Africa must take lead in financing own green investment, says UN's Carlos Lopes

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Lopes during the interview with this newspaper in South Korea, last week. / Athan Tashobya.

With cities and societies nowadays seeking high quality life tinged with efficient delivery of public services and infrastructure, they also want environmentally and economically efficient mass transit systems.

The World Economic Forum estimates that to meet the needs of a growing world population $6.9 trillion in investment is required.

In addition, to this, $3.2 trillion will be required to green those investments to keep within a maximum 2 degrees Celcius temperature rise.

Across the world, a quiet revolution is underway in public policy and private institutional innovations for a more sustainable global financial system.

A new report from the United Nations Environment Programme (UNEP), ‘The Financial System We Need,’ captures this momentum to harness the world’s financial system for the transition to a low-carbon, green economy.

The challenges are formidable, but the urgency of climate change requires strong political will too, and even more concerted international cooperation.
Renewable energy such as wind and solar are already at grid parity with fossil fuels, with solar energy predicted to be at grid parity in 80 per cent of the world by 2017.

Renewables are not only environmentally positive, they also have real economic benefits in terms of sickness and deaths avoided, improved energy access, balance of payments, and energy independence.

So far, the developed countries pledged $100 billion to help finance mitigation and’ adaptation projects, and support areas that require funding, but environmental experts say more is still needed.

Spearheading this movement, China intends to place a special focus on green finance in 2016 under its G20 presidency.

Last week, The New Times’ Athan Tashobya met Carlos Lopes, the Executive Secretary of United Nations Economic Commission for Africa (UNECA) in Jeju Island, South Korea – where he was attending the Global Green Growth Institutes week 2016 – and the two discussed green financing, G20, and ways to achieve

Sustainable Development Goals (SDGs).Excerpts;-

Environmentalists say international green funds and private sector are frustrating them with rigorous processes and applications to get funds. What do you think is the cause?

Everybody in the financing world is very articulate whether there is a need for cost benefit analogy. Normally, if you say that there is so much frustration and complexity associated with the current green financing instruments it is very prominent.

It is high time for us to look into what are the reasons why there is such complexity; it is a way of actually hiding the notion of risk? It is a way of dealing with declination that will affect other areas? There are a number of invalid implications by the fact that we are dealing with environment today – where there is very little appetite for risk. And we see it from negative interest rates and number of microeconomic terms in the world

We have to pose the question whether this is not just a big effect of a bigger problem. If you look at the opportunities that are offered by the green economy and green investments, you would have expected people would jump into it. But because of the notions of risk, associated with the way we calculate, you don’t see any interest for appetite for that kind of investment.

What do you think are the key elements needed for Africa’s urbanisation to move to a sustainable development footpath or green future?

I always say, ‘latecomers have an advantage.’ You don’t have to do what others have done if you are going to start something. It’s not that we are starting from scratch but there are those areas we are going to accelerate.

There are those areas where, we are going to have an advantage simply because we are latecomers, for instance industrialisation, urbanisation, the way we deal with infrastructure development…these offer incredible opportunities for our development.

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A resident of Rusororo in Gasabo District participates in tree planting during Umuganda last year. / File.

Others will have to go through retrofitting stage, whereby they need to match with the new type of economy with low carbon footprint. For us, we don’t need to go that extra mile; we can start off now with low-carbon investments.

One of them, and probably the most important, is energy. We can do renewable energy and off grid energy. We have a lot of these in plenty, we have energy from geothermal, our hydro is so underexploited, and we have solar energy, which is very cheap. We don’t have to go into oil and coal energy, or gas (even though gas is still okay).

The same is how we deal with manufacturing; we need to consider standards of development that others are struggling to meet. For instance, in the Ethiopian industrial park, you will see efforts to meet environmental standards from day one. We have incredible opportunities.

What are some of the activities UNECA is doing so support sustainable development in Africa?

We have been promoting structural transformation and we define it in three ways; increasing agricultural productivity; going big time in industrialisation and making sure that the service industry is integrated into modernity and into more form of transformative ways where sustainable development becomes the modernity.

From here, we can look at the policies that we need. We say that; you can encapsulate all these into industrial policy – this is about a new way of dealing with productivity, whereby one sector is not isolated from other sectors. Our agriculture is the least productive in the market; we need to find ways of making it more market-oriented and efficient.

After regionalising productivity, setting up good policies and modernising productivity, the last and most important is how to bring green Industrialisation dimension into all these sectors. We have done a lot of research about all these, and policy makers and implementers need this research, which provides comparativeness. 

In our research, we started by bringing out what other people across the world are doing outside Africa. And then we brought African examples, because people want to know what their neighbours are doing well. For instance, 50 per cent of the investment in Africa is going into renewable energy, that is exceptional and there is not any other region in the world doing that.

What is your take on the Green Finance?

I think there is confusion. Because we are talking about green finance as if it was a sort of place where we are going to get a lot of money to be able to deal with sustainability issue. That is not the case, because if you go beyond the slogan and try to see what kind of instruments are being put together that are available to the likes of Africa for green financing, we only know about three or four; the Green Climate Fund, Global Environment Facility and we know about the UNEP initiative to do an inquiry on financial environmental activities among the private sector and then the multilateral financial institutions. 

When you look at all these, you ask yourself how much money has come out of these bodies and it is very little, and very complex to get.

If the situation is this complex, we need to think of the alternatives; we have to count on our own strength, which means you need to know your economy. There are only 12 countries in Africa that know the real size of their economy, all others are out-dated national accounts, which means they don’t know their size of the economy. 

They (the countries) don’t know if their size of the economy is underestimated or overestimated; we know for sure from evidence that most of the economies in Africa are always underestimated. None has been overestimated.

Which means African countries have economies bigger than they think they have.

The implications are that there is fiscal pressure, such that what people pay to the governments in form of taxes; it is less than what they should pay for that size of the economy. In other parts of the world, 35 per cent of the economy is what people pay as taxes but in Africa it is about 22 per cent and in some places it is less. 

The challenge is that we are not collecting enough taxes from some investors such as in mining sector because we think we will frustrate them and they will go. But that should not be the case.

Going back to the question; the first source of funding is our own money. We have to get our finances right and do internal resource mobilisation. Look, our pension funds are $250 billion dollars that are not properly used in Africa, and our reserves are being put in vehicles whose return is 0.5 per cent. We should put money where it should be.

Whatever decisions that are going to be taken by the G20, the World Bank and all these international bodies; access to finance is going to depend mostly on microfinance than it would depend on slogans.

How can Rwanda/Africa domesticate the concept of Sustainable Development Goals (SDGs) in Green Growth?

When people talk about ownership, what is really important is not the domestication, but rather the elaboration. It has to come from the law and the desire of the country. Because politically, people are experiencing the need for sustainable development because they have seen the impacts.

The concept has to grow from the country’s desire to take advantage from whatever the world is discussing and align it to its own needs. I call it elaboration.

What could be the main barriers to inclusive green investment?

The main barriers are political. You need to convince the country that this is the best way for the future, and if you see that countries that have made this a national policy, they understand the challenges.

Countries such as Ethiopia, Rwanda, Morocco, Senegal and Ivory Coast, among others, have decided to put the green investment ahead and have aligned their financing approach to that call.

editorial@newtimes.co.rw