Figure of the week: Education participation rates in Africa increase, with some caveats
On September 18, the African Union, in collaboration with the United Nations Children’s Fund (UNICEF) released the report, “Transforming Education in Africa,” an evidence-based overview of education in the region. The report highlights progress the continent has made on education indicators, such as participation rates, while also illustrating challenges that remain. As Africa has the youngest population in the world—nearly 800 million Africans are under the age of 25, with 677 million between ages 3 and 24—accelerating investment in education is vital for countries to take full benefit of their human capital.
Overall, the report reveals both progress and regression when it comes to education in the region. For example, although Africa has made progress in increasing children’s participation in school (Figure 1), the authors speculate that the absolute number of out-of-school children has actually increased since 2010, given rapid population growth.
Figure 1. Share of out-of-school children in Africa, by age group
Source: “Transforming Education in Africa,” African Union, 2021.
More specifically, according to the report, approximately 42 million children of primary and secondary school age are not enrolled in school. Regionally, western Africa accounts for the highest number of out-of-school children: 2 out of 5 out-of-school children in sub-Saharan Africa live in western Africa (Figure 2). Eastern Africa follows with 34 percent of Africa’s out-of-school children.
Figure 2. Distribution of out-of-school children of primary and secondary school age in Africa by region
Source: “Transforming Education in Africa,” African Union, 2021.
More specifically, in western Africa, 27 percent of primary school-age children, 37 percent of lower-secondary school-age children, and 56 percent of upper-secondary school-age children were not enrolled in school in 2019.
The report states that bottlenecks and barriers to improving education include broader educational policies and legal frameworks and conflict and security. Specifically, within policies and legal frameworks, the authors state that, although basic education is usually compulsory, legal measures for implementation are lacking, which creates a disconnect between expected learning outcomes and effective implementation of cost-effective interventions. Demand barriers, such as the imbalance between education and labor needs can prevent children attending school on a regular basis, hindering education improvement. On the supply side, teacher shortages can lead to large class sizes where child-centered learning is difficult. Finally, conflict and insecurity situations, especially when learning institutions are targeted, inhibit children from having access to learning.
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To combat these barriers the authors recommend, among other actions, investigating the underlying reasons individuals fail to participate in education to design policy, investing in development of more resilient education systems, and improving education data and management information systems. The authors state that a substantial number of students drop out of school. Investigating the reasoning behind this could aid in policy creation that motivates students to stay in school. To address lack of resiliency in education systems, the authors say that taking a well-rounded approach that includes assessment, management, and monitoring and evaluation tools will aid in making sure that education systems function continuously. Finally, the authors state that evidenced-based information is key to education systems making progress, and so encourage further research.
For the full report, see here. Also check out “Improving learning and life skills for marginalized children: Scaling the Learner Guide Program in Tanzania” by the Brookings Institution’s Center for Universal Education for more on innovations in education in the region.
Why we need increased investment in food and agriculture in developing countries and international organizations that support them
The Sustainable Development Goals are off track. The prospects of the SDGs being realized by 2030 are bleak. The rapid pace of consistent decline in poverty and hunger until 2015 had slowed even before COVID-19. Often overlooked is the fact that much of that reduction in poverty and hunger occurred in China and Southeast Asia. A once-in-a-century global tragedy, COVID has been particularly hard on the world’s poor, compounded by severe impacts of climate change. Migrant labor has returned to rural areas and structural transformation has registered a big setback, particularly in countries in South Asia and sub-Saharan Africa already lagging in movements out of agriculture. The result is increasing dependence of vulnerable populations on agricultural and rural employment. Decline in child mortality and other indicators of child poverty have similarly slowed, concurrently with a slower dietary transition in the patterns of food consumption. Incidence of obesity is growing and is associated with consumption of cheap junk food. The consequence is increased incidence of noncommunicable diseases such as cancer, diabetes, and heart disease.
To address these complex challenges, strengthened international cooperation backed by financial resources is more urgent than ever. Since their establishment, five big international organizations have played key roles in contributing to food and agricultural development: The World Bank and International Development Organization have been the largest source of investment in food and agriculture; the Food and Agriculture Organization of the United Nations is the only organization with a holistic mandate for food, agriculture, natural resources, information, norms and standards; the World Food Program is the largest humanitarian organization for emergencies logistics, delivery of food or cash in a situation where the number of displaced people has skyrocketed to 75 million; CGIAR is the largest scientific organization for research on food security (lately including nutrition); the International Fund for Agricultural Development’s investment focus is on marginal populations and women.
But collectively their resources are now miniscule compared to the trillions of dollars needed annually in investments to achieve transformational change in food and agriculture to reduce poverty and hunger. While developing-countries’ own resources are increasingly important, they are also nowhere near sufficient for such transformational change.
Related Content
In a just issued, freely downloadable book, “Food for All: International Organizations and the Transformation of Agriculture” published by Oxford University Press (September 2021), Lele, Agarwal, Baldwin, and Goswami address food and nutrition security issues in two parts.
One part of the book is a historical account of when and how the “big five” major international organizations have contributed to world food needs since their establishment: the flow of their financial resources to developing countries, the evolution in the nature of their activities and impacts on outcomes—food security standards and norms, policy changes, institutions, human capital, and technology. The second part of the book examines how the concept of structural transformation has evolved since W. Arthur Lewis. It pays attention to the role that small/medium- and large-scale farmers are playing in the transformation process, and asks which of the 130 odd countries included in the transformation process have done well, and which have not.
Key findings
Developing countries now have the major responsibility to invest in food and agriculture and related growth-enhancing sectors, including education, health, infrastructure, and research and development. Increasingly a multi-sectoral strategy is needed. Absent such a strategy, in the face of climate change, many countries are facing gross underinvestment in growth-enhancing sectors, slowing agricultural productivity growth, and premature industrialization. Notable exceptions are China, and, for different reasons, Vietnam and Bangladesh. These three countries are also more export-oriented.
While incidence of hunger has increased, the shift to new highly processed forms of food through nutrition transition has reduced dietary quality. Transformative changes are needed in the food systems to achieve nutritious food for all. Current income levels are not sufficient to achieve nutritious food for 3 billion people. The role of international organizations has declined relative to the growing needs because their own resources have not grown commensurately with the needs.
The way forward
Get domestic policy strategy frameworks right and implement them consistently.
Increase domestic human and institutional capacity as the central focus.
Abandon autarchical policies.
Mobilize domestic and international capital in support of employment-oriented sectors.
Support international organizations by understanding their complex financing history.
Why we need increased investment in food and agriculture in developing countries and international organizations that support them
The Sustainable Development Goals are off track. The prospects of the SDGs being realized by 2030 are bleak. The rapid pace of consistent decline in poverty and hunger until 2015 had slowed even before COVID-19. Often overlooked is the fact that much of that reduction in poverty and hunger occurred in China and Southeast Asia. A once-in-a-century global tragedy, COVID has been particularly hard on the world’s poor, compounded by severe impacts of climate change. Migrant labor has returned to rural areas and structural transformation has registered a big setback, particularly in countries in South Asia and sub-Saharan Africa already lagging in movements out of agriculture. The result is increasing dependence of vulnerable populations on agricultural and rural employment. Decline in child mortality and other indicators of child poverty have similarly slowed, concurrently with a slower dietary transition in the patterns of food consumption. Incidence of obesity is growing and is associated with consumption of cheap junk food. The consequence is increased incidence of noncommunicable diseases such as cancer, diabetes, and heart disease.
To address these complex challenges, strengthened international cooperation backed by financial resources is more urgent than ever. Since their establishment, five big international organizations have played key roles in contributing to food and agricultural development: The World Bank and International Development Organization have been the largest source of investment in food and agriculture; the Food and Agriculture Organization of the United Nations is the only organization with a holistic mandate for food, agriculture, natural resources, information, norms and standards; the World Food Program is the largest humanitarian organization for emergencies logistics, delivery of food or cash in a situation where the number of displaced people has skyrocketed to 75 million; CGIAR is the largest scientific organization for research on food security (lately including nutrition); the International Fund for Agricultural Development’s investment focus is on marginal populations and women.
But collectively their resources are now miniscule compared to the trillions of dollars needed annually in investments to achieve transformational change in food and agriculture to reduce poverty and hunger. While developing-countries’ own resources are increasingly important, they are also nowhere near sufficient for such transformational change.
Related Content
In a just issued, freely downloadable book, “Food for All: International Organizations and the Transformation of Agriculture” published by Oxford University Press (September 2021), Lele, Agarwal, Baldwin, and Goswami address food and nutrition security issues in two parts.
One part of the book is a historical account of when and how the “big five” major international organizations have contributed to world food needs since their establishment: the flow of their financial resources to developing countries, the evolution in the nature of their activities and impacts on outcomes—food security standards and norms, policy changes, institutions, human capital, and technology. The second part of the book examines how the concept of structural transformation has evolved since W. Arthur Lewis. It pays attention to the role that small/medium- and large-scale farmers are playing in the transformation process, and asks which of the 130 odd countries included in the transformation process have done well, and which have not.
Key findings
Developing countries now have the major responsibility to invest in food and agriculture and related growth-enhancing sectors, including education, health, infrastructure, and research and development. Increasingly a multi-sectoral strategy is needed. Absent such a strategy, in the face of climate change, many countries are facing gross underinvestment in growth-enhancing sectors, slowing agricultural productivity growth, and premature deindustrialization. Notable exceptions are China, and, for different reasons, Vietnam and Bangladesh. These three countries are also more export-oriented.
While incidence of hunger has increased, the shift to new highly processed forms of food through nutrition transition has reduced dietary quality. Transformative changes are needed in the food systems to achieve nutritious food for all. Current income levels are not sufficient to achieve nutritious food for 3 billion people. The role of international organizations has declined relative to the growing needs because their own resources have not grown commensurately with the needs.
The way forward
Get domestic policy strategy frameworks right and implement them consistently.
Increase domestic human and institutional capacity as the central focus.
Abandon autarchical policies.
Mobilize domestic and international capital in support of employment-oriented sectors.
Support international organizations by understanding their complex financing history.
Key strategies to accelerate Africa’s post-COVID recovery
The COVID-19 pandemic brought unprecedented disruptions to Africa—reducing earnings and increasing poverty and food insecurity as well as leading the region into its first recession in 25 years. While the global economic effects of the pandemic have started to recede as Western and Asian countries recover, 2021 is still turning out to be a difficult year for Africa. Moreover, the region will face even riskier external and internal environments in the future.
Thus, African leaders must now adopt strategies for a resilient recovery post-COVID-19 as we discuss in our recent report. Resiliency—a country’s capability to recover from shocks and adapt flexibly to stressors—not only protects economic and social gains, but also facilitates economic transformation and sustainable employment. In a “resilient” country, fewer assets are lost when a shock occurs, so more sustained improvements in economic welfare occur for the same amount of investment. Post-COVID-19 African economic development policy needs, therefore, to be centered around both improving resiliency and accelerating transformation to realize sustained economic welfare gains. Strategies for resiliency should build on the COVID-19 experience, helping households, communities, and countries to strengthen coping measures that reduce losses thus allowing for a faster recovery, and investing to adapt to and mitigate the effects of future shocks. Adapting to a “new normal” can help resilient countries to grow and transform at a faster rate.
While successful policies will be context-specific, two key strategies for enhancing a country’s resiliency deserve consideration.
Deregulation for the growth of large firms
Since the entrance and growth of large firms increase a country’s resilient economic transformation—because large firms, with more assets, are inherently more resilient and are better equipped to endure economic storms—policymakers should prioritize policies for facilitating the entrance and growth of such firms, through domestic deregulation and encouraging foreign direct investment (FDI). Notably, large firms in Africa (employing more than 100 people) tend to start large and grow from there. Evidence shows that their use of newer technology, combined with the fact that they pay higher wages and are more likely to export, supports both transformation and resilience, which is why large firms are more likely to survive and grow. A company in a developing country that begins with fewer than 20 employees has a low chance of surviving its first five years, and a less than 1 percent chance of ever employing over 100 people if it does survive.
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Importantly, regulation can stifle innovation, productivity, good job creation, and resilience as a firm is unable to adapt to a changing world economy. Therefore, deregulation can encourage investment by helping large firms receive equal and impartial treatment from the government, which is necessary to grow, create good jobs, and take advantage of scale opportunities.
Support agricultural productivity-led growth and the development of the agro-food system
A second strategy leading to increased resilience and transformation is to improve agricultural productivity-led growth and the development of the agro-food system. African economic strategy and policy discourse have long underestimated the role that agriculture can play in a resilient and sustained transformation. Yet recent evidence shows that, in 2020, the agricultural sector outperformed the broader economy exactly because it was more resilient. This result continued a 20-year trend where the average annual growth rate of Africa’s agricultural production was faster than any other region in the world. Research has clearly demonstrated that, at lower income levels, agricultural sector growth and development is critical for poverty reduction, and less poor households are inherently more resilient.
If Africa can continue this trend, primarily by raising productivity on existing land and increasing climate resilience, the future for African agriculture is bright. As the world’s population grows, demand for food increases: In fact, the African continent will account for 80 percent of the world’s population growth between now and 2050. These new consumers are also expected to be richer, demanding higher-value food products (processed foods, fruits, and vegetables). At the same time, available farmland the world over is diminishing due to urbanization—offering an opportunity for Africa, with its vast quantity of arable land—to step in. Moreover, demand for food within Africa offers significant potential for intra-African trade. The importance of the agricultural sector in building a more resilient economy is clear.
Countries should move quickly to stay ahead of the risks, while building for a more resilient future. Achieving resilient, sustainable growth will not be easy, and will require the following: African food value chains becoming more internationally competitive; raising on-farm productivity; lowering the costs of production and distribution to cities and small towns; facilitating private investments in logistics and processing; reducing nontariff trade barriers between African countries; and, most importantly, successfully implementing appropriate adaptation policies for climate-vulnerable regions.
The African continent will face many challenges in the post-COVID-19 world. Past strategies focused on transformation as a main outcome, but COVID-19 has highlighted the role resilience plays as an equally important economic outcome. Therefore, African countries’ economic development goals need to strive to achieve these dual objectives. These goals can be further advanced by the two key strategies provided in this article. Importantly, success in both of these strategies would improve employment opportunities across Africa and strengthen poverty reduction at a time when progress on both has stagnated.
Key strategies to accelerate Africa’s post-COVID recovery
The COVID-19 pandemic brought unprecedented disruptions to Africa—reducing earnings and increasing poverty and food insecurity as well as leading the region into its first recession in 25 years. While the global economic effects of the pandemic have started to recede as Western and Asian countries recover, 2021 is still turning out to be a difficult year for Africa. Moreover, the region will face even riskier external and internal environments in the future.
Thus, African leaders must now adopt strategies for a resilient recovery post-COVID-19 as we discuss in our recent report. Resiliency—a country’s capability to recover from shocks and adapt flexibly to stressors—not only protects economic and social gains, but also facilitates economic transformation and sustainable employment. In a “resilient” country, fewer assets are lost when a shock occurs, so more sustained improvements in economic welfare occur for the same amount of investment. Post-COVID-19 African economic development policy needs, therefore, to be centered around both improving resiliency and accelerating transformation to realize sustained economic welfare gains. Strategies for resiliency should build on the COVID-19 experience, helping households, communities, and countries to strengthen coping measures that reduce losses thus allowing for a faster recovery, and investing to adapt to and mitigate the effects of future shocks. Adapting to a “new normal” can help resilient countries to grow and transform at a faster rate.
While successful policies will be context-specific, two key strategies for enhancing a country’s resiliency deserve consideration.
Deregulation for the growth of large firms
Since the entrance and growth of large firms increase a country’s resilient economic transformation—because large firms, with more assets, are inherently more resilient and are better equipped to endure economic storms—policymakers should prioritize policies for facilitating the entrance and growth of such firms, through domestic deregulation and encouraging foreign direct investment (FDI). Notably, large firms in Africa (employing more than 100 people) tend to start large and grow from there. Evidence shows that their use of newer technology, combined with the fact that they pay higher wages and are more likely to export, supports both transformation and resilience, which is why large firms are more likely to survive and grow. A company in a developing country that begins with fewer than 20 employees has a low chance of surviving its first five years, and a less than 1 percent chance of ever employing over 100 people if it does survive.
Related Content
Importantly, regulation can stifle innovation, productivity, good job creation, and resilience as a firm is unable to adapt to a changing world economy. Therefore, deregulation can encourage investment by helping large firms receive equal and impartial treatment from the government, which is necessary to grow, create good jobs, and take advantage of scale opportunities.
Support agricultural productivity-led growth and the development of the agro-food system
A second strategy leading to increased resilience and transformation is to improve agricultural productivity-led growth and the development of the agro-food system. African economic strategy and policy discourse have long underestimated the role that agriculture can play in a resilient and sustained transformation. Yet recent evidence shows that, in 2020, the agricultural sector outperformed the broader economy exactly because it was more resilient. This result continued a 20-year trend where the average annual growth rate of Africa’s agricultural production was faster than any other region in the world. Research has clearly demonstrated that, at lower income levels, agricultural sector growth and development is critical for poverty reduction, and less poor households are inherently more resilient.
If Africa can continue this trend, primarily by raising productivity on existing land and increasing climate resilience, the future for African agriculture is bright. As the world’s population grows, demand for food increases: In fact, the African continent will account for 80 percent of the world’s population growth between now and 2050. These new consumers are also expected to be richer, demanding higher-value food products (processed foods, fruits, and vegetables). At the same time, available farmland the world over is diminishing due to urbanization—offering an opportunity for Africa, with its vast quantity of arable land—to step in. Moreover, demand for food within Africa offers significant potential for intra-African trade. The importance of the agricultural sector in building a more resilient economy is clear.
Countries should move quickly to stay ahead of the risks, while building for a more resilient future. Achieving resilient, sustainable growth will not be easy, and will require the following: African food value chains becoming more internationally competitive; raising on-farm productivity; lowering the costs of production and distribution to cities and small towns; facilitating private investments in logistics and processing; reducing nontariff trade barriers between African countries; and, most importantly, successfully implementing appropriate adaptation policies for climate-vulnerable regions.
The African continent will face many challenges in the post-COVID-19 world. Past strategies focused on transformation as a main outcome, but COVID-19 has highlighted the role resilience plays as an equally important economic outcome. Therefore, African countries’ economic development goals need to strive to achieve these dual objectives. These goals can be further advanced by the two key strategies provided in this article. Importantly, success in both of these strategies would improve employment opportunities across Africa and strengthen poverty reduction at a time when progress on both has stagnated.
Enlightened climate policy for Africa
As the world convenes in Glasgow for the 26th United Nations Climate Change Conference of Parties (COP26), it is time to recognize Africa’s role in averting a climate disaster without compromising the continent’s growth and poverty reduction. The world needs to transition away from fossil fuels. But access to electricity is a human right as enshrined in sustainable development goal 7. Electric power is vital for any economy to advance, and relegating African countries to greater poverty is not the solution to the global climate crisis.
The world must transition away from the fuels that powered industrialization in Europe, the U.S., and Asia. Today, coal still accounts for up to 38 percent of electricity generation worldwide, with China, India, the U.S., and the EU remaining the world’s largest consumers of coal. At the same time, international financing institutions are restricting investment in electric power projects in Africa to wind and solar on grounds of environmental concerns. Africa’s current energy demand is estimated at 700 TW, which is 4,000 times the 175 GW of wind and solar capacity the entire world added in 2020. Africa cannot industrialize on wind and solar energy alone.
In sub-Saharan Africa, 12 million new people enter the workforce every year. They cannot run successful businesses in the dark. Today, nearly 600 million Africans lack access to electric power, a number that the International Energy Agency (IEA) projects will actually increase by 30 million due to the COVID-19 pandemic. To create jobs for Africa’s burgeoning youth population, we need to find ways to power the continent’s industrialization.
The world is facing an existential climate crisis and must come together in solidarity to stave off the potentially devastating impacts, but leaving 600 million Africans in the dark is not an option.
Importantly, Africa bears the least responsibility for the world’s climate crisis but faces its most severe consequences. Forty-eight sub-Saharan African countries outside of South Africa are responsible for just 0.55 percent of cumulative CO2 emissions. Yet, 7 of the 10 countries most vulnerable to climate change are in Africa.
Still, Africa will play a major role in solving the global crisis. The Congo Basin is the world’s second-largest rainforest and vital to stabilizing the world’s climate, absorbing 1.2 billion tons of CO2 each year. Without the Congo Basin and the Amazon, the world would be warming much more quickly.
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The global transition to renewable energy will mean exponentially scaling up the production of batteries, electric vehicles (EVs), and other renewable energy systems, which require Africa’s mineral resources. For example, the Democratic Republic of the Congo (DRC), accounts for 70 percent of the world’s cobalt, the mineral vital to battery production. Cobalt demand is expected to double by 2030. Conversely, 84 million people (80 percent of the total population) in the DRC could still lack access to electric power in 2030.
We believe that we can achieve the global emission reduction targets without constraining Africa’s development. To power Africa’s economic growth and prevent the worst consequences of climate change, we propose a four-point agenda for action:
Utilize the African Continental Free Trade Agreement (AfCFTA). The AfCFTA will create the world’s largest free trade zone by integrating 54 African countries with a combined population of more than 1 billion people and a gross domestic product of more than $3.4 trillion. Africa’s commitment to lowering intra-African trade barriers can attract more private sector investment with larger, connected market opportunities.
Leverage green economic opportunities. Increased demand for electric vehicles, critical minerals, and renewable energy systems is an opportunity for Africa to capture larger portions of supply chains in the new green economy. Nations and firms can collaborate across borders to create a pipeline of bankable power projects to attract investment. Increasing local manufacturing and production capacity for resources, materials, and value-added products vital to green technology will create jobs locally.
Adopt just development finance. The large-scale power projects needed to industrialize economies are capital-intensive and often require investments from development finance institutions. Development finance institution funding should catalyze private sector resources. While we agree on the environmental and economic justification for not financing new coal-fired plants, they should not limit support for natural gas, hydro, and geothermal power generation projects. This policy creates an unjust burden on those economies that require a variety of sources to increase access and build resilience into their power infrastructure. It is hypocritical of the EU, the U.S., and China to utilize fossil fuels while effectively denying others the means to lift themselves out of poverty.
Embrace proportionate responsibility. China, the EU, and the U.S. emit over 40 percent of total global greenhouse gases, while all of Africa emits 7 percent. Prioritizing the transition to renewables and imposing higher emission reduction requirements in the EU, U.S., and China will ease the burden on those nations that still need a variety of power generation methods to increase energy access.
The world is facing an existential climate crisis and must come together in solidarity to stave off the potentially devastating impacts, but leaving 600 million Africans in the dark is not an option. We must avert a climate disaster and expand energy access in Africa at the same time.
Enlightened climate policy for Africa
As the world convenes in Glasgow for the 26th United Nations Climate Change Conference of Parties (COP26), it is time to recognize Africa’s role in averting a climate disaster without compromising the continent’s growth and poverty reduction. The world needs to transition away from fossil fuels. But access to electricity is a human right as enshrined in sustainable development goal 7. Electric power is vital for any economy to advance, and relegating African countries to greater poverty is not the solution to the global climate crisis.
The world must transition away from the fuels that powered industrialization in Europe, the U.S., and Asia. Today, coal still accounts for up to 38 percent of electricity generation worldwide, with China, India, the U.S., and the EU remaining the world’s largest consumers of coal. At the same time, international financing institutions are restricting investment in electric power projects in Africa to wind and solar on grounds of environmental concerns. Africa’s current energy demand is estimated at 700 TW, which is 4,000 times the 175 GW of wind and solar capacity the entire world added in 2020. Africa cannot industrialize on wind and solar energy alone.
In sub-Saharan Africa, 12 million new people enter the workforce every year. They cannot run successful businesses in the dark. Today, nearly 600 million Africans lack access to electric power, a number that the International Energy Agency (IEA) projects will actually increase by 30 million due to the COVID-19 pandemic. To create jobs for Africa’s burgeoning youth population, we need to find ways to power the continent’s industrialization.
The world is facing an existential climate crisis and must come together in solidarity to stave off the potentially devastating impacts, but leaving 600 million Africans in the dark is not an option.
Importantly, Africa bears the least responsibility for the world’s climate crisis but faces its most severe consequences. Forty-eight sub-Saharan African countries outside of South Africa are responsible for just 0.55 percent of cumulative CO2 emissions. Yet, 7 of the 10 countries most vulnerable to climate change are in Africa.
Still, Africa will play a major role in solving the global crisis. The Congo Basin is the world’s second-largest rainforest and vital to stabilizing the world’s climate, absorbing 1.2 billion tons of CO2 each year. Without the Congo Basin and the Amazon, the world would be warming much more quickly.
Related Content
The global transition to renewable energy will mean exponentially scaling up the production of batteries, electric vehicles (EVs), and other renewable energy systems, which require Africa’s mineral resources. For example, the Democratic Republic of the Congo (DRC), accounts for 70 percent of the world’s cobalt, the mineral vital to battery production. Cobalt demand is expected to double by 2030. Conversely, 84 million people (80 percent of the total population) in the DRC could still lack access to electric power in 2030.
We believe that we can achieve the global emission reduction targets without constraining Africa’s development. To power Africa’s economic growth and prevent the worst consequences of climate change, we propose a four-point agenda for action:
Utilize the African Continental Free Trade Agreement (AfCFTA). The AfCFTA will create the world’s largest free trade zone by integrating 54 African countries with a combined population of more than 1 billion people and a gross domestic product of more than $3.4 trillion. Africa’s commitment to lowering intra-African trade barriers can attract more private sector investment with larger, connected market opportunities.
Leverage green economic opportunities. Increased demand for electric vehicles, critical minerals, and renewable energy systems is an opportunity for Africa to capture larger portions of supply chains in the new green economy. Nations and firms can collaborate across borders to create a pipeline of bankable power projects to attract investment. Increasing local manufacturing and production capacity for resources, materials, and value-added products vital to green technology will create jobs locally.
Adopt just development finance. The large-scale power projects needed to industrialize economies are capital-intensive and often require investments from development finance institutions. Development finance institution funding should catalyze private sector resources. While we agree on the environmental and economic justification for not financing new coal-fired plants, they should not limit support for natural gas, hydro, and geothermal power generation projects. This policy creates an unjust burden on those economies that require a variety of sources to increase access and build resilience into their power infrastructure. It is hypocritical of the EU, the U.S., and China to utilize fossil fuels while effectively denying others the means to lift themselves out of poverty.
Embrace proportionate responsibility. China, the EU, and the U.S. emit over 40 percent of total global greenhouse gases, while all of Africa emits 7 percent. Prioritizing the transition to renewables and imposing higher emission reduction requirements in the EU, U.S., and China will ease the burden on those nations that still need a variety of power generation methods to increase energy access.
The world is facing an existential climate crisis and must come together in solidarity to stave off the potentially devastating impacts, but leaving 600 million Africans in the dark is not an option. We must avert a climate disaster and expand energy access in Africa at the same time.
Africa in the news: Energy and climate finance updates, Mozambique’s debt write-off, and US COVID-19 vaccine donation
Africa proposes expanding and tracking climate finance; Egypt and Greece plan to link electrical grids; South Africa seeks low-cost financing for clean energy
Frustrated with a lack of climate-related funding from wealthy nations, Africa’s lead climate negotiator proposed this week to build a new system to track climate finance contributions by country. Indeed, funding has fallen short of the 2006 agreement to raise $100 billion per year for climate change-related financing by 2020. From the existing pool, African countries only received 26 percent of the funding in 2016-2019, compared to 43 percent on average by Asian countries. African countries are now pushing to scale up funding tenfold by 2030 for global climate change mitigation and adaptation finance, calling the $100 billion package a political commitment and “not based on the real needs of developing countries to tackle climate change.”
Following the signing of an agreement on October 14, 2021 between Egypt and Greece to construct undersea interconnectors, transmission cables used to link electrical grids between countries, the Greek Prime Minister Kyriakos Mitsotakis pledged on Tuesday to connect Egypt with the European Union’s electricity market via an undersea cable network running beneath the Mediterranean Sea. Although formal details of the project have not been released, Prime Minister Mitsotakis is confident that connecting Egypt’s energy grid to Greece, and ultimately Europe, will promote energy security during times of global turbulence in the energy market and energy diversification.
In related energy news, South Africa continues its search for low-cost financing to develop its clean energy infrastructure and decommission coal-burning power plants. The world’s 12th largest carbon emitter seeks 400 billion rand ($27.6 billion) of electricity infrastructure for its energy transition, earmarking 180 billion rand for cleaner energy technology and 120 billion rand for transmission gear. The rest of the funding will go toward transformers, substations, and electrical distribution technology. With more than 80 percent of South Africa’s electricity generated by burning coal, the state energy company, Eskom, plans to decommission between 8,000 to 12,000 megawatts of coal-derived electricity over the next decade and replace this electrical capacity with other energy sources such as wind, photovoltaic, and natural gas.
Credit Suisse to write off $200 in Mozambican debt after defrauding prosecutors
Regulators announced on Tuesday, October 19, that Credit Suisse will forgive $200 million worth of Mozambican debt as part of a settlement with UK, Swiss, and U.S. authorities due to corruption issues. The regulators alleged that Credit Suisse employees received and paid bribes while they arranged industry loans totaling $1.3 billion. According to U.S. prosecutors, three Credit Suisse bankers, two middlemen, and three Mozambican government officials diverted at least $200 million of the loans for their private use. The debt write-off is part of a settlement agreement with regulators that includes a $175 million fine to the U.S. Justice Department, a $99 million fine to the U.S. Securities and Exchange Commission (SEC), and a $200 million fine to Britain’s Financial Conduct Authority. The SEC indicated on Tuesday that the Credit Suisse staff and their intermediaries have been indicted by the U.S, Department of Justice.
On Thursday, October 21, the Budget Monitoring Forum (FMO), an independent public finance organization based in Mozambique, called Credit Suisse’s offer insufficient and instead demanded the “full cancellation of illegal debts.” As of Friday, October 21, Mozambican officials have yet to comment publicly on the debt forgiveness.
US announces COVID-19 vaccine donations for Africa as South Africa rejects Sputnik V
On October 14, U.S. President Biden met with President Kenyatta of Kenya where Biden promised an additional donation of 17 million doses of the Johnson and Johnson (J&J) vaccine to the African Union . Indeed, this announcement is timely as the World Health Organization (WHO) announced in September that in order to fully vaccinate 70 percent of the continent by September 2022, COVID-19 vaccine shipments must increase from 20 million per month to 150 million.
In other related news, South Africa’s drug regulator has rejected the Russian Sputnik V vaccine due to safety concerns. According to the Associated Press, regulators asked the makers of Sputnik V for data proving the vaccine’s safety but their request was not suitably addressed. Sputnik V is currently being reviewed for authorization by WHO and the European Medicines Agency. Both AstraZeneca and J&J have been approved in South Africa.
Africa in the news: Energy and climate finance updates, Mozambique’s debt write-off, and US COVID-19 vaccine donation
Africa proposes expanding and tracking climate finance; Egypt and Greece plan to link electrical grids; South Africa seeks low-cost financing for clean energy
Frustrated with a lack of climate-related funding from wealthy nations, Africa’s lead climate negotiator proposed this week to build a new system to track climate finance contributions by country. Indeed, funding has fallen short of the 2006 agreement to raise $100 billion per year for climate change-related financing by 2020. From the existing pool, African countries only received 26 percent of the funding in 2016-2019, compared to 43 percent on average by Asian countries. African countries are now pushing to scale up funding tenfold by 2030 for global climate change mitigation and adaptation finance, calling the $100 billion package a political commitment and “not based on the real needs of developing countries to tackle climate change.”
Tamara White
Research and Project Assistant – Global Economy and Development, Africa Growth Initiative
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Following the signing of an agreement on October 14, 2021 between Egypt and Greece to construct undersea interconnectors, transmission cables used to link electrical grids between countries, the Greek Prime Minister Kyriakos Mitsotakis pledged on Tuesday to connect Egypt with the European Union’s electricity market via an undersea cable network running beneath the Mediterranean Sea. Although formal details of the project have not been released, Prime Minister Mitsotakis is confident that connecting Egypt’s energy grid to Greece, and ultimately Europe, will promote energy security during times of global turbulence in the energy market and energy diversification.
In related energy news, South Africa continues its search for low-cost financing to develop its clean energy infrastructure and decommission coal-burning power plants. The world’s 12th largest carbon emitter seeks 400 billion rand ($27.6 billion) of electricity infrastructure for its energy transition, earmarking 180 billion rand for cleaner energy technology and 120 billion rand for transmission gear. The rest of the funding will go toward transformers, substations, and electrical distribution technology. With more than 80 percent of South Africa’s electricity generated by burning coal, the state energy company, Eskom, plans to decommission between 8,000 to 12,000 megawatts of coal-derived electricity over the next decade and replace this electrical capacity with other energy sources such as wind, photovoltaic, and natural gas.
Credit Suisse to write off $200 in Mozambican debt after defrauding prosecutors
Regulators announced on Tuesday, October 19, that Credit Suisse will forgive $200 million worth of Mozambican debt as part of a settlement with UK, Swiss, and U.S. authorities due to corruption issues. The regulators alleged that Credit Suisse employees received and paid bribes while they arranged industry loans totaling $1.3 billion. According to U.S. prosecutors, three Credit Suisse bankers, two middlemen, and three Mozambican government officials diverted at least $200 million of the loans for their private use. The debt write-off is part of a settlement agreement with regulators that includes a $175 million fine to the U.S. Justice Department, a $99 million fine to the U.S. Securities and Exchange Commission (SEC), and a $200 million fine to Britain’s Financial Conduct Authority. The SEC indicated on Tuesday that the Credit Suisse staff and their intermediaries have been indicted by the U.S, Department of Justice.
On Thursday, October 21, the Budget Monitoring Forum (FMO), an independent public finance organization based in Mozambique, called Credit Suisse’s offer insufficient and instead demanded the “full cancellation of illegal debts.” As of Friday, October 21, Mozambican officials have yet to comment publicly on the debt forgiveness.
US announces COVID-19 vaccine donations for Africa as South Africa rejects Sputnik V
On October 14, U.S. President Biden met with President Kenyatta of Kenya where Biden promised an additional donation of 17 million doses of the Johnson and Johnson (J&J) vaccine to the African Union . Indeed, this announcement is timely as the World Health Organization (WHO) announced in September that in order to fully vaccinate 70 percent of the continent by September 2022, COVID-19 vaccine shipments must increase from 20 million per month to 150 million.
In other related news, South Africa’s drug regulator has rejected the Russian Sputnik V vaccine due to safety concerns. According to the Associated Press, regulators asked the makers of Sputnik V for data proving the vaccine’s safety but their request was not suitably addressed. Sputnik V is currently being reviewed for authorization by WHO and the European Medicines Agency. Both AstraZeneca and J&J have been approved in South Africa.
Financial risk assessment and management in times of compounding climate and pandemic shocks
More than 4 million people have died from COVID-19, and many others face long-lasting effects on their lives and livelihoods. While the full social, economic, and financial implications of COVID-19 are yet to be seen, millions have lost their jobs, and incomes in many countries have sharply declined. This raises concerns about sovereign debt sustainability and financial vulnerability in the medium term, particularly in developing countries and emerging markets.
The pandemic diverted the attention from another ongoing crisis: Climate change has affected the lives of more than 130 million people and resulted in over 15,000 deaths since the beginning of the COVID-19 crisis. Natural hazards such as tropical cyclones, floods, and wildfires are expected to become more frequent and intense in the coming years.
Understanding the economic and financial impacts of compound risks
With worsening climate change, compound risks (e.g., floods and droughts or pandemics and hurricanes hitting the same country shortly thereafter) could be more likely in the future. This should be the main concern for governments and financial supervisors because compound risks could exacerbate social and financial vulnerabilities. For instance, natural hazards destroying socioeconomic infrastructures, such as hospitals, provide a fertile ground for pandemics to spread, thus strengthening the pandemic’s socioeconomic toll and delaying recovery. In countries with limited fiscal space and capacity to respond, compound risk can lead to substantial fiscal impacts and slowed recovery.
The assessment and management of compound risks require a better understanding of how shocks of different nature (e.g., pandemics, climate change) are entering and passing through the economy. Eventually, we need to identify which assets and sectors are most vulnerable yet relevant in shocks’ transmission and amplification, in the economy and finance. This information would support policymakers and financial supervisors, answering the following questions “What are direct and indirect impacts of compound COVID-19 and climate physical risks, and how do they affect socio-economic and financial stability?” “Under which conditions can effective recovery policies be implemented?” “To what extent can countries strengthen their financial resilience to compound risks?”
Fit for purpose tools to assess compound risk
Answering these questions calls for macroeconomic models where heterogeneous agents—such as banks, firms, households, government, and a central bank—interact and adapt their investment and financing behavior, based on available information and on their expectations about the future. Consistently with the real world we live in, agents differ with regard to access to information (for instance, asset managers may have better information about financial market reaction to COVID-19 than car dealers) and risk management tools. Agents endowed with different access to information, preferences, and expectations, may diverge in their risk assessment and management strategies, with implications for the shock recovery.
Compound risk can amplify losses
A recent paper applies such a macroeconomic model to Mexico and shows that when shocks compound, such as the case of COVID-19 and natural disasters, losses could get amplified. Economic impacts are shock dependent, as a hurricane that might affect the supply side first by destroying productive plants and infrastructure differs from COVID-19 that enters as an aggregate demand shock by curbing people’s ability and willingness to spend money. The interplay between supply and demand shocks in the case of compound risk matters for the shock transmission through the economy and thus overall economic, private, and public finance impacts. This amplified impact is captured by the compound risk indicator in Figure 1, which compares GDP impacts of compound risks versus the sum of individually occurring pandemic and climate risk. A value of the indicator higher than 100 signals that the impact of the compound shocks is higher than the impact of the sum of individual shocks. In the case of a compounding strong climate physical shocks with COVID-19, non-linear amplification effects emerge.
Figure 1. Compound risk indicator for Mexico
Source: Dunz et al. 2021.
Drivers of shocks mitigation and amplification
Diverging preferences, expectations, and risk assessment are a main driver of compound shock amplification. Timely governments’ fiscal response is crucial to support the economic recovery and influence economic expectations. However, procyclical banks’ lending can counteract the effectiveness of fiscal stimulus by limiting firms’ recovery investments, creating the conditions for public finance distress (e.g., public debt sustainability). For instance, banks may revise their lending conditions to firms due to the uncertainty about the duration of the crisis, despite government and central banks’ actions (e.g., credit guarantees, recovery investments). By limiting the ability of firms to invest and of households to consume, procyclical lending can trigger persistent and nonlinear macroeconomic effects, such as higher unemployment and lower GDP (Figure 1).
Banks’ lending behavior is thus relevant for the success of government fiscal policies, and for their financial sustainability. Indeed, government’s recovery funds, financed by issuance of debt, are less effective in fostering the economic recovery in presence of credit and labor constraints. Coordination of fiscal and financial policies could help to tackle the complexity of the implications of compound risk, creating the conditions for functioning credit markets, and preserving sovereign debt sustainability.
Insights to build back better
Introducing compound risk considerations in fiscal and financial risk management can help governments and financial authorities build resilience to compounding shocks that could be more likely in the near future. Nevertheless, the assessment of compound risks requires an adaptation of the analytical tools that support policy making. Accounting for adaptive expectations and finance-economy interactions (e.g., bank lending conditions) that affect economic and financial agents’ response (e.g., investment, consumption) in times of crises could improve our understanding of how and why individual and compounding shock impacts might amplify. Such a new generation of macroeconomic models can thus support investors and policy makers in the assessment of risk and in the design of better-informed risk financing strategies. This, in turn, would enable the role of public and private finance in building resilience to compounding climate, pandemic, and other risks, for the benefit of the environment, the economy, and society.