OBAMA'S CHANCE TO FOSTER GREEN AFRICA

A Letter to the Financial Times (published)

One important event in Africa in the past weeks was the 12^th Forum for the African Growth and Opportunity Act (AGOA) held in Addis Ababa from 9-13 August. The annual event brought together senior officials from the United States and AGOA-eligible African countries to discuss a range of trade and investment-related issues. AGOA is said to be the cornerstone of US-Africa economic relations. The 2013 theme was “Sustainable Transformation through Trade and Technology”.

Although AGOA rarely makes the headlines, this year’s meeting requires special attention as the current act is due to expire in 2015 and with only two years to go the details of its renewal are of great importance to the US, to Africa and the world at large. Africa is now the Hopeful Continent and the world’s new growth engine. With the global economy facing a “Great Contraction” Africa’s growth and what it trades to generate that growth are now critical. 

According to official US websites, AGOA enables the 39 eligible sub-Saharan African countries to export most products duty-free to the United States. It provides incentives for African countries to “improve their investment climates...stimulate economic growth... encourage economic integration...reduce corruption...respect human and labour rights and the rule of law...improve infrastructure and harmonize trade standards to help them become more competitive in the global marketplace.” Since AGOA’s inception under Bill Clinton in 2000, African exports to the US have more than quadrupled, and US exports to Sub-Saharan Africa more than tripled.

The increase, however, is clearly not enough for the US. In 2009 China surpassed America as Africa’s top trading partner. In 2011 (the latest figures available) China traded $127.3bn with sub-Sahara Africa (a 15-fold increase from 2000) while US trade was worth $94.3bn. With other emerging markets, such as India, Brazil and Turkey pouring into Africa, the US is very keen to step up its trade relations with the continent. 

In addition to the AGOA renewal this year, US president Barack Obama also launched Trade Africa and Power Africa, two other important initiatives which shows  that U.S. is serious in its engagement with Africa. The success of the Trade and Power initiatives will be depend on how the African Growth and Opportunity Act is improved and enhanced. As Mr Froman pointed out, “these initiatives are vital complements to AGOA, which remains at the heart of our strategy for increasing U.S.-Africa trade and investment.   

The wide coverage of the 2013 AGOA Forum by the Financial Times conveys its significance: “Obama presses for US-Africa trade pact to be renewed” - Aug 5; “Expanding Agoa should be a priority for Africa – and the US”  beyondbrics Aug 9; “US seeks better access to Africa as part of trade pact review” - Aug 1.

(FT articles are available to subscribers only. However, the paper allows 8 free viewings a month by clicking on the relevant link and following instructions.)

Although the idea of a “seamless”, “improved” and “enhanced” Agoa renewal appeared in the FT articles, the main theme of “Sustainable Transformation through Trade and Technology” was not discussed. Neither was it mentioned in America’s two most important speeches on the subject.

US president Barack Obama’s video speech on Agoa acknowledged “Rising“ Africa’s great hospitality and Africa’s great potential. But the president came nowhere near to talking about sustainability or the green economy needed to achieve his goals. The U.S. Trade Representative, Michael Froman, in his speech in Addis Ababa made only one reference to “sustainable development” and one to “sustainable economic growth” without mentioning the green economy as a necessary tool in the process. Neither speeches mentioned trade adapted to cope with climate change, ecological degradation, biodiversity loss or resource depletion, each of which are huge impediments to Africa’s long-term growth.

In the FT’s and most of the other international reporting on the AGOA Forum there were no apparent signs that any renewed agreement would help Africans cope with the enormous challenges facing them in the coming decades. For this reason I wrote a letter to the FT which was published on 15 August under the title:

OBAMA’S CHANCE TO FOSTER GREEN AFRICA

Sir, Any renewal of the African Growth and Opportunity Act (AGOA) must be tailored to the 21st century otherwise a trade war could replace the cold war and Africans will, as usual, be worse off (“US seeks better access to Africa markets as part of pact review”, August 12).

According to your recent reports, Barack Obama believes the AGOA renewal should be “seamless” but also “improved”. Carlos Lopez and Kamel Dervis (Beyond Brics, FT.com August 9) say an “enhanced” AGOA would provide “a powerful drive to deliver [Obama’s] African strategy set out a year ago and would demonstrate US global leadership for years to come”.

What the world’s most promising but most vulnerable continent needs is not only a seamless renewal of the AGOA agreement but a new piece of cloth. President Obama, who entered office on the ticket of “Yes we can” change the way things are done, has a historic opportunity to change the way we do things in Africa. Being half-African, he is better qualified than any other world leader. Trade with Africa based on sustainable growth and opportunities is the key. To begin, Mr Obama should listen to what Africans are saying.

As you report, African representatives are arguing for a minimum 10-year extension of the deal to encourage long-term investments instead of piecemeal timeframes that make it difficult to plan. African leaders in their Consensus Statement to Rio+20 last June made it clear that their only viable route to long-term, sustainable production, consumption and trade is through the green economy. In this regard, Item 24 calls on “the international community to put an international investment strategy in place to facilitate [Africa’s] transition towards a green economy”.

Mr Obama’s November 2008 victory coincided with the launch of the Global Green New Deal, which he wholeheartedly supported. While, as a result of the GGND, growth in the global green economy is outstripping growth in the “brown” and promises to accelerate, a great deal more urgently needs to be done. Some sort of Green Deal with rising Africa, beginning with an improved and enhanced Agoa – perhaps an African Green Growth and Opportunity Act – is an opportunity for Mr Obama to demonstrate the type of global leadership the world needs.

END OF LETTER

Perhaps it was too much to expect Mr Obama or Mr Froman to talk about Africa and Trade and the Green Economy. After all, as has been discussed elsewhere in this blog, most major Africa summits and conferences taking place this year do not have the green economy on their programs. However, there is one glimmer of hope from the proceedings in Addis Ababa that suggest how the AGOA renewal might be tailored to the 21^st century.

At the Civil Society Session (CSO) of the AGOA Forum, Vicky B. McPherson a U.S. attorney with the international law firm Greenberg Traurig LLP, spoke on a panel at a session called “Achieving an African Green Growth through Trade and Technology.” She and other panellists discussed various topics including: the pathway to sustainable development through Green Growth strategies and policies; Achieving Green Growth through strengthening Africa’s renewable energy resources through technical assistance and capacity building; and trade and technology as a means of attaining Green Growth, among others.

The big question is how to achieve these goals. For a “seamless, improved and enhanced” AGOA to deliver “Sustainable Transformation through Trade and Technology” three fundamental issues need to be looked at first:

Institutional frameworks. The institutions inherited by Africans at independence were hopelessly inadequate to deal with the complexities of sustainable development in such challenging conditions as Africa. Although considerable reforms have been made over the past 20 years, much more can be done. Further institutional reforms needed to “Achieve an African Green Growth through Trade and Technology” could start with the elevation of environmental authorities in Africa’s 54 countries, most of which have no power to make the necessary changes. The institutional frameworks in Africa that have delivered progress on the Millennium Development Goals could also be strengthened and adapted to carry out the necessary work on the Sustainable Development Goals, a major theme of Rio+20, set to replace the MDGs in 2015.

Green accounting. Of all the systems introduced to Africa from the outside, the one that needs reforming most urgently is the accounting system based on gross domestic product because it tells us nothing about sustainability. Since the early 1990s economists have been exploring new forms of national sustainability accounting which include more thorough cost-benefit analyses as well as national wealth accounting. Backed by the UN, the World Bank, the African Development Bank, a number of African countries  and other major global institutions, this has been called green GDP or, at Rio+20, GDP plus. Without this it seems impossible for Africa’s green vision to be realised and impossible for Africans to build dynamic and sustainable economies that would help with the Great Rebalancing of the global economy from brown to green. 

Green investment plans. Africa’s Consensus Statement to Rio+20 in June 2012, called on the international community ‘to put an international investment strategy into place to facilitate the transition towards a green economy.’ This represents an opportunity for Africa. Instead of waiting for the international community, preoccupied as it is with multiple crises, to deliver a meaningful investment strategy on time, Africans are well qualified to propose their own. In Africa’s complex and challenging conditions a more integrated approach to planning is needed where systems are developed rather than individual projects. Organizational tools like Integrated River Basin Management and Biosphere Reserves could put together the frameworks for green investment plans. After 20 years of green development experience Africans are in a unique position to design mega green investment strategies as a counter-balance to the mega ‘brown’ strategies of the current model.  

Although Trade Africa, Power Africa and a renewed African Growth and Opportunity Act offer great promise for Africans and Americans, it seems surprising that Mr Obama has not yet spoken of America’s role in greening Africa, particularly as his green vision when he was elected gave so many so much hope. It is surprising also as Americans are among the most advanced green thinkers and are making great experiments in the evolving green economy. Being half African Mr Obama was expected to do greater things in Africa than any other American leader. He has all the tools at his disposal and the window of opportunity is wide open.

At the end of his AGOA speech is a hint as to why Mr Obama has not mentioned green growth and opportunities in Africa. He could be waiting for Africans to speak when he says: “The discussions you have here [in Addis Ababa] will help chart our way forward.” The 5 day AGOA Forum in Addis Ababa was only the start of discussions that will help Mr Obama chart his way forward into Africa, the last frontier. Africa’s green voices must now speak out.

AFRICA’S COMING CRASH AND HOW THE GREEN ECONOMY CAN PREVENT IT

The future of the world is green and when we plan for our future we must do so on the basis of green technologies.  All the more so because we have not heavily invested in old technologies and we are as it were investing in a green field - Meles Zenawi, late Prime Minister of Ethiopia in a key note speech delivered to the 6^th African Economic Conference on “Green Economy and Structural Transformation in Africa" — 25/10/11.

If anyone needed assurance that Africa is rising and that great opportunities lay ahead they need only look at the unprecedented global coverage of the continent during the first half of 2013. Through a record number of articles, comments, analyses, editorials, special reports, summits, conferences, meetings, debates, films, interviews and more, enough information and opinion has been assembled to show that Africa is indeed the Hopeful Continent. From resources to demographics Africa has the most promising fundamentals of any other region. With the rest of the world facing slower growth, the rise of Africa is now vital to the global economy. The message is clear: anyone not investing in Africa will be missing ‘the next big thing’.

 

Yet throughout the various ‘Africa Rising’ campaigns another message comes through. Although ‘this time is different’ in Africa, unfortunately so much is still the same and there is still no guarantee of success. Over and over we are reminded that the last great frontier for investment may not deliver what is expected, that the next big thing may be not so big after all. President Obama summed it up on his recent visit: Africa is rising, but on a fragile foundation.

One of the strongest warnings concerning Africa’s uncertainty comes from one of the most bullish of foreign analysts of Africa, Richard Walker writing in the June edition of African Business Magazine – ‘Africa’s coming crash - and how to avoid it’. Walker, who contributed to the 2012 book ‘The Fastest Billion – The Story Behind Africa’s Economic Revolution’, explains how Africa has greater opportunities for investors than any other region. ‘If you want growth, dynamism and innovation, Africa is the place to find it,’ he writes. And like many others he asserts, ‘Africa’s time is now’.

Yet as Afro-optimism turns into Afro-euphoria, when asked the question, what on earth could go wrong, Walker replies, ‘Unfortunately, the answer is plenty’. He doesn’t mince his words, ‘Africa is heading for a crash....It has happened before and it can happen again...and when it comes – if it comes – 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’. Although there are multiple ‘danger points’, as Walker calls them, he focuses on ‘the triumvirate of big risk factors’: commodities, infrastructure and China - Africa’s ‘Black Swans’.    

Africa’s previous economic booms, like today’s, were driven by demand for Africa’s resources and each time they ended with a crash when demand fell according to economic cycles. While demand for Africa’s resources, in a resource-constrained world, over the long-term will remain strong, over the shorter-term recent high prices will naturally taper off as the global economy slows and rebalances. Although some economists believe the current commodity supercycle will continue and Africa’s growth rates will remain high, Walker advises us not to ‘rule out a commodity price crash that could turn Africa’s economic prospects upside down.’

Infrastructure is the second pressure point. Walker says that Africa’s infrastructure needs represent the biggest potential building boom in history, bigger even than China’s, yet the sums required are so huge (an estimated $100 billion a year for the next ten years) no one knows where the money will come from. Africa’s current infrastructure is already under-maintained, Walker adds, with a warning to Africans that if they don’t fix what they already have ‘the promises of future growth will crumble alongside your roads and bridges.’ Africa, he says, ‘will have to stop treating infrastructure as a resource to be consumed, and start treating it as an investment to be managed.’

The third danger is China. China has been investing in Africa for decades, but the ‘big push’ into the continent by the world’s second largest economy over the past ten years has created not only one of the greatest trade and investment surges in history but also a new economic dependency for Africa.  Many countries rely on Chinese inward investment to maintain growth levels and many commodity producers are particularly exposed to China’s export demand. In investment terms, says Walker, this is known as ‘concentration risk: it means that when China sneezes, Africa catches a cold.’ No one knows whether China’s landing will be soft or hard. Walker thinks it will probably ‘nose-dive’ in which case Africa had better be prepared.

The time to take measures to prevent Africa’s crash is now, he writes, ‘while the going is still good.’ Otherwise, ‘as a famous African once said, things may just fall apart.’ The big question is, what measures are needed to keep things together?

Walker’s has a remedy for ending the China dependency which if managed well could partially help solve the other two: ‘diversify exports, diversify investment sources and especially make sure there is enough surplus in domestic budgets to cover emergency spending to fill the demand gap [for when China slows].’

But it is not only the dependency aspect of China that puts Africa at risk. It is the development model China is following in Africa, and the type of economy it creates, that is the most fundamental threat on Africa’s horizon. It has the characteristics of the system that has been used in Africa since independence and it has failed before and can fail again. 

The ‘China model’ in Africa today dates from the 1980s and like in the 1980s is subject to a great number of externalities or ‘hidden costs’, only this time investments and development strategies are on far greater scales with potentially far greater hidden costs. If the China model in China, as the country’s former leaders often reminded us, is ‘unstable, unbalanced, uncoordinated and unsustainable’ in Africa’s far more complex and challenging conditions, these hidden costs will be greatly magnified.

Essentially, Chinese investments in Africa and the thinking behind them are little different to those of the Western model that went before. They are high carbon, resource intensive, ecologically degrading, socially divisive and therefore unsustainable. They are adding to what is now called a ‘brown’ economy, an economy that is dividing societies and destroying the planet. Debt-fuelled, short term and speculative, based on one-size-fits-all projects and trickle-down economics, ‘this time’ in Africa is not so different after all.

And it is not only the Chinese who are stuck in the 20th century. Most investors from the emerging economies pouring into Africa's 'gold rush' are following the same system, as are most of the new and old investors from the West. Business-as-usual is still the dominant force on the continent. The Fastest Billion are in danger of becoming victims of the Fastest Bubble.

The brown economy perpetuates the illusion that Africa can catch up with China trying to catch up with the West on their unsustainable production and consumption path. How many times have we heard of Africa being 'the New Asia' or of 'African Lions overtaking Asian Tigers?' Anyone investing in Africa who does not account for the hidden environmental, social and economic costs to the country is investing in an unsustainable system which is running out of time. The economic transformation and liberalisation of Africa is not possible without turning the brown economy to green.

The good news is that over the past 20 years, since the failure of the post-colonial system, Africa has been building the foundations on which green economies can be built. In the five years since the darkest days of the financial crisis Africa’s leaders have been expanding their green economies and calling for more green investment. The African Development Bank, the continent’s main triple-A-rated institution, is behind this drive. Africa’s Consensus Statement to the UN’s Rio+20 ‘Earth Summit’ in June 2012 confirmed the need to go green by calling on the international community ‘to put an international investment strategy into place to facilitate [Africa’s] transition towards a green economy.’

This call represents an opportunity for Africa. Instead of waiting for the international community, preoccupied as it is with multiple crises, to deliver a meaningful green investment strategy on time, Africa, as the new growth engine full of ‘dynamism and innovation’, is in a unique position to propose its own. Its green growth potential is colossal and within reach.

The first step towards such an investment strategy could be a green stimulus for Africa from the international community, a new kind of Green New Deal, not to rescue the continent but to ensure that it progresses on the green path to sustainability in ways that will help rebalance the global economy.

Three essential and interconnected areas need to be studied for a green stimulus to be effective in Africa, each of which were major themes of Rio+20: institutional frameworks, green accounting and sustainable development goals. For each of these Africa has distinct advantages.

The institutions inherited by Africans at independence were hopelessly inadequate for sustainable development in the world’s most challenging continent. Although considerable reforms have been made over the past 20 years, much more can be done. Africa’s Least Developed status, including its least developed institutions, is now Africa’s greatest advantage in creating new frameworks for the 21^st century.

It is now clear that gross domestic product (GDP) as the world’s main measure of economic performance tells us nothing about sustainability. In the past 20 years great progress has been made on green accounting, or green GDP. Africa’s natural wealth and underdeveloped brown economy are other advantages in developing new systems. Now is the time to experiment with green accounting in Africa before the brown economy becomes more entrenched.

The African politicians’ mantra ‘development at all costs’ is no longer valid. Africa’s development goals must be sustainable. The Sustainable Development Goals (SDGs) which are due to replace the MDGs in 2015 are another group of powerful tools for establishing green economies that can lead to sustainability. Against terrible odds, since 2000 Africa’s success in the MDGs gives it a huge advantage in influencing the framework of the SDGs. 

Africa's most fundamental problem is systemic. Reforming institutions, developing green accounting and having sustainable development goals are three essential steps towards adapting the system to suit Africa's unique challenges. 

Concerns for Africa come not only from western observers like Richard Walker. At the World Economic Forum Africa 2012 held in Addis Ababa, a senior Chinese official warned Africans: "Do not necessarily do what we did". Policies of "sheer economic growth" should be avoided, he said. "We now suffer pollution and an unequal distribution of wealth and opportunities...You have a clean sheet of paper here. Try to write something beautiful." 

Over the past 20 years the first chapter of ‘something beautiful’ in Africa has been written. It could be called Africa and the Green Economy. The next chapter can now be written. Everything is ready. As Wangari Maathai, one of Africa’s great green pioneers often said: ‘We know what to do: why don’t we do it?’