Climate finance vital for inclusive intra-African trade growth – Prof. Joshua Abor

Professor Joshua Yindenaba Abor, a former Dean-University of Ghana Business School (UGBS), has stated that directing international climate finance into developing countries will boost the positive impact of intra-African trade on inclusive growth.

He explained that the impact of international trade on growth can be positive or negative, depending on an economy’s trade environment and resource level. Climate finance, he notes, is a crucial avenue for promoting inclusive growth.

While presenting a paper on ‘Climate Finance, International Trade, and Inclusive Growth in Africa’ in Accra, he stated that to accelerate economic recovery and build financial resilience in Africa, policymakers and researchers are debating the centrality of climate finance and international trade in designing sustainable, inclusive growth solutions.

The supply of capital to developing economies for facilitating trade and achieving climate objectives and global Sustainable Development Goals (SDGs) has become a major issue, making climate finance and trade an interesting research area to explore, he noted.

Prof. Abor, who is also an Afreximbank Research Fellow, asserted: “Specifically, climate finance can enhance the positive impact of intra-African trade on inclusive growth, and mitigate the negative effects of trade openness as climate finance increases”.

He highlighted the importance of promoting policies that maximise available resources through leveraging climate finance to support intra-African trade. Moreover, he stressed the need for close collaboration between climate finance support and trade policies to maximise adaptive opportunities for greater inclusive growth.

Furthermore, Prof. Abor argued for increased allocation of funds through climate finance development projects to bolster inclusive trade policies and incentivise investments in the trade ecosystem, ultimately advancing inclusive growth.

According to Prof. Abor, many studies – Kumari et al., 2023; Chen et al., 2022; Asiedu et al., 2021 – support the trade-led growth hypothesis. However, other studies – Ali et al., 2022; Islam, 2022 – reveal the heterogeneous impact of trade on growth due to the extent of trade openness and different proxies of trade debt.

He stated that though some studies exist on how climate finance could work in filling the finance-growth gap, the use of international trade as a mechanism is lacking – given that African trade systems are now embracing climate finance, achieving climate objectives and creating the enabling environment necessary for inclusive growth.

A United Nations Conference on Trade and Development report reveals that climate finance commitment was set in 2009, which aimed to mobilise US$100billion per year for developing countries by 2020. The US$100billion commitment, which in any case has not been met, will expire in 2025.

In the United Nations Framework Convention on Climate Change’s recent analysis of financing needs, developing countries require at least US$6trillion by 2030 to meet less than half of their existing Nationally Determined Contributions.

To put that challenge in perspective, estimates by the Organisation for Economic Cooperation and Development, and Oxfam, suggest that the actual flow of climate finance from developed to developing countries in 2020 was between US$21billion and US$83.3billion.