Africa may be rich and poor at the same time, but this kind of oxymoron is raising debate on just how to calculate the value of countries on the continent, which essentially could determine how much credit they can access.
This week at the Annual Meetings of the Africa Development Bank (AfDB) in Sharm El-Sheikh, the bank’s president Akinwumi Adesina argued African countries are undervalued in spite of the burden they are holding for the world when it comes to climate change.
Countries in the Congo Basin, as well as the Nile Basin, are generally determined to remain poor even though their forests and available water resources support an important ecosystem.
This anomaly, he says, lies in the way gross domestic product (GDP) is calculated. GDP is generally considered to be value of goods produced, the income generated and compared with the expenditure involved to produce that value.
And according to the World Bank, it is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources.
“The economies of Africa better moving away from just using GDP. Who eats it? Nobody eats GDP,” Dr Adesina told a press briefing on Monday.
“Therefore, if you measure my GDP without looking at the contributions, we are making in terms of carbon sequestration for the world and you are not doing me any favours.”
Real or intrinsic value?
That sequestration the AfDB proposes should form value of wealth, what the AfDB Vice-President on Power, Energy Climate Change and Green Growth Kevin Kariuki calls “public goods.”
“We have a situation whereby economies have countries like Gabon and the DRC (Democratic Republic of Congo) boasting huge forests, yet their GDP is considered to be very low,” Kariuki said.
“However, they offer these huge public good, these lungs of the entire world, for example, a country like Gabon, small as it is. South Africa has a lot of minerals, such as platinum, and a lot of others that have not been fully exploited. Yet, these form the future of green energy.”
The officials meeting in are looking at ways to mobilise private sector financing for climate and green growth in Africa. It came as Africa’s annual losses to climate change are expected to rise from $7 billion to $15 billion and more than triple to $50 billion by 2040, in spite of the continent only contributing 3 percent of the causes of global warming.
Dr Adesina argues that rich polluters have also invariably caused poverty elsewhere. For Africa, countries must raise at least $2.7 trillion by 2030 to fulfil national targets in limiting climate change yet the continent has only accessed $30 billion a year in climate financing.
By 2030, adaptation will cost up to $407 billion a year in terms of investing in technology that is less polluting and transiting from old ones like coal.
One way of helping that is re-calibrating the actual value of countries, the AfDB proposes. Which means that restrictions imposed on poor African countries in accessing credit can be lowered based on their contribution to reducing the bite of climate change.
“If you are sequestering carbon for the world, why is the world not paying for it? And if you actually value that carbon, and you use it, to value up your economy in terms of GDP, weighted upwards by the value of the carbon that you are sequestrated in, it means that your GDP is much higher than if you didn’t consider that,” he said.
What carbon is worth
“And so, if somebody is talking about debt-to-GDP ratio, it means here the GDP is adjusted for the positive externalities created by sequestering carbon DRC Congo or the Congo to be much lower than they are today. And that means that they can borrow more money and should be able to borrow more money.”
The proposal is likely to face stiff resistance from creditors who consider these regions also risky according to the prevailing political climate and economic volatilities. An assessment commissioned by the AfDB, however, showed that Asia and Latin America, and Eastern Europe had a heavier investment risk on infrastructure than Africa.
“So, facts or reality do not match. Africa is risky, but then, riskier than what? Are we are talking real measured risk, and not simply perception of risk? I cannot try to reduce your perceived risk.”
According to the AfDB, Africa’s inability to raise money to combat local problems is up to how its wealth is measured, especially the natural capital.
“We have to measure wealth differently. It is not just monetary wealth. It must include natural capital. Managing your natural capital stock is what determines your wealth. Maybe today, some countries considered very rich might not be as endowed as they are led to believe.
If we actually were doing that in terms of valuation of GDP are up and down based on the contributions positively or negatively, that you are making. And there are several other projects. I am not going to go through them.