The program “Promotion of Private Investment in Energy Efficiency in the Industrial Sector of Paraguay”, executed by the Development Finance Agency (AFD), supports Small and Medium-sized Enterprises (SMEs) with financial resources and technical capacities to make investments in technology that will enable them to save on energy consumption and greenhouse gas emissions, and consequently improve their cash flow.
SMEs account for 97% of the companies in Paraguay and are responsible for 65% of total employment. However, due to their low levels of investment and scarce access to credit, they face difficulties in accessing new technologies and introducing business models that improve their productivity.
The program envisages project financing for a total amount of USD 40 million, of which the Green Climate Fund (GCF) will finance USD 20 million at concessional rates and the AFD will finance another USD 20 million. The agency accredited to the GCF and through which disbursements to AFD will be made is the Inter-American Development Bank (IDB).
The AFD has a long-standing commitment to supporting SMEs, with products specially designed to meet their needs. The program seeks to modernize AFD’s financial services, offering new technological platforms that will mean a paradigm shift in the relationship with financial intermediaries, suppliers and end clients, and positions AFD as a public entity pioneering green finance and promoting sustainable development through SME financing.
AFD’s efforts have recently focused on the development of “green products” to help achieve the commitments of the national government in its Multilateral Agreements related to the environment. This is why it is working jointly with the IDB, through a Technical Cooperation (TC) scheme, on the design of this program and the management of resources in compliance with GCF.
The impact of the program is strongly conditioned by the achievement of the objectives of the TC, which strongly supported the development of the product, the development of the business platform, and has a decisive role in the development of the capacities of each of the links involved in the production of goods and services of SMEs. In addition, the TC contributed significantly to the strengthening of AFD’s Social and Environmental Risk Management System (ESRMS) recently developed and approved by its Board of Directors.
The programme also has other objectives, such as developing the Energy Efficiency market in Paraguay, which is currently incipient. A valuable effort was made to identify key sectors among SMEs with high impact business potential, limiting adverse social and environmental externalities. Finally, it collaborated in the development of a new product, adjusted to the institution’s existing policies and procedures. It is also contributing technological efforts with the development of the business platform, which is aligned with AFD’s plans to migrate to digital solutions.
In terms of Energy Efficiency, the illustrative case of the locality of Tobatí stands out, which concentrates more than 2000 ceramic and pottery industries, whose critical inputs are clay and biomass for combustion, historically covered mostly by firewood from native forests. The degradation of natural forests and the application of the Zero Deforestation Law in the Eastern Region of the country have contributed to the fact that firewood is becoming scarce, raising local prices. The proposed intervention will stimulate technological investments that consume less firewood to reach the required heat levels, reducing CO2 emissions, diversifying biomass sources in a series of legal and sustainable alternatives, such as reforestation. This will be achieved through the resources of the TC and the financing of the AFD with the development of its new “Energy Efficiency” loan product and the strengthening of its PROFORESTAL product.
The program will be of great importance for the economic reactivation of Paraguay, as the pandemic has had an economic impact on many productive sectors, helping to meet its climate change objectives, increasing the productivity and competitiveness of SMEs, preventing negative social and environmental impacts, and helping to formalize the economy.
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