Interview

PROF. Chika Urama, chief economist and vice president of the African Development Bank, has worked as the senior director of the African Development Institute at the African Development Bank Group, responsible for shaping and leading the bank-wide capacity development in the regional member countries, RMCs, to accelerate delivery of the High 5 priorities of the Bank, the SDGs, and Agenda 2063.

A fellow of the African Academy of Sciences, AAS, Urama was also a distinguished professor at the University of Nigeria, Nsukka; an extra-ordinary professor in the School of Public Leadership, Stellenbosch University, South Africa; an adjunct professor at the Sir Walter Murdoch School of Public Policy and International Affairs, Murdoch University,  Western Australia.

He is also an expert partner of the Africa Progress Group chaired by former President Olusegun Obasanjo, and was visiting professor at the Department of Science, Technology, Engineering and Public Policy, University College, London. Prior to his appointment as senior director of the African Development Institute, he was senior advisor to the president of the African Development Bank Group on Inclusive and Green Growth – Strategy, Policy Development, and Implementation.

Urama has held various executive leadership positions in academia, international organizations, private sector and was the inaugural managing director of the Quantum Global Research Lab, established in Zug, Switzerland; former executive director of the African Technology Policy Studies Network, ATPS, established in Nairobi Kenya; director of Research and Training of the ATPS; senior research fellow at the Macaulay Land Use Research Institute established in Aberdeen, United Kingdom; deputy chairman of the OMFIF Economists Network, and inaugural president of the African Society for Ecological Economics.

A Ph.D. holder in Land Economy from the University of Cambridge, United Kingdom, Urama won the 2002-2003 James Claydon Prize for the most outstanding Ph.D. thesis in economics or related fields at St. Edmund’s College, University of Cambridge and was the Technology Executive of the Year by the Africa Technology Awards in 2012.  Urama has several publications to his name and has contributed to many international and inter-governmental scientific panels/reports including the Intergovernmental Panel for Climate Change, IPCC; Green Growth Best Practice, GGBP; the International Resource Panel, IRP; the OECD Green Growth and Poverty Reduction Task Team; the UNESCO Governing Board of the International Research and Training Centre for Science and Technology Strategy, CISTRAT, Beijing, China; and the Green Growth Knowledge Platform, GGKP, Advisory Committee; the High-Level Panel on Global Assessment of Resources for implementing the Strategic Plan for Biodiversity 2011-2020; among others.

The AfDB vice president, who has served on various boards and global research committees to deliver inclusive green growth and sustainable development, made time out of his busy schedule to be interviewed by Maureen Chigbo, publisher/editor, Realnews on the margins of the African Development Bank Annual Meetings in Sharm El Sheikh, Egypt in May. Prof. Urama speaks on the bank’s reports on carbon emissions, climate-financing gap of African countries and advises the new government in Nigeria to embrace true federalism. Excerpts.

Realnews: The African Development Bank, AfDB, launched its 2023 Africa Economic Outlook report. This has been going on over the years, but as I listen to you, I can see a lot of optimism which is what has been displayed over the years whenever these economic reports are launched. What is different from what has been done over the years and what you did in 2023? What informed the decision? 

Urama: Over the years, the African Development Bank launches annually, the African Economic Outlook report. This report normally looks at the macroeconomic performance and outlook of the countries and the continent, each year. We also pick a theme that is focusing on addressing specific contemporary challenges that the continent is facing in order to provide policy-makers and potential investors information for their decision-making. Now last year, we launched the one on “Supporting Climate Resilience and Just Energy Transitions in Africa”. That report was intended and used to support Africa’s negotiations at COP27 and you could see we were able to get a decision on loss and damage which is now on the agenda. Because we were able to estimate the cost of carbon emissions on the continent, what we called carbon credit and carbon debt of countries and we were able to estimate the climate-financing gap of countries. It was easier to put data on the table in the negotiation, so it is not based on emotions, but is based on facts. This year, we’re focusing on another step which is mobilizing private sector financing for climate and green growth in Africa. As we prepare for COP28, the conferences of parties and discussions on climate change, people talk about ‘developing countries, meet your commitment of $100 billion, and that’s not happening. And all our estimates are showing that even if the $100 billion is given to Africa alone, it’s not enough. We need annually, $242 billion in Africa alone to be able to implement the climate action. So we have to look elsewhere for resources instead of continuing to complain and wait for developed countries to do one thing or the other.  So, “to get a thing, you have to do a thing.” If I may quote one of the leaders in one of his statements at this meeting. What do we do as Africans? That’s the purpose of this report. And then focusing on the private sector which has over 145 trillion US Dollars as assets under management was the best way for us to look for alternative ways of getting resources. In addition to the macroeconomic outlook and performance, the report, therefore, looks at updating the outlook because you need to be able to see the trend as the variables change. That’s why we still have a chapter on macroeconomic performance and outlook. So that when we’re making decisions, we know where each country is on inflation, we know the risks, we know where growth drivers and know how the countries are performing; that data always underpin investment decisions by Lobo public investors and Lobo private investors and should also drive the policy decisions in our own countries. Then in the second chapter, we focused on innovative instruments that are out there for mobilizing private-sector financing. We know we have green loans, sustainability loans, we have debt for nature swaps, and climate for nature swaps. We have the carbon market, and we have blended finance and so many things. So all these things, the discussions are going on as if they’re saving the world in terms of mobilizing private sector financing for climate and green growth, and yes they are mobilizing financing, so we made them look at, “what are those instruments that exist? Are Africans actually accessing them or not? If yes, how can we scale it up? If not, how can we reform it in order to be able to access it? And what we found is that the climate financing need as I’ve mentioned, is about 2.7 trillion US Dollars up to 2030, and we’re not getting enough. So if we have to mobilize from the private sector, we need about 213 billion US Dollars from the private sector each year up to 2030. So there’s a need to increase the amount of financing because what is coming in now is very small, about 4.2 billion US dollars from the private sector. We really need to innovate around how to mobilize the private sector, and that’s why we focus on what countries should do. What should multilateral development banks and DFI’s do? What should the private sector do? What should rating agencies do? and what should our global community do? And for the national government, it was clear that improving the macroeconomic conditions in the countries is the major driver of this perception. If you have political risks, if you have unfair rules that make entry and exit difficult for the private sector, if your rules of taxes are unclear, they’re some of these uncertainties that then drive that high-risk premium that countries pay and it makes it difficult to access capital as a country. Countries need to focus on addressing that and improving the business environment because when you do that, you’re then risking investment flows and money goes to where it feels safe and it can make more money. So they’ll feel safe to invest in Africa and feel safe that they can enter and exist at ease and they’ll feel safe that the economy is not going to go into difficulties and then have problems retrieving their money or making a profit because the underlying conditions for private sector investment is profiteering, that’s what they do. Now, beyond that, we also need to have clear policies on strategies that are created, well cast clear road maps, so that people know exactly what they’re investing in, because quite often in Africa, what you find is that we go to the conference of parties and people talk climate change, we create policies for climate change. If you ask people exactly what that means and how it fits into your national development agenda, we may not fully know. So we need to ensure that when we’re developing policies for climate, for green growth, it’s actually addressing our development objectives, and because it addresses our development objectives, it is clear, the countries focus on it, and there will be no regular policy reversals that we see in the continent. That creates certainty for investors, so they’ll be able to come in and invest. But we also need to address several other issues like boosting domestic revenue mobilization, because we find in the report that the rate of private sector financing coming to a country is contingent on the rate of public sector financing available in the country because that of public sector financing is what creates the environment to build infrastructure, build institutions, and all those things that the private sector require as preconditions for investing. We need to raise the bar on both sides, both public and private, together then we’ll be able to bridge the gap or at least approximate bridging those gaps.  But for the MDBs and the DFIs, we’ve heard the calls that were made even by the president and also from the report, why we need to become a lot more agnostic, which is not focusing too much on the risks and then allowing countries to suffer without intervening. But to do that, we need to be able to use instruments like guarantees; partial rate guarantees, and credit rate guarantees. There are several forms of guarantees that can be used to allow budgets to come to closure, and then also, countries need to invest in project preparation facilities, because we don’t have bankable projects in the continent. It is not the dearth of money or financing that is not getting projects financed. It’s actually the dearth of bankable projects. So building a portfolio, and a pipeline of those bankable projects in countries always helps in attracting investors. Because if we have a bankable project, investors will come. So we need to do several things that you can find in the report as countries in order to be able to attract investment. Then some of the countries are also too small to be able to reach economies of scale and that’s why regional integration continues to remain crucial, that we’ll build international projects between African countries so that we’ll be able to achieve scale. I’ve talked about risk guarantees and other asset recycling. There are several things that need to be done. But the point here is that we need to make sure each one of us in the ecosystem, countries, private sector, rating agencies, and also the international community play our part because it’s in the mutual interest of the world, and all these agencies if we have a good environment to invest in Africa. If Africa is growing, if youths have jobs and are not migrating, if we’re not exporting raw materials in order to bring in produced materials, that is polluting the environment because of logistics, because it saves money for the businesses and several benefits that you can read in the report.

Realnews: Private sector in Africa countries especially in Nigeria, are very dependent on government. So if you’re talking about mobilizing financing from the private sector, are we being really realistic when the private sector we have in the country is too much dependent on the government? For instance, we just saw the Dangote Refinery, at a point in time, the government had to also take equity and the popular view is that the government is funding the project. Another instance is that in Nigeria in particular, if the government has not approved the budget, the private sector can’t do anything. It’s like the businesses are in comatose until the government budget is out then you see people scrambling. Everybody is dependent on the government, so how is the funding going to come from the private sector that’s so dependent?

Urama: You saw clearly in that report that it cuts across countries and is also everywhere in the world that the level of public sector financing available is highly correlated with the level of private sector financing that flows in. The reason is: there are preconditions that governments need to create the environment to enable the private sector to become profitable. So if you see the case that the private sector booms more in Africa when the government budget is released, that doesn’t mean that the government is funding the private sector.

Realnews: What does it mean?

Urama: It creates the environment that is required for the private sector to function. Take, for example, the Dangote refinery is a huge investment to address something that will really help to lift production in the country, if not even in the continent. So to access those refineries, we need roads. Is it part of his business to build roads from Lekki to his refinery? No. So that correlation is how you see that government needs to build infrastructure that will enable the private sector to function, government to create the operating ecosystem that will enable the private sector to be profitable and it’s not only in Africa. So what I’m trying to say is that it’s not right in my view to think or believe that they are being funded by the public sector simply because you see some correlation in activities when the public sector is buoyant.

Realnews: You talked about growth. I don’t know if it’s sustainable growth because every year we talk about how Africa is growing, but that growth doesn’t really trickle down to the people. It’s just economic growth, GDP growth. And poverty has escalated in the continent. Nigeria as of 2015 was one of the largest economies and third in the poverty ranking in the world, but now, Nigeria is the poverty capital of the world. How do you reconcile the paradox?

Urama: GDP growth does not measure how growth trickles down to the masses in the economy, but GDP creates the conditions for industrialization, investment, for other things that need to happen in an economy to trickle down. But then, the measures of poverty and the rate at which poverty is growing are also driven by several other factors beyond the GDP. Population growth is one of them. For instance, as head of a family, if my salary increases by 10%, and the year before it increased I have one child, and then I marry several wives and have 10 more mouths to feed, is my household poorer or richer? My income grew in nominal terms by 10%, but in real terms, my expenditure overtook my income. And because my expenditure is much higher, poverty will increase in my household. So we need to look at the complex nature of how economies are measured because it’s not that simple. So if you have GDP growth in a country and have an economy where a few people are producing in trillions or in billions, but others are not producing at all, you’re still going to get an average GDP that is high, but it doesn’t show how the distribution of that income within the country. So, the point you’re making is right in the sense that, yes, we’re seeing GDP growth but the inclusivity of that growth is the challenge. But that is why while talking about climate and inclusive green growth because when growth is not inclusive, it can lead to crisis because the society is not satisfied. That’s why in my view, I said in my presentation, we need to triangulate the social, economic, and environmental goals of our growth models. Social means ensuring that the economic wealth of countries reach the masses so that you create social equity. When you have that you have peace, and when you have peace, you have higher productivity in the economic sectors, and it is always a feedback loop with all those, and then we also take care of the environment; that we’re not using technologies that destroy the environment because if you destroy the environment and people are dying because of emissions, your productivity in the economy will go down. So these things are all interconnected and that’s why I said we need to think about this as a way of bringing back together the social, economic, and environmental goals.

Realnews: Is the bank in any way thinking of investing in technology that will enable African countries that are discovering more oil to exploit this oil despite the push for renewable energy or is the bank encouraging African countries to just abandon fossil fuel where their major source of revenue is coming from?

Urama: What we’ve said in the African Economic Outlook, AEO, is that countries should be wise in the sense that the markets are changing. Global policies are changing, and the taste of consumers are changing already. So investing in high-carbon emitting technologies now could have significant asset-stranding risks. This means you build a crude fire power plant which has a lifetime of 40-50 years and then maybe people don’t want to use coal, because the demand is not there in the market, so the price goes down, when the prices go down below your cost of production, you’re losing money, but the options that are in terms of creating a balanced energy mix. Because the same way Nigeria or other countries have oil and gas, the same way we have sunshine; the same way we have rivers, and water systems that can help to create hydro. In the same way, we have opportunities for electric vehicles. So the question is, do you want to produce for your domestic market alone or take advantage of the global market? Secondly, do you want to be left behind in the race for the new development model and continue to be a latecomer in the development process, or do you want to be the leader of the new growth model that emerging fast because we have the natural resources within our continent? So for example, 44.8% of the global technical potential in renewable energy is in Africa. So the story of Africa is the story of abundance and scarcity. We have an abundance of natural resources like crude oil, but we have a scarcity of fuel, and petroleum products, even in Nigeria and in other countries that are rich in oil. That’s not as good. In the same way, we’re predominant in oil, we’re also predominant in renewable energy and technologies are changing, so why do you stick to the old technology that the demand for is going to go down and because of that you may have stranded asset, and you equally have the wealth of the new technology drivers that you can also invest in because resources are scarce.

Realnews: Would you consider the Dangote refinery, going by your analogy, in the next 10 to 40 years at risk of being a stranded asset because of the push towards renewable energy?

Urama: No. I wouldn’t say so, because it depends on the lifespan of the refinery and the refinery is not only to produce petroleum products for cars. If you think about it, if the production and use of combusting engine cars end and we go to electric vehicles, you’re not going to be requiring petrol in order to drive, but then that petroleum product has other multiple uses, so you diversify your economy as recommended. It’s about diversifying your portfolio to edge your resource instead of sticking to the same issue when you know that the market is changing.

Realnews: What’s the future of African economies?

Urama: The future of the African economy as I’ve said is better than the rest of the world, except for some parts of Asia that are a bit better with regard to the growth rate that we measure. But the growth rate we measure is only a snapshot of what has happened within that year. Remember also when we say growing by 3.4% or by 5% you also think about the starting point because if I had a billion dollars, and I grew by 10%, and then you had a million dollars and you grew by 20%, perhaps I still have more money in the bank than you, that’s how we need to read the growth percentages we talk about. So countries that were at a lower level of growth rate, by growing a little, the percentage could be high. It’s a percentage growth. What it tells us is that the country did better in relative terms than the other by progressing from where it was last year. It doesn’t tell that this country is richer than the other because that percentage growth is a growth of something.

Realnews: How do you see the Nigerian economy and what will be your advice to the new government on boosting the economy?

Urama: I see the Nigerian economy as one that could be the major driver of growth, not only in West Africa but in the whole of Africa. That economy has huge potential in human capital, natural capital, social capital, and also in institutional capital. Amongst other African countries, you can see that Nigeria’s institutions have matured quite a lot. Now, the country is now at that stage where the new leader should think about boosting production and reducing consumption. The new leader should think about improving transparency, accountability, and probity in public financial management and processes so that we can help to retain the resources of that country for doing capital projects in the country to be able to create opportunities for more. I’ll advise the government to focus on the youth, job creation, investing energy and effort, policies and reforms on things that will allow the youths to participate more in the economy and take more leadership roles because the youths are ingenious, they’re impatient, they’re very innovative and they’re looking to impress, so they have more to lose from not delivering than someone who is about to retire. So focusing on engaging with the youths, and creating opportunities with the youths, will be a good way forward. I’ll also advise the new leaders to consider true federalism in the country, where revenue collection and use is more devolved, because that way you democratize tax collection, and if it’s the local government chairman that is responsible for collecting taxes and people know that they’re responsible, they’ll hold him or her more accountable than what is happening now because it is centralized. So democratizing and devolving the collection of revenue, the use of revenue at local levels will be helpful to the Nigerian economy because it automatically creates more transparency if I know you’re the son or daughter of my uncle and you’re the local government chairman, and you’re in that environment and you collect taxes, I’ll like to see what those taxes are used for. But now the tax collectors seem to be far away and then the decision-making seems to be far away from the areas where things are and I’ll like to say, “to build on the foundations that have already been set in several institutions in that I’ll like to see what those taxes are used for.

A.

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