Emerging Markets, Emerging Crises: Rethinking Climate Change and Foreign Investment in Africa and the Middle East
Emerging markets, particularly in sub-Saharan Africa and the MENA region, have captured the imagination of Western investors, policymakers, and journalists since the start of the new millennium. Populations once pejoratively written off as irrelevant to the global economy, and geographies once considered too risky for major capital inflows, now sit at the frontier of foreign investment. For example, every year since 2003, Ethiopia, once known in the West primarily for its devastating war and famine, has posted a positive change in GDP of more than seven percent. Dubai, a former fishing village, has emerged in the past twenty years as a global entrepôt for tourism and commerce. And with low interest rates since the end of the 2008 financial crisis, foreign capital has poured into these regions.
Yet the grim reality of climate change threatens to upend this rosy outlook for growth and, most tellingly, demonstrates the short-term capitalist thinking upon which many of these economic predictions are built. Climate change threatens the lives and livelihoods of billions of people in Africa and the Middle East, and mainstream wisdom has yet to develop a framework to assess the real, long-term damage it is likely to pose to economies in this region. Failure to re-center the contemporary economic discourse around the threats of climate change in emerging markets will render futile new investments and irresponsible the advice of economists and policymakers operating in these regions.
Though the consequences of anthropogenic climate change will occur worldwide, countries in the Global South will feel their effects most severely. Many, like Ethiopia, face a combination of acute poverty and exploding populations. Others will encounter severe threats by virtue of their location along coastlines or in deserts. A 2015 study in the journal Nature Climate Change, predicted that severe heat waves will make major cities like Dubai and Doha uninhabitable by 2070. Lagos, Nigeria, a megacity into which investors have poured billions of dollars, has faced devastating floods due to coastal erosion since 2011, and some reports suggest it will be underwater by 2099. And over the past decade, climate change-related debt has cost poor, vulnerable countries an extra $62 billion in external interest payments, according to a 2018 report.
Conventional metrics for assessing risk in these economies have yet to keep pace with the imminent threat of climate change to life and livelihood. A 2018 policy brief in the Review of Environmental Economics and Policy suggests that there is “a major discrepancy between scientific and economic estimates of the impacts of unmanaged future climate change.” Another study indicates that credit rating agencies, like Moody’s and S&P, have yet to fully account for climate risks in their fundamental analysis. Moreover, the inability of current models, often developed by Western scientists, to capture the localized risks of various climate disasters in the Global South creates a misleading impression of the medium- and long-term outlook for many of these countries.
The continued failure to account for the economic and social impacts of climate change will cost billions of dollars in wasted investments. Even if we ignore the tremendous externalized cost to the lives and livelihoods of Africans and Middle Easterners, common sense dictates that new ports, coastal skyscrapers, or agricultural ventures in climate vulnerable countries will fail if they are washed away by floods or damaged by heatwaves. Governments in MENA and sub-Saharan Africa are already saddled with debt from international creditors, oftentimes to fund large national infrastructure projects. These investments, largely on the taxpayer dime, only pay off if they are sustainable over the long term. But if current predictions for sea level rise and global warming hold true, physical infrastructure remains incredibly vulnerable.
But instead of abandoning projects and development goals in these regions, investors must do the opposite, allocating their capital sustainably and taking into account the long-term social and macroeconomic impacts of their choices. With growing populations, Africa faces an annual infrastructure financing gap of $68-$108 billion, while annual infrastructure investment need in the Middle East amounts to around $2.5 trillion. To realize these aims, investors must direct their efforts towards renewable energy, sustainable agribusiness, and carbon-free industrialization. So, too, must they prioritize the “double bottom line” – profit and quantifiable, positive, social change – when working in climate vulnerable regions.
Even more fundamentally, we need to have a larger conversation about short-term capitalist thinking. The current emphasis on successful quarterly earnings reports as the benchmark of fiduciary responsibility to shareholders and annual GDP as the central metric of a country’s economic viability puts pressure on both firms and governments to produce quick wins that keep up with the demands of global markets. These models cannot sufficiently or responsibly capture the full impact of climate change on economic activity, especially in emerging markets in Africa and the Middle East, not to mention the impact on the lives and communities that reside there. Overreliance on these data have created a system wherein economic actors prioritize short-term success over the patient care needed to facilitate the dual goals of long-term value creation and social good.
Solving the dilemma of climate change and growth in emerging markets is not just an economic priority – it is also an ethical one. Citizens of climate vulnerable countries, like Tunisia, have contributed the least to the natural disasters that ravage their homes. Yet it is they who must bear the brunt of unheeded warnings of the perils of climate change and the short-term thinking that underestimates its economic impacts. Progress depends on the political and moral will of rich industrialized countries to radically respond to the impending catastrophe that threatens billions of marginalized citizens of the Global South. Moreover, it depends on developing countries making foreign investment projects contingent upon the inclusion of climate impact assessments and harm reduction plans in their business plans.
Even ordinary citizens outside these economic structures have a role to play. More than anything, realizing rapid and sustainable solutions will require a discourse shift. Increased economic output is central to any emerging market’s growth, but the models by which we evaluate this growth must change to reflect the sobering realities of climate change. Should we fail to think deeply and act accordingly, it is more than just infrastructure and investment that’s at stake: it is the very essence of our contemporary way of life.