Economic Update

Published 04 Nov 2020

As many countries turn to debt to help fund their recoveries from the coronavirus pandemic, an increasing number of governments and companies are looking at sustainability-focused financial instruments to fund major projects.

To take an example, in late September Egypt issued its inaugural sovereign green bond – the first in the MENA region. Officials said the five-year, $750m bond, which attracted significant interest from Europe and the US, would go towards funding a series of sustainable projects in the country.

On October 18 the government announced a shortlist of projects to be funded by the initial green bond offering. The $500m list featured five projects: the construction of a monorail connecting the New Administrative Capital to 6th of October City; a water treatment plant in the Arab Al Madabegh area; a water desalination plant in Dabaa; a sewage treatment plant east of Alexandria; and a water treatment facility in Giza.

These projects are part of a broader pipeline of green developments highlighted by officials.

According to a statement released by the Ministry of Finance on September 28, Egypt had a portfolio of eligible green projects worth $1.9bn, with 16% dedicated to renewable energy, 19% to clean transport, 26% to sustainable water and sanitation management, and 39% to reducing and controlling pollution.

Green bonds on the rise

Egypt’s decision to issue its first sovereign green bond comes amid an increase in overall green bond issuance throughout 2020.

According to data compiled by industry analysts, some $200bn in green bonds were issued globally in the first nine months of the year, a 12% increase on 2019. While figures lagged behind 2019 levels for much of the year, 2020’s issuances look set to eclipse last year’s record-setting result following a surge in the third quarter.

Significant developments took place in Germany, which issued its inaugural sovereign green bond in September, valued at €6.5bn, and plans to launch a second later in November, taking its total to €10.5bn.

Elsewhere in Europe, Sweden and Hungary also launched their first green bonds this year.

In terms of emerging markets, in June the Indonesian government issued a $2.5bn green sukuk (Islamic bond), its third venture into the sustainable debt market.

Corporate entities within emerging markets have also turned to green bonds to fund new developments.

In September Saudi Electricity Company, which is 80% owned by the government and has a monopoly on electricity transmission in the country, raised $1.3bn with a green sukuk, the first of its kind in the Kingdom. In the same month Qatar National Bank became the first company to issue a green bond in the country, raising $600m.

Meanwhile, building on its government’s use of sovereign green bonds, in October Indonesian power company Star Energy Geothermal sold the country’s first green corporate bond with an investment-grade rating, raising $1.1bn.

Renewable energy appeal

Although the economic fallout of Covid-19 has affected overall energy investment this year, the development of renewable energy projects has remained remarkably consistent when compared to the hydrocarbons industry.

The “World Energy Outlook 2020” report, released by Paris-based International Energy Agency (IEA) in October, predicts that global energy investment will fall by 18.3% this year, with total energy demand dropping by 5.3%.

While the report forecasts that investment in oil, coal and gas will ease by 8.5%, 6.7% and 3.3%, respectively, investment in renewable projects is projected to increase by 0.9%.

“I see solar becoming the new king of the world’s electricity markets. Based on today’s policy settings, it is on track to set new records for deployment every year after 2022,” said Fatih Birol, executive director of the IEA.

As OBG has detailed, emerging markets have been among those shaping this trend towards renewable energy following the outbreak of Covid-19.

“From a policy perspective, every government should try to promote green energy more aggressively. Covid-19 has cleared a path for clean energy by changing lifestyles,” Bundit Sapianchai, president and CEO of Thai renewable energy company BCPG, told OBG in an interview in June.

“From an investment perspective, in March 2020 share prices of companies across the energy industry fell by more than 50% from their pre-Covid-19 prices. There is a strong consensus that green energy is the future emerging segment for the industry,” he added. “Thus, this is an opportunity for green funds and green investors to buy shares at a cheaper price.”