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 penalise 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 says.
Adesina spoke during a high-level panel session at the Doha Forum last week 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 says. “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 describes 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 adds. “Africa should not be penalised.”
He notes 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 says 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 notes. “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.”
Minister Al Kuwari says 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 says.
“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 says.
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 says. He highlights 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 says, noting that Africa only received $33-billion out of $650-billion International Monetary Fund Special Drawing Rights (SDRs).
Adesina says Africa’s total 2022 external debt, estimated at $1,1-trillion and set to rise to $1,3-trillion by the end of 2023, is 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.”
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 says.
Minister Al Kuwari says Qatar had successfully brought down its debt from 72% of GDP in 2020 to below 40% in 2022 through fiscal policy.
Brende adds that global debt is huge. ‘We haven’t seen this level of debt since the Napoleonic wars … even the world’s largest economy, the US, 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.”