Africa needs just trade for a Just Energy Transition, African Development Bank head says at Doha Forum

The President of the African Development Bank Group Dr Akinwumi Adesina has reiterated his warning that the introduction of a carbon border tax by the European Union could push Africa back into exporting raw commodities and undermine its industrialisation gains.

The European Union recently launched the initial phase of a Europe-wide carbon tax on imported goods as part of its climate change reduction measures. Adesina said this could penalize African countries.

“African companies that are making cement, steel, aluminium, fertilizers and trying to export to Europe are going to be charged a border tax of 80 euros per tonne. That is very expensive, and all that is going to do is that countries in Africa that already suffer from tariff escalation when they add value to what they produce, now you are forcing them down the value chain,” Adesina said.

Adesina spoke during a high-level panel session at the Doha Forum on Sunday, 10 December, on “Decoding the Debt Dilemma—Unveiling Multilateral Solutions.” Other speakers were Qatar’s Minister of Finance Ali bin Ahmed Al Kuwari and Børge Brende, President of the World Economic Forum. CNBC Anchor and Correspondent Dan Murphy moderated the session.

“Africa is going to lose $25 billion annually,” Adesina said. “Africa deserves a carve-out on that [taxation] because we are financing Africa’s transition. You cannot industrialise just by renewables; you need a balanced energy mix that allows you to use your natural gas to be able to industrialise.”

He described natural gas as an essential resource for Africa that should not be restricted in foreign trade.

“Just trade is what we need, but give us just trade for a just energy transition,” Adesina added. “Africa should not be penalised.”

He noted that by introducing general punitive measures that also affect developing countries, developed countries are “shifting the goal post” in the differentiated responsibility within the Paris Agreement by forcing developing countries to attain net-zero carbon emissions much earlier than stipulated.

The Doha Forum is a global platform for dialogue by policy leaders on the world’s critical challenges to build innovative and action-driven networks.

Commenting on the difficulty of achieving consensus on climate restrictions, including taxation, Brende said it would be a long road to political agreement on a global carbon price. But at the same time, energy access and security are vital.

“Moving to a society which is decarbonised takes time,” Brende noted. “We have to find bridges between coal as the most extreme form of fossil fuel through natural gas. We have to move at a speed which makes sense, is cost-effective, and there is a price to be paid,” Brende said.

Minister Al Kuwari said targets set by climate change experts had at times been “too ambitious, too aggressive, and had not properly taken into consideration transition periods. Qatar, on the other hand, has established a reputation as a responsible supplier of energy to the world, the minister said.

“Qatar believes that natural gas will be the transition fuel and should be adopted. We have invested in increasing our production by 65% and reach a maximum of that production by 2027. ‘It’s very important for climate change goals to be realistic,’ Al Kuwari said.

Leveraging power of multilateral development banks will boost finance for climate change, adaptation

Multilateral development banks such as the African Development Bank are critical to providing solutions for Africa’s staggering debt burden and other development challenges, Adesina said. He highlighted the role of MDBs mobilisers of financing for developing countries.

‘We need to use the tools we have as we call for the reform of the global financial architecture. The multilateral financial institutions are going to be critical. The tools we have—Special Drawing Rights—need to be stretched,’ Adesina said, noting that Africa only received $33 billion out of $650 billion International Monetary Fund Special Drawing Rights (SDRs).

Adesina said Africa’s total 2022 external debt, estimated at $1.1 trillion and set to rise to $1.3 trillion by the end of 2023, was troubling. ‘Twenty-five countries in Africa are in or at high risk of debt distress…a multilateral approach requires that we understand the structure of the debt itself, what is changing, and how can we respond to it,’ Adesina said.

A proposal developed by the African Development Bank and the Inter-American Development Bank to channel SDRs to multilateral institutions, would enable the banks to leverage funds by a factor of four. ‘If the African Development Bank got $20 billion, that would automatically become $80 billion. The MDBs are leveraging machines,’ Adesina said.

Minister Al Kuwari said Qatar had successfully brought down its debt from 72% of GDP in 2020 to below 40% in 2022 through fiscal policy.

Brende said global debt was huge. ‘We haven’t seen this level of debt since the Napoleonic wars…even the world’s largest economy, the United States, is paying $1 trillion to service its debt. “The US will be able to manage, but a lot of countries are in a lot of trouble,” Brende said.

To watch the entire session, click here.