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Dominic Waughray

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Green Growth Paradigm for Africa's Economy

Posted: 05/02/11 06:00 PM ET

In December 2011, the United Nations annual conference on Climate Change is in Durban, South Africa. Many commentators suggest the negotiations leading up to this event are a chance to put Africa's perspective forward in the climate talks: what will climate change mean for Africa and how should a global framework be organized to help the continent cope?

Rightly, much of this focus will be about finding the money. In particular, how should the new international fund, that was agreed at the Mexican-climate talks in Cancun last year, best be designed to ensure Sub Saharan Africa and other developing regions can make most use of the US$100bn a year that richer countries promised will be available annually by 2020?

The challenge is that, although it sounds like a lot, US$100bn a year simply won't be enough to pay for the transition to a resilient, low carbon economy, even if all the money were just for Africa. Leaving aside the cost required to pay for the damage climate change will cause, US$100bn will not cover the cost of investing in cleaner, more widespread energy systems across the continent. Just within South Africa alone, for example, the South Africa Renewables Initiative (SARI) estimates that building 20 Gigawatts of renewables by 2020, which is still less than 20% of the country's energy mix, would cost in the order of US$50bn. The incremental cost of this program, using the current level of South Africa's feed in tariffs would be as much as US$21 billion, more than currently affordable.

It is clear therefore, that to be of maximum use the US$100bn of overseas assistance on offer within the Green Climate Fund will need to be used to attract other forms of investment into the renewables markets in Africa, particularly from the private sector. In South Africa, SARI is exploring how best to use some public funds from the international community to help bring down the cost of capital that domestic renewables projects face, through the provision of concessionary debt and risk guarantee instruments, so as to change the investment cost equation. It is though these kinds of blended public-private investment activities that US$100bn of public money can be used to draw in a much greater private capital flow from domestic and international markets. Not only does this create an upscale in clean energy investment projects that help to reduce emissions, it also helps with energy access, an important issue for Africa. Many more decentralized solar projects, for example, could be financed, if ways of aggregating investment risk to the private sector can be identified. A further benefit is of course, that these investments would not be delivered as overseas aid, but instead as on-the-balance-sheet investments, which would boost GDP and stimulate international partnerships with the private sector in investment and technology. In this way, emissions reduction targets become reformulated as GDP enhancing "green-growth" strategies -- an economically attractive, growth-orientated path for African countries, and others, to pursue.

The question then becomes what sorts of economic and industrial policies might African countries develop in order to attract these green investment partnerships, and what role can richer countries play through the Green Climate Fund and other instruments, to provide aid funds to help speed this up?

These kinds of "green-growth" investment policy issues for Africa will be discussed at the World Economic Forum in Cape Town in May.

It is important to note of course that green growth is not a low-carbon energy conversation alone. Under business as usual, recent analysis estimates that South Africa will face a 25% gap between the water it needs to grow its economy and provide water services to all who need it, and the safe water resources it has available. In the same way as energy, smarter strategies for water use efficiency and enhanced water access will need to be devised for the next decade or two, drawing on the latest technologies and blending public and private finance to boost the investment flow to the scale and speed required. Water, agriculture and energy policy are of course closely interlinked (think bio-fuels, for example), so this means policy work in one sector to boost investment will require integrated thinking across all. This cross-cutting approach to developing a robust, durable economic growth strategy also lies at the heart of "green growth" and green economy thinking. Consequently, the World Economic Forum in Cape Town in May will be looking at these interlinked issues as well, particularly through the lens of ensuring water security for economic growth.

For all these reasons -- and with the challenge of sustainable consumption also becoming prevalent in the sustainability debate -- exploring how to develop a robust and practical Green Growth paradigm for Africa's economy, which seeks to boost growth and jobs, improve access to energy, food and water, engage the private capital markets and embrace the latest green technologies, is now a central theme for the World Economic Forum's Agenda for Africa. The Forum's summit in May will be an important springboard for these new discussions, especially with the Durban climate talks at the end of the year in mind.

Dominic Waughray is the Senior Director and Head of Environmental Initiatives at the World Economic Forum.