Africa and Adaptation

Africa contributes a very small percentage to overall greenhouse gas emissions. Even with South Africa included, overall emissions are small, but of course, the ratio of emissions to economic output in South Africa is one of the highest in the world.

Climate change impacts are felt most by people living in Africa and other developing countries with the least ability to cope. The latest UN Human Development Report 2007/8 made the point that in developing countries, 1 in 19 people suffered from climate-related disasters between 2000 and 2004, compared with only 1 in 1,500 people in wealthy countries (see related article at Scitizen).

Clearly a global externality that need to be adressed by those who are responsible.

Bali: Demystified

What will happen in Bali when the world's decisionmakers on climate change meet? According to The Economist, watch the space for 4 things:

1. Some sort of long term commitment to deal with the problem, binding the 192 signatories to the UNFCCC
2. Following the EU's lead, further progress on emissions targets and reductions.
3. Getting developing countries in the net, possibly through emissions reductions for specific sectors, rather then entire countries
4. Controversially, discussion on incentives to not to chop the world's forests

At best we may see more cap-and-trade systems and maybe a surprise or two from developing countries. But agreeing on long term commitments and on deforestation incentives has less of an chance.

For South Africa? If our highest emitters, Eskom, Sasol, BHP Billiton and Anglo can agree on reductions we have captured most of the gases. That seems quite unlikely at the moment. It seems as if DEAT wants a greater part of the CDM action. Inclusion of South Africa's carbon intensive companies in an international trading regime might work even better. Anyone looking at that?

Adapation, again, is nowhere to be seen. A pity as climate change will bite long before we see a drop in accumulated greenhouse gases - even in best case mitigation scenarios.

Watching the Earth

South Africa's role in gathering information and monitoring global change received a mayor boost with the launch of the South African Earth Observation System (SAEOS). This according to a keynote address by Minister Mosibudi Mangena at the launch of the South African Earth Observation Strategy and the South African Environmental Observation Network Egagasini Node.

The importance of a system of a geospatial infrastructure to co-ordinate the collection, assimilation and dissemination of earth observation data to support decision-making processes in South Africa has become much clearer in recent years.

The SAEON design is continuously being refined to respond to emerging environmental issues, and corresponds with the GEO societal benefit areas. The current SAEON themes are Water, Soil, Nutrient Cycling, Biodiversity, Disturbance Regimes and Climate Change. The SAEON is relatively unique in the southern hemisphere and is the first in Africa.

Poverty, shoddy scholarship and politics

The debate on whether South Africans are getting poorer or not is starting to claim its victims.

And I am not thinking of those 20 million-odd people living in these dismal circumstances while we continue to differ on politically senstive definitions.

As has been pointed out, the Living Standards Measure (LSM) is not a measure of poverty. All of those who are so happy using these figures to prove the point of decreasing poverty has now been blamed for shoddy scholarship. The LSM segments the South African market and is a measure on wealth or the standard of living with no relation to income at all (see SAARF)

South Africa rock bottom in international literacy study

Despite large investments in education we are not winning the war. 14697 students compared to US 4th grade level were surveyed from 397 schoolcountry side in an international PIRLS literacy study.

South Africa came last out of 38 countries after countries like Morocco, Kuwait and Qatar, Indonesia and Iran.

Where are things going really well? Russia, Hong Kong, Canada, Singapore, Luxembourg, Hungary, Italy, Sweden.

Coal fired power stations and increasing carbon costs

The question how viable coal fired powerstation will remain under higher prices for carbon will remain very relevant, especially in the European Union. This has important implications for South Africa as well as the EU still constitutes 76% of the South African coal export market (see facts).

According to this article at Platts, CEO of German based RWE, Roels, said he believes it will be profitable for RWE to build coal plants even under a scenario of 100% carbon auctioning and a CO2 price of up to Eur30.00/MWh.

RWE will proceed with the construction of two, 1,530 MW coal-fired plants in Germany.

No Import Taxes on Carbon in EU

The Financial Times reports that the EU is backing away from plans for a carbon tax on energy intensive imports from countries that are no fighting climate change.

South African exporters should be very relieved. This brings the focus back on the discussions at Bali in December and how a post Kyoto agreement will look like.

IT and Thresholds

The announcement that Google plans to branch of into Renewable Energy is telling of how times are changing. The world's biggest problems do ultimately attract among the world's best innovators. According to Larry Page, co-founder of Google "We want to apply the same creativity and innovation to the challenge of generating renewable electricity at globally significant scale, and produce it cheaper than from coal." Google's goal is to produce one gigawatt of renewable energy capacity that is cheaper than coal.

How? By focussing initially on advanced solar thermal power, wind power technologies, enhanced geothermal systems and "other potential breakthrough technologies."

This is another very important indication that the world's biggest environmental crises may turn into a booming industry. It is also a clear indication that the IT boom of the last couple of years has reach a stage of maturity and new growth areas are sought.

ABSA and the housing backlog

ABSA committed R2.6bn for an additional 100 000 housing units by 2010 according to an agreement signed by ABSA and the National Housing Finance Corporation (see article).

With 2.3 million people living in informal dwellings country-wide no-one is disputing the magnitude of the challenge. Based on historical performance the state and the cities alone will not be able to close the backlog. The injection of private capital should be welcomed, but there is a caveat. Given current underspending of city budgets' on housing, it seems however that the root problem is not related to finance, but to other factors such as availability of skills and crowding-out of housing developments due to other large-scale infrastructural developments taking place. How does ABSA plan to change that?

The costs of air pollution in South Africa

We have long known it, but now it is official. The country's energy intensive growth is creating serious side-effects, one of them being air pollution on the Highveld.

According to an article in the Mail & Guardian [t]he Highveld regions of eastern Gauteng and western Mpumalanga, including towns such as Witbank, Standerton, Boksburg and Benoni, among others, have been declared air-pollution hot spots. "There is little doubt that people living and working in these areas do not enjoy air quality that is not harmful to their health and well-being," the Department of Environmental Affairs and Tourism said in a statement on Monday.

Acknowledging the problem helps, but the real challenge is to move beyond policy rhetoric to economic incentives to reduce air pollution as well as taxes on air pollution should acceptable levels be breached.

Poverty - any options left?

The question on the magnitude of poverty in the country ignited a war of words. Here's the latest from the Presidency.

A few observations:

1. The point was made again that poverty is more then a lack of income. Fair enough. Again , depends what one measures.

2. Taking population growth into account one can have a rise in the absolute number of poor, but a decline in the proportion of poor to the total population. According to the Presidency: Using a national poverty line of R354 per month, the UNDP reported that the proportion of people living in poverty fell from 51.1% to 48.5% between 1995 and 2000. However, the absolute number of people living in poverty increased from 20.2 million to 21.9 million as a result of population growth. Other work by Hoogeveen and Ozler (2004) covering the same period, reports stability in the proportion of people in poverty using the R322 poverty line, and an increase in the absolute number of people living in poverty due to population growth.
So, be very aware which trend one reports on. Making no progress on absolute numbers of people in poverty means that we are fighting a losing battle.

3. Definitions of poverty matter! The percentage of population living below R3000 pa declined from 53.1% in 1996 to 43.2% in 2006, with an acceleration in the downward trend since 2000. That's still around 20 million people in poverty (earning equal or less then R250 per month)

4. Those that are under the poverty line of R3000 pa did experience an improvement in income and expenditure.

5. According to the Presidency: there is evidence that income poverty levels are indeed declining in part because of improvements in employment levels, but more importantly because of the enormously improved reach of the social grant system. The statement does not say, but how much is really due to improvements in employment levels?

6. The report goes on: The impact of improvements in the labour market on poverty cannot be overstated. The number of employed people increased from 11.1 million in 2001 to 12.8 million in 2006. That is an average of 340 000 more employed per annum or roughly 3% pa. Population growth over this period How did this translate to a significant impact on poverty if we have 20 million people in poverty?

7. The report makes the point the living standards has generally improved: the poorest income group (Living Standard Measure, LSM 1) fell from 10.5% to 4.8% of the population between 2001 and 2006. The bottom three income groups (LSM 1-3) shrank from 38.8% to 27.7% of the population in this period. Furthermore the incomes of people in the poorest groups grew by about 38% between 1993 and 2004, mostly as a result of the expansion of social grants.
Social grants makes life a bit easier, but will not lift one out of poverty.

8. The report argues that the central flaw in the SAIRR (Global Insight) report is the use of $1 per day as a poverty line. While this poverty line is recommended by the World Bank and used by most international agencies such as the UN, the uncritical adoption of this by SAIRR is unfortunate. This is particularly so in the context of the problematic nature of this measure especially with regard to exchange rate translations.

$1/day is a crude, but internationally used measure, and an appreciating Rand (since 2002) would decrease rather then increase the number of people living under this poverty line. More people would have lived under R12 per day then under the current R7 per day.

Technically, one would therefore expect that in an environment of a strengtening Rand, the number of poor living under the $1 line would fall not rise. This has happened according to the SAIRR, poverty peaked at 4.5 million in 2002 before reaching 4.2 million in 2005.

Given all of this where are we?

• Progress on service delivery
• Persistent high levels of income poverty no matter how this is defined.
• Social welfare eases the pain.
• Unconfirmed (probably small) effects of employment on poverty reduction.

With services delivered and social welfare payments close to its peak, what options are left to eradicate poverty?
How can the economy suck an additional 2o million people into a meaningful and dignified existence?
These are some of the questions that should pre-occupy our policy makers.

Before designing those carbon taxes..

National Treasury has released a document with proposals on further green taxes. This proposal should not be seen in isolation from climate policy developments in the the rest of the world. The Economist reports that the America's Climate Security Act (ACSA), although not liely to be passed soon, does support a cap-and-trade system with the possibility of border taxes for carbon intensive imports.

What does this mean for South Africa? Over and above the real threat of border taxes on carbon-intensive products, it does raise the question whether South Africa should not consider formally linking up to an emissions trading scheme in future. The CDM does provide a link to the EU ETS, but comes at the expense of higher transaction costs. We have a lot of carbon to sell, concentrated in one or two sectors and maybe at lower prices then Europeans and Americans can manage themselves.

Then we can still think about punitive taxes should we not meet local desired outcomes.

Carbon intensive exporters to the US and EU take note

Consider the scenario where the EU and the US have accepted a cap on carbon emissions, while the rest of the developing world has not. Will these two blocs consider a border tax adjustment on carbon intensive production elsewhere? Given South Africa's very high carbon intensity and bulk of export markets to the EU this not such a far-fetched question.

Border taxes do have practical problems, but it seems that it may be considered as a real option.

The IPCC has the following to say on border taxes:

Application of border tax adjustments, such as import tariffs or export subsidies, while theoretically appropriate for reducing leakage, pose a number of practical problems. Determining the emissions associated with the manufacture of a particular product, hence the border tax adjustment, is likely to be very complex because of differences in the fuel mix and production techniques used in different regions. Furthermore, the appropriate border tax adjustments may not be compatible with current multilateral trading rules. Likewise, implementing production and consumption subsidies and taxes at the appropriate level in all cooperating countries, given the differences in their existing tax systems, is likely to prove practically impossible.

A working paper by Joost Eveleijn, Prof at Duke University, as referred to on the Carbon Tax Center blog does suggest that border taxes are possible and should not be ruled out to protect US competitiveness in the case of federal climate policy.

The main arguments are that

1. ...such carbon tax amounts to “border tax adjustment” explicitly permitted under WTO rules for product-related or indirect taxes (such as VAT or sales taxes). The carbon tax is then simply the extension to imported products of the tax or cost of holding emission allowances imposed on domestic, U.S. producers.
2. ...[a] carbon tax is justified under the environmental exceptions of GATT Article XX. This second line of defense is needed in case (i) the WTO would not permit “border tax adjustment” for a process-based tax or charge such as an internal, US carbon tax or cap-and-trade system or (ii) the WTO does permit “border tax adjustment” but the adjustment is found to discriminate imports as against US products or between different sources of imports (in case, for example, the US would not impose the tax on countries, such as Europe, with their own emission cuts in place, or exclude very poor developing countries).

Poverty: definitions and direction of change

The debate on whether poverty in South Africa has increased or decreased in roughly the last decade is continuing. The South African Institute of Race Relations claimed that peopleliving in absolute poverty (defined as less then $1 per day) increased from 1.9 million in 1996 to 4.2 million in 2006. Pres Thabo Mbeki refuted this claim as discussed in an earlier contribution to this blog.



Today the director of the SAIRR, John Kane-Berman, defended their publication. A few points were made:


1. Poverty is not a question of service delivery. Service delivery success is well documented leading to increased standards of living for millions.


2. Absolute poverty is rising, but it seems to be beyond its peak:
Some of the data we have published are based on a definition of absolute poverty, living on the equivalent of less than a dollar a day. On this criterion, the number of poverty-stricken South Africans rose from 1,9-million in 1996 to 4,2-million in 2005. Poverty peaked at nearly 4,5-million in 2002, but it has still doubled since 1996 (at constant prices). Mbeki finds this assertion “absurd”. But it is a consequence of the fact that unemployment has doubled. On the strict definition, it has risen from 2-million in 1996 to 4,3-million last year. On the expanded definition, it has risen from 4,2-million to 8-million, after peaking at 8,4-million in 2003.


3. Definitions of poverty as well as a focus on the direction of change seems to drive perceptions on the problem:
There are various definitions of poverty. The president refers to one published by his own office in June in which the poverty line is defined as R3000 per head per year. He says that on this measure, the proportion of people living in poverty has dropped from 53,1% in 1996 to 43,2% last year (in constant rands). Translating the latter percentage into actual numbers means there were nearly 21-million people living in poverty last year — a far higher figure than that of 4,2-million cited by our institute (for 2005).

Listening to all of this, were are we? My interpretation:

First, the difference between $1 per day or R3000 per annum seems very small to me (give and take a bit on the exchange rates). So depending how one defines it we have between 4 and 21 million people absolutely or just above absolutely poor in the country. That's a huge difference for a small change in definition. Definitions thus drive magnitudes and ultimately policy decisions on how to deal with the problem.

Second, there may be some evidence that social grants start to reach some of the poorest of the poor. Or is this decline artificially driven by an appreciating Rand? (have to check on that one). Social grants reach 25% of the population already and may have reached its plateau. It does look (and this needs to be verified) as if social grants are largely responsible for 'filling the gap' between the two definitions of poverty.

Third, it also seems that it is not due to sustained economic growth and job creation that poverty is reduced, but to some extent through the creation of a social safety net which may have reached its limits.

Verified information on this is vital for understanding the dynamics of the South African socio-economic system and vital for using the correct policy levers to influence better development outcomes.

The bright future of mobile

Mobile use may be at a tipping point, like Internet was a few years ago. General acceptance of 3G is increasingly playing a role in connecting South Africans to the world. This has important implications for banking:

the penetration of cellphone banking in SA has more than doubled in one year, according to the key findings of the cellphone banking research across all market segments

and mobile payments:

Mobile commerce – purchases and payments via a cellphone – has also increased significantly, from 7% of urban cellphone users last year to 12% this year. However, most of these purchases are for prepaid airtime top-ups – simple to do on a cellphone – as opposed to product or service payments.

Let's not forget adaptation

Mitigation of climate change dominates the international agenda and is significantly influencing South Africa's stance on climate change (see earlier post on this blog).


Adaptation to climatic changes is already happening, and if not supported and facilitated through longer-term planning, disaster prevention, early warning system and appropriate R&D to name a few, may lead to unnecessary hardship in a continent without the means to effectively cope with climatic change.


An interesting perspective on how the definitions of climate change is driving behaviour is provided in this insightful article by Prof Roger Pielke from the University of Colorado.

HIV/AIDS: Better then expected..but not for South Africa

According to a new UN report released today:
33.2 million people are estimated to live with HIV in 2007
2.5 million people are estimated to be infected with HIV in 2007
2.1 million people are estimated to have died from HIV in 2007

There is some good news. Worldwide, AIDS has long been overestimated, both in size and course. According to the UN report:

The estimated number of persons living with HIV worldwide in 2007 was 33.2 million [30.6-36.1 million], a reduction of 16% compared with the estimate published in 2006 (39.5 million [34.7-47.1 million]). (UNAIDS/WHO, 2006) The single biggest reason for this reduction was the intensive exercise to assess India’s HIV epidemic, which resulted in a major revision of that country’s estimates. Important revisions of estimates elsewhere, particularly in sub-Saharan Africa, also contributed. Of the total difference in the estimates published in 2006 and 2007, 70% are due to changes in six countries: Angola, India, Kenya, Mozambique, Nigeria, and Zimbabwe. In both Kenya and Zimbabwe, there is increasing evidence that a proportion of the declines is due to a reduction of the number of new infections which is in part due to a reduction in risky behaviours.

There is also some bad news. According to the report:

There was no evidence of a decrease in HIV infection levels among young people in
Mozambique, South Africa or in Zambia.

According to the UN, South Africa has now the dubious honour of being the country with the largest number of HIV infections in the world:

South Africa is the country with the largest number of HIV infections in the world. HIV
prevalence data collected from the latest round of antenatal clinic surveillance suggest that HIV infection levels might be levelling off, with prevalence among pregnant women at 30% in 2005 and 29% in 2006 (Department of Health South Africa, 2007). In addition, the decrease in HIV prevalence among young pregnant women (15-24 years) suggests a possible decline in the annual number of new infections. The epidemic varies considerably between provinces, from 15% in the Western Cape to 39% in the province of KwaZulu-Natal.
(Department of Health South Africa, 2007).


References:
UNAIDS/WHO (2006). AIDS epidemic update: December 2006. UNAIDS, Geneva 2006. UNAIDS/06.29E. ISBN 92 9 173542 6.

Department of Health South Africa (2007). National HIV and syphilis antenatal prevalence survey, South Africa 2006. Pretoria.

All kinds of growth

On the question how to approach a land-locked African country's development challenge, one needs to distinguish between decent growth and pro-poor growth. The former is best on the long term, the latter is not really growth but rather a form of social policy. This according to Prof Rodrik, Harvard-based economist in a recent blog post.

In South Africa we are hearing a lot of noises on this type of trickle-down growth versus a more populist pro-poor growth. The former camp highlights the fact that we may have started to turn the corner thanks to sustained economic growth, the latter camp highlights the high levels of poverty, the persistent high levels of unemployment and the sharp drop in HDI rankings.

We better have to get our numbers right. Or decide not to fiddle with and fight about the numbers but focus on (i) letting the growth-engine run as smoothly as possible and (ii) with a hawish flexibility to counter on any (unintended) side-effects on excluded third parties.

The contagious disease of inequality

Improvements in child wellbeing in rich societies may depend more on reductions in inequality than on further economic growth. This was the result of a study on the relationship between child well being, income and inequality. The study was published in the British Medical Journal and involved a cross-national comparison of 23 rich countries and cross-state comparisons within the United States.

These results do no necessarily hold for poorer countries:
...when international analyses include data for poorer countries, it is clear that among them, absolute material standards remain important for child wellbeing.

The explanation given by the authors for the link between inequality and child wellbeing is that children are aware of differences in status:

We have suggested elsewhere that greater inequality leads to increased competition and anxiety regarding social status. But are children sufficiently aware of differences in status to make the third hypothesis plausible? Research has found that before the end of primary school children are fully conscious of class differences: they can rank occupations hierarchically and are able to categorise people socially by outward indicators such as clothing, houses, and cars. There is also evidence to show how children’s performance is affected by status differentiation. For example, although tests showed that 11-12 year old Indian children from high and low castes could solve mazes equally well before they knew each other’s caste, lower caste children did much less well as soon as caste was declared. Similar effects were apparent when black and white American high school students were given cognitive tests. When told the tests were to measure ability, the black students did much less well than when they were told they were not tests of ability. White students did equally well under both conditions. Other experiments have shown how the creation of artificial differences in status can lead to differences in behaviour and performance.

If people are poor provide the goodies, if they become richer ask them to resist the temptation to watch the neighbours.

Poverty is not rising after all...

...that's what the President said in the latest ANC Today with extensive reference to the Development Indicators Mid Term Review released June 2007.

The IPCC on Climate Change in Africa

A draft copy of the IPCC's Fourth Assessment Report Summary for Policy Makers, released 16 Nov 2007, highlights Africa's vulnerability to climatic changes:

From 1900 to 2005, precipitation increased significantly in eastern parts of North and South America, northern Europe and northern and central Asia but declined in the Sahel, the Mediterranean, southern Africa and parts of southern Asia. Globally, the area affected by drought has likely increased since the 1970s.

There is also high confidence that many semi-arid areas (e.g. Mediterranean basin, western United States, southern Africa and northeast Brazil) will suffer a decrease in water resources due to climate change.

In Africa:
• By 2020, between 75 and 250 million of people are projected to be exposed to increased water stress due to climate change;
• By 2020, in some countries, yields from rain-fed agriculture could be reduced by up to 50%. Agricultural production, including access to food, in many African countries is projected to be severely compromised. This would further adversely affect food security and exacerbate malnutrition;
• Towards the end of the 21st century, projected sea-level rise will affect low-lying coastal areas with large populations. The cost of adaptation could amount to at least 5-10% of Gross Domestic Product (GDP);
• By 2080, an increase of 5-8% of arid and semi-arid land in Africa is projected under a range of climate scenarios (TS).

Some systems, sectors and regions are likely to be especially affected by climate change:
Africa, because of low adaptive capacity and projected climate change impacts
African megadeltas, due to large populations and high exposure to sea level rise, storm surges and river flooding.

South Africa speaks on a post-Kyoto regime

South African leaders, and more specifically the Department of Environmental Affairs are starting to make noises about post-Kyoto rules. It looks as if someone is realising that we have a global responsibility:

...increasingly, developing countries like ourselves will be expected, and should be expected, to take our fair share of responsibility and demonstrate our plans to contribute to the global response, albeit in a differentiated way that recognises our growth imperative and our small contribution thus far to the current crisis.

But then, further in the article it becomes clear that we talk about a very specific form of responsibility, one that follows the example of others and one that needs a little support:

In term of reducing emissions a strengthened Kyoto regime must weave together three strands:
* much more ambitious emission reduction targets for all developed countries,
* re-engagement of the USA and Australia in internationally agreed and binding emission reduction targets under Kyoto (the USA and Australia are two developed countries and large emitters who have not ratified the Kyoto Protocol),
* greater recognition of, and incentives for developing country mitigation action.

Given the idea that emission reductions today will only really benefit us a few decades later, the question arises how adaptation to the effects of climate change will be weaved into such a proposed post-Kyoto regime. The article mentioned that such a regime ...needs to balance the international response on mitigation, in other words reducing emissions, with credible and predictable support for adaptive activities in the face of inevitable climate impacts, but it is not clear whether this will be a specific focus point in the discussions.

So what's the bottom line? More of the same and this time we want to have a bigger share of CDM.

Did someone mention adaptation?

Rising poverty and the volatility of economic growth

The World Bank's African Development Indicators 2007 raises an important point that may shed some light on the economic growth - persistent poverty question: the volatility of this growth.

Quoting from the report:

This essay explores the patterns of growth in Sub-Saharan Africa over the past 30 years.
It fi nds that the volatility of growth—a product of confl ict, governance, and world commodity prices—has been greater than in any other region. That volatility has dampened
expectations and investments—and has obscured some periods of good performance for
some countries. Th e analysis here fi nds that pickups in growth were seldom sustained—
indeed, that they were often followed by ferocious declines. Hence, Africa’s flat economic
performance over 1975–2005. Where an economy started in 1975 is pretty much where it ended in 2005. Th e reason: when things go well they do not last, and when they go wrong they go very wrong. So, avoiding a decline from 2 percent GDP growth to –3 percent is as important as going from 2 percent to 7 percent. Indeed, it may be more important for poor people, who gain much less during growth pickups and suffer much more during the declines. The question for economic policymakers in Africa, then, is how best to sustain the pickups in growth. The answer: avoid the crushing declines.

The report does not say a lot on the relationship between stable economic growth and poverty alleciation, but does highlight that absolute poverty has declined in Africa:

Human development outcomes are improving across the region, and progress toward
the Millennium Development Goals is picking up. In 1990, 47 percent of Africans lived
in poverty. In 2004, 41 percent did, and on present trends 37 percent will in 2015.

Poverty gets more complex every day.

Coal - still the cheapest option

The Economist produced an interesting article on the continued expansion of coal-fired power stations. This graph (courtesy to The Economist) tells it all:

The complexity of poverty in South Africa

The Mail & Guardian (quoting results of a report by the South African Institute of Race Relations):

"More than 4,4-million households have received electricity connections since 1995, four million received access to clean water, 2,1-million to improved sanitation facilities and 2,5-million to refuse removal facilities. In addition 2,5-million more households now live in formal housing, most of which was provided by the state"

The article continues:

More than 10-million South Africans also receive social grants from the state -- up from three million six years ago.The institute said that the successes suggested that relative deprivation, and not the failure of delivery, was behind the wave of delivery protests that had swept the country since 2006

Relative deprivation? Yesterday the same source published an article stating that South Africans living on less then a $1 per day doubled in a decade. Just to repeat:

In 1996, some 1,9-million South Africans survived on less than one US dollar per day. This had increased to 4,2-million by 2005.

Poverty is complex stuff.

Kendal on the list of top ten CO2 polluters worldwide

Naturenews published a graphical overview on the highest CO2 emitting power plants in the world. South Africa is at no 8 on the country list with 201 Million tons per year, for which Kendall power station alone is responsible for 26 million tons.

And, if you thought that this is a only a Kendall problem, there is some bad news: Eskom is the second highest CO2 emitting power company worldwide: http://carma.org/company.

There is no question about this - when will this start to cost us and how much?

Carbon taxes with a current account deficit?

In an article on Scitizen, Prof Tim Haab raise an important question on carbon tax policy with important implications for South Africa as well:

Proponents of carbon taxes like to say that taxes are preferred over cap-and-trade because taxes raise revenue that can be used to reduce distorting taxes on labor and capital. If a country has a budget surplus or a minor deficit, we'd say OK. But there is prima facie evidence that taxes on labor and capital are too low, not too high. In the U.S. we have a big budget deficit that is basically a big tax increase on our kids and grandkids. This big tax increase is discounted away, sure, but we think it is an important long-term problem, just like climate change. If a carbon tax raises revenue, the additional revenue could be used to reduce the budget deficit. This dissolves the efficiency claims about a preference for a carbon tax over cap-and-trade. If carbon tax revenues should not necessarily be used to reduce taxes on labor and capital then it is no more efficient, due to additional revenue, than cap-and-trade.

With proposed environmental taxes and a growing current account deficit in South Africa, we may be well-advised to broaden the focus of the current discourse beyond the carbon tax versus labour-income tax debate.

Trust and Water Markets

On attending a workshop on the emergence of water markets in South Arica, I was again struck by the importance of 'trust' in effective trade. The absence of trust between potential buyers and sellers, and between buyers/sellers and the regulator impedes trade, and at best raises the cost of transacting. Market transactions are a form of collective action and presupposes functioning institutions and networks.

Francis Fukuyama in the Great Disruption said:
It is perfectly possible to form successful groups in the absence of social capital, using a variety of formal coordination mechanisms like contracts, hierarchies, constitutions, legal systems, and the like. But informal norms greatly reduce what economists label transaction costs...

Trust brings costs down and eventually may have an impact on more efficient allocation of scarce resources.

SA poverty doubles in a decade

Despite relative strong economic growth, income poverty is still on the increase in South Africa. This is not only the case for the poor provinces, but also for the richer ones:

In 1996, some 1,9-million South Africans survived on less than one US dollar per day. This had increased to 4,2-million by 2005.

The Western Cape had the smallest percentage of its population living on less then a dollar a day -- however this percentage had doubled between 1996 and 2005. The only other province which had less than 5% of its population living in poverty was Gauteng. Poverty in the province, considered the country's economic powerhouse, also increased substantially from 1% in 1996 to 3,5% in 2005.

Do we need more economic growth or more direct anti-poverty measures?

See http://www.mg.co.za/articlepage.aspx?area=/breaking_news/breaking_news__national/&articleid=324695&referrer=RSS

Globalisation and inequality

Prof Kenneth Rogoff (Economics and Public Policy at Harvard University) on

...growth and inequality:
Are massive income and wealth differences an inevitable outcome of fast growth? By and large, the answer from history is “yes.” China, whose growth performance since 1970 has now broken every record, is well on its way to having the world’s most unequal income distribution. Indeed, China has passed the US and is nearing Latin American levels of inequality.

...and on relative diferences in income:
How much do America’s highest income earners make compared to the world’s billion poorest individuals? Well, if the top nine donated their earnings, it would be the equivalent of about three months income for the bottom billion.

...with implications for tax policy:
Rather than punitively taxing wealth, globalization strengthens the case for shifting to a flat tax on income (or better yet consumption) with a moderately high exemption. Aside from the usual efficiency arguments, it is just going to become increasingly difficult and costly to maintain complex and idiosyncratic national tax arrangements. Unfortunately, movements towards fundamental tax reform are on the back burner in most countries.

With absolute poverty on the retreat (with the notable exception of Sub-Saharan Africa), massive global inequality is likely to become the next big obstacle.

See http://www.project-syndicate.org/commentary/rogoff36/English for the full story.

Regional Economic Outlook 2007

According to the IMF Sub Saharan Africa growing strong, has improved macroeconomic and political stability, more fiscal space, but continued structural and institutional reform is needed. There is some heartening evidence that pro-poor spending increasing.

http://www.polity.org.za/article.php?a_id=120837

The Future of Coal

According to the IEA's World Energy Outlook 2007 the world’s primary energy needs in the Reference Scenario are projected to grow by 55% between 2005 and 2030, at an average annual rate of 1.8% per year.

the continued dominance of fossil fuels...Fossil fuels remain the dominant source of primary energy, accounting for 84% of the overall increase in demand between 2005 and 2030.

also coal...In line with the spectacular growth of the past few years, coal sees the biggest increase in demand in absolute terms, jumping by 73% between 2005 and 2030 and pushing its share of total energy demand up from 25% to 28%. Most of the increase in coal use arises in China and India.

and for those who did not now that China started importing coal as well... China became a net coal importer in the first half of 2007. In the Reference Scenario, net imports reach 3% of its demand and 7% of global coal trade in 2030.

why coal?

Price..Higher oil and gas prices are making coal more competitive as a fuel for baseload generation.

Chindia...China and India, which already account for 45% of world coal use, drive over four-fifths of the increase to 2030 in the Reference Scenario. In the OECD, coal use grows only very slowly, with most of the increase coming from the United States.

Cleaner technology...In all regions, the outlook for coal use depends largely on relative fuel prices, government policies on fuel diversification, climate change and air pollution, and developments in clean coal technology in power generation. The widespread deployment of more efficient power-generation technology is expected to cut the amount of coal needed to generate a kWh of electricity, but boost the attraction of coal over other fuels, thereby leading to higher demand.

http://www.iea.org/Textbase/npsum/WEO2007SUM.pdf

Decoupling economic growth from emissions is only way

"...the solution to the challenge of global climate change is as plain as day. The only chance of improvement is to decouple economic growth from energy consumption and emissions. This must happen in the emerging countries, and even more urgently in the old industrial economies."

Courtesy to Project Syndicate: http://www.project-syndicate.org/commentary/fischer19/English

Real action on poverty

Methods used in medicine are already making a difference in addressing poverty more efficiently.

See: http://www.forbes.com/2007/05/23/esther-duflo-poverty-tech-cx_07rev_ee_0524duflo.html?boxes=custom

Biofuels? Think twice (again)

Following the World Development Report 2008 referred to on this blog only a few days ago, an updated report on biofuel subusidies in the US entitled Biofuels: At what cost? from the International Institute for Sustainable Development again highlights again how ineffective bad policy decisons can be.

"Sustained high subsidy levels ... of ... biofuels are an expensive way to achieve various policy objectives, such as greater energy security and the lowering of greenhouse gas (GHG) emissions...In terms of energy security, the average subsidy costs of replacing petroleum with biofuels over the 2006–12 period are high: $ 12–17 per gigajoule (GJ) of petroleum displaced for corn ethanol and $ 16–25 per GJ for biodiesel. This translates to roughly $ 1.40 to $ 1.70 per gallon of gasoline equivalent and $ 2.00 to $ 2.35 per gallon of diesel equivalent—both a sizeable percentage of the current market value of motor fuels...The cost of displacing fossil fuels by subsidising biofuels is even more expensive than for displacing petroleum: $ 22 to $ 57 per GJ fossil fuel displaced for corn ethanol and $ 24 to $ 28 per GJ for biodiesel.

And then for the real shocker:

The minimum subsidy cost per tonne of CO2-equivalent reduced over the
2006–12 period is $ 295 for corn ethanol; $ 239 for biodiesel; and $ 109 for a hypothetical cellulosic ethanol case. This is the minimum cost, calculated by taking the lowest subsidy estimate and dividing it by the most favorable GHG displacement factor."

See http://www.globalsubsidies.org/IMG/pdf/Brochure_-_US_Update.pdf for a full report.

Budgeting for climatic changes

Sometimes environmental issues become financial issues out of sheer desperation. They are forced onto us. They start costing money; for example, the latest medium term budget statement hints at support mechanisms such as crop loss insurance in the wake of climatic changes.

This contains some serious warnings on sustainability of other industrial policies and development programmes, an issue highlighted by no other then Business Day. See http://www.businessday.co.za/Articles/TarkArticle.aspx?ID=3041255 for the full story.

Cellphone banking in Kenya

An article from the Christian Science Monitor: http://www.csmonitor.com/2007/1012/p01s03-woaf.html

Hard facts on cellphone connectivity

The recently released Community Survey (http://www.statssa.gov.za/community_new/content.asp) contains some gripping statistics on connectivity:



The percentage of households with computer facilities increased from 8,6% in 2001 to 15,7%
in 2007.

Only 7,3% of households had access to Internet facility at home in 2007.

The proportion of households owning a cellphone increased from 32,3% in 2001 to 72,9% in 2007.



Given current trends, poor South Africans might be better served by this phenominal growth in cellphone penetration as a platform for linking innovation to the marketplace, rather then focussing on a mass roll-out of PCs and PC-based internet connections.

Think twice about biofuels - WDR

The biofuels debate is raging. Not only given the obvious connections to energy and food security, as well as the impacts on land and water, but also because it is one of the development strategies contained in ASGISA.

The World Bank has added a word of caution in the latest World Development Report 2008.

"The challenge . . . is to avoid supporting biofuels through distortionary incentives that might displace alternative activities with higher returns. Governments need to carefully assess economic, environmental, and social benefits and the potential to enhance energy security. Other often more cost-effective ways of delivering environmental and social benefits need to be considered, especially through improvement to fuel efficiency" http://www.polity.org.za/page.php?rep_id=67&al_id=474738

For the full World Development Report:
http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTWDRS/EXTWDR2008/0,,contentMDK:21410054~menuPK:3149676~pagePK:64167689~piPK:64167673~theSitePK:2795143,00.html

Kenyan strawberries are good for the UK (and for us Africans)

Eating Kenyan strawberries at Christmas, in other words, is not a guilty pleasure, it is (part of) a moral obligation!

This is the conclusion of a new paper from Benito Muller at the Oxford Institute for Energy Studies. And surely one that deserves to be mentioned.

Kenyan strawberries have a comparative advantage above out-of-season UK grown strawberries. They are cheaper to produce, and are benefitting from something Africa has in abundance: sun. Even when emissions from long-haul flights are taken into consideration the argument holds, according to Muller. And, important for Africans, strawberries in Kenya contribute to jobs, livelihoods, income and human dignity in a continent where such (shall we call it basic?) goodies are hard to get.

For the full paper see: http://www.oxfordclimatepolicy.org/publications/mueller.html

China: Doing Deals that Last?

The R36.7bn direct investment by the state-controlled Industrial & Commercial Bank of China in Standard Bank is yet another stepping stone in China's quest towards being the world's number one economic powerhouse. And in Africa, it not such a bad idea to partner with a bank who has vast experience in unlocking the value of the continents' natural resources.

There is however legitimate concern on the sustainability of natural resource extraction and the resulting impacts on the environment in Africa. The Dragon is certainly not perceived to be very green. During 2006, the Chinese state Environmental Protection Administration published an official estimate of environmental losses of $84bn or 3 percent of GDP for 2004. Other estimates put the costs as high as 8-13 percent of GDP, effectively wiping out all the gains of economic growth.

On the other side, many African countries have also experienced that large capital inflows on the basis of natural resource booms contribute little to poverty alleviation and may even delay the diversification of the economy.

Africa’s history of natural resource exploitation and a lack of environmental control in China itself can easily lead to the conclusion to limit entertaining the Dragon on African soil. In fact, such sentiments, although not in relation to environmental management, have already started to surface with a comparison of China’s interest in Africa to colonialism and opposition politics in Zambia.

At least two aspects need further attention before we come to such a conclusion: the direction of change in China, and the need for clear rules of engagement in Africa. For the full story read the special issue of The China Monitor: http://www.ccs.org.za/downloads/monitors/CCS%20China%20Monitor%20March%2007.pdf