Africa’s economic occupations must address associated environmental liabilities

Tuesday September 3 2019

 

By Raymond Mugisha

Last week, I attended the launch of the Environment for Development Initiative Centre at Makerere University. Having listened to a number of experts discuss about environmental economics and development as well as related research and policy, my perception of the interplay of economic activity and nature, while appreciating that natural resource accounting is quite an engaging and deep discipline, came down to the familiar accounting equation.

The accounting equation, which is a summary of the balance sheet of an entity, states that assets held by an entity are a sum of owners’ equity and the liabilities. For simpler understanding, what this equation communicates is that assets of an entity are either financed through the owners’ contribution of resources, or by borrowing.

 Borrowing can take many forms and will imply any advances of resources to an entity. Natural resource accounting on the other hand, is understandably highly scientific and this commentary will stay clear of it.

Some of Africa’s leading imports are motor vehicles, computers and IT products, pharmaceuticals and electronics.

The continent’s biggest exports are raw materials, in form of metals and minerals, and agricultural products. Agriculture contributes about 11.1 percent of global greenhouse emissions. About 15 percent of all emissions result from deforestation and 90 percent of all deforestation in Sub-Saharan Africa is estimated to be resulting from agricultural development alone.

 Poverty contributes to this state of affairs, as farmers deploy inferior farming technologies and therefore require huge expanses of land to produce enough food for a growing population on the continent, and also satisfy the export demand – hence mowing down forests. Agriculture remains a key foreign exchange source in African countries and for example accounted for 43 percent of Uganda’s export earnings in 2017/18.

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 For neighboring Kenya, agriculture accounts for about 60 percent of foreign exchange earnings. Mining activity, one of the leading emitters of greenhouse gases and contributor to carbon dioxide emissions, also remains one of the biggest income earners for a number of countries on the continent.

For example, Angola earns about 70 percent of national revenues from oil alone. Botswana gets about 85 percent of foreign exchange earnings from the mining sector while for Zimbabwe the comparative figure is about 70 percent of national revenues.

Africa therefore, cannot run away from the vital occupations of agriculture and mining. They are lifelines for the continent.

Going back to the analogy of the above circumstances with the accounting equation, we could say Africa’s balance sheet has always had a rich capital base in natural resources. Even currently, about 30 percent of remaining global mineral resources are in Africa.

As economic activity goes on, countries have been drawing on the above capital to generate tradable and usable assets in form of agricultural output and extracted minerals, mainly.

 Some of the generated assets are redeployed to grow others, such as in instances where food produced sustains the growing population which in turn provides important human resource for further productive engagement.

A part of the extracted minerals is also put to use in the few indigenous industries to produce needed commodities.

However, a chunk of the agricultural output and minerals extracted is also exported, and the proceeds support the purchase of Africa’s imports and physical infrastructure erecting. Some of the key imports such as used motor vehicles also contribute to further damage since transportation, including driving, contributes up to 14.8 percent of greenhouse emissions.

As mining and agriculture go on, they create liabilities in form of the destructiveness of these leading economic activities on the environment.

The continent continually gets indebted to replenish the environment and combat damage resulting from deforestation and climate change, and should therefore be able, apart from realizing quick gains from imports and developments acquired, to deploy the wealth realized from economic activity to restore the environment.

 If this is not done, continental assets will continue to grow with economic activity but at the same time, the equity part of the equation will be eroding as the liabilities grow. At a certain point, as natural resources dwindle further, the environmental liability will overwhelm the continent and turn around registered gains, to the detriment of future generations.

There is need therefore to concentrate great focus on balancing the gains of growing economic activity and accumulation of assets with the accruing damage on the environment, which is a liability due for payment.

Taking note that Africa has the lowest capacity to adapt to climate change and environmental destruction due to current poverty, preventive measures are very critical for the continent, as opposed to hoping to be able to apply corrective measures against the damage, in future.

Raymond is a Chartered Risk Analyst and risk management consultant

rmugisha@afriaccent.com

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