Access Bank’s Guest Lecture Series On The Theme: The Future Of Work & Adapting To A Changing Landscape

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LECTURE DELIVERED BY HIS EXCELLENCY, PROF. YEMI OSINBAJO, SAN, GCON, THE IMMEDIATE PAST VICE PRESIDENT OF THE FEDERAL REPUBLIC OF NIGERIA AT THE ACCESS BANK’S GUEST LECTURE SERIES THEMED “THE FUTURE OF WORK AND ADAPTING TO A CHANGING LANDSCAPE” IN LAGOS ON THE 28^TH OF MARCH, 2024

PROTOCOLS

First, let me say how honoured I am to have been invited to give this talk to the very dynamic and forward-looking leadership of Access Bank. And I am glad that we can go ahead with this lecture and not cancel it.

Herbert had mentioned to me that he wanted me to give this lecture and there is a deep sense that one is keeping a promise to a loyal and dedicated departed friend who would have done the same or even more.

So, I remember my friend and your colleague today with much fondness, and I pray that his memory and legacies will forever be an inspiration and a blessing.

The theme of this leadership series is “The Future of Work and Adapting to a Changing Landscape.” I don’t think that anyone would argue against the proposition that the business of the leader is to understand trends, events and policies that may affect their communities or nations and what implications there may be for the future of their businesses.

The role of the leader goes beyond merely nuts and bolts or the technicalities of the particular business. The whole point of leadership is that you are showing the way, you are the pathfinder and guide to hundreds or thousands. That role requires the prescience or ability to predict the future! And a key component of that is the correct interpretation of defining trends and patterns. Which is why I think the subject of this leadership series is so important.

What are those trends and the issues in those trends that you as leaders in the financial industry ought to be paying attention to?  What are the global conversations and decisions being taken that could impact your business?

In our interconnected world, global trends and challenges can have far-reaching impacts across borders. What happens in one part of the world can affect economies, societies, and environments elsewhere. Leaders must be aware of these dynamics to navigate potential risks and opportunities for their organization or community.

I must say that one of the troubling findings for me is that both the public and private sectors in our country and many parts of Africa, do not pay enough attention to global trends. International rules are made and conventions are signed without our input, and there are many important tables at which we are not represented. For me, one major business of leaders must be to listen, pay attention to local and international trends and developments and do some personal and corporate scenario planning based on information.

There are several crucial global and local trends that we must watch, these include technology, climate change, population and demographic shifts, geopolitics, globalization, deglobalization, new economic powers, healthcare; breakthroughs and challenges, education; transformation in teaching and learning. But so that we can at least be as exhaustive as possible, I will focus on only two namely Climate Change and Technology and leave the rest to possible questions during the Q and A session.

My approach will be to highlight the issues that you as leaders in the financial services industry and significant economic actors across Africa should take note. So, let’s take climate change. A few points to note; Africa is warming faster than anywhere else in the world, it has and is still experiencing some of the most devastating weather events and it is the least of all the continents prepared in terms of resources to mitigate the destruction of lives and livelihoods in the wake of the climate crisis. It is obvious we don’t have the kinds of buffers that other continents have.

Also, as you know, these consequences of climate change, flooding, drought, excessive heat, and rising sea levels that we are faced with in Africa come largely from the emissions and industrial activities from the global north countries whose carbon-intensive industrial development is largely responsible for the current predicament of the world.

Africa is, in fact, by far the least emitting region but what are the practical issues that climate change and climate action have thrown up? The first is the future of oil and gas, the second is the implications of some of the regulatory responses of the wealthier nations on our economy, and the third is the economic opportunities that climate change offers.

Regarding the future of oil and gas, everyone agrees that emissions from fossil fuels are the most responsible for global warming and that without a consistent and drastic reduction in their use, there is no chance of avoiding a global climate disaster. But the question is how can we transition from using oil and gas to renewable energy in a manner that is fair and just to rich and poor nations alike?

Typically, it seems that countries are looking out for themselves and not for the global good. So, take the issue of oil and gas, there is no dispute amongst countries on either side of the north/south divide that there must be a transition from fossil fuels to renewable energy.

But for gas-rich and energy-poor countries in Africa such as Nigeria, Algeria, Egypt, Ghana, Senegal and Mozambique, the argument is clear enough. Gas is still a cheap option for power, and must be a transition or bridge fuel as renewable options steadily become cheaper.

Gas, LPG in particular is seen as a clean cooking option to replace firewood, charcoal and kerosene stoves which are responsible for the millions of fatalities from indoor air pollution. Also, many countries, especially those without hydro, cannot integrate much more wind or solar power without balancing sources, and gas is often the best technical and financial option.

But a more interesting point is that even if we increased the electricity consumed by the over one billion people living in Sub-Saharan Africa by 300%, using natural gas as the source, global annual emissions would rise by only 0.62%. This is less than the average yearly global increase over the past decade.

But what is the response of the wealthier nations? There has been a growing trend among Development Finance Institutions to withdraw from fossil fuel investments, especially in developing countries. The World Bank had taken a decision to cease funding for upstream oil and gas development, and new restrictions on financing downstream gas development are at various stages of consideration and implementation by the EU, the UK, Northern Island and the US.

The ostensible reason for depriving developing countries of funding for gas projects is that they want to reduce global emissions and achieve their net-zero targets. But the hypocrisy of this was laid bare when the Russian-Ukraine war began and gas shortages spread all over Europe. The same EU countries were aggressively negotiating for gas supplies from gas-rich developing countries.

Second, most of the wealthier countries including the US, the EU China, Japan and many Asian countries still include gas as a major pillar of their multi-decade decarbonization strategies. And all the relevant studies show that oil and gas will continue to be in high demand for the next four decades before beginning to taper off.

The wealthier countries are not slowing down significantly on oil and gas investments. But we in the global south will be starved of investments and not be in the reckoning as major suppliers in this unfolding scenario. Unfortunately, a lot of these rules were being made with little or no input from the African public or private sectors.

Another significant threat to oil and gas investment is the continuing availability of insurance. There is a great deal of pressure on insurers and reinsurers especially from climate activists not to insure fossil fuel projects. Thankfully, success has been limited; the big international insurance companies appear to largely follow the money but that is only for now. Many large European insurers have shifted away from underwriting coal mining and coal-powered energy plants and recently, Chubb announced new underwriting criteria that would require oil and gas extraction projects to reduce their methane emissions.

Yet another threat to the fossil fuel industry is the increasing use of electric vehicles. The E-mobility Revolution. Many countries including major buyers of our oil in particular are setting dates for phasing out combustion engine cars. When combustion energy cars are phased out all over the world and electric vehicles become cheaper, especially with battery storage technology improving daily, we here will have no choice but to abandon combustion engine cars too.

The question that strategic leaders in the industry should be asking is how long before international financing for oil and gas projects in developing countries dries up?  And how long do we have before E-Vehicles replace combustion engine cars? Can we even afford to invest heavily in auto gas, CNG powered cars, if there is a risk that investments in gas projects may dry up?

And then what next? I think those of us in Africa must be thinking seriously of how to become a clean energy superpower. First, because we have some of the best renewable energy potential in the world.

Our renewable energy, especially solar power, is not only abundant, but also has very low seasonality or intermittency, which makes it possible to reliably provide renewable baseload to power continuous industrial production.

Strikingly, the lowest cost set-up of solar, wind, and battery storage to get a reliable baseload to power industry is twice as expensive in Germany as it is in Nigeria.

Solar PV in Nigeria and Kenya vastly outperforms Europe’s industry Centre and even Europe’s top PV spot. The same battery-supported PV system in Nigeria will enable a baseload that is 8 times as large as Germany. In Spain, 1.8 times larger.

The second is through the production and export of low-carbon fuels. These fuels—especially hydrogen and ammonia—will be critical to the transition to a net-zero world given their potential role in decarbonizing hard-to-electrify sectors, such as steel production; fueling trucks, ships, and other heavy vehicles; and balancing grids supplied primarily by renewable sources of energy that can experience intermittent disruptions.

The IEA’s “net zero by 2050” scenario anticipates that trade in hydrogen and ammonia will rise from almost nothing today to more than one-third of all energy-related transactions. The past five years have seen tremendous growth in the blue and green hydrogen industry. With many green hydrogen projects in Africa reaching Final investment decision (FID). Angola, Namibia, and South Africa are already farther ahead.

Namibia in May 2023 signed a $10billion deal with Hyphen Hydrogen Energy to continue with advanced feasibility studies towards the development of its green hydrogen plan which when done will produce 300,000 tons of green energy annually using wind and solar.

Angola is set to become the first exporter of green ammonia to Germany by 2025, the full capacity of its green hydrogen plant is planned for 280,000 tons annually.

South Africa is planning to produce 5 million tons of green hydrogen annually by 2040. Other, countries such as Egypt, Kenya, Morocco, and Mauritania have green hydrogen production goals. But a word of caution because there are so many countries gunning for the same market, there is a need to avoid the type of competition for export markets that may lead to a race to the bottom for prices. So, developing a unified African strategy for green hydrogen development is crucial.

A positive development in that regard is the inauguration of the Africa Green Hydrogen Alliance, in May 2022.

A separate issue to watch is the trade restrictions and other climate mitigation measures being introduced and considered by many global north countries ostensibly to reduce carbon emissions.

The EU for example introduced the Carbon Border Adjustment Mechanism (CBAMs) by which a levy is to be imposed on products imported into the EU for the carbon dioxide embedded in such an imported product by reason of the source of power used in making the product.

So, a manufacturer using gas as the power source in its plants will be subject to the CBAM levies. Cement, steel, and fertilizer manufacturers importing to the EU will have to pay the levies because most use coal, gas or diesel. This is one of those regulations that was largely developed without the input of several African countries that export to the EU. Africa stands to lose $25b annually from the CBAM.

The EU is Africa’s largest trading partner, with almost 162 billion in imports in 2021. Mozambique exports 97% of its aluminium to the EU. Aluminum accounts for as much as 20% of Mozambique’s exports and its GDP could fall by as much as 1.5% from CBAM levies.

There is also the new EU Deforestation Regulation (EUDR). This regulation mandates that key commodities and products such as palm oil, cattle, soy, coffee, cocoa, timber, and rubber, along with derived products like beef, furniture, and chocolate, must be deforestation-free if they are to be exported to or placed on the EU market starting from 30 December 2024.

For micro or small businesses, the application deadline extends to 30 June 2025. The EUDR emphasizes that “deforestation-free” includes goods produced on land not subject to deforestation or forest degradation after 31 December 2020, and applies even if the deforestation is legal in the country of production.

Again, another regulation that would affect African businesses significantly and which got little or no input from African public or private sectors and has not been formally challenged even now.

Let me speak briefly about Carbon Markets. These are major benefits of the energy transition and there is growing awareness of its potential. The Federal Government recently joined several African countries by presenting its Carbon Market activation plan. The voluntary carbon market offers huge profit potential and we are at the moment when the market is being designed, and this is the time for the financial services industry to get involved, some countries are further ahead than others.

Kenya has thoughtfully considered its laws and regulations. The African Carbon Markets Initiative is offering support for countries trying to activate their own carbon markets.  But there is already a scramble for large areas of land by wealthy companies to win carbon credits from avoidance of deforestation. So, by buying and conserving large areas of forest and preventing deforestation, potentially huge amounts can be made in carbon.

One of the more notable companies involved in this has so far signed MOUs and paid for large areas of forests, a fifth of Zimbabwe (18 million acres), roughly a tenth of Liberia 2.5 million acres and a tenth of Zambia 20 million acres respectively), and 8 percent of Tanzania further 20 million acres). The company has also approached another well-forested African country, Angola.

The second trend is technology, and the continuing advancement in the development of Artificial Intelligence (AI), Machine Learning (ML), Quantum Computing, Robotics, Sensors, Automation and Big Data.

AI in particular is set to dramatically change practically every aspect of life and commerce as we know it.  Just last week, Researchers at McMaster University and Stanford University announced the invention of a new generative artificial intelligence model which can design new antibiotics to stop the spread of one of the most dangerous antibiotic resistant bacteria.

The University of Arkansas on March 1st, made the startling result of a test they conducted between 151 humans and  Chat GPT to find out which excelled in divergent thinking and unfortunately Chat GPT won!  Already we have seen how AI and ML are poised to significantly transform the financial services industry in several ways.

Today AI-driven chatbots and virtual assistants can provide 24/7 customer service, offering quick responses to inquiries and personalized financial advice. These technologies can learn from customer interactions to improve their services continually. AI systems now have superior skills in identifying patterns that indicate fraud by analyzing transaction data in real time.

AI’s traditional strength and this is improving daily, is the automation of routine tasks and processes and significantly reducing operational costs for financial institutions. This includes everything from customer onboarding, to compliance checks and even regulatory compliance across different jurisdictions can now be handled more quickly and accurately.

How about stock and currency trading? AI algorithms can now analyze vast amounts of market data, including news and social media, to make predictions about market movements and execute trades at optimal times. Same for Credit and Risk Assessment, AI can process complex datasets to assess credit risk more accurately, considering factors beyond traditional credit scores. This can lead to more nuanced risk assessments, potentially opening up credit to previously underserved markets while managing lenders’ risk.

But even more interesting is what AI can do in Predictive Analytics; AI’s ability to process and analyze large datasets can help predict broader economic trends, enabling businesses and investors to make more informed decisions.

What is more intriguing is that quantum computing we are seeing today is set to advance dramatically. Quantum computing can process and analyze vast amounts of data much faster than classical computers.

This capability is particularly relevant for AI applications that depend on large-scale data analysis, such as Natural Language Processing and image recognition. So, we literarily haven’t seen anything yet.

What happens to jobs? Will this AI take over and result in human redundancies in the market place? Research findings are quite nuanced on this point. One thing that is clear is that AI and Machine Learning tools are particularly good at automating routine, repetitive tasks such as data entry, transaction processing, and basic customer service inquiries. Jobs that primarily involve these tasks are at a higher risk of being affected, but new jobs and roles are also being created particularly in areas such as AI development, data analysis, cybersecurity, and AI ethics. And more roles will emerge for jobs that require emotional intelligence, creative thinking, and strategic judgment—capabilities that AI lacks.

Also, human oversight of AI systems will create new jobs, especially for roles focused on ensuring the fairness, accountability, and transparency of AI applications. One of the critical implications of the AI revolution as it transforms the job landscape in financial services is the importance of upskilling and reskilling workers.

Workers need to adapt to the changing demands of their roles, which increasingly require digital literacy, the ability to work alongside AI systems, and skills in areas such as data analysis and interpretation. No one is yet sure of what the net Impact of AI will be on employment levels in the financial industry.

While some jobs may be lost or significantly changed, new ones will emerge, and the overall demand for financial services may increase as these technologies enable more efficient and accessible financial products and services.

One thing that we are bound to see sooner than later are labour organizations refitting their tool boxes in negotiating with employers of labour in the financial services industry, especially on how to prevent needless job losses, retraining programs, and policies to foster job creation in emerging areas.

Before I sit let me say that something I learnt in my years in public service is that we must be prepared to engage our constituencies, avoid making judgments based on stereotypes, and use of some common sense.