Climate change poses increasing risks to economic growth and development efforts across the world. Semi-arid regions (SARs) are one of the hotpots that have been identified by the Intergovernmental Panel on Climate Change as being particularly exposed and vulnerable to the impacts of climate change. Indeed, the majority of SARs across the world suffer from the combination of high levels of poverty, lack of development and high climate risk. Many of these issues will be further exacerbated by climate change. In addition, climate change will have significant impacts on economic activity within SARs, as the profits, competitiveness and operations of businesses become affected and production systems are altered to deal with the changing conditions.

While a lot of climate change adaptation research in developing countries and semi-arid areas has focused on households and communities, particularly in rural environments, very little research has focused on the private sector. Yet, the private sector plays a critical role in contributing to developing countries’ growth and development efforts and is increasingly recognised as a key actor that can help society successfully adapt and become more resilient to climate change. Indeed, national governments are placing increasing emphasis on private sector action on climate change adaptation. Nevertheless, there is limited research examining how to promote and facilitate private sector adaptation and in particular how governments can create an enabling environment to stimulate and incentivise domestic private sector adaptation. This is especially true for the private sector in developing countries.

In this paper we address this gap in the adaptation literature by reviewing the key factors required to provide an enabling environment for the private sector, with a focus on adaptation by small and medium enterprises (SMEs) in the SARs of Kenya and Senegal. We focus on SMEs as they form a critical part of the economy in the SARs of developing countries and are highly vulnerable to climate change. We draw insights from a much larger, yet generally separate, literature on enabling environments for private sector development. This literature disaggregates the private sector and highlights key constraints to the development and growth of African SMEs, including deficient infrastructure and evidence of an African gap in access to and use of finance by SMEs. We combine both areas of scholarship to develop an assessment framework to better understand the key elements of an enabling environment for private sector adaptation and apply it to Senegal and Kenya to reveal where improvements are required to create conditions conducive to private sector and SME adaptation. This framework reveals that both Senegal and Kenya have taken action to provide an enabling environment for private sector and SME development and to strengthen the competitiveness of the private sector. Yet, much remains to be done with regards to supporting private sector adaptation to climate change, in particular for SMEs in SARs.

This working paper is part of the Pathways to Resilience in Semi-arid Economies project.

Keep in touch with the Grantham Research Institute at LSE
Sign up to our newsletters and get the latest analysis, research, commentary and details of upcoming events.