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Driving economic growth through green transition in Nigeria 23 Apr 2024

A report by the United Nations Environment Programme (UNEP) published in 2011 was authoritative in dispelling the counterfactual narrative that environmental sustainability requires a trade-off with economic progress. Indeed, “Towards a Green Economy,” made the compelling case that unleashing public and private capital flows into low-carbon development, or "greening" the economy, has the potential to generate positive outcomes such as increased economic output, decent employment, improved quality of life, and reduced poverty.

Thanks to this report, “green economy” has become a mainstream concept in global development and investment spheres. UNEP defines green economy as one that is low-carbon, resource-efficient, and socially-inclusive. There is substantial evidence that the transition from "brown economy," which is heavily reliant on fossil fuels without regard for their negative environmental impact, to green economy is pivotal to long-term economic development and the achievement of more equitable societies. The idea is that the responsible use, and protection, of natural resources would help in preserving them for the benefit of present and future generations.

In sum, a green economy is "a new engine of growth" and a vital strategy for eradicating "persistent poverty," according to the UN agency. This means that green transition is crucial for a country like Nigeria to effectively address two of its perennial and most fundamental problems, i.e. suboptimal economic output and widespread poverty.

Average annual gross domestic products (GDP) growth rate of the country from 2014 to 2023 was 1.98%. With this pace of economic growth far below the population growth rate, per-capita income of the country has been on a steady decline. In fact, Nigeria’s per capita GDP – an indirect indicator of per capita income – contracted on average by about 2.9% annually over the last 10-years. Nigeria's per capita GDP in 2022 ($2,162.6) was 17% of the world's average, and about a third of South Africa's. GDP and GDP per capita are respectively considered as broad indicators of national economic output and prosperity.

To reverse the steady erosion of average living standards in Nigeria, the country would need to grow income per capita by 6% per year over the next 25 years. Theoretically, this means catching up with South Africa in 12 years, and reaching the current world average by 2049. To attain this pace of per capita income growth, GDP growth rate would need to be even higher, around at least 8%, an almost three-fold increase from the 2.74% recorded in 2023.

If one shoots for the stars, even if they miss, it is said they would land on the moon. For Nigeria, a lack of the metaphorical attempt to go to outer space will mean a continued existence in the realm of economic regression for the citizens. This should not be contemplated when green transition presents significant opportunities for accelerating growth and improving overall development outcomes.

Current efforts to map Nigeria's path to green transition are important. But the commitment to build institutional capacities and drive policy implementation has been underwhelming. Thus far, Nigeria's efforts to transition to a green, low-carbon economy have been demonstrated by the enactment of the Climate Change Act 2021 during the President Muhammadu Buhari administration. The Act provides a framework for mainstreaming climate action, building resilience, and achieving net-zero emissions by 2060.

Nigeria also launched its Energy Transition Plan (ETP) in 2022, with a goal to tackle the challenge of energy poverty and reduce greenhouse gas (GHG) emissions in the power, transport, and other energy-related sectors. (These sectors contribute 65% of Nigeria’s total emissions, with the power sector accounting for 27% of in-scope emissions, followed by transport (24%), cooking (22%), industry (16%), and oil and gas (11%).)
 
While decarbonising these sectors is important, Nigeria will not be able to achieve meaningful economic development and inclusive prosperity with its current level of energy deficit, considered the largest in the world. 90 million people (45% of the population) lack access to electricity grid. The ETP aims to foster a just energy transition – which means ensuring energy access is fair, inclusive, and equitable in the shift to clean and low-carbon sources. The government also hopes a revitalisation of the economic sectors will drive economic growth and lift over 100 million people out of poverty.

A fitting continuation of this effort saw President Bola Tinubu enact the amended Electricity Act in February 2024, launching what some have described as a landmark legislation for the power sector. Among other things, the law provides the frameworks for the development and utilisation of renewable energy sources. Nevertheless, the government is not on track in executing these policies in a timely and efficient manner to achieve their stated development goals.

The funding required for Nigeria's green transition is enormous. For instance, a 2018 UNEP report on the sustainable investment opportunities in Nigeria estimated the country's overall sustainable financing gap at over $80 billion annually up to 2030. The ETP alone will require a $410 billion funding over the implementation period from 2022 to 2060, or about $10 billion in average annual investment. The magnitude of the investment gap can be a significant barrier to realising the growth prospects, assuming the target sectors and projects are not "investible," and, therefore, unattractive to potential investors.

The good news is there are nearly $100 billion worth of sustainable investment opportunities in Nigeria annually on average. These opportunities range from clean energy systems to climate-smart infrastructure, climate-resilient agriculture systems, health care, education, transport, circular economy businesses, and digital infrastructure. Ensuring these opportunities are optimised for green growth by providing the enabling conditions for investment is the task before policymakers in the country. Creating effective and well-defined policies and frameworks backed by legislation can attract the required funding.

The country has also made some progress in developing the financial architecture for driving green growth, namely green finance or sustainable finance. For instance, Nigeria has one of the most developed green bond markets in Africa. It became the first African economy (and the fourth globally) to issue a sovereign green bond in 2017 when the government issued a N10.69 billion green bond. This was followed by the N15 billion green bond issued in 2019, and that was oversubscribed by 220%.  

Access Bank PLC followed by issuing the first certified corporate green bond in Africa. After that were the issuances by North South Power Company and OneWattSolar. Besides green bonds, other sustainable finance instruments developed to finance the transition to a low-carbon economy include green loans, green equity, sustainability-linked instruments, and debt-for-climate swaps.

The global market for green financing is growing fast as the race to reach net-zero by mid-century gains speed. $30.3 trillion was invested globally in sustainable investing assets in 2023, according a report by Global Sustainable Investment Alliance (GSIA). There is also green foreign direct investment (FDI), which can simply refer to investment by foreign entities that contributes to achieving environmental and climate goals.

Credible commitments to advancing low-carbon development are a key requirement for boosting market trust and confidence and attracting finance into Nigeria's massive sustainable investment opportunities. Some of the ways the country can demonstrate this commitment and stimulate green growth is by introducing sustainability and environmental, social, and governance (ESG) regulations for government institutions and major economic sectors. This will entrench sustainability, increase transparency and accountability, and engender confidence among investors who are increasingly basing their decisions not just on the expected commercial returns of their investment, but also on ESG factors.

Such regulations could be like the Nigerian Sustainable Banking Principles (NSBP), which needs modernising and strengthening. Launched by the Central Bank of Nigeria (CBN) in 2012, the NSBP's aim is to deliver positive development impact and protect communities where the financial institutions and their clients operate. Jide Akintunde, CEO of Financial Nigeria International, has rightly argued that Nigeria needs stronger sustainable banking regulations to deliver superior, positive environmental and social impact.

Other key economic sectors can also take their cue from the CBN, using the NSBP as example. However, more modern and stronger corporate sustainability reporting rules can be modelled after, for example, the European Union's Corporate Sustainability Reporting Directive (CSRD), which requires large companies to report on their environmental and social impact regularly.  

Given the right incentives, Nigerians are known for their creativity and innovation. Therefore, accelerating investment in research and innovation will enable Nigerians to develop a raft of home-grown solutions to environmental and social challenges caused by climate change. This means the transition to climate neutrality will potentially lead to increased human capital for Nigeria, unleashing an army of highly-paid "green-collar workers" who will drive the new frontiers of growth. Writing in Forbes, Martin Jarzebowski, Director of Responsible Investing at Federated Hermes, one of the world's largest investment managers, said "I foresee that green collar jobs will become a leading indicator of not only innovative companies across multiple industries, but also the revenue prospects of their local communities."

A commitment to green practices such as using energy-efficient products and services, waste management, and more efficient use of resources will enable public and private institution to save cost. Such practices will stimulate economic activity in the circular economy, for example, demonstrating Nigeria’s commitment to green transition.

Commitment to ESG, fostering green innovation, adopting renewables and energy-efficient sources, and reducing pollution will help in strengthening the resilience of existing markets, while creating entirely new market opportunities and future corporate behemoths. As this creates positive sentiment for Nigeria, it will enhance the country's competitive edge, attract investment, and support long-term, inclusive growth.

Decarbonisation of Nigeria's economy will establish the country's leadership in sustainable practices in Africa, benefit both the people and environment, improve workforce productivity, and enable the economy to leapfrog out of its current quagmire.

At the Nigeria Development and Finance Forum (NDFF) 2024 Conference, scheduled to hold on 8 – 9 May 2024, at Transcorp Hilton, Abuja, a special session on Nigeria’s Green Economy will take place on Day 2 of the conference. I am leading the planning of this session and excited to be mobilising local and international stakeholders in the green economy to address the challenges of the sector and provide insights on harnessing its growth opportunities. The topic of stakeholder engagement for this special session is “Mobilising Investments for Nigeria’s Green Growth.” For more information about this high-level conference and to register, visit the conference website www.ndffconference.com.

Martins Hile is a sustainability strategist and editorial consultant.