Using what you have to get what you want: why Central African countries must put natural capital accounting at the centre of their development

PUBLISHED: Mon, 19 Jul 2021 09:56:35 GMT
Nadia Ouedraogo, Issoufou Seidou, Abel Akara Ticha and Antonio Pedro
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The paradox of Central Africa is that it constellates countries extremely rich in natural resources needed for global development, yet these countries cannot finance their development agendas without recourse to expensive loans and aid with attached strings. The situation becomes dire when faced with externalities such as plummeting commodity prices or a pandemic such as COVID-19. But this ought never to be so!

Among the many metaphors used to deplore the situation and reawaken the spirits of citizens of this sub-region to take their destiny in their own hands, is that of a royal personage sitting on a golden chair, but with a cap-in-hand, asking for pieces of silver and bank notes from visitors and passers-by. In this write-up, we argue that it is time for Central Africans to get up from that stool, literally count their blessings and transform their economies using those blessings. And natural capital accounting (NCA) is one major way to do this.

So, what is natural capital accounting?

Natural Capital Accounting (NCA) is a rigorous audit of the economic worth and monetary value of a country’s natural resources, to assess its real wealth, sustainably plan its development and better bargain for development finance without sinking into debt (as is currently the case with several Central African economies).

NCA is a relatively new tool in environmental management. It assesses the natural ecosystems’ contributions to a country’s economy, its level of reliance on natural systems, tracking changes in these natural systems and its impacts. It can be understood as a new (and better) way of combining existing tools used in economic analysis with environmental data. In other words, if GDP is measured in terms of the total value of goods and services produced within an economy in a year, natural resources which offer ecological and other services ought to be included in the equation in assessing the true wealth of a nation.

We contend that the gains to be made from mainstreaming NCA into national accounts and the overall scheme of wealth measurement in Central Africa are manifold. Below, the 4 issues to note:

1) NCA will enable a change of course in our development trajectory

A systematic count of a country’s natural capital and its ecological services provides solid pointers to leaders in formulating and finetuning development policies and interventions in areas such as the environment, forest management, agroindustry, local government, green and blue economy. Moreover, it can help mobilize innovative financing for a faster transition to green growth and lessen the dependence on the export of raw materials such as oil.

Let us explicate this point with a clear example.

Central African countries have a huge potential of renewable energy totalling an estimate of 16,724,190 megawatt (MW). Of this estimate, hydro takes 126,990 MW, solar 14,751,375 MW, and wind takes 1,844, 125 MW. Specifically, the Democratic Republic of the Congo (DRC) is blessed with huge hydropower potential, including the world’s second largest river by volume – the Congo River. While two dams built on

the stretch of the river more than three decades ago, Inga I and Inga II, provide most of the nation’s power, with capacities of 351 MW and 1,424 MW respectively, they are far from meeting the country’s electricity needs and far from making the most use of the Inga rapids which have an untapped hydropower potential of more than 40,000 MW. This potential could be exploited by the Inga III Project (with an estimated capacity of 4,500 MW) and the later phases of the Grand Inga scheme (with an estimated capacity of 40,000 MW). The Grand Inga, which, if materialized in six phases, would be the world’s largest hydropower project could supply Africa with an additional 40,000 megawatts of electricity.

The subregion is also home to huge potential in solar and wind energy. Particularly, Chad and the northernmost parts of Cameroon, in the same neighborhood present unmissable opportunities for solar and wind energy production as a United Nations Economic Commissions for Africa (ECA) preliminary geospatial data driven analysis on economic opportunities along Central Africa’s transport corridors has established. The area boasts an average of 22, 000 kilojoules per meter square of solar irradiation per day and a wind power density of more than 42 joules per cubic meter.

These vast renewable energy resources can be harnessed to diversify the economies away from fossil fuels and meet the increasing domestic energy needs, critical to achieving sustainable development and green growth as well as contributing to the global climate change mitigation efforts. And to do so, Central Africa can take advantage of climate change investments.

In the same vein, Central Africa can take advantage of the global race to zero emissions for climate change mitigation to climb the global value chain. Truly, the net-zero carbon pledges require significant quantities of critical minerals such as cobalt, lithium, copper and manganese and various rare earth metals whose production is expected to grow nearly sevenfold between 2020 and 2030 in the net zero pathway. In this context, and with its 2/3 of the identified world reserves of cobalt (more than 25 million tons), the DRC has a unique opportunity of being at the heart of the dynamic battery value chain and the electric vehicle- (BEV)- revolution, and renewable energy deployment. Unfortunately, the DRC is still locked in the mining and mineral processing stage, and at the bottom of the global value chain, currently capturing only 3% of a total global value that is expected to reach US$ 8.8 trillion by 2025. To break this vicious cycle, the country has to improve the linkages between the extractive sector and other sectors of the local economy. Through natural capital accounting, such explicit linkages would have been established to give to the DRC, the subregion and Africa as a whole a leverage to integrate the global supply chain of BEV critically needed to feed the world’s race to net-zero emissions.

The above examples don’t tell the whole story, there are many other areas in the subregion where similar huge potentials are sitting, unknown, and therefore not accounted for in development planning. NCA will help identify and value these potentials, providing baseline data and practical frameworks that can be used to formulate and implement policies and strategies to accelerate the attainment of the SDGs and Agenda 2063, at country or subregional level.

2) NCA can enhance sustainable development and greatly expand fiscal space for development

Central Africa’s wealth will be better known by correctly measuring and valuing its natural capital and associated services and activities that were previously unrecorded or undervalued. A better valuation of the natural capital of a country will increase its reported net wealth and will open the way for its inclusion in GDP, and rebasing of national wealth. Not to mention that, if a country can continuously measure its stock

of renewable resources, it can monitor their use and therefore design policies that will result in higher well-being without destroying irreplaceable assets such as the stock of biodiversity.

“GDP tells you nothing about sustainability”, said Joseph Stiglitz. However, with a reliable natural capital accounting system, a country can produce a set of indicators that will efficiently complement GDP to monitor its sustainable development. Appetite and political commitment for this is not huge yet…

Even so, and as said earlier, Central African countries can also leverage their natural capital to mobilize innovative financing and expand the fiscal space necessary for adopting counter-cyclical measures to accelerate economic diversification and build forward better, which is important to do, in times of crisis such as the COVID-19 pandemic, which has aggravated the already precarious debt situation of the subregion in particular, and Africa in general.

While liquidity-richer countries have kept their economies afloat in spite of lockdowns through stimulus packages, Central Africa, like the rest of the continent, has not been able to provide such incentives to businesses and citizens, resulting in a 6.6% loss of GDP. It is a double jeopardy of economic and health service decline, which a broader fiscal space would have cushioned.

From simulations by ECA showing that debt servicing obligations may mean many African countries devote more than half of their GDP to debt-servicing in the early 2020’s, there must be a way out with NCA. The ecological services provided to the rest of the world by the Congo Basin Forests (considered the second biosphere and lung of the planet) must be quantified and monetized to expand such a fiscal space. ECA, UNEP and UNDP are currently working with the Government of Gabon to use NCA to audit its forests and determine the exact value of the carbon sink they provide to help store greenhouse gases from worsening the global climate challenge. Less than 1% of the country’s 230,000 square km of forest has been depleted. This is natural capital that should be paid for via innovative green and climate financing mechanisms such as the Green Funds, and Green and Blue Bonds, as well as debt-for-climate adaption swaps.

Next door, the Republic of Congo and the Democratic Republic of Congo do not only equally hold vast swathes of forests canopy but jointly possess a powerful source of carbon sequestration – a 245,000 km square peatland belt. The peatlands trap 30 billion tons of greenhouse gases equivalent to three years of global carbon emissions. Central African countries should clearly flag this natural ecological support to the rest of the world, monetize it and demand payments. The demarche will spare them from making the painful choice between short-term objectives of restoring macroeconomic equilibrium and the long-term objective of placing their economies on a trajectory of sustained and inclusive growth through economic diversification and structural transformation, during crises periods as the COVID-19 pandemic. Now is the time to do it.

3) Where should we start from?

Of course, the first thing to do is to map, delineate and evaluate all the natural resources (renewable and non-renewable) assets available in the sub-region. If we don’t know what we have and where we have it, we can’t get the most out of natural resources.

We also need to build register or cadastral systems, and make relevant information, including licenses, publicly available and accessible online in open data format, in line with EITI1 requirements of full disclosure of information. This will improve governance and transparency in the management of the sector.

We also must address the technical and institutional barriers to the establishment of routinely produced environmental-economic accounts at the national levels, focusing on: 1) building the institutional framework in support of the NCA implementation; 2) training of local technical experts (including scientists, economists, statisticians, policy specialists) to compile priority accounts on a regular basis and to strengthen their capacity in negotiating new licensing schemes, in which, for example, preserving natural capital could be part of the biddable factors; 3) fostering inter-institutional relationships to promote collaboration and data-sharing; and 4) promoting the effective communication and use of NCA in supporting evidence-based policy and the SDGs. We have started doing this in Gabon. We must do it systematically across the entire sub-region.

4) We need a new and green deal

The recent external shocks that many Central African countries have suffered due to the sharp drop in world oil prices and the need to finance development in the post-Covid-19 era should be a wakening call for our sleeping king. Central Africa needs to move from a brown growth which has sunk the sub-region to a vicious cycle of booms and busts, to a green growth model which harnesses the full potential of the sub-region natural capital and its ecological services. We need to move from the resource for infrastructure model, to a resource for industrialization and sustainable development pathway. This is a compact that requires the involvement of several stakeholders including governments, financial institutions, local and international communities, large and small companies, and ordinary citizens.

Natural capital accounting is central to this transition! With it, we must rebase key indicators of wealth, and rightfully press for payments for the ecological services provided by the subregion in its forest, subterranean and submarine carbon sinks to expand fiscal space.

In line with the Decade of Economic Diversification in Central Africa declared in November 2020, our Decade of Action in Central Africa must contribute to rapid economic diversification and structural transformation of economies, moving up Central Africa’s participation in global chains, including in the battery, electric vehicle and renewable energy industry. This is the objective of the DRC-Africa Business Forum on “Fostering the development of a battery, electric vehicle, and renewable energy industry value chain and market in Africa, which the government of DRC, ECA, Afreximbank, Africa Finance Corporation, and BADEA are organizing in Kinshasa, DRC in September 2021. See you in Kinshasa.

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https://www.uneca.org/events/central-africa/drc-business-forum

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*Antonio Pedro heads the Subregional Office for Central Africa of the United nations Economic Commission for Africa (ECA). Nadia Ouedraogo and Issoufou Seidou are economists in that Office while Abel Akara Ticha is the Office’s communication Officer