TIME FOR AFRICANS TO MAKE GREEN GROWTH PLANS

The following is another version of a previous post, ‘Africa’s coming crash and how the green economy can prevent it’ (link). It is prompted by the currency crisis in the emerging economies which is likely to have a negative impact on Africa. It is based on a letter sent to the Financial Times on August 27 which was not published. (For a list of published letters on Africa and the Green Economy click here.)

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As the 21^st century progresses and the global economy lurches from one crisis to the next, one thing is clear: the time between crises is getting shorter. No sooner do we hear that America’s recovery is ‘on more solid ground’ and Europe is ‘turning a corner’ than a new crisis erupts in the emerging market economies. The new urgency is a currency crisis in many countries including India, Indonesia, Turkey, South Africa and Brazil. A resulting slow-down in these increasingly important high growth economies will stifle growth globally and could yet derail the US/European recoveries. (China, whose currency is not as vulnerable as other emerging economies, has its ‘debt dragon’ which is another crisis waiting to happen.) 

In July the Economist and its sister newspaper the Financial Times began reporting, sometimes on a daily basis, the new crisis. Although there are many underlying reasons the currency crisis was sparked off by news of the US Federal Reserve Bank’s announcement in May that it may begin reducing, or ‘tapering’, its purchase of government bonds, i.e. its third quantitive easing programme, nicknamed QE3. This extraordinary monetary measure to support the US recovery has effectively been pumping $85 billion a month into the global economy since early 2012, on top of the trillions of dollars' worth of other US stimulus packages since the beginning of the great crash five years ago.

With historically low interest rates in the US much of the monthly $85 billion has been borrowed by speculators who invested in the emerging economies’ currencies and stock markets where returns were much higher. The Fed’s plan to taper the stimulus and the expected effect on US rates has caused vast quantities of this ‘hot money’ to exit the emerging economies back to the US. David Pilling, writing in the FT on 21 August, said ‘the prospect of a gradual withdrawal of stimulus by the US Federal Reserve and a rise in American interest rates...has produced a giant sucking sound as risk capital retreats [from emerging markets]’.

The central banks of the effected countries have managed to patch things up but much more needs to be done to create more resilient and sustainable economies in the developing world. Throughout the boom years of the past decade policy makers in these countries, like those in the advanced economies, were content to rest on their laurels (or, as some say, were reluctant to turn the music off while everyone was dancing) and failed to enact sufficient reforms to cope with the realities of a rapidly changing and increasingly volatile world.

Meanwhile, although Africa was hailed earlier this year as the Hopeful Continent and new global growth engine, most notably in the FT/Economist ‘Africa Rising’ campaign, nothing was being said about how the continent might be affected by the new crisis. This omission was striking particularly as Africa has become increasingly reliant on its new ‘south-south’ partners in the emerging economies. For this lack of discussion, I wrote a letter to the FT on August 27. The following letter was not published:

Sir,

As concerns mount for the global economy, (‘Call for aggressive action over emerging markets crisis’ – Aug 25), one big question needs to be asked: What about Rising Africa? The world’s most hopeful continent is still the most vulnerable on many fronts, especially another economic crisis.

At the start of the FT/Economist ‘Africa Rising’ campaign earlier this year, Africa’s uncertainty was summed up in the FT by Sebastian Mallaby on Jan 1: ‘Africa is hooked on growth’, he wrote, with the warning, ‘but there is no guarantee of future progress’. Six months later Barack Obama on his June tour of Africa also summed up the concerns. ‘Africa is rising’, he said, ‘but on a fragile foundation’. In ‘IMF outlook: what happened to Africa?’ (beyondbrics July 9) we were reminded that, ‘despite all the Africa rising headlines, the region’s rapid growth will not be without some bumps along the way.’ How big the bumps will be is critical.

Perhaps the gravest warning of the bumps ahead comes from Richard Walker, one of the most bullish of Africa analysts who contributed to The Fastest Billion – the story behind Africa’s economic revolution published last year. Writing in this June’s edition of Africa Business magazine Mr Walker says, ‘Africa is heading for a crash, it has happened before and it can happen again, and when it happens – if it happens – it will be very, very big.’ But he is quick to add that it can be avoided if Africa’s policy makers and business leaders ‘manage the moment, see the threats that are on the horizon, and act on them’.

Mr Walker identifies three major ‘danger points’: reliance on commodity exports, a huge infrastructure deficit and China dependency. Although ‘this time is different’ in Africa, when it comes to threats on the horizon, today’s are no different to those in previous booms except that the dependency was not on China but on the West.

But what is different this time is that African leaders see the threats on the horizon and are trying to act on them. Twenty years ago, standing in the wreckage of the post-colonial development model, Africans launched new green development strategies to rebuild their ravaged continent. In the past 5 years leading Africans including late Ethiopian prime minister Meles Zenawi, former UN secretary-general Kofi Anan and African Development Bank president Donald Kaberuka, have been calling for green growth as critical to Africa's future. At Rio+20 last June African leaders called on the international community to work on a ‘green investment strategy to facilitate Africa’s transition to the green economy’.

But so far, the international decision makers are not listening. Perhaps more worrying is that most of this year’s record number of major conferences on Africa, including the Economist’s summit 'Africa Unchained: the Next Generation’ summit in February and the FT’s ‘Private Equity in Africa' summit in October, do not even have the green economy in their programs.

With the international community, preoccupied as it is with multiple crises, unlikely to deliver a green investment strategy in time to prevent Africa's coming crash, this is an historic opportunity for Africans to propose their own. The African Development Bank’s Green Growth Initiative is a good place to start planning. Ethiopia’s Climate Resilient Green Economy Strategy is another. There are many more.

At Davos in January, IMF Managing Director Christine Lagarde said, ‘2013 will be a make or break year’. With only four months to go (now only three) and another crisis never far away, Africans have no time to lose in making green growth plans. If they don’t, as Richard Walker warns, drawing on the title of Chinua Achebe’s most famous book, ‘things might just fall apart.’ If this happens Africa’s crash will not be contained.

END OF LETTER

In addition to threats outlined by Mr Walker there are many others on Africa’s horizons as recent attacks by Muslim extremists in Kenya and Nigeria attest. There is also the danger that African policy makers, like their counterparts in the emerging economies, will continue to enjoy the fruits of the current boom and fail to introduce urgently needed structural reforms to deal with these mounting threats. One of the great disadvantages of spreading democracy in Africa is that elected leaders, with only 4-5 year terms, do not have the time to bring about the necessary reforms. Short-term thinking also might lure Africans into excessive consumption instead of saving and investing for the future (Nigerians are the second highest consumers of champagne after the French, and Kenyans have a taste for premium brand, and premium priced, Scotch).

However, despite the multiple danger points in Africa, the leaders and people of the Hopeful Continent are well positioned to manage the moment, see the threats on the horizon and act on them. In the past twenty years sufficient foundations have been laid for Africans to develop investment strategies to facilitate their transition to the green economy. Or, in the words of a recent World Bank report on Europe and Central Asia, the transition from ‘Brown to Green’.

Africa has the right credentials to lead the way to more stability and resilience. Africa’s Consensus Statement to Rio+20 in June 2012 demonstrates that governments realise there is no other way forward. African economists, financiers and bankers are ready to work towards a green economy in Africa. The African Development Bank has placed inclusive growth and the transition to green growth at the center of its new Ten-Year Strategy (2013-2022). Africa’s scientists have sufficient knowledge. Africa’s engineers and technicians know the technologies they need. Africa’s businesses see the need to go green and are matching this with high levels of innovation and responsibility. Many of Africa’s foreign partners are investing in Africa’s green, green revolution. Organisation and management tools are being developed. Africa’s demographic dividend is unequalled. The countless green success stories around the continent today - initiatives, innovations and inspirations - are Africa's untold story.

If the green economy is the only viable pathway towards developing sustainable and resilient economies in each of Africa’s 54 countries, the pace at which they move forward must be accelerated. The brown economy, or business-as-usual, in Africa is expanding at an unprecedented rate. The scale and complexity of the challenges cannot be over-estimated and will require a coordinated, multi-pronged effort. At the historic Lem, or Green, Meeting in Addis Ababa in June 1992, the late Meles Zenawi, Ethiopia’s leader for 21 years and one of Africa’s green pioneers, called this ‘a multi-discipline, broad-spectrum approach [to development] for there are no piecemeal solutions to the problems at hand’.

The route towards green economies in Africa will therefore need to be approached from different angles beginning with the measurement of green economies, creating green institutions and developing sustainability frameworks.

Measuring green economies. Over the past 20 years, attempts have been made by governments around the world to measure green growth including experiments with green accounting, i.e. green gross domestic product. Since the launch of the UN’s Green Economy Initiative in October 2008, a vast amount of work has been done to further our understanding of how to measure a green economy. Much more, however, needs to be done. Africa’s greatest comparative advantage in a global economy that must eventually become green if we are to avert catastrophe is in its underdeveloped brown economies or lack of brown development. In this sense, the so-called Least Developed Countries are in the best position to develop something new.  

Creating green institutions. Institution building has always been seen as a prerequisite to African stability. However, African institutions must be designed and developed to meet the needs and challenges of the 21^st century. The current institutions, inherited from the colonial powers, reflect the lack of understanding of Africa by foreigners and need to be rapidly restructured and updated. For instance, many countries do not even have a minister for environment whereas traditional (pre-colonial) African institutions, such as Elders, would put the environment central to survival. Without greener institutions the transition to a green and therefore sustainable economy in Africa will be impossible. 

Developing sustainability frameworks. Green growth plans will only work if there is a level playing field for investors. In other words green investors who include social and environmental costs in their accounting will be at a disadvantage to a brown investor who ignores such externalities. A suitable framework for beginning to think about green growth planning, particularly in Africa’s vast and sometimes remote and challenging areas, is the river basin. The river basin is an independent ecological unit where the actions (positive or negative) of one development affect the outcomes of others. The river basin in Africa is where traditional interdependency has been practiced for millennia and sustainability has been most successful. Integrated River basin Management (Meles Zenawi's broad spectrum approach) has been well developed over the past 20 years and is one of the best tools available to Africans for making green growth plans.

A glance at articles on the Economist website (six free articles a week allowed) shows that the global economy is entering another unknown unknown - a cooling down of the emerging economies after 15 years of unprecedented expansion which has driven global growth: ‘Welcome to the post-BRICS world’ (06/05); ‘When giants slow down’ (07/07); ‘The BRICS: Life after the boom’ (video 25/07); ‘Emerging economies - the Great Deceleration’ (27/07); ‘Catching up is hard to do’ (31/07). In the recent on-line debate by the paper (20/08 – 31/08): ‘The BRIC economies – is the fastest period of emerging market growth behind us?’ 59 per cent of voters thought YES it is over and 41 per cent thought NO.

Although there is a general belief that the emerging economies are slowing there is no fear yet of them crashing like they did in the Asian financial crisis of 1997. These countries are much better prepared. But is Africa prepared for a such a slow down? Although there was a temporary respite for the emerging economies in September due to the US Federal Reserve keeping the printing presses running, what happens when the tapering of QE3 finally begins and Africa's new partners take another, bigger hit? What happens if China, on whom Africa depends so much, has the much-feared 'hard landing'?

Perhaps the most important question we should all be asking is whether Africa, through a series of coordinated and integrated green growth plans, can become a green growth engine the global economy urgently needs?