The Nairobi Declaration came forth as a pact of new resolution on Africa’s stance on Climate Change while taking a sneaky position to agitate for new financial order – to offset “odious debts and onerous barriers”. Who owes whom in the new order? The world owes Africa. The new regime calls for collective responsibility, and a sensitive capitalism where damages are paid for and considered in the book of accounts. Before the Paris Climate Agreement, the old model operated in a system of voluntarism and climate action was considered to be an altruistic act based on the wishes of the companies as bound in their CSR. Now, the new requirements call for a shift to Environmental Social Governance as an obligation for all companies to account: hence the age of carbon credits, carbon taxes and market economic obligations.

So what does the book of accounts look like: Africa produces only 3.8% of the current carbon level – yet distinctively pays off for the climate crisis in the climate disasters arising from global-warming. Scientists have established that there is a 66% chance that the 1.5 ºC of warming cap by 2025 as established by Intergovernmental Panel on Climate Change (IPCC) is less likely met. The implications are that Africa and majority of Global South may experience a 3 degrees to 4 degrees temperature rise.

The balance of trade in this new arena gives Africa a comparative advantage. In the Ricardian theory of comparative advantage, which was lauded by Paul Samuelson in the History of Economics Analysis, as the most beautiful idea in economics, places the power in the hands of the producers – in the age of green industrialization, Africa’s position in the international trade and economics cannot be gainsaid. It is apparent that the balance of trade has to be based on the source of energy for all export products. To do this, there is need to review metrics of economic evaluation from the rigid orthodoxy in economics – hence, the shift from sole unilateral actors to multilateral approach in defining the new standards of what constitutes the balance of trade.

How the West Can Gain From the Ricardian Model: In the Age of Climate Economics

The West and the Global North has been at the frontier of economic and industrial growth in the world, and has a unique opportunity to be responsible actors in embracing climate economics. That way, climate change will cease to be a CSR or special interest activity that depends on altruistic wishes or burdens the citizens of developed nations through increase in government commitments to offset carbon emissions. Often, this leads to discontent in the international politics with aggression and climate donor fatigue setting whenever climate change financial commitments are brought up. Thus, Nairobi Declaration called forth for the Global North to agree that we are in this together – and that climate change is a real economic issue that everyone is a core player. The Nairobi Declaration as such makes the West a core player in participating in climate economics while shaping the future of green economies.

So let’s talk Ricardian, and how the West can make use of the unique comparative advantage as drivers of industry to advance a more global democratic capitalism. The moral hazard of being bailed out, or passing the burden to the markets through quantitative easing by Bretton Woods Institutions’ - the World Bank and IMF – via ‘economic cooperation’ while defending the established economies may not work. Thus, let’s trade with caution and responsibly even as some quarters call for Africa to tread carefully on its bold declaration on reviewing financial architecture from the terms of Bretton Woods’s institution to Nairobi Declaration aspirations. The demands being, give us the 100 billion directly through multilateral banks such as African Development Bank, and make it all transparent by eliminating the use of high interest rates loans, often termed concessional while denying the power to consent of minority economies, and who are held on reductive interest rates against an infinite nonstandard global rate. For what is to be made if Europe pays 4 percent, and Africa pays 10 percent and if she dares complain, the interest is reduced to 8 percent – and she is told that she has been financed by the 2 percent decrease. In this game, the holders of capital have really played the Global South a bad number – it is a bad bargain.

Let’s flip the coin, says African leaders in the Nairobi Declaration. It proceeds as something like this:

How do our global real capital economies look like? On the credit side is carbon fuels and the associated carbon, on the debit side is the climate based capitals including green energy and the vast forests. Thus, now in the mix of international trade shifts the conversation to consider the real assets, which Africa Climate Summit conversations drive at. In the Nairobi declaration it became apparent that the Congo Forest is the bank of Africa, which is the asset of Africa’s climate capital an asset with inexhaustible value for carbon sequestering. The carbon sinks, like other capital resources, has to be factored in as a core resource that has market impact and that can be leveraged on in the age of climate conscious economic era.

It is apparent that the current environmental costs and regime is a result of the excess consumption of fossil fuels; and now the inclination to green energy calls for a shift to optimize on green energy capitals. As such, the Global North can use two approaches in catching up to this new reality: either through foreign direct investments approach or through trade-off system by investing in energy efficiency programs that offset local i.e. African carbon energy dependency and thereby create an intermittent transfer. Notably, the first one is a long term model and more sustainable; the second one is useful for the medium term as a bargaining chip – no less useful than carbon taxes or other mitigation strategies within the global climate economy.

Difficult Conversations: Afrocentric Competitive Advantage in Green Industrialization

Paris Agreement on climate capitals, and climate financing are glorious standpoints even though as has been proven in the last few years, it is not conclusive. More work, policy action plans need to be enacted. This is where the gains of Nairobi Declaration come in. Rather than taking a victim based concept, as often been the activist pathway, the Africa Climate Summit took the conversation to the door step using terms too familiar to the capitalist driven economy. Thus, rather than being bond by monarchial codes – the question is now being put to vote, and democracy of world economies is being put to task. What are the parameters, and who sets the price? The markets. Our capitalistic enterprise must accept the rules for which, and by which we play by: the free market and climate capitals.

This is inarguably the tipping point to temper the old regime of fossil fuel driven capitalism to the age of green energy driven capitalism. It occurs that many an economist have grappled with whether to repeat the old playbook of fossil fuel led industrialization or to adapt the green energy model for industrialization. In some quarters, there is a core disillusionment, and rightfully so, that the global North has preached water while drinking wine – and seems to continuously tell Africa to behave right. The consensus for green industrialization must come from amongst all nations to make a move from reliance of fossil fuels to adaptation of green energy. The only way to make sense of this, economically, is to introduce the carbon taxes and make them ubiquitous in a manner that makes industrialization based on fossil fuels more expensive. The same applies to use of carbon credits to make it less attractive for manufacturers to continue relying on fossil fuels and hence move towards investing in green energy systems.

So, in the new age, the climate capitalism which we must fully agree has come of age, and it is upon us to conceptualize its terms, Africa must now make use of this new regime and go hard on fully making a statement of how this is possible. In lieu, all processes of industrialization ought to showcase the sources of energy and therefore put comparative value in the general economies of the products produced on green energy. While this may not tamper the market price for products, it ought to tamper the balance of trade and reconfigure the way we measure economic productivity of a nation from purely the current GDP based model to a GDP sustainability model – if we are to advocate for sustainable growth. Sustainable growth should hence not be more towards growing the economic output, but also the overall output that is fully reliant on sustainable energy: the green industrialization. Green industrialization has now become a global concept for sustainability, and now whoever owns the green resources has the inherent power to call the tune. Green is the new oil.

Climate Mitigation and Adaptation: A Miss?

The new economic model has to factor in between the role of GDP led economies and development based approach. The GDP led model leans on the carbon markets and financing while the development approach considers the role of mitigation of climate change, resilience of communities and adaptation of the communities. It is easy for economists and policy makers to obsess on the balance sheets, without considering the people for whom the economy should serve; an apparent tragedy of Adam Smith’s ‘orthodoxy’ in economics. That is why, it is apparent that some sects of the population consider that the Nairobi Declaration is skewed toward the fiscal policy and is oblivious of what climate change means to the people. While this was not strongly articulated in the Nairobi Declaration perhaps because when dealing in negotiations you are likely to discuss the trade-offs rather than how each party optimizes the gains. Nevertheless, this matter should not be understated as it is essential to saunter our economic capitalism with a human soul, as it is required of us to meet our environmental idealism with economic pragmatism. Therefore, in the post-Nairobi Declaration the next biggest task for African countries – both governments and non-governmental institutions have the tenuous task of housekeeping to bring forth the fruits of climate justice to the peasant farmer, and to the distressed pastoralist upon whose field and flock bears the cataclysmic brunt of climate change. Now, Africa is responsible to answer the question: how do we improve the livelihood of our people in this economy vastly affected by climate change? How do we build resilience?

The entire concept of climate finance, as articulated in the core documents, and for all intent and purpose is to promote resilience and adaptation. Resilience of our climate economies, especially those who are vastly affected determines the essence and purpose of climate finance. For it befalls upon us a core challenge to ensure that justice not only seems to be done, as per the balance sheets, but justice is done through economic balance – a system of reinvesting in the societies to offset the negative impacts of climate change. Climate resilience falls upon empowering our communities to be better prepared to build new economies which can endure shocks without crumbling, and for which droughts do not mean famine, or floods does not mean displacement. It is a way of rising above the vagaries that are undeniably upon us, and for which the various actors have come together to resolve. In this discourse, it is essential to venture forth in building resilient agricultural practices that adapt innovative agriculture and make use of early warning systems to avoid flood related catastrophes. It falls upon the urban planners to rethink of how to create equitable systems in housing and city planning to ensure there is sufficient water to urban populations, and affordable food for the vast growing populations in the Global South.

An increase in food insecurity, floods and an amplification of long droughts have affected indigenous communities and led to human devastation. Now its time to place the money in adaptation finance: adaptation finance ought to focus on providing resilience of the communities. For we know too well that if we fail to act, the vagaries of human suffering will not be swept away if we look the other way, or if we rage against the dying of the light. Our rage must be put toward building community resilience through smart agriculture, agroforestry, early warning systems, and a raft of innovations that are to help farmers, pastoral communities and entire economies build food and water security.

The Role of New Financial Architecture

The pre sent age presents a discussion on open financing models, and the balance of payment approach. The new age embraces the twin forces of capitalism – the capital account and the financial account. Africa is saying that it has a vast climate capital account, and the West has a vast financial account and it is time to have a conversation otherwise the scales are too low on the African side, it is time the Global North started dropping more weight on their side of the scale. So, it is rightful for Africa to call for a review of the financial architecture to have a more inclusive economy where the terms of development are not rigged against it, and the Global South. For we have come to realize that the risks that face our globe are not just based on the GDP as it has been, but that there is new securities, new collaterals such as our carbon banks – and even as we seek to address climate change, just as we move from pitting the North against the South, so must we stop pitting the financial architecture on the prisms of developed vs developed. In this respect, institutions such as IFC, World Bank and IMF should move beyond working with our multilateral development banks as mere funnels of climate finance transfers but as core stakeholders in the discussion of the global economy. In addition, we must relook at the weights that have been used to impede development such as the short repayment periods that have often kept developing nations in a quick cycle. Else, the extension of loans takes on the example of the fox and the stork, whereby the fox extended to the fox a bowl of soup but put it in a shallow bowl knowing too well that the stork will not be able to drink the soup. So, when the West and the North says that they have extended climate finance, they must do so in a way that makes the South enrich itself from the climate finance in a bid to build sustainable economies.

In addition, we must make use of climate economic measures including a sync in the overall accounting system of carbon sinks or carbon banks is a new model of advancing openness in the global climate contributions, and energy systems. This should not be limited to carbon accounting but extend to a diverse portfolio of the new economic resources and inputs. For it occurs that energy is the core issue within the industrial led economies that we have, and as such it is useful to make green energy accounting as part of our capitalistic enterprise. The energy reserve ratio and the open grid system, should be the new basis upon which the global financial architecture evaluates the concept of sustainable economies rather than merely basing their metrics on balance of trade. Thus, just as block chain system has anchored the model of finances. New concepts such as harmonizing the energy grid system has to be systemized in an open block chain model where the energy levels, sources and users are noted ought to be adapted. The renewable energy systems should be built around openness to establish its existence, relevance levels, and monitor its efficiency.

Besides, the Open Grid System is not an isolated action plan; an open grid system in green energy investments and climate friendly action plans is a viable concept in accessing commitments, financial flows and actions around climate economics. To this effect, the climate investment fund as an important aspect of the climate financing model, and the new financial architecture should be based on performance metrics rather than political goodwill or benign gentleman agreements among a select few.

Waka Africa through Waka Gram, its novel action plan concept addresses these issues, and seeks to advance both resilience and adaptation regime. At Waka Africa, and through Waka Gram, we recognize that DeFi, centralization and block-chain models can serve to address accountability and centralize action plans, and drive real change to communities: adaptation and resilience. We are keen on leading the efforts of green industrialization, and sustainability of economies while promoting climate accountability and fostering economic inclusion.

The author, Meshack Nzioka, is an Economist and the Managing Director, Waka Africa | meshack@wakaafrica.org