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Weatherproofing African economies against climate change

Published as the ‘Article of the Week’ on the website of the South African Free Market Foundation:
http://www.freemarketfoundation.com/issues/weatherproofing-african-economies-against-climate-change
Republished by MoneyWeb (South Africa):
http://www.moneyweb.co.za/moneyweb-historical-news-news/rule-of-law-can-weatherproof-africa-against-climat?sn=Daily%20news%20detail

Scientists have established a link between agrarian productivity in Africa and weather patterns in the Atlantic: they even claim that climate change could cut the food supply by 20 to 50%. This might make sense if climate were the only factor in production but it is not—as shown by dry, rich Australia and fertile, shattered Zimbabwe.

In a study published recently by the National Academy of Sciences of the USA, Norwegian and American scientists presented evidence of a link between the productivity of crops and livestock in Africa and variations in the El Niño Southern Oscillation and the North Atlantic Oscillation. These variations could reduce the food supply of up to twenty million Africans, they then claimed: this is an extrapolation too far.

It is no surprise that weather and harvests are connected but, especially in the case of African agriculture, it is unreasonable to assume that climate is the dominant, let alone the only, factor. Yet this is what these scientists seem to believe. In a press release they warned that changes in the global climate could make El Niño events more frequent in the future, reducing African harvests, with disastrous consequences for the continent.

Let us be clear: there is no need to doubt the evidence about current correlations between climate and harvests. The problem is the assumption drawn from these empirical facts. It is wrong to suggest that the climate alone determines whether Africa’s agriculture will thrive or fail: that is a matter of economics, management and economic freedom. Although more than 70% of Africans work on the land, they produce only 16.5% of the continent’s Gross Domestic Product or 29% in sub-Saharan Africa.

To put agriculture and its dependence on climate into perspective, let us look at history. In the late 19th and early 20th century there was a country that was heavily dependent on agriculture. It was the main export and the agricultural share of GDP reached more than 30%. Consequently, this country was vulnerable to any event that affected agriculture: droughts were dreaded and a decline in world market prices for wool, for example, led to a severe economic depression in the 1890s.

One might imagine that, even today, such a country should still fear future changes in the climate. If agriculture was such a dominant economic factor then, if droughts could disrupt food production, if the country depended on its agricultural exports, then it must be on high alert.

But no: that country is Australia. Today, some hundred years after the relative importance of its agricultural sector peaked, agriculture contributes less than 4% to the country’s economy and employs only a tiny share of the workforce. In absolute terms, however, its agriculture produces more than ever–yet it is the driest place on Earth.

There is no imminent disaster in Australia from potential climate change. With irrigation, improved seeds, machinery and pesticides they have made their agriculture not only less weather-dependent but also much more productive. This increased productivity enabled many Australians to follow pursuits other than growing wheat or herding cattle and sheep. These people were then working in manufacturing or services and it was in this way that Australia became a ”weatherproof economy” with a GDP per capita of more than US$30,000. Were Australia to suffer more droughts in the future, it could still import its food from neighbouring New Zealand, which has a much wetter climate.

There is a lot to be learnt from Australia’s agricultural history. It started off in a position not too dissimilar to that of many African countries today but now it produces far more with far less and is no longer dependent on agriculture. Furthermore, Australia is now far richer than Africa and thus much better prepared to adapt to possible climate changes.

So the question that remains to be answered is what actually drove Australia’s transformation from a mainly agricultural country to a weatherproof economy? It would be easy to point to the technological advances such as irrigation systems, tractors or pesticides. But behind these there is a more fundamental factor at work. When Australia was settled by the British, it received the institutions that had developed in Britain over many centuries, the most important of which was the rule of law. This made it possible to define, defend and transfer property rights–the basis of a wealth-creating market economy. It is these institutions that allowed many other wealth-enhancing factors such as better health, better education and research and development to thrive.

The World Bank recently tried to measure the wealth created in economies around the globe. The absolute differences between rich and poor countries were not too high when it came to the available cropland per head. What really made the difference was the so-called intangible capital: human skills and know-how as well as good governance. It is in this field that it was most obvious which countries were poor and which were rich. Australia, for example, had built up an intangible capital of almost US$300,000 per capita whereas many African countries did not even reach 10% of this figure. Most strikingly, the World Bank experts estimated that the rule of law explained almost 60% of the formation of intangible capital.

We have seen that Australia no longer fears changes in the climate. Yet this is not because it has a comparatively small agricultural sector but because it had a legal and economic system that made it more and more independent of the weather and ultimately of its agriculture.

This means that climate change need not be disastrous for Africa. But to deal with it when it occurs, Africans need the institutions of the free society on which their agriculture and their economies can grow. Just like Australians did, with the rule of law, property rights and free markets, Africans too could build weatherproof economies.

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