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Leveraging External Finance for Africa’s Green Industrialization

December 7, 2023

African countries are ready for green industrialization, but to ensure they reap all the benefits, African governments need a focused, well-aligned, and targeted industrial policy supporting green sectors with the most significant potential. Meanwhilethe international community needs to ensure a just transition – not just through a greater provision of climate funds to African nations, but also by supporting a fundamental restructuring of the global financial architecture.

These were the main takeaways from a panel discussion hosted by the African Center for Economic Transformation (ACET) on leveraging external finance for Africa’s green industrialization at the Ghana |Climate Vulnerable Forum Pavilion at COP28. ACET organized the event together with the Climate Action Platform-Africa (CAP-A), Institute for Sustainable Development and International Relations (IDDRI), South Africa Institute of International Affairs (SAIIA), and Akosombo Industrial Company. This workshop is part of ACET’s broader work on green industrialization and climate finance.

Prof. John Asafu-Adjaye, ACET Senior Fellow, moderated the panel. Speakers included Jane Lumumba, UN Climate Champions’ Africa Delivery and Transformation Lead; Prof. Carlos Lopes, Honorary Professor at the Nelson Mandela School of Public Governance; Philip Osafo-Kwaako, Director at the Akosombo Industrial Company; and Margaret Impraim from the Green Africa Youth Organization.

The event followed up on the Africa Climate Summit, which saw major announcements on climate finance. The panelists discussed strategies and actions to translate the commitments from ACS 2023 into investments in Africa’s green industrialization, and to find other opportunities for climate action that delivers green growth and jobs.

Just climate finance for Africa

Jane Lumumba highlighted the importance of financing the just transition, ensuring that the green industrial shocks do not leave behind the most vulnerable and the least responsible for climate change. She also stressed the need for domestic resource mobilization to fund Africa’s green industrialization and avoid dependence on external sources.

According to Carlos Lopes, the African Climate Summit was a welcome attempt to recenter the debate about finance by advocating for systemic change. The discussion should not be about the amount of lending Africa gets but about how the rules of the game are set and enforced, because this determines whether Africa can have a voice and a say in the global financial system. As long as Africa remains dependent on external funding, it would struggle to industrialize, as “no country has industrialized on the basis of external influx of capital”. To ensure Africa has the last say on its development, it has to increase its own fiscal space.

Margaret Impraim emphasized the importance of directing climate funding towards Africa’s youth, who often lack knowledge or skills on how to start and run green businesses. She said that there is a need for capacity building, as Africa’s youth is the largest population, and they need to be trained and empowered. She also said that it is important to let the youth be aware of the policies that can help them access what they need, such as financing, incentives, and regulations.

Promising sectors for green industrialization in Africa

Carlos Lopes outlined several megatrends and advantages that African countries should consider when identifying opportunities for green industrialization. Firstly, new consumer demands for traceable products with a lower carbon footprint or specific certifications that are complicated for established producers to transition towards. Secondly, highly labor-intensive industries. While automation, robotization, and even AI will change the landscape, there are still labor-intensive sectors that can benefit from technology where Africa’s demographic dividend offers an advantage. Lastly, while Africa faces many challenges, the greatest opportunities will be found in sectors with advantages to being a latecomer. Key sectors that meet these criteria include the critical minerals sector, which is essential for the green transition, agro-processing, pharmaceuticals, and textiles.

Philip Osafo-Kwaako demonstrated the potential of the textile and garments sector by showcasing his company Akosombo Textiles, which produces fabrics and garments in a green, decarbonized way. He described his vision of creating a green value chain in West Africa that goes from cotton to yarn to fabric to garment, using the Volta Lake as a low-carbon transport route. Already, Akosombo textiles uses hydropower from the Volta Dam and biomass from agricultural waste as energy sources. The company also recycles waste clothing and blends it with organic fibers to produce new garments. The opportunities for other players in this sector are enormous, because of the increased demand for sustainably produced garments. He wants the Akosombo industrial enclave to be transformed into Africa’s first net-zero industrial park, where green, light industrial manufacturing generates the jobs that Africa so desperately needs.

Jane Lumumba mentioned some other examples of initiatives and projects that are happening in Africa that demonstrate the potential and impact of green industrialization, including the Green Industrialization Initiative from President Ruto of Kenya, the UAE’s commitment to supporting green industrialization in Africa, the Africa Business Leaders Coalition, and the Climate Prosperity Plans. These initiatives show that Africa is ready and open to investment and partnership and can mobilize its resources and capacities to fund its green industrialization.

Margaret Impraim mentioned recycling and other green projects that are attracting youth involvement, such as a zero waste project in Ghana, where waste workers and municipalities are trained to change waste into other products, such as compost, biogas, or crafts. Food waste is also a big issue in Ghana, and there is an increasing awareness for composting, where waste is converted to fertilizers for agriculture.

Industrial policy as a tool for green industrialization

Countries must adopt deliberate and comprehensive industrial policies to take advantage of all the opportunities in the various sectors that can drive green industrialization in Africa. Carlos Lopes explained that industrial policy went out of fashion for several decades while the prevailing economic thought dictated that Africa should focus on exploiting its natural resources, where it had a global comparative advantage in raw materials. In recent years, it has become more widely accepted that Africa needs to actively structurally transform its economy and promote value addition.

However, wealthy and industrialized nations, such as countries in the EU, the US, Japan, and Korea, have more funds to subsidize transforming their productive sector along low-carbon pathways. As a result, Africa faces the risk of being left behind because of roadblocks, including increasing green protectionism, logistical challenges, labor pool skills issues, and regulatory issues.

With these constraints in mind, he argued that Africa needs to ensure it gets three things right. Firstly, countries should have high ambition and long-term thinking to cope with the rapidly changing global economic system and capitalize on Africa’s demographics. Secondly, leaders must prioritize and select the most promising value chains to invest in. Lastly, everything needs to be aligned, so there is policy coherence and the capacity to manage various economic actors coherently.

Philip Osafo-Kwaako argued that Ghana was ready to follow this path of industrialization. The vision of Kwame Nkrumah, the country’s first president, already instilled a culture of industrialization in Ghana. Nkrumah’s development plans could be called green industrialization plans today. Ghana and other African countries can capitalize on green industrialization by reviving development plans from the 1960s and applying them in a green and sustainable way.

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