Tuesday, June 09, 2020 / 01:40
PM / by IMF / Header Image Credit: IMF
The intrinsic links between climate change and the COVID-19 pandemic have elevated global calls for policymakers to take immediate action on both fronts. Fiscal stimulus supporting recovery from the pandemic can be designed to simultaneously address climate change. In turn, this could help reduce the spread of future pandemics as climate change is a threat multiplier for pandemics. Destruction of the environment and biodiversity makes pandemics more likely while pollution and other man-made factors driving climate change weaken the health of human beings, raising their vulnerability to viruses and other diseases.
Sub-Saharan Africa is the region in the world most vulnerable to climate change. Rising temperatures, rising sea levels, and rainfall anomalies are increasing the frequency and intensity of natural disasters and are markedly transforming the region's geography (Figure 2.1; IPCC 2018; October 2017 World Economic Outlook, Chapter 3). Recent natural disasters include the devastating cyclones Idai and Kenneth; ongoing locust outbreaks in eastern Africa and droughts in southern and eastern Africa that threaten the lives of millions; and the Sahel's desertification, which is contributing to conflicts and mass migration (Rigaud and others 2019).
Economic development has brought considerable progress in recent decades, but resilience and coping mechanisms across sub-Saharan Africa remain limited, reflecting structural factors restricting countriesâ€™ ability to respond to and recover from shocks. In particular, heavy reliance on rain-fed agriculture increases humanitarian, social, and macroeconomic vulnerabilities to rising temperatures and extreme weather shocks, which most heavily affect the poorest segments of the regionâ€™s rapidly growing population.
Adapting to climate change is critical to safeguarding and further advancing hard-earned improvements in incomes and education and health outcomes across sub-Saharan Africa over the past three decades. However, adaptation will be especially challenging given countries' limited capacity and financial resources. Several studies have clearly shown the importance of advancing economic development in raising resilience to climate change and improving coping mechanisms (IMF 2017; IMF 2019a; Hallegatte and others 2017). Policy recommendations range from building buffers (such as international reserves) and social safety nets to strengthening institutions and frameworks that foster structural transformation. However, implementing all of these recommendations while managing competing development needs is beyond the region's human and financial capacity. In some cases, additional challenges arise from political uncertainty and security issues. Given these constraints, which reform areas should sub-Saharan African policymakers prioritize? This is the subject of mounting policy debates across the region, especially with youth pressing policymakers for more immediate action.
This chapter examines policies and structural areas that could help the region make strides in adapting to climate change by building resilience and improving coping mechanisms. The first section applies big data, econometric analysis, and event studies to provide an overview of how climate change affects sub-Saharan African countries, focusing on the consequences for economic growth and inequality. The second section highlights the key policy areas most effective in building resilience and coping mechanisms, relying on econometric analysis of macro-level data, household surveys, and case studies. The third section concludes with an analysis of financing implications.
Financing adaptation to climate change will be more cost-effective than frequent disaster relief. For sub-Saharan Africa, adaptation will be expensive-estimated at US$30-50 billion (2-3 percent of regional GDP) each year over the next decade-but less costly than frequent disaster relief. This chapter's analysis finds that savings from reduced post-disaster spending could be many times the cost of upfront investment in resilience and coping mechanisms. Adaptation to climate change would also benefit other development areas, such as resilience to pandemics, and ultimately boost growth, reduce inequalities, and sustain macroeconomic stability.
Stepped up financial support from development partners, beyond disaster relief, targeting resilience building and bolstering coping mechanisms will be critical. Containing and managing the COVID-19 pandemic is taking a toll on already limited fiscal space and raising debt vulnerabilities in sub-Saharan Africa. A green recovery from the pandemic will ultimately boost economic growth and resilience but, in the interim, support of the international community will be paramount as securing other sources of financing can be challenging. For example, macroeconomic insurance, such as climate funds and state-contingent bonds, have been difficult for the region's countries to access so far, given large risk premiums-partly reflecting governance issues in much of the region that raise investors' risk aversion.
Climatic change in sub-Saharan Africa is especially pronounced with intensified temperature extremes, precipitation anomalies, and natural disasters that annually leave millions in peril, injured, homeless, or food insecure, and cause serious and costly economic damage. One-third of the world's droughts occur in sub-Saharan Africa, and the frequency of storms and floods is growing fastest in this region.
The potential impact of rising temperatures and extreme weather events on growth is larger and longer lasting in sub-Saharan Africa than in the rest of the world, reflecting the region's lower resilience and coping mechanisms, and its dependence on rain-fed agriculture. The resulting amplification of inequalities and scarcity of fertile lands, combined with high population growth, risk contributing to mass migration and conflict.
Climate change is threatening food security of the poor in both rural and urban areas. Reducing this risk requires improving the resilience of agricultural production and households, partly by prioritizing the necessary measures in government budgets (outlined in the section on adaptation strategies), and closer coordination across various ministries (Finance, Agriculture, Education, Environment, and Health) and across development partners. Targeted social assistance and insurance are key to helping populations cope after a shock. The empirical investigation of household surveys in this chapter suggests:
More broadly, adaptation strategies will depend on the types of climate change effects a country is facing. Strong macroeconomic, institutional, and structural policies are a must, but cross-country regression analysis finds that the following combinations of structural reform areas need to be prioritized:
Economic Impact Of Climate Change
What Does Climate Change Mean for Sub-Saharan Africa?
Recent increases in global temperatures are unprecedented and expected to accelerate. Even extreme restraint of greenhouse gas emissions can only slow the pace of temperature increases, given that past emissions remain in the atmosphere (IPCC 2018). The 0.7Â°C rise in global temperatures over the past 30 years (or 1Â°C over the past 50 years) is significantly higher than in any equivalent period during the last 10,000 years (Marcott and others 2013). This aggregate figure masks substantial heterogeneity across seasons and geographic locations. Natural disasters have always been present, but there is clear evidence that rising temperatures and changes in precipitation lead to more frequent droughts, desertification, climbing sea levels, and higher vapor pressure-much of which fuels more frequent floods and storms such as hurricanes and tropical cyclones (IPCC 2018; October 2017 World Economic Outlook, Chapter 3).
Climatic change in sub-Saharan Africa is especially pronounced with intensified temperature extremes, precipitation anomalies, and natural disasters-annually responsible for at least 1,000 deaths, 13 million people seriously affected (injured, left homeless, food insecure, or lacking water and sanitation), and US$520 million in direct economic damages since the turn of the century. One-third of the world's droughts occur in sub-Saharan Africa, and the frequency of storms and floods is growing fastest in this region (Figure 2.2).
Climate Change Matters for Economic Growth and Inequality
Climate change weighs on economic growth by taking lives, depressing productivity (including deteriorated worker health and education), destroying housing and physical infrastructure, and dampening hydroelectric production (October 2017 World Economic Outlook, Chapter 3; Burke and others 2009; Hsiang, Meng, and Cane 2011). Agricultural output suffers the most through shrinking yields and a reduction in arable lands, and this puts food security at risk. Spillovers from agriculture; reduced productivity; slowed investment; and damage to capital, the environment, and biodiversity hurt manufacturing, wholesale and retail trade, and tourism (October 2017 World Economic Outlook, Chapter 3; Jones and Olken 2010; Garcia-Verdu and others 2019). Combined, these pressures can contribute to mass migration and conflict; and can also result in poor nutrition and health care outcomes which reduce populations' resilience to pandemics.
Growth Impact is Larger and Lasts Longer in Sub-Saharan Africa
Rising temperatures and precipitation anomalies are affecting economic activity more in sub-Saharan Africa than elsewhere (Figure 2.5), reflecting the region's limited resilience and coping mechanisms and its reliance on rain-fed agriculture. Using satellite-recorded nightlights as a proxy for economic activity, this chapter's empirical analysis of provincial-level data reveals that in sub-Saharan Africa for a given month, a 0.5Â°C increase in temperature from that month's 30-year average corresponds to a 2.1 percent reduction of nightlights. This translates into a 1 percent decline in monthly real GDP for that province (applying elasticity estimates from Hu and Yao 2019), although the effects may not persist through the year and may be offset by other factors, including a moderation of temperatures in subsequent months.6 This impact is broadly double the global average and 1.6 times the emerging market and developing economy average.7 Similarly, a 10-millimeter deviation in precipitation relative to the 30-year average for that month could reduce nightlights in sub-Saharan Africa by 0.8 percent, implying a reduction in real GDP of 0.4 percent. If the precipitation shock hits during peak growing season, the effect could persist for more than a year.
More than half the provinces across sub-Saharan African countries already experience these magnitudes of temperature or rainfall fluctuations in a given month. Although the impact in most subregions (with sufficient electrification for this analysis) are near the sub-Saharan African average, the Sahel is the striking exception, highlighting its weak resilience and coping mechanisms and already high average temperatures (October 2017 World Economic Outlook, Chapter 3; Burke, Hsiang, and Miguel 2015). For example, a temperature increase from 35Â°C to 36Â°C will have a direct, adverse impact on the well-being of a farmer in weak health who has to walk an extra kilometer to get water. The farmer's productivity and income earning potential will also decline.
Natural disasters, especially droughts, have lasting adverse economic consequences. Foreign financial assistance, remittances, and reconstruction often offset the negative near-term impact on economic activity, which is substantial for droughts and extreme storms like cyclones (Figure 2.6). Over the medium-term, from an economic perspective, it is possible to offset some losses to physical capital (for example, with upgrades to damaged infrastructure). However, the human capital loss from deaths, malnutrition, or lower school enrollment after a disaster is unrecoverable. This chapter's analysis of country-level panel regressions of five-year GDP growth on the frequency and intensity of natural disasters finds the following (Figure 2.7):