Climate Action: An Opportunity for Investments and Business Growth Opportunities — Issue #7
“Where water is the boss, there the land must obey”. This African proverb reminds us of the universal importance of water. When it rains, every life-form on earth — from plants to animals, and on to us as human beings, rejoice. We do so because of one thing — opportunity. Water represents an opportunity for every life form on the planet. In the context of our discussion today, the lifeline of any business or enterprise on the earth is one — the opportunity for market growth. Like water, new market opportunities are a lifeline for any enterprise. A discussion on opportunities for growth that environment and climate action present in Africa is like life-giving water to enterprises.
Africa has experienced a negative 5.1% GDP growth, up to 7.8% contraction in smaller economies, a 5% loss in public revenue, a 17% decline in exports, a 50% increase in food losses, and a loss of up to 50% of all jobs due to the COVID-19 global pandemic. Compared to previous years, about 93% of firms experienced a sales decline at the enterprise level. Innovative Environmental solutions and climate action stand out as a bastion of these much-needed new opportunities that are impossible to ignore, especially now that Africa is already heating up twice as fast as the rest of the world and this escalation only implies a compounding of socio-economic misery, which is already at a breaking point.
But we know that every $1 invested in ecological restoration creates $30 in economic benefits. Any investment that returns 30times is a high-value catch. But this benefit goes beyond the socio-economic dimension, as science tells us. For example, Investments in Ecosystem-Based Adaptation (EBA) will adapt food systems to climate change with a return of investment of 400%. Healthy pollinators have increased yields by up to 180% in Africa and incomes by $168 per farmer per season. These benefits go beyond theory.
As we speak today, there is a growing market segment of consumers ready to pay up to 3 times the price of conventional foods for certified organic, healthy, and environmentally compliant food. One does not have to be a farmer to tap these opportunities. Whether a trader, a hotelier, a transporter, a banker — all can tap into a “chain reaction” of opportunities that start with ecological food production. As a hotelier, you can charge more for organic diets. A food trader can sell organic produce at a premium. A transporter can charge more for transporting higher valued food products — and the chain goes on. As a banker, you can target entrepreneurs engaged in this area as a target niche market. But this is not the only example. More broadly, integrating sustainability in three socio-economic production and consumption systems that underpin nearly every business — food, infrastructure, and energy — can create business opportunities worth more than 10 trillion dollars globally and create 395 million jobs. For example, prioritising using paving blocks and tiles made out of recycled plastic waste instead of conventional concrete blocks will see you pay up to 30% less for a product that is five to seven times stronger than concrete and much cheaper to transport. This means you can save more and put your money in key revenue centres of your enterprise. Switching to solar power from grid power is good for the environment and your income statement. On average, firms cut up to 30% of their power bills by switching to solar. These are a cross-section of business opportunities from the environment and climate action available to enterprises in Kenya and Africa to drive their business growth. But doing this calls for some fundamental tenets that I will share today as follows:
First, align your investments with national & global climate policy signals. In November 2021, COP26 concluded with a road map to the full ambitious implementation of the Paris Agreement, the global compact governing climate action. One of the critical aspects covered is under Article 6, which sets forth market mechanisms to implement this agreement. Article 6.2 provides cross-border collaboration in implementing the agreement through the “Internationally Transferable Mitigation Outcomes (ITMO)” system. It means that corporations anywhere across the globe are now permitted to collaborate with corporations and invest in actions that lower global emissions while creating business opportunities. It is an opportunity for firms to prioritise partnerships that green their operations while creating tangible income opportunities. From energy transition into solar to energy efficiency, all these are areas where capital can be raised through collaborations with corporations from anywhere across the globe.
Second, maximise finance. It is estimated that Kenya has invested up to $2.4billion annually in climate-related activities. This is one-third of Kenya’s financing annually to meet its NDC targets. Of this amount, private sector finance represents up to 41%, which is $979 million, with about 34% originating domestically from Kenyan companies. The focus should be on investing these monies in areas that maximise financial returns.
Third, tap the informal sector. The informal sector accounts for up to 80% of informal employment. For example, right here in Kenya, the informal sector accounts for 83.6% of employment. Up to 70% of Kenya’s retail shopping is done in informal outlets. Considering that markets are people, the private sector in Kenya will not drive climate action without directly engaging the informal sector. The estates’ small kiosks, also called the “kidogo economy”, are the primary market for business-to-business trade. Up to 90% of sales in Africa’s major economies come through informal channels like markets and kiosks. Therefore, the primary market and private sector success in driving climate action will hinge upon how best they collaborate with these informal sector players to provide climate-proof products and services. This sends a clear message that the opportunities for market growth are in the informal sector. Partnerships and collaborations between the corporate and informal sectors can go a long way to tap both demand & supply markets and grow businesses.
Fourth, youth need to graduate themselves into the private sector. The private sector in Kenya and Africa goes beyond the corporate world. It includes the informal sector that engages up to 80% of our people and young people transitioning to the labour markets, constituting nearly 70% of our population. In Kenya, up to 75% of the population is below 35 years, and the country needs to create no less than 1million jobs each year for these people. These jobs will come from the youth who graduate into the private sector by leveraging the climate lens solutions to the informal sector. The best bet we have is for these youth to engage in non-capital-intensive climate action solutions that meet on-demand areas for the informal sector while aligning to policy. How these youth can be tapped to become drivers of economic competitiveness while implementing climate action needs Skills retooling –improving, refining, and adapting young people skills regardless of their backgrounds to align with tapping economic opportunities in Africa NDCs implementation. We have developed an incubation approach called Innovative Volunteerism. We have leveraged this to guide and inspire willing young people of different backgrounds to turn their passion into profits. The language that attracts youth is the income, enterprise opportunities they can get, and skills retooling equipping them to tap such opportunities through non-capital intensive actions.
For example, Waste recovery to fuel briquettes is an area that is a non-capital-intensive area. The fuel briquettes have found a market niche among charcoal users because they are up to 2times cheaper than charcoal. They are non-smoky to reduce indoor pollution and the accompanying health risks. With this, they prevent deforestation and the attendant land-based emissions. Youth are engaging in producing briquettes to tap the $20billion charcoal market & the 20% market growth rate. With such socio-economic incentives, we can get young people willing to retool their skills to establish a climate action derived enterprise that delivers solutions to serve the informal sector as their market. By this, we can guarantee their livelihoods while simultaneously driving the climate action.
Fifth is targeted soft incentives. Hard policy incentives that we already know will accomplish very little if they fall on uninspired citizens. This is where non-policy incentives which I called soft, comes in. Cultivating the right mindset among the constituency of implementers, mostly the young people and igniting them to turn their passions into profits is our urgency of now. This calls for a new perspective because regardless of the amount of money or policies we have in place, turning NDCs, plans and policies into action will not work if people do not have the passion and self-drive to change their behaviour. Without passion, you throw money at every problem, and you will waste it and end up with no result. A distasteful joke, which reflects part of what we see, is usually said of Africa being a cemetery of good policies.
A good example is NDCs — 98% of countries have ratified their NDCs. But implementation has been slow. Passionate people who find a purpose in driving NDCs will be a significant capital for implementation in Africa. The real winner inspires youth to develop passion as they find their purpose around climate actions to leverage them as investment and entrepreneurship opportunities. Regardless of what we contribute, if it falls on passionless youth, then no transformation will occur.