
A new stress test on African banking systems raises a stark warning: lenders could face collapse if environmental degradation continues to harm agriculture and forestry businesses.
The analysis, conducted in Zambia, Ghana, Rwanda, Morocco, and Mauritius, found that firms in these sectors could see profits slashed in half by 2050 due to factors like deforestation and pollinator loss.
Oswald Mungule, a senior analyst at the Bank of Zambia involved in the study, emphasizes the critical role of nature for Africa’s economy.
“Ignoring these nature-related risks could lead to systemic breakdowns and financial contagion within Africa’s banking sector,” Mungule warns.
This alarming finding comes before the UN’s COP16 biodiversity conference in Colombia this October, where world leaders will be under immense pressure to address the destruction of vital ecosystems.
This stress test, the first of its kind since the 2022 COP15 agreement in Toronto, builds upon an earlier analysis and highlights the economic destabilization that biodiversity loss can cause.
The World Economic Forum estimates that nearly two-thirds of Africa’s economic output depends heavily or moderately on the natural environment.
The stress tests, coordinated by the African Natural Capital Alliance (ANCA) in collaboration with FSD Africa and McKinsey, identified agriculture, mining, and food sectors as the most vulnerable.
“Without significant action over the next 25 years, Ghana’s agriculture sector and Zambia’s mining industry could face profit declines of 50% and 32%, respectively,” explains Dorothy Maseke, head of ANCA and FSD Africa Nature Lead.
“This decline would create a dangerous feedback loop, jeopardizing the stability of banks.”
Maseke concludes, “The potential consequences are dire. We need to take positive action to protect nature for the sake of Africa’s economic health and financial stability.”