Development, Emissions and Money: Financing Green Development in Africa

By, Desmond Molloy SAR ’19

 

The international ramifications of climate change include a fierce debate between developed and developing countries over the responsibility to reduce humanity’s ecological footprint. With a growing global population, African countries are increasingly weighty contributors to the depletion of natural resources from water to clean air to hydrocarbons. But the historical role of industrialized nations such as the United States, United Kingdom and France in resource depletion can turn any attempt to meaningfully address the crisis into an exercise in assigning blame. G-20 member states ask their poorer counterparts to commit to emissions reductions. Leaders from Guinea, Ghana or a host of other former colonized nations accuse developed world politicians of profiting off the destruction of the environment in the past, and point to the need to reduce poverty as a higher priority. To ensure that sustainability initiatives are accompanied by an increase in living standards, African countries need to incorporate sustainable technology into their infrastructure and durable goods, allowing them to obtain more welfare from fewer natural resources. But a shortage of capital and the high barriers to channeling it into the global south, make any attempt to close the capital goods gap a formidable undertaking.

Despite Africans’ relatively low ecological footprint compared to their developing world counterparts, the sheer volume of population growth since the last half of the twentieth century is beginning to strain natural resources. Many commentators have suggested that this is a product of an increasing middle class, which demands more consumable goods. But aging infrastructure and a lack of capacity is also driving resource depletion. In South Africa, civil engineers have warned that leaking pipes and water mains are partially responsible for a multiyear drought (1). The energy sector is even worse off. In a region characterized by economically devastating electrical blackouts, the relatively clean hydropower delivered through underserved grids is often supplemented by costly and CO2-generating diesel generators (2). Even so, 2 in 5 Africans lack a reliable source of electricity, pushing many to emigrate, and regional economies are held back by high energy costs. In recent years, green technology has offered an alternative: a September report from the International Renewable Energy Agency found that increased production and use of small-scale solar panels could potentially reduce households’ electricity bill to US$56 per year (3). This could also free up grid capacity for industrial uses, enabling small-scale manufacturing to finally accelerate.

Any ecofriendly overhaul of African infrastructure and energy technology will require considerable capital investment. If the continent is to avoid dependence on foreign factories for its water pipes and solar panels, it needs more manufacturers of its own. Unfortunately, relatively few entrepreneurs can count on the African banking system to help them purchase plants and equipment and begin hiring workers. Established banks tend to be located in capital cities and primarily serve established firms and the alternatives that have sprung up to replace them do not yet have the reserves needed to meet green technology companies’ demand. In large part, this is because of Africa’s troubled financial past; foreign investors are reluctant to invest in a region perceived as corrupt and prone to default. As a result, international institutions and developed world countries still have an important role to play. Leading development economist Jeffrey Sachs has urged the European Union, the United States and China to extend a low-interest line of credit to African governments seeking to update their infrastructure, an approach that could be replicated for small and medium-sized firms. Others have suggested that Italy, known for its light manufacturing sector and blessed with proximity to the African continent, join China’s existing efforts to kickstart industrialization from Djibouti to Dakar. This partnership could prove especially fruitful; while Italy’s financial sector is currently too weak to provide capital for African firms, the country’s technology sector could integrate existing companies into its global supply chains, giving them the revenue needed to make small improvements to their processes and stock of capital goods. All of these steps would help African business reduce the region’s growing carbon footprint. As the United States turns away from leadership on global environmental policy, the urgency of doing so is more apparent than ever.

  1. Kilian, Anine. “Leaks to blame for South Africa’s major water losses.” Engineering News South Africa, November 14, 2016. Accessed April 14, 2017.
  2. International Renewable Energy Agency. Solar PV in Africa: Costs and Markets.September 2016. Accessed April 14, 2017. https://www.irena.org/DocumentDownloads/Publications/IRENA_Solar_PV_Costs_Africa_2016.pdf.
  3. Conde, Alpha. “Powering Africa’s Future.” Project Syndicate. February 13, 2017. Accessed April 14, 2017.

Photo Credit: International Center for Trade and Sustainable Development