Private Sector Key to Africa's Adapatation to Climate Change

Thinking about our addiction to carbon reminds me of the king of Phrygia and his request to the Greek god Dionysus. King Midas asked that whatever he touched turn into gold. His wish was granted. But the king soon realized that it was a curse.

The industrial revolution, powered by fossil fuels has granted our wishes for health, wealth and power on a scale that now threatens to transform our planet into something profoundly inhospitable, especially for posterity. Climate change caused by our insatiable appetite for carbon and its impact – current and projected – is now almost incontrovertible.

There is compelling scientific evidence that climate change is a serious existential issue, which demands urgent action to forestall the risk of damaging and potentially irreversible impacts on ecosystems, societies and economies.  Nicholas Stern, author of “The Economics of Climate Change”, popularly known as the Stern Review, described climate change as “the greatest market failure the world has seen”.

It is widely acknowledged that climate change will have a broad-ranging impact on economies and financial markets over the coming decades. The impact of climate change has been accentuated by the tens of billions of dollars in losses due to recent climate-related natural disasters such as the floods and wildfires in Australia, Pakistan and Russia; droughts the Sahel and the Horn of Africa. A new draft federal report on the current and anticipated impacts from greenhouse-driven global warning admits, “Climate change is already affecting the American people”.

The evidence for climate change driven resource constraints is compelling. Climate change induced constraints such as water scarcity will have direct local impacts. National, regional and global impacts will be propagated through supply chains and through second order effects such as increased food prices and instability. Moreover, rising global temperatures and extreme weather events that are likely to become more frequent and severe are testing the Earth’s resilience. Put simply, resilience is the capacity to adapt to change, withstand or recover from shock while still maintaining critical structures and performing essential functions.

The Global Risks 2013, a report of the World Economic Forum, identified failure of climate change adaptation and rising greenhouse gas emissions as among those global risks considered to be the most likely to materialize within a decade. The limitations in our ability to transform our production and consumption patterns will have a far more severe impact on our lives than climate change, especially given the strong positive correlation between greenhouse gas emission and economic growth.

Global economic output and gains in human wellbeing is driven by big industry – heavy manufacturing and agribusiness – and the allied services that drive their global supply chains. Similarly, Africa’s private sector business accounts for 65-85% of the continent’s annual GDP growth. According to the Kenya Joint Assessment Strategy 2007-2012, the private sector accounts for more than 80% of GDP and most government revenues.

Climate-smart and resilient business must therefore be a key plank in Africa’s climate change adaptation strategy. However, conversation on climate change has been limited to resilience and adaptive capacity for smallholder farmers. Colossal diplomatic capital has been expended on how to protect vulnerable agricultural and pastoral communities in Africa. I seldom hear global conversations about how climate change will affect Africa’s business sector or how to “climate proof” Africa’s business.

Do not get me wrong. This is not to suggest that smallholder agricultural and pastoral communities do not matter. They matter hugely. But smallholders thrive when they are nested in supply and value chains of medium and large business, which are climate compatible. The resilience and adaptive capacity of private sector businesses is inextricably bound to that of vulnerable smallholder farmers and pastoral communities. 

Climate change will have impacts on companies’ financial and social performance, with huge implications of their ecological footprint. However, very little attention has been given to understanding what climate change means for long-term investment risks and opportunities in the context of strategic asset allocation, financing for investment and national economic growth. Very few private sector businesses in Africa, particularly those that are in climate sensitive sectors, have the capacity and resources to produce such evidence.

Multilateral organizations, which move large capital for private sector investment in Africa such as International Finance Cooperation (IFC) should work with local universities and policy research organizations to develop methods for evaluating climate risk and adaptation needs and responses, both policy and technical, for the private sector.

Resilient Dynamism is the theme for this year’s World Economic Forum. In a world fraught with change and uncertainty, vital institutions such private business must marshal prudent agility to build resilience to the impacts of climate change.