Home OPINIONS The African Climate Summit: securing new trade and investment opportunities

The African Climate Summit: securing new trade and investment opportunities

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The United States and European Union can do better to support Africa’s green trade potential

As Africa embarks on its industrialisation drive, supported by the African Continental Free Trade Area (AfCFTA), the realities of climate change are becoming more visible and acutely felt across the world. The continent faces an industrialisation journey unlike any other – it must lift millions out of poverty whilst adapting to climate change. The pathways to industrialisation will also be influenced by the transmitted effects of policies enacted elsewhere to mitigate climate change.

The promotion of intra-African value chains is at the heart of Africa’s industrialisation strategy, aiming to develop deep local and regional links to secure greater value addition. The AfCFTA framework and its protocols seek to transform productive structures. Whilst the major players rethink their value chain structures in terms of economic security, for African producers these are being recrafted to reduce economic and environmental vulnerability.

As highlighted by the  African Climate Summit (ACS)  in Nairobi, there are major new economic opportunities for Africa in view of the green transition: it supplies many of the critical raw materials inputs into required technologies. On the other hand, there is a need for greater understanding of the transmitted effects coming from mitigation policies in end markets, which, when combined, may induce a‘green squeeze’ unless African producers and exporters have greater capacity to adapt to changing norms and standards.

For example, the European Union (EU), Africa’s largest trade partner, has implemented several measures as part of its Green Deal. These include a carbon border adjustment measure (CBAM), new rules for mandatory supply-chain due diligence, and a ban on imports of certain deforestation-linked products. Complying with these to access EU markets will require African producers to invest in compliance processes, traceability systems and greener production methods. Understanding what support producers require to adapt is needed to reduce risks of exclusion from existing value chains.

With regard to entering new value chains, demand for critical raw material inputs into new technologies is rapidly increasing.However, the extent to which the continent can benefit economically from this situation depends on how much of the value addition in creating the final green technology products physically takes place on the continent.

Notably, one provision of the US Inflation Reduction Act is a tax credit available to consumers who purchase an electric vehicle whose batteries contain a certain percentage of critical minerals extracted in the US or countries with Free Trade Agreements (FTAs) with the US. Concerns have been raised that Africa’s potential to benefit from the US energy transition may be limited since currently only Morocco has an FTA with the US.

The policy is also seemingly at odds with recent initiatives such as the Memorandum of Understanding (MoU) between the US and the Democratic Republic of Congo (DRC) and Zambia –major suppliers of copper and cobalt, the two key input commodities for lithium-ion batteries. The MoU aims to develop “an integrated value chain for the production of electric vehicle (EV) batteries in the DRC and Zambia, ranging from raw material extraction, to processing, manufacturing, and assembly”.

As a tool for supporting industrial development in the sector, the DRC and Zambia are working towards establishing cross-border Special Economic Zones (SEZs) to produce battery precursors, batteries, and electric vehicles. The broader continent’s drive to harness opportunities from the global transition towards green energy is also reflected in its ambitions to develop a regional battery and electric vehicle value chain.

The AfCFTA Secretariat has identified the lithium-ion battery and electric vehicle value chain as one of the high-potential value chains to be targeted for promotion in their work programme.

The effective implementation of the AfCFTA, which seeks to reduce intra-African trade costs and tackle barriers to investment and competitiveness, offers an opportunity to promote a regional approach to value-addition in the booming green technology sector.  To underpin Africa’s industrialisation, the AfCFTA must be responsive to the challenges posed by climate change and the interventions that Africa’s trading partners are introducing to combat it.

Efforts to harmonise the continent’s trade and climate objectives could be pursued by adding a Protocol on Trade and Climate in future rounds of AfCFTA negotiations. A more immediate approach is to focus on the current AfCFTA’s domestication process and ensure greater integration of the trade-related aspects of national adaptation and mitigation plans with the implementation of the AfCFTA protocols.

The African Climate Summit is unique in that, building on the Paris Summit, it is calling for a more integrated approach to addressing the climate emergency. It is also continuing the advocacy for changes in how development partners work. There are several continental action plans, initiatives, and conventions geared towards climate change action and environmental protection.

However, within these documents, links between trade and the environment are often not well-established. Similarly, interventions amongst development partners are not always well coordinated and need to be more in sync with trade policy developments.

Gita Briel is a Trade Policy Analyst at tralac (Trade Law Centre). Her research interests include the trade-environment nexus, applied development economics, and global environmental governance.

Jodie Keane is a Senior Research Fellow with the International Economic Development Group at the ODI, the global affairs think tank. She is an experienced trade economist and project manager who has worked with multiple governments across the developing world to secure their trade policy outcomes.

This op-ed is part of a thought-provoking series of ideas and pieces, developed by ODI and supported by the Bill and Melinda Gates Foundation. It showcases expert authors from the Global South and aims to illustrate the synergy between development and climate goals.

Gita Briel
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Jodie Keane
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