues that redirecting just 5% of global idle climate VC — around €4 billion — could collapse the African risk premium within a decade.
The Missed Opportunity
If investors knew where to look — and how to listen — the opportunities are staggering.
- Green building materials: Ghana’s Theseus is producing geopolymer concrete blocks that cut emissions by 80%. They’re stuck waiting for buyers.
- Green ammonia: Kenya’s TalusAg is making modular fertilizer plants that need only solar power, air, and water. Farmers could halve costs, but the capital outlay scares off most investors.
- Smarter grids: Nigeria’s Beacon Power is using AI to plug leaks and theft in the power system — problems European grids don’t even have. But utilities lack funding for software upgrades.
- Geothermal carbon removal: Octavia Carbon’s machines run on geothermal heat, making them cost-competitive. But being “first-of-a-kind” makes them too risky for traditional lenders.
A New Playbook for Climate Capital
The RMI report generally lays out a few ways to stop the leak and get capital flowing:
- Local venture studios: Scale up homegrown firms like Delta40 and Kinjani to provide early operational support and capital to promising startups.
- Corporate offtake deals: Major African and global firms — like Dangote, Safaricom, or Holcim — could agree to buy green products (cement, steel, fertilizer), helping startups lock in demand and scale.
“This isn’t about charity,” says Lyndsay Holley Handler of Delta40. “It’s about designing climate tech that’s affordable enough to work everywhere. If it works in Nairobi, it can work in New Delhi or Detroit.”
The Bottom Line
Redirecting just 5% of global climate venture capital could revolutionize African climate tech. That sliver alone would exceed every dollar the continent has received in the past five years combined. But it requires a shift — not just in money, but in mindset.
For now, the startups at Giriraj Business Park continue their search for capital, navigating a maze of application portals, consultant referrals, and noncommittal interest from global funds. And somewhere between the pledges and the pitches, the real future of climate innovation risks falling through the cracks.
Africa isn’t waiting. But it can’t build the future on potential alone.