Africa's Green Growth Opportunity
This post originally appeared on OECD’s Development Matters blog.
Policy makers across Africa have embraced industrialization and economic transformation as keys to accelerate inclusive growth. They also increasingly see the need for economic transformation to deliver green growth – growth that does not endanger Africa’s natural environment in ways that reduce the welfare of present and future generations. Economic transformation and green growth depend on doing new things: making risky investments in new, unfamiliar sectors or products or adopting new, unfamiliar methods, processes, technologies, inputs or business models. All this depends crucially on the activity of entrepreneurs, who drive change through their innovation and risk-taking. Fostering entrepreneurship, including green entrepreneurship, is thus a key policy aim for African countries.
Africa already is experiencing the ill effects of environmental deterioration on many fronts, including the impacts of climate variability and change. Rapid population growth and land use practices are contributing to deforestation and land degradation, damaging fragile ecosystems, and exacerbating water scarcity. Five of the ten countries worldwide with the fastest acceleration in tree cover loss in 2001-14 were in West Africa. In cities, air pollution and ineffective waste management pose serious and growing problems.
Without policies for green entrepreneurship, there's serious risk that environmental stresses caused by industrialization will undermine growth. In a new working paper, "Green Industrialization and Entrepreneurship in Africa," the New Climate Economy describes how transformative economic and green growth policies, combined with entrepreneurship, could enable Africa to leapfrog to a clean, resource-efficient modern economy.
Economic Transformation Doesn't Have to Increase Demand on Natural Capital
The impact of economic transformation on the environment thus warrants special attention. Economic transformation and growth tend to increase demands on natural capital, especially as countries move from low-income to upper middle-income status. Energy and water uses in most sub-Saharan African countries, for example, are still very small compared to other regions, and will rise substantially over coming decades. But the extent and nature of environmental impacts depend greatly on the specific structural transformation path a country takes, on technological progress and improvements in the efficiency of resource use, and, crucially, on the extent to which economic policies and institutions create incentives for green growth and green entrepreneurship.
Green entrepreneurs develop and serve markets for new processes, technologies and products that make the economy more efficient in its use of the natural environment and more resilient to environmental impacts, such as climate change. Green markets can be for new intermediate processes or inputs in production, or for new consumer goods and services. Take the case of energy efficiency. New markets emerge to supply businesses with technologies or inputs that increase the energy efficiency of their production process. New markets also emerge for energy-efficient consumer goods and services, such as more energy-efficient household appliances.
Indeed, large, fast-growing green markets are emerging worldwide. Renewable energy technologies saw a record global investment of USD 256 billion (excluding large hydro) in 2015, and energy efficiency related investments reached an estimated USD 221 billion. Markets for water infrastructure and improved methods for water collection, storage, distribution, recovery, treatment and reuse are growing, as are ways to improve efficiency in water use. Urban waste management markets are expanding rapidly in line with urbanisation and rising living standards, with an increasing focus on recycling and reusing waste materials. The market is increasing for climate-smart agriculture, which refers to production systems, technologies and institutions that simultaneously boost agricultural productivity, build resilience to climate change in agriculture and reduce agricultural greenhouse gas emissions.
Africa's Green Entrepreneurship Opportunity
Africa is no exception to growing green entrepreneurship. Consider some examples:
- Safi Sana is a Ghanaian company that builds public toilets in urban slums and collects wastes to produce biogas and bio-fertilizer. The company’s new factory in the Ashaiman slum east of Accra will provide toilet services for 125,000 slum dwellers, deliver green power for 7,500 people and produce 2,500 kilograms (5511 pounds) of organic fertilizer daily.
- Recycling for Environmental Recovery is a Moroccan firm that recycles plastic waste into a range of secondary raw materials for the plastics industry for domestic use and export.
- Ndume Limited is a large agricultural implements and machinery manufacturing company in Kenya. Ndume provides specialized inputs needed for conservation agriculture, an approach to sustainably increase agricultural yields using methods that conserve soil, rain water and soil nutrients while reducing production costs.
- Ubbink, a Dutch company, has set up a solar module manufacturing company in Naivasha, Kenya, the first in East Africa. Solar modules in the 4 to 80 watt range are manufactured based on reworked broken high-quality solar cells.
- Solar Sister was created in Uganda in 2009 to give women economic opportunities from the “last mile” distribution of clean energy products, such as household solar kits and clean stoves. The experiment has since been replicated in Nigeria and Tanzania.
How to Sustain Sustainability
As green entrepreneurship and green markets emerge in Africa, governments throughout the continent will need to develop supportive policies at two levels to sustain and encourage them.
First, governments must implement pricing policies and regulations that create appropriate market incentives for green processes and products. These include, for example, incentives for more efficient energy and water use. Without such incentives, private green demand will be less than socially desirable due to environmental market failures.
Second, governments need to strengthen firm capacity, performance and entrepreneurship, taking into account the very different features of the various major types of firms that exist in the industrial sector of most African economies. Of these types, typically three prevail: elephants or a small number of large formal firms that dominate their sectors; gazelles representing about 10-15% of all micro, small and medium enterprises (MSMEs) with relatively high productivity and capacity to grow; and survival entrepreneurs or other MSMEs with very low productivity and growth capacity.
Because of limited technical capacity in many African economies, some entrepreneurs who introduce green processes and products may initially be importers and distributors working with foreign suppliers. With growing domestic capacity and skills, African entrepreneurs have more and more opportunities to enter domestic green markets and to indigenise aspects of green processes, services and inputs, as some are already doing for climate smart agricultural equipment, water, sanitation, waste management, and in the delivery and installation of rooftop or off-grid solar energy systems.