A stress test of five of Africa’s banking systems has found some lenders in the region could face collapse if nature loss slashes the profits of agriculture and forestry firms they have lent to.
The analysis in Zambia, Ghana, Rwanda, Morocco and Mauritius showed that firms in certain sectors could see profits as much as halve over the next two decades if impacts like deforestation and the loss of pollinators like bees continue to be ignored.
“Africa is reliant on nature…if we don’t coordinate in terms of how we are handling the risks that are coming from nature, from climate change, we could start seeing some systemic risks and contagion effects on the financial sector in Africa,” said Oswald Mungule, a senior analyst at Bank of Zambia who was involved in the study.
The warning comes ahead of the U.N.’s COP16 biodiversity conference in Colombia in October where world leaders are under growing pressure to prevent further destruction of key ecosystems.
Expanding on an initial analysis done in 2022, the new stress test – shared exclusively with Reuters – is the first since a global deal struck at COP15 in Toronto that year to look at how economically destabilising biodiversity loss could be.
The World Economic Forum estimates that nearly two-thirds of Africa’s economic output is either highly or moderately dependent on the natural environment.
The stress tests, coordinated by the African Natural Capital Alliance (ANCA) alongside British development agency FSD Africa and consulting firm McKinsey, showed the agriculture, mining and food sectors faced the most acute challenges.
If little is done over the next 25 years, Ghana’s agriculture firms and Zambia’s mining firms are expected to suffer a 50% and 32% drop respectively in their profits, creating negative feedback loops for banks.
“The cumulative expected credit losses (across the five countries) could increase by up to 21% by 2050 if no nature positive actions are taken,” Dorothy Maseke head of ANCA and FSD Africa Nature Lead said.
“It paints a very dire picture.”