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Friday, July 12, 2024

Rethinking Economics for Africa through the Climate Action Prism

Throughout 2020 to date, the COVID-19 global emergency has wreaked havoc on economies globally, including in Africa.

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Dr Richard Munang
Dr Richard Munanghttps://www.ebafosa.org/
Dr Richard Munang is a climate change and development expert and is the author of ‘Making Africa Work Through the Power of Innovative Volunteerism.' Follow him on Twitter: @RichardMunang

“It is better that, trials come to you in the beginning, and you find peace afterward than for them to come to you at the end”.

This African proverb aptly contextualizes the core of building economic resilience, which can be summarised in simple terms like “anticipation, readiness, and early preparation”.

At no time has this reality dawned on the African continent more than the past year. The details of Africa’s vulnerability are indeed shocking. Africa is heating up twice as fast as the rest of the globe, and with 20 countries already warming faster than the globe, this means that the safe threshold of 1.5℃ will be breached faster in Africa than in any other region. But climate change is only one red flag.

Throughout 2020 to date, the COVID-19 global emergency has wreaked havoc on economies globally, including in Africa. This devastation, and the responses fostered by different countries, have served to expose Africa’s urgent need for resilient economies. Across the globe, different countries in demonstration of resilience, are offering multiple rounds of stimulus packages. Cumulatively, it is estimated that an excess of $12trillion, equivalent to 12% of global GDP, was issued in stimulus packages. Others estimate that developed countries accessed up to $17trillion in credit lines to fund diverse stimulus packages. This was affordable because this credit was accessible at interest rates as low as 0% in some cases. However, the same convenience was not available for Africa, a region whose needs were pegged at about $100billion in the emergency stimulus. This predicament underscores the low productivity of African economies that makes them high-risk markets for debt capital. The reality of minimal value addition, where the proportion of manufacturing value-added has stagnated at an average of just 10% of GDP since the 1970s, has come to bite Africa in our time of need.

But what is economic productivity? Studies show, that human capital, which is the cumulative ability of citizens to turn challenges into competitive enterprise opportunities that can fetch a premium in domestic, continental, & global markets, is 15 times the value of natural capital, and 4times the value of produced capital. A productive citizenry exchanging knowledge to drive sustainable, contextual local investments in solutions to local problems is, therefore, the bedrock of productive economies. How well public resources are invested to nurture such a population provides the best indicator of how productive our economies can be under the changing climate. But we must first ask where these people are engaged right now. Over 80% of the productive population in Africa is engaged in the informal sector. This means the story of Africa is incomplete without the informal sector. This sector is the chassis on which our economic locomotion thrives. It employs many people in the rural and urban areas and many of them depend on the agro-sector which employs over 60% of the population and leveraging this sector to create inclusive economic opportunities is our own fierce urgency of now. We urgently need to re-orientate our economies leveraging climate action solutions and the following tenets can set us on this path:

First, we must prioritize growing the economy, not distributing its proceeds. Africa’s budgetary expenditure continues to rise, but in recurrent expenditure, not in areas that can catalyze more opportunities. Just to give an example in the climate action area, it is estimated that Africa already spends up to 20% of its total adaptation needs annually, which amounts to $3billion. But the big problem is that this money goes into social expenditure. The urgent need is to ensure these expenditures go into climate investment areas that directly empower the citizens to establish enterprises that deliver competitive solutions to the continent’s challenges while offering a return in economic & financial dividends in addition to the traditional social benefits.

Cooperatives incentivized to offer loans to enable these informal traders to access such effective climate action solutions will go a long way in preserving capital and catalyzing income growth among this critical population whose impact over time is inclusive economic growth and competitiveness from the bottom up that includes most of the population.

Second, youth skills retooling. Over 60% of Africa’s population is young and up to 80% of these youth find work in the informal sector. How these youth can be tapped to become drivers of economic competitiveness is critical. Skills retooling – which is improving, refining, and adapting young people’s skills regardless of their backgrounds, to align with tapping economic opportunities in Africa, is critical. Through an incubation approach, we have developed called Innovative Volunteerism, we are structurally guiding and inspiring young people of different backgrounds to turn their passion into profits and retool their skills in developing and decentralizing climate action solutions that address on-demand areas among communities.

Read Also: How every positive action from each of us can help move the needle

Third, targeted policy incentives, especially fiscal policies play a significant role in shifting market behavior and investments from one area to another. Targeted fiscal incentives will go a long way in shifting both the consumer market as well as entrepreneurs in the informal sector towards climate action solutions such as solar dryers and in the agro-sector specifically in consuming organic foods to create markets in these catalytic areas of Africa’s strength. In addition to exempting VAT on products to excite consumer markets, offering tax holidays for informal sector entrepreneurs who establish enterprises in the catalytic areas to enable them to minimize their tax burden during the formative years of their initiatives will go a long way to attracting enterprise growth that is the foundation of productive competitive economies globally.

What is clear is that policy incentive will accomplish very little if they fall on passionless, purposeless citizens. The bedrock of resilient, productive economics is a population that devises competitive solutions that turn challenges into opportunities. This however calls for a right mindset among the constituency of implementers, and mostly the young people in Africa, and igniting this population calls for non-policy incentives such as skills retooling; incubation facilities that inspire young people to discover their passions and turn them into enterprising solutions that touch many lives. We must know that economic readiness in responding optimally to emergencies is not a knee-jerk reaction, but a process of build-up and readiness over many years. As more emergencies continue to pile on the continent in the future, the only way we will find a reason to smile is if we orchestrate a paradigm shift towards building climate-resilient productive competitive economies that work for all.


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