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New York and Geneva, 2012
AFRICAECONOMIC
DEVELOPMENT IN
REPORT 2012 STRUCTURAL TRANSFORMATIONAND SUSTAINABLE DEVELOPMENT
IN AFRICA
U N I T E D N A T I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T
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ii Economic Development in Africa Report 2012
Copyright United Nations, 2012
All rights reserved.
UNCTAD/ALDC/AFRICA/2012
UNITED NATIONS PUBLICATION
Sales No. E.12.II.D.10
ISBN 978-92-1-055595-1
ISSN 19905114
NOTE
Symbols o United Nations documents are composed o capital letters combined
with gures. Mention o such a symbol indicates a reerence to a United Nations
document.
The designations employed and the presentation o the material in this publication
do not imply the expression o any opinion whatsoever on the part o the Secretariat
o the United Nations concerning the legal status o any country, territory, city or area,
or o its authorities, or concerning the delimitation o its rontiers or boundaries.
Material in this publication may be reely quoted or reprinted, but acknowledgement
is requested, together with a reerence to the document number. A copy o the
publication containing the quotation or reprint should be sent to the UNCTAD
secretariat.
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iiiACKNOWLEDGEMENTS
ACKNOWLEDGEMENTS
The Economic Development in Africa Report 2012 was prepared by a research
team consisting o Charles Gore and Norbert Lebale (team leaders), Patrick
Osakwe, Bineswaree Bolaky and Marco Sakai.
The work was completed under the overall supervision o Taere Tesachew, Director,
Division or Arica, Least Developed Countries and Special Programmes, UNCTAD.
The report beneted rom the comments o the ollowing, who participated in a
peer review discussion o a drat o the report: Proessor Frans Berkhout, Director,
Institute or Environmental Studies and Amsterdam Global Change Institute; Mr.Richard Bridle, Economist, International Institute or Sustainable Development; Dr.
Monika Dittrich, Independent Scientist, Heidelberg; Ms. Tamara Fetzel, Institute
o Social Ecology, Vienna; Ms. Lucy Kitson, Economist, International Institute or
Sustainable Development; Ms. Maria Niedertscheider, Institute o Social Ecology,
Vienna; and Proessor Kevin Urama, Executive Director, Arican Technology Policy
Studies Network.
Statistical assistance was provided by Agns Collardeau-Angleys, and Heather
Wicks provided secretarial support. The cover was prepared by Sophie Combette.Michael Gibson, Daniel Sanderson and Lucy Dlze-Black edited the text.
The overall layout, graphics and desktop publishing were done by Madasamyraja
Rajalingam.
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vCONTENTS
CONTENTS
Explanatory notes ................................................................................................ vii
Abbreviations................................................................................................. ..... viii
INTRODUCTION .................................................................................................................1
CHAPTER 1: ENVIRONMENTAL SUSTAINABILITY, ECONOMIC
GROWTH AND STRUCTURAL TRANSFORMATION:
CONCEPTUAL ISSUES ...........................................................................9
A. The relationship between the economy and the environment:
alternative views ......................................................................................... 10
B. Conceptual issues concerning the green economy and green growth ........ 14
C. The dynamics o development, resource use and environmental impacts ... 16
D. The concept o sustainable structural transormation.................................. 26
CHAPTER 2: RESOURCE USE AND PRODUCTIVITY IN AFRICA:
SOME STYLIZED FACTS .....................................................................33
A. Introduction................................................................................................ 34
B. Stylized acts on resource use and productivity in Arica .............................34
C. Conclusion ................................................................................................. 61
Annex .............................................................................................................62
CHAPTER 3: A STRATEGIC FRAMEWORK FOR SUSTAINABLE
STRUCTURAL TRANSFORMATION ...............................................65
A. Why should Arica promote sustainable structural transormation? ............. 66
B. Strategic priorities and drivers ..................................................................73
C. The role o the State ................................................................................... 82D. The role o the international community ..................................................... 87
CHAPTER 4: POLICIES FOR SUSTAINABLE STRUCTURAL
TRANSFORMATION .............................................................................95
A. The development o sustainable energy in Arica ........................................ 97
B. Green industrial policies in Arica ..............................................................108
C. The promotion o a truly green agricultural revolution in Arica ..................118D. Conclusion .............................................................................................. 126
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vi Economic Development in Africa Report 2012
CHAPTER 5: STRUCTURAL TRANSFORMATION AND SUSTAINABLE
DEVELOPMENT IN AFRICA: MAIN FINDINGS AND
RECOMMENDATIONS .....................................................................127
A. Introduction .............................................................................................. 128B. Main ndings............................................................................................ 128
C. Messages and recommendations ............................................................ 131
NOTES ................................................................................................................138
REFERENCES ...................................................................................................139
BOXES
1. Measuring sustainability: Material Flow Accounting and Analysis,and Human Appropriation o Net Primary Production ....................................35
2. Land degradation, deorestation, and loss o biodiversity in Arica .................563. Some Arican initiatives relating to decoupling .............................................. 68
4. The investment costs o Arican energy inrastructure .................................... 79
5. Policy instruments or promoting sustainable structural transormation ......... 85
6. Bagasse co-generation in Mauritius: An Arican success story .......................99
7. Improving energy eciency at a national level: The adoption o anEnergy Eciency Strategy in South Arica .................................................... 101
8. Renewable energy in export strategies in Arica: The case o Ethiopia .........108
9. Wastewater recycling in Arica: The Durban Water Recycling Project ........... 11110. Policy pyramid methodology or industrial energy eciency .........................111
11. Use o eco-labels in Arican Industry: The case o leather sandals in
Kenya and Ethiopia ..................................................................................... 11512. Sustainable intensication in Arican agriculture .......................................... 121
13. Example o technology solutions: Applying inra-red spectroscopy .............. 122
TABLES
1. Metabolic proles o the agrarian and industrial regimes ................................25
2. Domestic material extraction per capita, 19802008 ..................................... 373. Global and Arican material extraction, 19802008 ........................................ 38
4. Material extraction in selected Arican countries, by material category, 2008 .. 405. Physical trade volume in Arica and the world, 19802008 ...........................41
6. Aricas share o global production and reserves o selected minerals ............ 46
7. Absolute amounts o domestic material consumption, 19802008 ................49
8. Industrial development and per capita resource use in Arica, 2008 ............... 50
9. Population, output and carbon emissions, across regions, in 2009 ................5410. HANPP levels and composition in Arican countries ....................................... 60
11. Projected growth or population, GDP, GDP per capita and material,
energy and carbon intensities by 2020 and 2050 ..........................................74
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viiCONTENTS
12. Renewable energy support policies in Arica ................................................ 106
13. Share o primary and nal energy rom renewables in selected Arican
countries, uture targets ............................................................................... 107Annex table
1. Share o sectors in water use in Arica, 19982007 .......................................63
Box tables
1. Forest area and depletion in Arica .................................................................57
2. Indicative capital investment requirements o the Arican Development
Bank to attain universal access to reliable electric power by 2030 ................. 79
FIGURES
1. The economy as a subsystem o the Earth system ........................................ 12
2. Stylised representation o the EKC Hypothesis .............................................. 203. Tunnelling through the EKC ...........................................................................22
4. Components o decoupling ...........................................................................28
5. A stylized representation o resource decoupling and impact decoupling ....... 29
6. Material extraction in Arica, by category, 19802008 ....................................39
7. Physical exports and imports o Arican countries, by material category,19802008................................................................................................... 43
8. Physical trade balances o all Arican countries, 19802008 ..........................45
9. Domestic material consumption in selected Arican countries, 2008 .............. 4710. Material consumption by region, 19802008 ................................................. 48
11. Material productivity, by region, 19802008 ................................................... 5212. Trends in GDP, material use and energy use, in Arica, 19802008 ............... 53
13. Adjusted net savings, including particulate emission damage in
sub-Saharan Arica ........................................................................................ 72
14. Projected population, GDP per capita and the required throughput
intensity to maintain 2010 levels o environmental impact ..............................7515. An integrated ramework or relative decoupling in Arica ...............................77
16. Ocial development assistance disbursements to the energy sector,
20022010....................................................................................................89
Box fgure
1. Overview o policy instruments that promote resource and impact decoupling .. 85
EXPLANATORY NOTES
The $ sign reers to the United States dollar.
Sub-Saharan Africa: Except where otherwise stated, this includes South Arica.North Africa: In this publication, Sudan is classied as part o sub-Saharan Arica,not North Arica.
A hyphen (-) indicates that the data are either not available or not applicable.
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viii Economic Development in Africa Report 2012
ABBREVIATIONS
AIS agriculture innovation system
ANS adjusted net savings
ARSCP Arican Roundtable on Sustainable Consumption and Production
CIS Commonwealth o Independent States
CO2
carbon dioxide
DE domestic extraction
DMC domestic material consumptionDSM demand sector management
ECA Economic Commission or Arica
EITI Extractive Industries Transparency Initiative
EKC Environmental Kuznets Curve
EST environmentally sound technologies
EU European Union
FAO Food and Agriculture OrganizationFDI oreign direct investment
GATT General Agreement on Taris and Trade
GDP gross domestic product
GEF Global Environment Facility
GHG greenhouse gases
GTP Growth and Transormation Plan
HANPP Human Appropriation o Net Primary ProductionICT inormation and communication technology
IPAT impact, population, afuence and technology
IPR intellectual property rights
KWh kilowatt hours
LDC least developed country
MFA Material Flow Accounting and Analysis
MVA manuacturing value added
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ix
NCPC National Cleaner and Production Centre
NEECP National Energy Eciency and Conservation Plans
NEPAD New Partnership or Aricas Development
NGO non-governmental organization
NPP net primary production
ODA ocial development assistance
OECD Organization or Economic Cooperation and Development
PES payments or ecosystem services
PPI private participation in inrastructure
PPP public-private partnerships
PTB physical trade balance
R&D research and development
REDD Reducing Emissions rom Deorestation and Forest Degradation in
Developing countries
RET renewable energy technologies
SAIS sustainable agricultural innovation system
SME small and medium-sized enterprise
SNA system o national accounts
SRI System Rice Intensication
SST sustainable structural transormation
tC/ha/yr tons o carbon per hectare per year
TRIMS Trade-Related Investment Measures
UNEP United Nations Environment Programme
UNIDO United Nations Industrial Development OrganizationWFP World Food Programme
WIPO World Intellectual Property Organization
WSSD World Summit on Sustainable Development
WTO World Trade Organization
ABBREVIATIONS
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INTRODUCTION
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2 Economic Development in Africa Report 2012
THE RATIONALE FOR A NEW DEVELOPMENT PATH
Arican countries have been growing at a relatively ast rate since the beginningo the new millennium, which in turn has led to improvements in several areas
such as trade, mobilization o government revenue, inrastructure development,
and the provision o social services and vice versa. Indeed, over the period 2001
2008, Arica was among the astest growing regions in the world economy, and
it is interesting to note that this improvement in growth perormance has been
widespread across countries. Despite the progress that has been made by the
region over the last decade, the current pattern o growth is neither inclusive nor
sustainable. There are various reasons or this.
Firstly, Arican countries are heavily dependent on natural resources as drivers
o economic growth. But most o these resources ossil uels, metallic and non-
metallic minerals are non-renewable and are being depleted at a very rapid rate
with negative consequences or uture growth and sustainability. The dependence
on resource-based growth is also o concern to Arican policymakers because
commodity prices are highly volatile and subject to the caprices o global demand.
Such price instability has negative consequences or investment and makes
macroeconomic planning challenging.
Secondly, per capita agricultural output and productivity in the region are still
low compared to the global average, with dire consequences or ood security and
social stability. The Arican Development Bank estimates that Aricas per capita
agricultural output is about 56 per cent o the global average. Furthermore, about
30 per cent o sub-Saharan Aricas total population is estimated to have been
undernourished in 2010 (Food and Agriculture Organization o the United Nations
(FAO) and World Food Programme (WFP), 2010). There have been some positive
signs o rising agricultural productivity during the last decade (Block, 2010). But
in the past, agricultural output growth has been driven largely by an expansion ocropped area rather than an increase in productivity. With rising rural population
densities, arm sizes have been declining and more and more people have
been compelled to move to more ragile lands. The sustainable intensication o
agricultural production is necessary to boost agricultural productivity and output
and enhance ood security in the region.
A third eature o Aricas current pattern o growth is that it has been accompanied
by deindustrialization, as evidenced by the act that the share o manuacturing in
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3INTRODUCTION
Aricas gross domestic product (GDP) ell rom 15 per cent in 1990 to 10 per cent
in 2008. The most signicant decline was observed in Western Arica, where it ell
rom 13 per cent to 5 per cent over the same period. Nevertheless, there has alsobeen substantial deindustrialisation in the other sub-regions o Arica. For example,
in Eastern Arica the share o manuacturing in output ell rom 13 per cent in 1990
to about 10 per cent in 2008 and in Central Arica it ell rom 11 to 6 per cent over
the same period. Furthermore, in Northern Arica it ell rom about 13 to 11 per
cent and in Southern Arica it ell rom 23 to 18 per cent. The declining share o
manuacturing in Aricas output is o concern because historically manuacturing
has been the main engine o high, rapid and sustained economic growth (UNCTAD
and the United Nations Industrial Development Organization (UNIDO), 2011).
Furthermore, Arica has experienced rapid urban growth. The share o the
urban population in total population is currently about 40 per cent and is projected
to rise to about 60 per cent by 2050.1 Historically, industrialization and an industry-
led agricultural transormation have been important drivers o urbanization, making
it possible to absorb labour moving rom the rural to the urban and modern
sectors o the economy. However, Aricas urbanization has not been driven by
either industrialization or an agricultural revolution. Jedwab (2012) shows that the
dramatic urban growth observed in Arica over the past ew decades has been
driven by natural resource exports rather than an industrial or agricultural revolution.He argues that, because natural resource rent in Arica are spent mostly on urban
goods and services, they make cities relatively more attractive and pull labour out
o the rural areas.
The current pattern o Aricas economic growth is particularly worrisome given
the act that the region has a young and growing population and will, according to
the United Nations Population Division, account or about 29 per cent o the worlds
population aged 1524 by 2050. Furthermore, population projections indicate that
the working age population in Arica is growing by 15.3 million people per annum,and this number is expected to increase over the coming decades. While having
a young and growing population presents opportunities in terms o having an
abundant labour supply with much creative potential, it also means that Arican
countries will need to engage in growth paths that generate jobs on a large scale to
absorb the additional labour. In particular, they will need to move away rom jobless
growth strategies and towards inclusive growth paths that are labour-intensive
and create learning opportunities or young people. Recent events in North Arica
have shown that a development pathway that generates growth without signicant
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4 Economic Development in Africa Report 2012
improvements in employment has the potential to create social and political unrest
with dire consequences or eorts to promote sustainable development.
Recent evidence shows that Arica has experienced a process o structural
change over the last 30 years, but that it has not been productivity-enhancing
structural change. This is because it has been associated with the increasing
importance o the commodity economy and also the rising importance o low-
productivity inormal economic activities in the service sector. Such structural
change has actually slowed rather than enhanced the economic growth process,
as it has not involved a shit rom low-productivity to high-productivity sectors
(McMillan and Rodrik, 2011). Consequently, i Arican countries want to achieve
high and sustained economic growth, they have to go through the process ostructural transormation involving an increase in the share o high productivity
manuacturing and modern services in output, accompanied by an increase in
agricultural productivity and output.
In recent years, Arican leaders have responded to the challenge o resource-
based growth by renewing their political commitment to structural transormation and
adopting several initiatives, at the national and regional levels, aimed at diversiying
their production and export structures (UNCTAD and UNIDO, 2011). But structural
transormation is a double-edged sword: while it is necessary or sustained growthand poverty reduction, it also imposes signicant costs on ecological systems,
especially when deliberate and appropriate actions are not taken by governments
to reduce environmental damage to protect the environment. Fischer-Kowalski and
Haberl (2007) argue that, historically, the transition rom an agrarian to an industrial
socio-ecological regime has been a major actor behind the rapid increase in
environmental pressures. Resulting problems range rom climate change, waste
pollution, deorestation, desertication and degradation o reshwater resources,
to the loss o biodiversity. It is crucial that the renewed ocus on structural
transormation in Arica is not achieved at the expense o social and environmentalsustainability. Thereore, as they ratchet up eorts to transorm their economies,
Arican governments should also seek to improve resource use eciency and
address the adverse environmental impacts o structural transormation.
In summary, Arica needs to rethink its growth strategies and nd ways and means
to make them more compatible with the objective o sustainable development.
Sustainable development as recognized in the Brundtland report amounts to
development that meets the needs o the present without compromising the
ability o uture generations to meet their own needs. As acknowledged at the
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5INTRODUCTION
United Nations World Summit in 2005, sustainable development consists o three
interdependent and mutually reinorcing pillars: economic development, social equity
and environmental sustainability.In particular, it requires that policymakers take intoaccount the consequences o their choices and decisions on uture generations
and that social welare is maximized inter-temporally rather than currently.
THE FOCUS AND MAIN MESSAGE OF THE REPORT
The Economic Development in Arica Report 2012, subtitled Structural
Transormation and Sustainable Development in Arica, examines how Arican
countries can promote sustainable development. The main message o theReport is that achieving sustainable development in Arica requires deliberate,
concerted and proactive measures to promote structural transormation and the
relative decoupling o natural resource use and environmental impact rom the
growth process. Sustainable structural transormation, as dened in the Report, is
structural transormation with such decoupling.
The Report builds on the Economic Development in Arica Report 2011 on
Fostering Industrial Development in Arica in the New Global Environment. It also
ts into UNCTADs broader work on the development o productive capacities.
The report is timely in the light o the United Nations Conerence on Sustainable
Development (Rio+20), 2022 June 2012 and the renewed global ocus on
greening economies occasioned by the global nancial and economic crisis o
20082009. The concept o sustainable structural transormation provides a
dynamic understanding o the eorts which are involved in greening an economy,
and also places such eorts into a development perspective.
The Report ocuses directly on the economic and environmental pillars o
sustainable development. However, to the extent that it stresses the need or
structural transormation which is crucial or inclusive growth and povertyreduction it indirectly addresses the social pillar as well. The Report argues
that, in the context o structural transormation, decoupling natural resource use
and environmental impacts rom economic growth is critical to addressing the
environmental sustainability challenge in Arica. The United Nations Environment
Programme (UNEP) denes decoupling as using less resource per unit o economic
output (i.e. increasing resource productivity or resource eciency) and reducing the
environmental impact o any resources that are used or economic activities that
are undertaken. Decoupling can be either absolute requiring a decrease in the
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6 Economic Development in Africa Report 2012
absolute quantity o resources used irrespective o output produced or relative,
which implies that resources may be increasingly used but at a rate lower than the
rate o increase in output.
While absolute decoupling may be needed at the global level to address global
environmental challenges (such as climate change), this Reportargues that the
ocus o Arican policymakers should be onrelative decoupling because the region
has very low per capita resource use compared with the global average and is also
not a major polluter. Furthermore, Arica currently has very low per capita income,
has not gone through the normal process o structural transormation, and would
need to achieve higher economic growth in the short-to-medium term in order
to make signicant progress in reducing poverty. Consequently, the region needsmore policy space to promote structural transormation and address its current and
emerging development challenges. Furthermore, decoupling should not be seen
as an end in itsel but rather as a part o a more expansive strategy o structural
transormation.
Arica, however, does not stand alone in the need to achieve sustainable
development. There is a general global movement or integrating environmental
considerations into economic and social decision-making. The Reportpoints out
that these international eorts should be managed in a manner that does not reducethe policy space needed by Arican countries to promote sustainable structural
transormation. Moreover, the international community has an important role to play
in supporting sustainable structural transormation through action in the key areas
o trade, nance and technology transer.
STRUCTURE OF THE REPORT
The main body o the Reportconsists o our chapters.
Chapter 1 is on conceptual issues. It discusses dierent views o the
relationship between the economy and the environment and o how resource use
and environmental impacts typically change during the course o a development
process. It raises some conceptual questions concerning green economy and
green growth, and introduces and denes the concept o sustainable structural
transormation as a way to operationalize the concept o the green economy in the
context o sustainable development and poverty eradication.
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7INTRODUCTION
Chapter 2 presents new stylized acts associated with resource use and
productivity in Arica. Where possible, it discusses how these stylized acts could
be linked to the structural transormation process. The chapter also providesinormation on Aricas contribution to global greenhouse gas emissions and the
impact o climate change in the region.
Chapter 3 provides a strategic ramework or sustainable structural
transormation. It discusses the nature o the Arican challenge in a global context
and why Arican governments should adopt policies o sustainable structural
transormation rather than ollow a policy o Grow Now, Clean Up Later. It also
identies key drivers o sustainable structural transormation, its prioritization and
nancing. Finally, it discusses the role o government in promoting sustainabledevelopment, and the way in which the international community can support
national eorts.
Chapter 4 identies policies or sustainable structural transormation in Arica,
with a ocus on three key economic sectors: energy, industry and agriculture.
Furthermore, it highlights the special role o trade and technology policies in
promoting sustainable structural transormation in Arica.
The nal chapter presents a summary o the main ndings and policy
recommendations o the Report.
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1CHAPTER
ENVIRONMENTALSUSTAINABILITY, ECONOMICGROWTH AND STRUCTURAL
TRANSFORMATION:CONCEPTUAL ISSUES
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10 Economic Development in Africa Report 2012
There are important dierences among economists, and also between
economists and ecologists, regarding the relationship between economic growth
and the environment, the meaning o sustainability, and the policies necessary tomake growth consistent with environmental sustainability. Against this backdrop,
this chapter examines some conceptual issues critical to understanding dierent
approaches.
The chapter is organized in our parts. Section A summarizes some undamental
dierences among scholars on what sustainability is, how it could be achieved,
and the policies deemed necessary to make growth consistent with environmental
sustainability. In this context, section B identies some conceptual issues related
to the notions o the green economy and green growth. A particular challenge isto operationalize the idea o a green economy in a development context. Section
C builds on one o the approaches o section A to discuss how resource use and
environmental impacts change during the course o economic development. This
shows that or countries at low levels o development, there will necessarily be a
trade-o between structural transormation, on the one hand, and environmental
sustainability, on the other hand. Section D introduces the concept osustainable
structural transormation (SST) as an appropriate strategy or managing that trade-
o and introducing a development-led approach to the green economy.
A. THE RELATIONSHIP BETWEEN THE ECONOMYAND THE ENVIRONMENT: ALTERNATIVE VIEWS
Traditionally, economists downplayed the importance o the natural environment
or economic processes. They viewed the economic system in terms o the
reciprocal circulation o income between producers and consumers, and ocused
on the problem o allocating resources eciently between dierent uses to meet
unlimited wants. Neoclassical environmental and resource economists considerthe environment, along with the planets resources, as a sub-part o the economic
system. They have introduced natural capital into their analytical rameworks and
examined problems o resource misallocation arising rom the ailure o markets to
generate appropriate prices or natural resources. There is also increasing attention
to natural capital within growth models (see, or example, Hallegatte et al., 2011). In
general, mainstream economists have assumed that the expansion o the economy
should allow societies to harness new technologies to conserve scarce resources,
as well as to oset any adverse eects that increased economic activity might
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11CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
have on the environment (Grossman and Krueger, 1995). In other words, growth is
conceptualized as a solution rather than as the cause o environmental problems.
Moreover, the expansion o an economy can continue into the uture ollowing abalanced growth path without any apparent limits.
This view stems in part rom the act that neoclassical economists do not regard
the scarcity o natural resources as a binding constraint. In their view, the scarcity
o a natural resource should lead to an increase in its price and substitution away
rom that resource into other relatively less expensive actor inputs. The idea is
that natural capital (such as renewable and non-renewable resources) and man-
made or reproducible capital are substitutes, and so the depletion o natural
capital should aect their supply price and induce substitution away rom naturalcapital and into reproducible capital. Because o the assumption o substitutability
between natural and reproducible capital, sustainability in mainstream economics
requiresmaintaining intact the value o a nations total capital stock over time (Heal,
2007). This notion o sustainability which is reerred to as weak sustainabilityin the
literature allows countries to compensate or the depletion o some kinds o capital
by investing in other kinds o capital. It draws heavily rom studies by Solow (1974)
and Hartwick (1977), showing that a maximal level o consumption or welare can be
maintained over time i the rent rom the use o exhaustible resources is reinvested
in reproducible capital (the Hartwick rule). In this ramework, what is important orsustainability is not the composition o a nations capital, but the total value o
its capital stock. Furthermore, it is assumed that there is a positive relationship
between the total value o an economys capital and long-run living standards or
there is a discounted value o welare. Consequently, i a country wants to maintain
its long-run living standards intact, it also has to maintain the total value o its capital
stock intact.
Although the methodology adopted by mainstream economists in dealing with
environmental issues is regarded as analytically rigorous and tractable, it suersrom several limitations. In particular, it treats the economy as i it is a sel-contained
system, with the planet, resources, animals and people existing as components o
the economic system. This ignores the act that in reality the economy is a part o
the larger ecosystem, which is the source o natural resources used in an economy
and is also a sink or the wastes produced in it. Vencatachalam (2007) argues
that the narrowness o the neoclassical approach to environmental and ecological
issues has made it dicult to understand and address environmental problems,
such as global warming and the loss o biodiversity.
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12 Economic Development in Africa Report 2012
In contrast to environmental and resource economists, ecological economists
view the economic system as a part o the larger ecosystem, which is the source o
natural resources used in an economy and is also a sink or the wastes producedin it (Constanza, 1991; Daly 1996). That is, it receives inputs, such as energy
and material resources, rom the broader natural systems and produce wastes
and pollution as outputs (see gure 1). These inputs and outputs rom and to the
ecosystem constitute what is known as the throughput o an economy.
This shit in vision has important consequences. Whilst environmental and
resource economists within the neoclassical tradition ocus on allocation issues,
ecological economists emphasize the overall scale o the economy as a key policy
issue. At the global level, as the economy grows bigger and bigger, it reduces thecapacity o the ecosystem to perorm its source and sink unctions more and more.
From this perspective, there are global limits to economic growth in the sense
that, once the global economy passes a certain size, the benets o consuming
produced goods and services are outweighed by the costs in terms o destruction
o ecosystem services on which the economy is based. This issue is not relevant
when the material weight o the economic system on the ecological system is
relatively small, but it becomes relevant in a ull world2, where the size o the global
Figure 1. The economy as a subsystem o the Earth system
Pollution
Waste
Energy
Growth Growth
Growth Growth
Ecosystem
Economy
Recycle
Materials
Source: Based on Goodland and Daly (1996).
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13CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
economy undermines the natural bases or economic processes and prosperity.
Most ecological economists believe that we are now living in a ull world.
Ecological economists are likewise sceptical about the substitutability between
natural capital and man-made capital, as implied by the notion o weak sustainability.
Consequently, they share the view that sustainability requires society maintaining
intact its natural capital to ensure that uture generations have the same production
and consumption possibilities that are available to the current generation. This is
the notion ostrong sustainability in the literature on environmental and ecological
economics (Daly 1990; 1996). It should be noted that, although proponents o strong
sustainability emphasize the preservation o the stock o natural capital, some also
assume that there is substitutability within natural capital, but not between naturaland man-made capital. Other proponents, however, argue that there is the need
to preserve the physical stocks o critical natural capital, because they provide lie-
support services and the loss o natural capital is irreversible. Furthermore, there is
uncertainty about the impact o natural resource depletion and so society should
adopt a cautious approach to the use o natural capital. Daly (1990) has identied
our basic principles that economies could ollow to ensure that natural capital
is maintained at a sustainable level, namely: (a) the health o ecosystems and
their lie support services should be maintained; (b) renewable resources should
be extracted at a rate that is not more than their rate o regeneration; (c) non-renewable resources should be consumed at a rate that is not more than the rate
at which they can be replaced through discovery o renewable substitutes; and (d)
waste disposal should be done at a rate not higher than the rate o absorption by
the environment.
While ecological economists recognize the existence o limits to economic
growth at a global scale, they also argue that developing countries still need to
expand their economies. Levels o human well-being are very low, and people have
legitimate aspirations to higher living standards which can only be achieved throughhigh levels o economic growth maintained over a ew generations. What this
implies is that global distributional issues are at the heart o the concern to ensure
environmental sustainability along with prosperity or all. This approach draws
attention to major global inequities in terms o the distribution o both contributions
to, and the costs o, environmental pressures. The work o ecological economists
is also showing that international trade is acting as a powerul mechanism through
which environmental constraints in one country are being circumvented, and
environmental costs outsourced rom countries o consumption to countries o
production.
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B. CONCEPTUAL ISSUES CONCERNINGTHE GREEN ECONOMY AND GREEN GROWTH
It is against the background o these alternative views o the relationship between
the environment and the economy that the new policy concepts o the green
economy and green growth have been introduced. There is no consensus on
the meaning o these terms. But, rhetorically, being green connotes being good
to the environment. UNEP (UNEP, 2011b) denes a green economy as one which
is low-carbon, resource-ecient and socially inclusive, or to put it in other words,
a green economy is one that results in improved human well-being and social
equity while signicantly reducing environmental risks and ecological scarcities.The Organization or Economic Cooperation and Development (OECD, 2011)
states that green growth means ostering economic growth and development
while ensuring that natural assets continue to provide resources and environmental
services on which our well-being relies.
The major point o introducing these concepts has been to sharpen the ocus
on the relationship between the economy and the environment within a policy
discourse, where the concept o sustainable development has been in long use.
Neither UNEP nor OECD sees these concepts as replacements or the idea o
sustainable development. According to OECD (2011), green growth is a subset
o the idea o sustainable development, narrower in scope, entailing an operational
policy agenda that can help achieve concrete, measurable progress at the interace
between economy and environment; whilst UNEP (2011b) sees the useulness
o the concept o a green economy stemming rom a growing recognition that
achieving sustainability rests almost entirely on getting the economy right.
However, there is also a signicant dierence between these new concepts
and the old concept o sustainable development. In general terms, sustainable
development has been dened as development that meets the needs o thepresent without compromising the ability o uture generations to meet their own
needs. But such development rests on three pillars economic growth, social
equity and environmental sustainability and it was explicitly recognized that in
achieving sustainable development there would be potential trade-os amongst
them. In contrast, the concepts o green economy and green growth place greater
emphasis on the potential synergies between economic growth and environmental
sustainability. These synergies denitionally constitute what a green economy is in
the UNEP Green Economy Report ((UNEP, 2011b). With regard to green growth,
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15CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
three basic positions have been identied in the literature (see Huberty et al.,
2011). The rst, and weakest, argues that greening the economy does not inhibit
economic growth and employment creation; the second argues that there aresignicant new opportunities or growth and jobs in green sectors; and the third,
and strongest, argues that new environmental technologies and renewable energy
systems will provide the basic sources o economic growth in the coming long-
wave o economic growth.
The idea that economic growth and environmental sustainability are
complementary objectives is certainly attractive. However, there is a danger that
political enthusiasm undermines policy rigour. Huberty et al. (2011) go as ar
as to say that to date, discussions o green growth have been more religionthan reality, adding that the easiest arguments about green growth are not
satisactory. Dercon (2011) notes that much o the discussion on green growth
remains relatively vacuous in terms o specics or poor settings, and says that the
understanding o the interaction between green growth strategies and investments
and poverty is particularly weak. He asks: Is all green growth good or the poor, or
do certain green growth strategies lead to unwelcome processes and even green
poverty, creating societies that are greener but with higher poverty? (p. 2). From
another perspective, Homann (2011) argues that current approaches to the green
economy are simply insucient to meet the challenge o reducing global emissionsand thus mitigating climate change.
More research is denitely needed. But one review o the literature on green
growth in the context o developed countries has concluded that green growth
arguments should be treated with cautious optimism (Huberty et al., 2011). The
research shows that combining growth with emissions reductions is possible
at low cost. But, in general, none o the current prescriptions or green growth
guarantee success (Huberty et al., 2011). In particular, the creation o green jobs
and new green sectors in many cases may simply oset the destruction o brownjobs in declining sectors. Moreover, new opportunities or economic growth in
developed countries based on the development o green sectors have particularly
relied on exports and may not be replicable. In the context o developing countries,
research is even scarcer. But Dercon (2011) careully examines how internalizing
environmental costs may change patterns o growth and concludes that it is not
very plausible that green growth will oer the rapid route out o poverty as it appears
to promise, or even as rapid an exit with more conventional growth strategies
(Dercon, 2011).
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Relating the concepts o green economy and green growth to processes o
economic development is as yet a major weakness within the literature. IBON
International (2011) states that by ocusing on getting the economy right,proponents o the green economy and green growth end up getting development
wrong. Khor (2011) is particularly sensitive to this issue. He cautions against a
one-dimensional usage o the green economy concept, which promotes it in a
purely environmental manner without ully considering the development dimension
and equity issues, particularly at the international level, and against a one-size-ts-
all approach, in which countries at dierent levels and stages o development, and
in particular the priorities and conditions o developing countries, are not taken into
account. He also argues that the meaning, use and useulness o the notion o the
green economy or policymakers in developing countries, and also in international
negotiations, will depend on clarication o a number o dicult questions, notably
(a) whether the attainment o a green economy constrains other objectives (growth,
poverty eradication, job creation); (b) how to identiy and deal with trade-os; (c)
what is the combination between these aspects at dierent stages o development
as well as stages in the state o the environment; (d) what is the role o the State
in building a green economy, its compatibility with ree market and the role o the
private sector; and (e) how to build an economy that is more environmentally riendly
and how to handle the transition rom the present to a greener economy.It is clear that operationalizing the concept o the green economy in the context
o sustainable development and poverty eradication in a way which is relevant to
developing countries is a work in progress. More attention needs to be given to the
nature o the relationship between the economy and the environment, the way in
which such relationship evolves during the process o economic development, and
the implications o that evolving relationship or the policy challenge o promoting
development and poverty reduction in countries at dierent levels and stages o
development.
C. THE DYNAMICS OF DEVELOPMENT, RESOURCEUSE AND ENVIRONMENTAL IMPACTS
This section seeks to build a developmental approach to the relationship
between the economy and the environment. It takes as its starting point the idea
that the economy is best viewed as a subsystem o the Earth-system and then
considers how, within this vision, resource use and environmental impacts change
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17CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
during the economic development process. This provides the basis or a strategic
approach to sustainable development, which builds on the imperative o structural
transormation or accelerated economic growth and poverty reduction.
It summarizes three major views o the dynamics o development, resource use
and environmental impacts, namely:
TheIPATequation;
TheEnvironmentalKuznetsCurve(EKC)hypothesis;and
Socioecologicalmetabolismandstructuralchange.
These views constitute a valuable ramework to comprehend where countriesat dierent levels o development stand in relation to their current and uture use
o natural resources and levels o environmental impact. They provide a basis or
starting to think about a development-led approach to the green economy.
1. The IPAT equation
Economists have long tried to identiy the actors that determine the degree o
environmental impact registered throughout the dierent stages o the development
process. One o these attempts is represented by the IPAT equation, ormulatedby Ehrlich and Holdren (1971) and Commoner (1972). In basic terms, it suggests
that an environmental impact (I) depends on the levels o population (P), afuence
(A) and technology (T).
Environmental impact = Population x Afuence x Technology
The equation is useul to express the extent to which each component contributes
to an unsustainable situation, but it can also be interpreted as a way to assess an
economys pathway towards sustainability. By analysing each o its components,
the identity implies that growing population rates lead to larger pressures on theenvironment. On the other hand, higher levels o afuence, which is generally
measured in consumption per capita terms, entail a larger demand or natural
resources and energy, as well as a rising generation o wastes and pollution. Finally,
the level o technology, understood as the dierent ways in which societies use their
productive resources, can have a signicant eect on the degree o environmental
impact, either reducing it or enlarging it. For example, the internal combustion
technology has importantly contributed to the development o industrialized
economies by using ossil uels, but it has also signicantly increased the levels o
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pollution in the atmosphere. Conversely, renewable energy technologies (RET) can
crucially contribute to reduce atmospheric pollution and prevent the depletion o
non-renewable resources.
The IPAT equation is very simple and has been modied several times since its
inception (Chertow, 2001). A common approach is to describe each o the actors
with more detail.
= x x +
GDP Resource Use Pollution/Waste
Population GDP GDPImpact Population
This orm o the equation expresses afuence as GDP per capita, as had
already been mentioned. However, the technology actor is now decomposed intotwo separate components, which relate to the throughput o an economy. On the
one hand, resource intensity (i.e. resource use per unit o production) shows how
eciently the inputs are used; while, on the other hand, pollution or waste intensity
(i.e. pollution/waste per unit o production) exhibits the degree o cleanliness
o a certain technology in relation to the outputs. In this sense, improvements in
environmental quality can be attained by minimizing resource intensity, as well as
pollution intensity.
Important policy implications arise rom the IPAT equation. In particular, the needto develop more ecient technologies is vital. Members o the Factor 10 Club (1994)
believe that existing resource and pollution intensities must improve by a actor o 10
during the next three to ve decades so as to signicantly lower the environmental
impacts, especially when it comes to the generation o greenhouse gases (GHG).
Others, like von Weizscker et al. (1997), propose a actor 4 approach, according
to which the global population could double its wealth, while halving the amount o
used resources. This basically involves multiplying the afuence (A) component by
two in the IPAT equation and reducing technological-induced (T) impacts by hal.
Nonetheless, whichever actor is chosen (whether 10, 4 or another number), themagnitude o the required tasks to transorm the structure o the global economy
involves enormous eorts.
An important issue here is that, while rich industrialized countries might have
the ability to generate technological innovations, many developing countries, and
specically most Arican countries, do not possess these capabilities. Many o them
currently have access only to traditional technologies, which oten are considered
dirty or at least not ecient enough to oset the infuence o the other actors in the
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19CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
equation. The plausibility or these countries to generate new technical innovations
domestically and thus push the technological rontier is low, due to their lack o
physical and human capital. Furthermore, it is important to keep in mind that theT-actor not only reers to technical innovations, but also to the institutional settings
and the relationship between the dierent actors o a society. As recognized in
the original Rio conerence, changes in both technology and social organization
are critical or sustainable development. This means that these countries ace a
complex situation, in which changes must take place at many dierent levels.
In relation to population, the IPAT has a harsh implication. As the number o
people on the planet increases, the demand or resources will augment, generating
severe consequences on the environment. However, the issue o curbing populationgrowth depends on other developmental actors, such as reducing poverty and
increasing womens rights, specically in relation to access to education.
2. The Environmental Kuznets Curve (EKC)
Some researchers believe that the key to resolving environmental problems is
the afuence actor. They argue that as economies grow and per capita income
rises, environmental degradation increases but, ater a certain threshold level o
income, environmental quality improves. This relationship between growth and theenvironment is known as the EKC hypothesis (IBRD, 1992; Grossman and Krueger,
1993 and 1995). The EKC can be read ollowing a similar logic to that applied to
the original inverted-U curve ormulated by Simon Kuznets (1955), which deals
with income inequality and income per capita. In this ashion, the orm o the EKC
can be explained as a result o the process o structural change associated with
economic development. In the early stages o development, there is a deterioration
o environmental quality as the share o agriculture alls and the share o industry
rises (see gure 2). This happens as a consequence o increasing physical capital
intensive activities, rather than human capital intensive. Mass production, incomeper capita, and consumer expenditure grow gradually. As a society achieves a
higher level o income, the share o industry starts declining and that o services
increases, resulting in an expected improvement in environmental quality. At this
turning point, environmental indicators should start to display improvements. A
related explanation is based on the sources o growth. For example, Copeland and
Taylor (2004) argue that i capital accumulation is the source o growth in the early
stage o development and i human capital acquisition is the source o growth in the
advanced stage o development, then environmental quality will deteriorate at low
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20 Economic Development in Africa Report 2012
Figure 2. Stylized representation o the EKC hypothesis
Environmentalquality worsens
Environmental
degradation
Environmentalquality improves
Income percapita
Turning point
Source: UNCTAD secretariat.
income levels and improve at very high income levels. In addition, there are other
explanations or the EKC which rely on the assumption that environmental quality
is a normal good whose demand increases with income. The idea being that, as
income grows, environmental concerns increase, resulting in more environmental
protection and better environmental quality. Yet another explanation or the EKC
is that, as economies become richer, people tend to be more educated and have
less children, leading to lower population growth rates. A decrease in population
growth means less pressure on natural resources and hence less environmental
degradation. The shape o the EKC can also be ascribed to the idea that poor
countries do not have the means and capacity to adopt clean technologies and so,
in the early stages o development, environmental quality tends to be low. However,as countries become richer and adopt clean technologies, environmental quality
improves. This links the discussion back again to the T-actor in the IPAT equation.
Empirical evidence has been used to assess the validity o the hypothesis.
However, the empirical studies that have been carried out so ar have yielded mixed
results with regard to the existence o an automatic turning-point in environmental
pressures. Van Alstine and Neumayer (2008) provide a critical review o the empirical
literature on the EKC, arguing that the evidence is mixed. In particular, they show
that the results o empirical tests o the EKC all into three groups, depending on
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21CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
the indicator o environmental quality used. The rst set, using indicators such as
adequate sanitation and clean water, generally nds that environmental quality
improves as income rises. The policy implication is that growth is good or theenvironment and so there is no need or environmental regulation. The second
set o results, using indicators such as sulphur oxides and the rate o tropical
deorestation, nds that environmental quality rst deteriorates and then improves
as income passes a certain threshold. This is consistent with the predictions o the
EKC, and it implies that environmental quality depends on the level o development.
It also implies that countries can grow out o their environmental problems
over time (Beckerman, 1992). But the question arises as to the income level at
which environmental quality begins to decline, whether it is automatic or due to
government policy and whether any irreversible damage is done beore the turning
point. The nal set o results, using indicators such as per capita carbon dioxide
(CO2) emissions and municipal waste, nds that there is no turning point; as income
per capita rises, environmental pressures continue to rise.
One reason adduced or the sensitivity o the empirical results to the measure
o environmental quality used is that some indicators such as sulphur oxide and
nitrogen oxide are relatively easy to eliminate, while CO2and solid waste are more
complicated to get rid o. Another explanation is that indicators that are local
public goods (or example, clean water and adequate sanitation) tend to rise withincome, while those that are global public goods (or example, CO
2emissions)
worsen as income rises.
A urther complication in interpreting the EKC arises because o the implications
o international trade. One group o researchers has suggested that as countries
become richer, they start importing larger volumes o natural resources rom other
regions (Bringezu et al., 2004; Ayres and van den Bergh, 2005; Rothman, 1998).
Hence, the environmental burden is shited away rom their own territories towards
those o other countries through international trade. This means that, i trade eectswere taken into account, the EKC hypothesis would lose its validity, indicating that
environmental quality does not decrease with increasing levels o income.
The mixed ndings in the empirical literature present a challenge or policymakers
because they have dierent policy implications. But in general, governments should
not rely on pursuing economic growth as a measure o improving environmental
conditions, especially when it comes to long-term and global problems, such as CO2
emissions. An array o other actions, such as regulatory interventions or developing
technological innovations, is important. For rich countries, what is imperative is that
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22 Economic Development in Africa Report 2012
they must reduce their ecological ootprint in absolute terms. That is to say, they
should act to bring about the turning point. In the case o developing countries,
it might be possible to avoid the resource-intensive and polluting developmenttrajectory o their industrialised counterparts. They might leaprog, or in other
words tunnel through the EKC, accelerating their development processes by
skipping inerior and less ecient stages and moving directly to more advanced
ones (see gure 3). However, the ability to leaprog and tunnel through the EKC in
this way will depend upon eective technology transer between richer and poorer
countries, as well as increasing the ability o the latter to adapt and utilize these
technologies.
3. Socioecological metabolism and structural change
Although the afuence actor undoubtedly plays an important role, basing the
transition towards a sustainable pathway solely on it may prove to be an overly
simplistic approach. Several scholars consider that additional determinants exert a
signicant infuence, and some o these can be rooted in the way the relationship
between economies and the ecological system changes with the economic
transormations associated with industrialization.
Figure 3. Tunnelling through the EKC
Environmental
degradation
Income percapita
Source: UNCTAD secretariat.
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23CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
Socioecological metabolism is a term that has been steadily emerging in the
sustainability literature, and specically in the area o industrial ecology, to understand
this relationship (Fischer-Kowalski and Haberl, 2007). Metabolism is a concept thatoriginated in the biological sciences, and it essentially reers to the processes by
which living organisms take nutrients rom the environment, break them into smaller
pieces so as to assimilate them, and then discard what is not required. In a way,
this description is similar to the concept o throughput. Consequently, one can
also conceive that societies carry out a metabolic process, by acquiring energy
and extracting natural resources rom the ecosystems, then processing them
in order to be consumed, and nally generating wastes and other by-products,
such as pollutant gases. The scale o this throughput is determined by the specic
stage o development that an economy is going through. Societies have historically
ollowed a trajectory that has clearly marked their changing interrelationship with
the ecological sphere.
The primitive huntergatherer societies perormed a basic metabolism, in which
the scale o their throughput remained most o the time within the environments
carrying capacity. By not growing or arming their own ood requirements, these
societies just extracted rom the natural realm the required amount o resources
they required or subsistence, depending mostly on the suns energy and biomass.
They could only deplete the resources i their rate o consumption exceeded theecosystems natural regeneration rate. Meanwhile, the amount o wastes derived
rom their metabolic process was easily absorbed again by the ecosystem. However,
over time, this socioecological regime evolved. The emergence o agriculture relied
on the accumulation o knowledge about the natural world (e.g. climate patterns,
soil and plants characteristics, etc.) and the development o new techniques. In this
way, societies underwent a transition towards a new regime, in which they started
colonizing nature and appropriating a larger amount o resources (Krausmann et
al., 2008). In other words, societies started to transorm the natural ecosystems
into man-made systems designed to maximize their productivity and social and
economic useulness. Animals and plants were domesticated, leading to an
articial selection o the genetic code. Moreover, populations started to expand,
increasing the scale o their throughput and consequently exerting a larger pressure
on the ecosystems. The main source o energy still remained solar-based, and
these societies were completely reliant on the energy conversion provided by
biomass sources. Their environmental impact varied according to the region, but
environmental degradation and resource depletion started to emerge as problems
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24 Economic Development in Africa Report 2012
in some areas. What is important to mention in this respect is that, although agrarian
economies started to evolve thousands o years ago, this regime still exists today.
Millions o people continue to subsist in agrarian economies, and specically inArica.
With industrialization, a new regime emerged, based on a revolutionary
technological change and the use o non-renewable sources o energy. Fossil uels
and new production techniques allowed societies to extend their metabolism
and overcome some o the problems associated with the agrarian societies, such
as scarcity and its strong dependence on solar-based energy and climate. This
acilitated an unprecedented productivity increase, driven by a signicant expansion
o population and per-capita material and energy consumption. Industrialization hasallowed some countries to achieve higher levels o economic growth and elevate the
standards o living o millions o people over the last century. However, at the same
time, this transition has implied an even more severe pressure on ecosystems. The
scale o throughput registered historical levels. The rate o resource extraction has
surpassed the natural regeneration rates, resulting in depletion o natural capital,
and the amount o wastes is larger than the amount that can be absorbed by the
planets sink mechanisms (Haberl et al., 2011).
The importance o the socioecological metabolism approach is that it takes intoaccount resource use and environmental impacts, and illustrates how they change
during the process o structural transormation. Table 1 shows some indicators
that illustrate the transition between an agricultural and an industrial regime. These
are presented in the third and ourth columns. Energy and material use per-capita
increase signicantly. The use o biomass as an energy source accounts or 10 per
cent to 30 per cent o the total energy mix, while ossil uels provide up to 80 per
cent o the energy requirements. It is relevant to take these gures into account,
since the transition rom an agrarian to an industrial regime is still currently taking
place in many economies. The three last columns present data or least developedcountries (LDCs), developing countries (including LDCs) and developed countries.
The metabolic prole o LDCs corresponds to that o a typical agrarian regime.
Total energy and material use per capita and per unit o area are low, while they
rely on traditional orms o biomass as their primary source o energy. Developing
countries, on the other hand, present higher gures. However, on average, they
seem to be closer to an agrarian prole, than to an industrial one, which indicates
that they have still not managed to complete the transition. Their total energy and
material use is still ar rom reaching the levels registered in the industrial regime. In
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25CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
Table 1. Metabolic profles o the agrarian and industrial regimes
UnitAgrariansociety
Industrialsociety LDCs Developing Developed*
Population density cap/km2
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26 Economic Development in Africa Report 2012
in particular energy use. The challenge or developing countries in this context is
how to reconcile the imperatives o structural transormation or improving human
well-being with the imperatives o environmental sustainability, at both national andglobal levels.
D. THE CONCEPT OF SUSTAINABLESTRUCTURAL TRANSFORMATION
The challenge o achieving sustainable development is dierent in countries at
dierent levels o development. For countries at low levels o development which are
commodity-based and in which low-productivity agriculture is still the predominantsource o livelihood, the challenge involves resolving a specic dilemma. On the
one hand, structural transormation is necessary or achieving substantial and
broad-based improvements in human well-being. On the other hand, structural
transormation, together with rising afuence and growing population, will
necessarily intensiy environmental pressures, through the increasing demand or
natural resources, including both material and energy inputs used in production,
the increasing magnitude o waste and pollution, and the increasing relative reliance
on non-renewable resources.
In this situation, the sustainable development dilemma acing governments is to
promote structural transormation and increase human well-being without increasing
the environmental pressure in an unsustainable manner. This Reportargues that this
dilemma can be resolved through a strategy o sustainable structural transormation
(SST). This is a development strategy which promotes structural transormation but
which adopts deliberate, concerted and proactive measures to improve resource
eciency and mitigate environmental impacts o the growth process. In short, they
should promote sustainable structural transormation, which will be dened here as
structural transormation accompanied by the relative decoupling o resource useand environmental impact rom the economic growth process.
1. The meaning of structural transformation
The term structural transormation has been used regularly in the economic
literature over several decades. However, dierent meanings have been given to
this concept (Silva and Teixeira, 2008; Syrquin, 2010; Lin, 2011 and 2012). It will
be used in this Report to reer to a process in which the relative importance o
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27CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
dierent sectors and activities within a national economy changes, in terms o both
composition and actor utilization, with a relative decline o low-productivity agriculture
and low value added extractive activities and a relative rise o manuacturing andhigh-productivity services. This process also involves upgrading within sectors as
production becomes more skill-, technology- and capital-intensive. Moreover, the
sectoral shits also tend to increase the predominance o sectors and activities
with a higher growth potential, both in terms o income elasticity o demand, the
presence o increasing returns to scale and the potential o technological progress.
The development o manuacturing activities has historically been at the heart o
processes o structural transormation and, as argued in the Economic Development
in Arica Report 2011 (UNCTAD and UNIDO, 2011), will be critical to the success
o such processes in Arica.
Structural transormation occurs through actor accumulation, actor re-
allocation and innovation, which reers to the introduction o products and processes
which are new to a national economy. In dynamic economies undergoing structural
transormation, there is a continual process o creative destruction, as some
activities wither away whilst others mushroom. In general, structural transormation
is also associated with changes in the orm o integration into the global economy, in
terms o both export and import composition, and also the increasing urbanization
o the population.
2. Decoupling as a basis for sustainable structural transformation
For developing countries, and especially or Arica, the priority is to achieve higher
rates o economic growth by structural transormation. However, the transition to
higher levels o development involves increasing the level o material throughput
signicantly. The policy challenge is thereore to transorm the economic structure,
while increasing human well-being and minimizing resource and pollution intensities.
In other words, there is the need to attain high-quality growth by decoupling theincreases in the level o material throughput and consequently the pressure rom
the environment rom improvements in human well-being.
The term decoupling is used in the technical sense in which it is now being
propagated in international policy debates on sustainability. The notion o decoupling
was originally put orward by the Organization or Economic Cooperation and
Development (OECD) in its policy paper, Environmental Strategy or the First Decade
o the 21st Century (OECD, 2001), where it was rst simply dened as breaking the
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28 Economic Development in Africa Report 2012
Figure 4. Components o decoupling
Decoupling economic growth fromresource use
Increase resource efficiency
Decrease resource intensity Maximize/minimize
environmental
efficiency/intensity
Increase/decrease
pollution-waste
efficiency/intensity
Decoupling economic growth frompollution-waste or overall negative
environmental impacts
Decoupling
Source: UNCTAD secretariat.
links between environmental bads and economic goods. But in 2002, the World
Summit on Sustainable Development (WSSD), hosted in South Arica, explicitly
recognized the need to delink economic growth and environmental degradation through improving eciency and sustainability in the use o resources and
production and reducing resource degradation, pollution and waste as a key
element o sustainable consumption and production (OECD, 2001: para. 15).
UNEP (2011a) has urther developed the concept by distinguishing two separate
components o decoupling: resource decoupling and impact decoupling. Resource
decoupling can be achieved by increasing resource productivity or eciency (GDP/
resource use) or, conversely, by decreasing resource intensity (resource use/GDP).
Impact decoupling might either reer to the pollution/waste intensity element othe technology actor in the IPAT equation or to the overall level o environmental
impact. From an impact perspective, decoupling can be attained by mitigating the
overall environmental impact per unit o production or by maximizing the level o
production per unit o environmental impact. Figure 4 illustrates these options.
It is important to stress at this point that the concept o decoupling does not
mean that production is somehow undertaken without using environmental inputs
or creating waste. This is, strictly speaking, impossible. Resource decoupling (or
increasing resource productivity) involves some dematerialization o extractive and
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29CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
productive processes, which means using less energy, water, land and minerals or
a given amount o output. Impact decoupling (or increased eco-eciency) requires
that there are also less negative environmental impacts attached. These impactscan arise during the extraction o natural resources, during production in the orm
o pollution and emissions, during the use phase o commodities and in post-
consumption stages in the orm o wastes. With impact decoupling, not only the
rate o use o natural resources is reduced, but environmental impacts (e.g. land
degradation, water pollution, carbon emissions, etc.) are also mitigated (see gure
5). This orm o decoupling may be achieved, or example, by reducing the carbon
intensity o production in the case o CO2
emissions.
Decoupling can urther be classied in relative or absolute terms. Relativedecoupling occurs when the growth rate o the environmentally relevant parameter
(resources used or some measure o environmental impact) is lower than the growth
rate o a relevant economic indicator (or example, GDP) (UNEP, 2011a). On the
other hand, absolute decoupling takes place when resource use declines and the
environmental impact o production and consumption decreases, even though the
economy keeps growing.
Figure 5 illustrates a case where there is actually relative decoupling in resource
use, but absolute decoupling in environmental impacts. This might be quite a rareFigure 5. A stylized representation o resource decoupling and impact decoupling
Resource decoupling
Impact decoupling
Resource use
Environmental impact
Economic activity (GDP)
Source
: Based on UNEP (2011a), gure 1.1.
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30 Economic Development in Africa Report 2012
conjunction in practice, as the level o resource use is associated at an aggregate
level with environmental pressure (van der Voet et al., 2005). But it is possible
and would occur, or example, i the reduction in the rate o resource use wasassociated with a shit in the mix o the resources utilized and the level o material
throughput, away rom priority materials and products which have particularly heavy
environmental pressures. This might, or instance, include processes involving
ossil uel combustion, or activities which involve a signicant loss o biodiversity,
overexploitation o resources or a collapse o sh stocks (UNEP, 2010b).
3. Sustainable structural transformation as a development strategy
SST is dened here as structural transormation accompanied by the relativedecoupling o resource use and environmental impact rom the growth process.
Understood in this sense, the notion o SST leads to an expanded vision o a traditional
strategy o structural transormation. Without the environmental sustainability
dimension, strategies o structural transormation are particularly concerned with
increasing labour productivity, through rising capital accumulation, an acceleration
o technological innovation, introduction o new economic activities, increasing
economic linkages, development o markets, division o labour, and an increasing
ormalization o the economic activity. Strategies o SST, by contrast, would seek
to do all this, but they are also concerned with increasing the productivity o natural
resource use and mitigating negative environmental impacts o rising production
and consumption.
As with structural transormation, SST occurs through actor accumulation,
including investment in natural capital, actor re-allocation and also organizational
and technological innovation. A central aspect o the process is structural change
in which new economic activities emerge and others wither away. In SST, one
aspect o this process is the emergence o new dynamic green activities and an
increase in the relative importance o green sectors, such as organic agriculture,renewable energy and ecotourism, within a national economy. Ocampo (2011),
who, just like this Report, notes that green growth should be best understood as
a process o structural change, ocuses precisely on this aspect and stresses the
importance o acilitating the emergence o new green industries related to new
green technologies. However, SST is understood in a broader sense here as it
is not simply related to the emergence o specic green sectors but rather to the
greening o the economy through relative decoupling. Improvements in resource
productivity are pivotal to the whole process o SST.
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31CHAPTER 1. Environmental Sustainability, Economic Growth and Structural Transormation
The importance o resource productivity can be illustrated by simply separating
the dierent components o the challenge o achieving a new development path
with greater human well-being and lesser environmental impact. Essentially, asthe ollowing equation expresses it, there are three basic challenges involved. The
rst challenge (expressed by the rst ratio) is to have a orm o economic growth
which delivers more human well-being (WB) or every extra unit o GDP. The second
challenge (expressed in the second ratio) is to have more GDP growth or every unit
o resource use (RU); that is, to improve resource productivity. The third challenge
(expressed in the third ratio) is to mitigate the environmental pressure by increasing
the resource use associated with each unit o environmental impact (EI).
= x xWB WB GDP RU
Unit of EI GDP RU Unit of EI
This is quite a simple ormulation as it ignores, or example, the direct contribution
o the environment to human well-being. However, it underlines the central
importance o resource productivity as the link between human well-being and
environmental pressures. It also identies the dierent policy challenges involved in
improving the overall quality o economic growth.
Essentially, a strategy o structural transormation can be expected to improve
the quality o growth in the rst sense. That is to say, when successul, it should result
in a type o growth which leads to greater and more broad-based improvements in
human well-being. Decoupling policies would seek to improve the environmental
sustainability aspect o the growth process through addressing resource productivity
and environmental impacts. The SST strategy, in addition, aims to improve the
quality o growth in both the human well-being and environmental sustainability
dimensions by enhancing the well-being aspect o economic growth and increasing
resource productivity in a way which mitigates environmental impacts.
It should be stressed that improving resource productivity is not a magic bulletor resolving environmental problems in all contexts. Indeed, various researchers
have pointed to the so-called rebound eect, in which improved resource
eciency lowers costs which, in turn, leads to increased resource use (Binswanger,
2001; Hertwich, 2005). Thus, improving resource productivity is not likely in itsel
to enable absolute decoupling. However, it can certainly support policies o relative
decoupling, which seek to ensure that resource use and environmental pressures
grow less rapidly than beore as the economy grows.
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32 Economic Development in Africa Report 2012
In general, the concept o SST can be understood as a way to operationalize
the concept o a green economy in the context o sustainable development and
poverty eradication. The concept adds value because it provides a dynamicunderstanding o the eorts which are involved in greening the economy, and it
places such eorts within a development perspective. It also provides a ramework
through which environmental issues can be articulated in the design o national
development strategies. This avoids the danger o a one-dimensional approach in
which environmental priorities are disconnected rom development priorities.
The concept o SST can also bring new analytical and policy insights because
it recognizes the central role o structural change in long-term economic growth
processes. This goes beyond approaches to green growth which model growthin terms o an aggregate production unction and ignore the dynamic orces
associated with the emergence o new activities and the decline o others.
As Ocampo (2011) argues, thinking o green growth as a process o structural
change can provide a very ruitul basis or the ormulation o developing countries
sustainable development strategies. The concept o SST enables this. It can also be
applied and adapted to address the speci c challenges acing deve
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