African Countries Can Create Greater Economic Income With Reduced Tariffs

opinion

Back in the last week of April, Joe Biden, the newly inaugurated US President, brought together 40 world leaders in a virtual summit to discuss climate action. Biden was sitting in his office, welcoming leader by leader via a big screen, and the entire two-day conference was streamed live. Some meaningful announcements were made, with many countries pledging to strengthen their NDCs (Nationally Determined Contributions) that were initially set up during the Paris Agreement in 2015, embodying efforts by each country to reduce national emissions and adapt to the impacts of climate change.

Brazil President, Jair Bolsonaro, took a somewhat surprising stance after previously threatening to withdraw from the Paris Agreement, and vowed to end illegal deforestation in the country by 2030 and achieve carbon neutrality by 2050. Yoshihide Suga, the Japanese Prime Minister pledged to curb emissions by 46% by 2030, a rise from the past commitment of 26%. Indian Prime Minister Narendra Modi re-confirmed the country's vow to install 450 gigawatts of renewable energy by 2030, a meaningful step for the world's 3rd biggest emitter.

Five African countries attended the summit including Kenya, the Democratic Republic of Congo, Gabon, Nigeria, and South Africa, which pledged to strengthen the country's NDC and shift its intended emissions peak year ten years earlier to 2025. But to reach such ambitious goals, some extreme changes will have to take place, with regulatory advancements leading the list of long-overdue adjustments across the continent, which often seem to be going backwards rather than onward.

A regulatory backslide

Last year, the Kenyan government reimposed a 16 per cent VAT rate on standalone solar products, and the East African Community that includes Kenya, Burundi, Rwanda, South Sudan, Tanzania and Uganda - reinstated import duty on the same products.

A recent report by GOGLA (the global association for the off-grid solar energy industry) and KEREA (the Kenya Renewable Energy Association) overviews the harmful effects of these policy changes. The report states that the prices of standalone solar systems in Kenya have risen 10-24 percent since the tariffs was reimposed, and that sales volumes had fallen by at least 25 percent.

Stand-alone solar systems have a very specific role across Africa, as they are one of the main methods of electrifying remote, rural communities that are the most impoverished in their home countries, and often globally. For these communities, encompassing hundreds of millions of people, a rise of 10-24 percent in the price of the solar system makes it impossible to purchase. And this difficulty would play both a climate and a social role in the long term.

Human development and climate change, intertwined

Solar-based solutions are as crucial to human development as they are to climate change. Throughout the rural areas of Sub Saharan Africa, petrol and other combustible fuels are used for lighting, cooking, and heating purposes that are often done through indoor open fires. Fire and smoke contribute to high mortality and disease rates, as homes can be easily burnt to the ground, and smoke causes various diseases including pneumonia, lung cancer. Across the region about 1 million mortalities a year are caused by smoke-related health issues.

The problem is not only in the household. About 730 million tons of biomass are burned for fuel each year in developing countries, releasing as much as 1 billion tons CO2 into the atmosphere. In addition open fires emit high concentrations of a number of black carbon and methane, both with significant climate consequences.

When looking at the globally-conscious side, the underlying impact of the use of solar panels for electricity is the added products that rely on that power. When millions of people across Africa use LED bulbs to light their homes, instead of polluting kerosene lamps, clean stoves instead of an open fire for cooking, solar irrigation systems instead of a hazardous diesel generator, millions of tons in GHG emissions are saved every year.

The socio-economic effects are also evident, with home electricity being a crucial factor in education, gender equality, innovation, and more. People across Africa who have access to solar electricity in recent years are reporting a higher sense of security after dark, and less thefts of cattle and livestock. An increase in social activities and more time to add new hobbies. Children are able to do their schoolwork after dark, and parents are reporting higher grades. Better health due to lowered consumption of combustible fuels for lighting and heating. New businesses are opened and a higher income is prevelant.

The GOGLA-KEREA report tells this story with some interesting numbers. While the VAT rate would generate around $9.6 million per year, and import duties $10 million for the Kenyan government, by of keeping the VAT off, an estimated 250,000 households could open new businesses, or have residents that could start new jobs, potentially generating $46 million more in tariffs revenues for Nairobi, with a further $2.7 million per year in prospect from the creation of 2,500 more jobs in the renewable industry. The report also states that keeping the new policy could result in 600,000 fewer households with access to solar by 2025. A great example is Rwanda, which decreased national tariffs and created a favorable environment for solar solutions to prosper, and established a vast impact across the country, where electrification rate soared from only 9.7 percent in 2010 to over 60 per cent today.

A more positive, more enabling regulatory environment is crucial in reaching these ambitious climate pledges, and in asserting coveted human-development goals. Leaders across Africa should look at the long-term outcomes and do everything in their power to achieve them.

The writer is an entrepreneur and investor, leading sustainability-driven companies in Africa and the Middle East.

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