Unravelling the Nexus: Trade, Climate, and Development Policies in Sub-Saharan Africa
To launch our third season of Trade Knowledge Matters, our host, Amar Breckenridge discusses with Prof. David Luke, LSE and Colette van der Ven, Tulip Consulting the aftermath of the CoP28 in the United Arab Emirates. They dive into the impact of the CoP’s conclusions on Sub-Sahara African economies and their trade policies. The episode is timed perfectly as we look ahead to the WTO’s 13th Ministerial Conference in Abu Dhabi next month. This article highlights some of the key points discussed through the podcast episode.
Sub-Saharan Africa stands at the crossroads of trade, climate, and development policies, presenting a complex web of challenges and opportunities. This article delves into key insights from a podcast discussion, in which we explored the interconnectedness of these crucial elements and discussed the importance of a nuanced approach in policy formulation.
Africa can play a key role in the low carbon transition.
While Africa’s exposure to climate change is well documented, what is often overlooked is its potential to drive clean growth. Its rivers have the potential to drive hydropower. Its deposits of critical minerals are a vital resource for key low carbon technologies. And its forests play a central role in climate change mitigation though their role as carbon sinks. How to harness these opportunities in a manner that also fosters sustainable and equitable growth in the challenge facing African and global policy makers.
“Africa accounts for only about 11% of the world’s recorded carbon offsets and about 2% of global carbon market trading. And of that 2%, only three countries account for about 1.4% of the world’s recorded carbon…Africa’s credits fetch as little as $10 a ton, which, compared to prices elsewhere…Africa needs to perhaps take a much more coordinated approach to this. A kind of a carbon registry that might be linked to the AFCFTA Secretary…to help the African countries to centralise control over their carbon credit supply.” – Prof. David Luke
Carbon markets and climate finance
Both Africa and the world would benefit from implementing international carbon markets in line with Article 6 of the Paris Agreement. That would help to promote low-cost abatement on a global basis. But this requires a willingness to promote transparent rules and robust governance.
Climate finance is also important, both to help with adaptation to the effects of climate change that are already locked in, and to support the transition to low carbon technologies in a manner that also preserves the growth opportunities required for reducing poverty.
Dutch Disease and Exchange Rate Management:
One of the challenges associated with large financial inflows, whether via climate finance or carbon markets, is the potential this has for creating real exchange rate appreciations, a phenomenon sometimes known as “Dutch Disease”. That in turn could jeopardise other policy goals, such as export diversification. Successful management of exchange rates becomes crucial in mitigating the adverse effects of this economic phenomenon. A comprehensive strategy is required to ensure a fair and balanced economic development trajectory.
Intra-Africa Trade and New Trade Deals:
Africa’s meagre 3% share in global trade requires policy action. One way of doing this is to boost intra-Africa trade. While global partners may show limited interest in new trade deals, fostering regional cooperation can provide the space for Africa’s internal growth. Recent evidence from the Economic Commission for Africa suggest that intra-African trade is associated with higher levels of value added and knowledge transfer than trade with the rest of the world. There is still a need to address policy fragmentation, and while the African Continental Free Trade Agreement might present opportunities, there are significant implementation issues that need to be addressed, notably in relation to rules of origin.
Industrial Policy and Flexibilities from WTO:
The return of industrial policy and new flexibilities from the WTO are essential considerations for the drafting of a new trade deal. Aligning trade policies with climate goals and emphasizing technology transfers can catalyse sustainable industrial development.
New challenges in climate and trade policies
New mechanisms such as Carbon Border Adjustment Mechanisms pose challenges for African economies, with various studies showing that they are the most exposed to the adverse effects of such mechanisms. It is important to identify mechanisms, such as targeted exemptions, that could mitigate these effects – alongside that technology transfers and fostering eco-friendly practices (e.g. like the Mozambique-EU deal promoting a shift from coal to green energy) are important.
“…the carbon border adjustment mechanism, which seeks to levy attacks on embedded carbon in certain products or the deforestation free products regulation, those are two EU regulations that have been receiving a lot of criticisms from different developing countries, but including the Africans, with regards to how that could negatively impact their development as well as their trade with this regard to EU.” – Colette van der Ven
Breaking Down Silos in Policy Making:
Global silo policy making is a challenge, not unique to Africa. Integrating ministries and creating collaborative centres for research can pave the way for cohesive policies addressing the nexus of trade, development, and climate.
The Call for a Global Triangle Forum:
At a global level discussion regarding trade, development and the environment have too often been fragmented, even in institutions such as the WTO that have bodies dedicated to each of these. A global forum recognizing the nexus of trade, development, and climate is proposed, though more research and deliberation are needed. This forum could serve as a platform for shared insights and collaboration.
African Continent’s Adaptive Approach:
Emphasizing good practices, policy consensus, and adaptive partnerships can bridge capacity gaps in Sub-Saharan Africa. The continent’s optimistic growth outlook, post-pandemic recovery, and the urgency to implement the AfCFTA terms provide hope for a brighter economic future.
Sub-Saharan Africa’s journey at the intersection of trade, climate, and development policies requires a multidimensional and collaborative approach. By leveraging the insights from the podcast and incorporating additional research, policymakers can navigate the complex nexus to foster sustainable and inclusive development in the region.