8th Annual Babacar Ndiaye Lecture Organised By Afrexim Bank In Washington, DC

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LECTURE DELIVERED BY PROF. YEMI OSINBAJO, SAN, GCON, IMMEDIATE PAST VICE PRESIDENT OF THE FEDERAL REPUBLIC OF NIGERIA AT THE 8TH ANNUAL BABACAR NDIAYE LECTURE, ORGANISED BY AFREXIM BANK THEMED: ‘SAVING LIVES TODAY VERSUS SAVING THE PLANET FOR THE FUTURE: CAN THE AFCFTA RESOLVE THE CLIMATE CHANGE DILEMMA”, IN WASHINGTON DC, ON THE 26TH OF OCTOBER, 2024

PROTOCOLS

Thank you very much, everyone. I feel a bit sorry for you all this evening because here you are all ready for dinner and I’ll be speaking for at least three hours! Fortunately, President Oramah has already made most of my speech for you, so I don’t think I’ll be speaking anywhere near that long anymore.

But let me say how deeply grateful I am to the President of Afrexim Bank and his team for affording me the honour to memorialize Babacar Ndiaye, a far-sighted visionary who before 1993, when the bank was founded, saw today the day when Afrexim would be a leading global force for development finance in Africa.

The exploits of this very committed Pan-Africanist who used to say, and I quote, “Senegal is my village, Africa is my country,” are rightly the stuff of legend today. His place in this generation, as we’ve heard already, as the foremost contributor to the ideation and execution of development finance policy and practice in Africa, is firmly secure. May his memory always be blessed.

I’m speaking on the topic: “Saving Lives Today Versus Saving The Planet For The Future, can the AFCFTA, (the free trade agreements), Resolve The Climate Change Dilemma?” The topic, of course, deliberately creates a false choice since we really cannot choose to live today as a bargain for dying tomorrow.

The topic, I think, is meant to provoke our response to the crucial point that Africa faces two existential crises, not one; climate change and poverty. And then, of course, to answer the question, by what means can the free trade agreement resolve the dilemma of African nations who desperately need growth, jobs, livelihoods, and food security, without at the same time worsening the climate crisis?

Regarding the climate crisis, we all know of course, that Africa is warming faster than any other region, and practically everywhere in Africa, the catastrophic consequences are evident. The Horn of Africa has been facing its worst drought in 40 years, with five consecutive failed rainy seasons since 2020, with prolonged droughts in Kenya, in Somalia, and intense flooding in West Africa, especially Nigeria, Niger, and Ghana.

In Southern Africa, Cyclone Freddie wreaked havoc in Mozambique, Malawi and Madagascar. Yet, Africa as we know, is the least emitter of dangerous gases, barely 4% of global emissions. The cause of these catastrophes is the result of historical and cumulative emissions from mainly global north countries. Ironically, Africa experiences greater devastation and is far less capable of mitigating the damage and losses caused by these extreme weather events. But Africa’s other existential crisis is poverty.

Over a third of Africa’s population lives in extreme poverty, with a population growing faster than GDP, unemployment, and food security, of course, are huge challenges. The major economic sectors, such as agriculture, mining, and energy, are resource intensive and that contributes to environmental degradation, of course, at great cost.

Africa’s leaders face very difficult trade-offs between accelerating growth in sectors that worsen climate change or delaying development for environmental concerns. A significant contributor to the poverty situation is energy poverty, which essentially means a lack of access to energy, and electricity for cooking, heating, and cooling, and this of course inhibits any real growth or job opportunities. All the evidence that we see demonstrates that the availability of energy directly correlates with income, wealth and development, both at the individual and societal level. And the energy poverty issue in Africa is massive. As we’ve heard, over 600 million Africans have no access to electricity, and another 150 million have irregular access.

But let us throw in the mix yet another problem. Most African countries depend on fossil fuels for their energy needs. And for fossil fuel-rich African countries, this is also a major source of export earnings and fiscal revenues. But ostensibly in keeping with their net-zero obligations, there has been a growing trend among development finance institutions to withdraw from fossil fuel investment.

These actions include the World Bank’s decision to cease funding for upstream oil and gas development in Africa, and the restrictions on financing downstream gas development by the European Union, the United Kingdom, Northern Ireland and the United States.

Now, clearly, the implications of these actions are dire, where there are no immediate alternative sources of power, and the cost of transition to cleaner fuels may be prohibitive.

Some studies show that divesting from fossil fuels could reduce GDP by as much as 30 billion US dollars for Nigeria, 22 billion US dollars for Algeria, and 19.3 billion US dollars for Angola.

Also, for gas-rich and energy-poor countries in Africa, the argument for gas at least as a transition fuel is simple enough. In the face of energy poverty, with millions lacking access to power, and one in four deaths of women in rural areas caused by pollution from the use of firewood, what sense does it make to leave this versatile, relatively low-carbon fuel in the ground, where it offers today a cheap and available source of electricity for domestic and industrial use and LPG for clean cooking.

Besides, even if Africa, aside from South Africa that is, triples its electricity consumption solely using natural gas, this would barely add 0.6% to global emissions. That there must be a transition from fossil fuels to renewable energy has become a fact of life. But that transition must be just and equitable for all parties, especially for Africa, which has been asked to make more sacrifices than her very low contribution to the problem demands.

Now, this is even more compelling because the global North’s position has been consistently shown to be, to put it mildly, a case of double standards. Because while aggressively pursuing fossil fuel-rich African countries to transition to renewable energy, they maintain gas projects as an important part of their multi-decade decarbonization plans. And of course, many continue to develop new gas projects.

Afrexim’s collaboration with the African Petroleum Producers Organization to produce an African Energy Transition Bank dedicated to supporting the oil and gas industry through the transition process, I think will be very helpful in making this transition as painless as possible.

For Africa, the crucial question in the energy transition conversation is how Africa is to develop, and provide well-paying jobs and decent lives for its growing population within internationally agreed carbon constraints.

Historically, economic growth goes hand in hand with emissions growth. And this is the pathway that global North countries have gone. And that’s why we are at this point of an imminent apocalypse if we are to believe the scientists.

If Africa were to grow along the same carbon-intensive trajectory to middle to high-income status as the North has done, we would be adding 9.5 gigatons of CO2 emissions annually. And by 2050, we will be responsible for 75% of global emissions.

But more importantly, the global net zero targets of the world, that is, would be impossible to attain. To achieve its net zero ambitions, the world needs Africa to take a carbon-negative path to development, or put simply, the world needs Africa to develop without increasing carbon emissions.

So, Africa can therefore be either the solution to the climate crisis or the nemesis of the world. How and why? How will Africa be the solution to the climate crisis? It is by pursuing a pathway of climate-positive growth or simply a green pathway of economic growth.

Why? Because we have climate competitiveness. As the world increasingly pays for climate solutions through consumer preferences, a price on carbon, or simply rules that force a shift to lower emission solutions, the places in the world that can provide green solutions at the most cost-competitive prices have a massive economic opportunity.

And thanks to Africa’s abundance of high-quality, untapped renewable energy potential, our young and entrepreneurial workforce, and our relevant natural assets and resources, we have the key, all of the key ingredients to be the major climate action powerhouse.

Indeed, our low industrial base, and our low carbon footprint, can actually be an advantage, enabling us to develop green-filled clean energy manufacturing, saving us the cost of abandoned legacy carbon-intensive manufacturing projects. And then by pursuing an industrialization pathway using renewable energy, of which we have 60% of the world’s potential, we can develop the first green industrial civilization. We can indeed green global manufacturing and supply chains. We can protect our carbon sinks and remove carbon from the air at the same time.

We can achieve economic growth without growing emissions or even keeping emissions constant. This way, we can realize inclusive economic growth, job creation, and livelihood improvement by being part of the climate solution.

At the Africa Climate Summit in September of 2023, the AU endorsed this notion of climate-positive growth as the economic and development paradigm for Africa. But the question, of course, for this lecture is how can the African Continental Free Trade Area Agreements support the climate-positive growth paradigm in order to deliver on the promise of jobs and produce green industrialization across Africa.

The free trade agreements create the world’s largest free trade area by number of participating countries. It creates a single market of 1.3 billion people and a combined GDP of 3.7 trillion US dollars. The agreement will remove tariffs for 97% of all tariff lines and not less than 90% of all trade, and develop African economies by intra-African trade in value-added manufactured goods and commodities, and allow free trade for services across the continent.

Now there are two obvious advantages to a fully operational free trade agreement of this particular agreement. The first is that 42% of African countries, aside from North Africa, now have legislation prohibiting the export of raw ores or minerals. So such must be processed before export.  This gives African countries the benefit of jobs and revenues from local beneficiation and manufacturing.

Second, shipping is a major source of CO2 emissions, and I think it comes sixth in the order of ranking. Under current trade practices, a large share of African raw materials is exported to other regions where they are processed or manufactured into finished products, usually using fossil fuel power sources, before being shipped back to Africa for consumption.

This cycle not only contributes to higher emissions but also constitutes a loss for African countries, who of course do not reap the value of the value chain gained from beneficiation.

Inter-African trade in finished goods will substantially reduce this massive cost of global emissions. The reduction of emissions by virtue of inter-African trade has been the subject of quite a few empirical studies, and I’ll just refer to one of them. And that’s a recent ECACPII study, which is entitled Greening the African Continental Free Trade Area Agreements implementation and that was published just last year, December.

That study found that implementing the Free Trade Agreement can boost inter-African trade by 35% going to 2045 while increasing emissions by less than 1% compared to No Free Trade Agreement or climate policies. But I think it’s important to point out that a lot of the studies on this matter are studies that do not factor in the use of renewable energy sources in the processing or manufacturing of traded goods, and this is an assumption of the Climate Positive Growth Paradigm which would again substantially reduce emissions.

I think it’s important to emphasize that point, that the whole point of the Climate Positive Growth Paradigm is that renewable energy resources will be used for manufacturer or be primarily used for manufacture, which of course will substantially reduce emissions even before shipment of goods anywhere.

So, if Guinea for example, which has 25% of global deposits of bauxite process the bauxite it mines to aluminium with renewable energy in readiness for export, it will save the world 335million tons of CO2 per year. That’s 1% of global emissions. It will create 280,000 jobs and generate $37billion in additional revenue. If it chose to sell the aluminium within Africa, it would again save the huge cost of shipping out of countries thousands of miles away.

A Bloomberg study for the African Development Bank, AfDB, which was done in 2021 on the manufacturing of battery precursors found that manufacturing battery precursors in the Democratic Republic of Congo, DRC, which of course, has plenty of lithium and cobalt, is three times cheaper than manufacturing in the US, in the EU or even China. Manufacturing in DRC would also extend value-chain opportunities to other African countries; they would need manganese from Zambia, Tanzania, Gabon and South Africa to contribute to their capacity to produce these battery precursors.

So, manufacturing using renewable energy would significantly reduce the cost of manufacturing and Africa’s renewable energy is not only just abundant, especially solar energy, but it also has very low seasonality or intermittency, which makes it possible to reliably provide renewable base-load to power continuous industrial production.

The economic case for renewable technologies for manufacturing is getting stronger by the day. Last year’s International Energy Agency (IEA) publication showed that already, the total cost per kilowatt hour of grid-scale solar including storage, is now lower than that of gas peaking technology, even without valuing fossil fuel price volatility and without putting any price on emissions whatsoever. That’s a very important point especially as we think about transition from gas.

It’s becoming more obvious that renewable energy is becoming cheaper and cheaper and cheaper. Also, the production and export of low-carbon fuels such as hydrogen and ammonia, are another great opportunity for African countries. And in the past 5 years, we have seen green energy projects in Africa reaching final investment decisions all across Africa. Namibia recently has received almost $500million in investments in hydrogen and its substantial investments in solar energy and other renewables.

The clean energy that’s required for hydrogen production has made it attractive for this type of investment, and some of that hydrogen we’re told, is going to be considered to power rail transportation in Africa.

Angola is also said to become the first exporter of green ammonia to Germany by 2025. Angola’s full capacity for green hydrogen is planned for about 280,000 tons annually, and there are other countries that are also investing in green hydrogen. It’s Egypt, Kenya Morocco and Mauritania, they all have very aggressive hydrogen production goals.

For Africa to produce or to pursue a Climate Positive Growth path in trade and manufacturing, I think there are at least six things that African countries need to do. The first is that we need to speak with one voice and show up as shapers and not just takers. In other words, we need to be at the table shaping policy.

As diverse as Africa is, we have plenty in common, and showing up with a unified, proactive stance, is key to getting our agendas recognized and incorporated into emerging global rules and instruments.

In that respect, the African Ministerial Conference on the Environment’s recent decision to integrate the efforts of the Africa Group of Negotiators, the Committee of African Heads of State and Government on Climate Change, and the implementation of the Nairobi Declaration, including Africa Green Industrialization into a shared AU agenda, is an important recognition of this need for coordination and alignment.

Just as we did with the Marrakesh Declaration, aligning and shaping Africa’s engagement on reform of the MDB system, we need to lean in again, in an integrated way.

Two, we need to put our house in order and deal with the obvious governance issues of transparency and accountability, especially in public procurements, protecting democratic processes and the rule of law and security. Not just because of the risk of perception issues, but to give our people a fair chance to live and prosper, to live well and to prosper.

Three, focus our economic growth and development plans on these green opportunities, and structure internal policies and regulations in ways that support climate-positive trade and industry.

Fourth, actively work on harmonizing trade, environmental and industrial policies across the continent so as to ensure a level playing field. This is particularly important because the Guided Trade Initiative, GTI, of the Free Trade Agreement, and this GTI is really a test run for the Free Trade Agreement, has shown weaknesses in the implementation of the agreement on account of domestic taxes and levies in destination countries. So, we need to work on that.

Five, we need stronger and deeper African Capital Markets and African Financial Institutions because these are going to be key to our investment attractiveness as we go along, and that requires work in individual countries in collaboration between countries and in collective institutions.

Six, we need to develop critical infrastructure, especially climate-resilient infrastructure, to support industry and trade. Happily, there’s significant progress in that regard. Afrexim has invested a total of almost $2billion in the development of Special Economic Zones in several African countries. The Gabon Special Economic Zone which focuses on the timber industry, has created so far, about 16,000 jobs and attracted 120 investors, and has enabled Gabon to move from being an exporter of logs to the world’s second-largest sustainable producer and exporter of veneer as well as the first in Africa.

The Glo-Djigbé Industrial Zone (GDIZ) in the Benin Republic is dedicated to the local transformation of agricultural products including, cotton, cashews, pineapples, shea nuts and soybeans. There’s also the Adétikopé Industrial Platform in Togo which concentrates on the local transformation of agricultural products.

Other zones are being developed in the Republic of Congo, Ivory Coast, Nigeria, also in Chad, Rwanda and also in Sierra Leone.

Also, the bank has led the financing of several cross-border infrastructures including the Tanzania Isaka–Mwanza Standard Gauge Railway for the transportation of goods and passengers to neighbouring countries. Also, the Kano-Maradi Standard Gauge Railway, and that an important link between the Niger Republic’s major commercial hub and the commercial city of Kano in Northern Nigeria.

There’s the Abidjan-Lagos Corridor, the highway project which spans over 1,000 kilometres and connects the capitals and economic centres of five ECOWAS Member States; Cote D’Ivoire, Ghana, Togo, Benin, and Nigeria.

But what sort of global collaboration do we need to make if Climate Positive Growth is to become a reality in trade and Industry? The first is the right type and amount of investments and capital. Today, real and perceived risk factors mean that our cost of capital is much higher than elsewhere and it’s undoing much, if not all of our innate climate competitiveness.

The Climate Action Platform for Africa, CAPA, whose board I chair analysed the missed opportunity due to the cost of capital and we found that just projects that did go through a conservative assumption of 20% higher cost of capital in Africa meant that we missed out on 27 terawatt hours of renewable energy capacity in the past 10 years, which is 20% of Africa’s entire high electricity use. Just from the cost of capital.

In reality, we probably miss out on a lot more, because the cost of capital in Africa is often in orders of magnitude, much higher. After all, if you borrow from the capital markets, it’s about five times higher than everybody else pays. Because even at twice the cost, half the potential capacity is already forgone. This is not even counting the projects that don’t even reach that investment hurdle in the first place and get scrapped altogether because of the cost of capital.

So, addressing the issue of shortage of capital and cost of capital will require a range of interventions that all need to be delivered on. I will just dwell on a very few of them, the first is that we require the developed countries to keep the past promises under the price treaties, including the activation of the loss and damage fund agreed upon at COP27, and the commitment to $100 billion a year in climate finance for developing countries agreed nearly 10 years ago.

The second is a reform of the International Financial Architecture and these have been identified, as most of us know, in the Bridgetown Initiative, and the capital adequacy framework amongst others. They include a wide range of tools that increase and strengthen the balance sheets of MDBs. They ensure more of their deployment goes to emerging and frontier economies and drive more deployment towards climate-aligned investments.

Then, Technical Solutions such as recycling of Special Drawing Rights, smart capital blending and tailored risk mitigation and interventions, will also support this.

The third is dealing with the huge burden of sovereign debt. About a year ago, in a jointly authored article titled, “If You Want Our Countries To Address Climate Change, First Pause Our Debts,” co-authorship by President Ruto of Kenya and Dr Akinwunmi Adesina of the AfDB and Moussa Faki Mahamat, President of the AU Commission, reiterated a call for a 10year moratorium on interest payments on African foreign debt, to give the world’s most vulnerable countries the space to invest in climate resilience and other pressing needs such as health and education.

They also argued for more climate-targeted debt relief, but there’s a bolder initiative, this is an initiative called the Debt Relief for a Green and Inclusive Recovery Project, and this is endorsed by 41 retired African Central Bank Governors and Ministers of Finance.

The plan seeks debt reductions in the case of public creditors, debt reductions that will be sufficient to bring a distressed country back to debt sustainability, but also to put the country on the path of achieving development and climate goals, in a manner that also preserves the credit status and credit ratings of the participating international organizations.

Under the proposal, private and commercial creditors should grant commensurate rate debt reduction as public creditors, and these private creditors will be compelled to enter negotiations through Brady bonds backed by a guarantee fund and a payment standstill for 5 years for all creditor classes.

The fourth is identifying new and additional sources of finance, investment capital and liquidity through perhaps new levies, carbon prices and taxation, and that’s a broad field by itself, and of course, as you know, a lot of conversations are going on about that.

The fifth is adopting the common sense and I believe, fair approach of revaluing Africa’s GDP by including its natural capital, and its vast natural resources, particularly carbon sequestration and biodiversity.  Akinwunmi Adesina, Ben Oramah and the United Nations Economic Commission for Africa (UNECA) have all made strong cases that Africa’s natural capital should not only be recognized in our economic growth models but also monetized, which would enable African countries to secure more funding for greening their economies.

I believe the Continental Free Trade Agreement, and I think that it is also an important point to make, is not about Africa saying that it will trade within itself alone and ignore the world, certainly not, I think what the agreement does is that it empowers African countries first, to add value to raw materials in a sustainable manner and specialize in areas of national comparative advantage, and also to work together to trade more beneficially with the rest of the world. I think that it is really the point, you know, that one would like to make about the potential of the AfCFTA, not just for African countries, but also for the rest of the world.

Let me conclude by saying that yes, we can save lives today and preserve the planet for tomorrow. Indeed, Africa saving lives through a Climate Positive Growth path is the key to preserving the planet for tomorrow, but we need Global Patriots and Statesmen and women, both in the North and the South, to make the sacrifices that will secure not just Africa, but our planet for future generations.

Thank you very much for listening.