Creating an Enabling Environment in Africa for Green Growth

Africa has experienced rapid economic growth over the last decade. Annual growth rates across the continent, averaging five to six percent per year, regularly outpaced those of other regions. A significant driver of growth has been the high demand and prices for raw materials. However, macro-economic reforms, greater political stability and urbanization also saw a strengthening of the services sector, a growing middle class and the emergence of pan-African entrepreneurship. Despite these promising developments, progress has been uneven across Africa. Poverty and food security remain pervasive problems. Lack of access to energy, education and infrastructure continue to constrain business growth and economic development. Limited access to skills, markets and technology mean that most enterprises are insufficiently equipped to be competitive in an increasingly globalized market.

A range of regional and global trends has consequences for the sustainability of development pathways in Africa. The global economic crisis has underscored the volatility of markets in an increasingly inter-connected world. Such short-term economic crises are juxtaposed with long-term challenges, such as climate change, which has long been recognized as a threat to achieving the Millennium Development Goals and particularly sustaining progress beyond 2015 (AfDB et al. 2003). The challenge lies in making development in Africa more robust in the face of financial and environmental exogenous shocks and ensuring that economic progress is achieved but not at the cost of eroding ecosystem goods and services, which are the foundation of many Africans’ livelihoods.

A new growth paradigm and a greener development model for Africa consequently need to address a range of socio-economic and environmental issues. Some of these issues are already major constraints today, while others, such as population growth and climate change impacts, will be amplified in effect, if left unaddressed. Many development decisions taken today, such as decisions on transportation and energy infrastructure, have longer-term consequences as they will define and influence development paths.  This represents both a challenge and an opportunity for Africa.

 

Pathways towards Green Growth

Creating an Enabling Environment for Green Growth

Adequate regulatory and policy frameworks need to be put in place. Government regulations and standards will need to provide the overall policy framework to encourage a transition to a green economy. A clear, predictable and stable policy environment can create the confidence required to stimulate private investment. The proactive engagement of government, industry and consumers would enable African countries to participate fully in shaping the norms for environmentally sound goods and services. Regulations and incentives are needed for stimulating green investments and addressing externalities, which have led to an inefficient use of resources.

Engagement of the private sector is key. While public sector is important for paving the way towards a greener economy through improved policies, regulations and institutions, the public sector does not have the fiscal means and the entrepreneurial ability to involve itself in the economy as a producer or trader. A green growth economic model requires the successful engagement of the private sector on a broad scale. This means improving the investment climate for the private sector. It requires among other things, political support, a stable macro-economic and legal environment, transparent, fair and effective regulation, mechanisms to promote specific business models such as public-private partnerships and the availability of concessional funding and grants for project preparation and seed capital.   

Access to information and support for innovation through research and development activities is critical for economic diversification in Africa and identifying opportunities for a greener economy. Information access is critical in the 21st century. For Africa this means expanding backbone fibre optic and satellite systems, GSM networks and mobile phone networks. There is the need to strengthen partnerships, which enable technology transfer and enhance South-South cooperation. Leap-frogging to more efficient technologies and infrastructure will only work if the skill base in Africa is substantially improved.

Predictable access to adequate financing for Green Growth. While efficient gains can be made by transitioning towards a greener economy with no or little extra costs, other efforts require substantial upfront investments. Recent estimates of the cost of putting Africa on a low‐carbon growth pathway are about US$9–12 billion per year by 2015, while the incremental cost of adaptation in Africa is estimated between US$13 – US$19 billion, if proper actions are not taken now (AfDB, 2011). Hence, it is important that the international community sends also clear signals with regards to sustained and adequate funding support.

The approach to green growth would require Africa to pursue economic growth in a more holistic approach while ensuring that Africa’s environment and natural resources are used in a sustainable manner, so that ecosystem goods and services upon which many livelihoods depend are not being eroded any further. In light of the dispersed geographical location of key resources (water, energy, minerals) and the limited size of many national markets, strengthened regional integration will be important for economic growth and a more effective and sustainable management of resources.

Transformative efforts on green growth in Africa should also focus on opportunities for Africa to pursue low carbon development pathways, while meeting the energy needs of a growing population, and enhancing the resilience of livelihoods and economic sector to climate variability and change.  

African Development Bank Group