BY AKINWUMI A. ADESINA, NGOZI OKONJO-IWEALA, VERA SONGWE, IBRAHIM ASSANE MAYAKI
Almost two years into the COVID-19 pandemic, the unequal nature of the global response to the crisis is glaringly obvious. Whereas very few African countries have managed to spend the equivalent of even 1% of their GDP to combat this virtually unprecedented health emergency, Western economies have mustered over $10 trillion, or 30% of their combined GDP, to tackle it. Europe and the United States have fully vaccinated, respectively, 75% and 70% of their adult populations against COVID-19, but fewer than 6% of Africans have been vaccinated. And while some Western countries are already administering booster shots, Africa cannot get initial doses.
This systemic inequity is equally evident in efforts to address the climate crisis. Climate disasters, like viruses, know no boundaries. But whereas governments in the Global North respond to such events by borrowing on capital markets at negligible cost in order to finance stimulus and investment packages, African countries must rely on either a trickle of liquidity through debt-suspension initiatives, aid pledges, or exorbitantly expensive capital-market funding. None of these options currently provide these economies with the upfront capital investment they need to improve their long-term prospects.
As world leaders head to Glasgow for the United Nations Climate Change Conference (COP26), Africa needs decisive collective action rather than more encouraging words. We therefore propose a strategic financial and trade package that can transform climate inequality into inclusiveness by ensuring a transformative shift of resources from historic greenhouse-gas (GHG) emitters to Africa.
Our plan rests on four pillars. First, developed economies must keep the promise they made in the 2015 Paris climate agreement to deliver $100 billion per year to help cover developing countries’ adaptation and transition costs. After all, the commitments that developing countries made in Paris were conditional on this pledge. Failure to fulfill this overdue commitment now, with half of the $100 billion earmarked for adaptation costs, will undermine the very principle of multilateral action. It is a provision in an international agreement, and it must be honored.
The fact that the developed world mobilized $10 trillion to counter the pandemic in 2020 alone demonstrates just how small an amount $100 billion per year really is. Yet, in that same period, official development assistance increased by only 3.5% in real terms.
The second pillar is to align financial markets with the Paris agreement’s goals. Mainstreaming the impact of climate change in investment decisions is critical, and judicious deployment of private capital in green sectors will transform African countries and developing economies in general. To that end, the Glasgow Financial Alliance for Net Zero, chaired by former Bank of England Governor Mark Carney, has brought together firms with a combined $90 trillion in assets.
There must now be an urgent and determined effort to channel this private finance into growing climate-friendly sectors in Africa and other developing countries. With that in mind, the UN Economic Commission for Africa earlier this year proposed a liquidity and sustainability facility that aims to reduce borrowing costs linked to green investments by developing a repurchasing (“repo”) market for the continent. The initiative, which ideally will be financed through seed funding of $3 billion in special drawing rights (the International Monetary Fund’s reserve asset), is intended to de-risk private investments in Africa and help the region increase its share – currently less than 1% – of the global green bond market.
The Republic of South Africa recently issued a R3 billion ($196 million) green bond to refinance its energy sector. Such issuances are an example of the type of investment that is possible by unlocking bond markets for Africa. We need to make such investments the rule rather than the exception.
In addition, the African Development Bank (AfDB) Group has proposed establishing an African Financial Stability Mechanism. Such a scheme will help prevent future financial shocks in Africa – the only continent without a Regional Financing Arrangement – from having spillover effects.
The third pillar is to provide the significant resources Africa needs to enable its economies to adapt to global warming. Climate change is costing the continent $7-15 billion annually and threatens both food security and the use of hydropower. But Sub-Saharan Africa, which accounts for less than 4% of global GHG emissions, receives just 5% of total climate finance outside the OECD.
Instead of simply waiting for such financing to materialize, Africa is tackling climate adaptation head-on with homegrown solutions. The AfDB currently devotes 63% of its climate finance to adaptation, the highest share of any multilateral financial institution, and has committed to double such funding to $25 billion by 2025. The AfDB and the Global Center on Adaptation have also created the Africa Adaptation Acceleration Program (AAAP) to help scale up bankable adaptation investments in the region. The mobilization of $25 billion via the AAAP will be a first step toward investing in a green recovery for Africa.
Lastly, any solution to climate change must address trade, the lifeblood of the global economy. The key to ending our current economic malaise is to ensure continued openness and predictability, including by committing to global trade rules that are aligned with the Paris agreement’s goals.
Regional blocs such as the newly formed African Continental Free Trade Area can provide an impetus for hardwiring our commitment to low-carbon development. We must recognize Africa’s specific needs, acknowledge the continent’s vulnerability to climate change, and identify the regions and communities where its consequences have caused the most harm.
Next year’s UN climate summit, COP27, will take place in Africa, and we look forward to welcoming the world. But developed countries must fulfill their longstanding climate promises to the region well before then – starting in Glasgow.
This article was taken from Project Syndicate