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Figure 2.3: Impact of Climate Change on Sub-Saharan Africa’s GDP
percent per year after 2100 (figure 2.3). Furthermore, the long-run impact of climate change on economic activity varies widely across African countries. For global warming of 3°C by 2100, GDP losses could be as low as 3.4 to 4.4 percent (Namibia and South Africa)—with a regional median loss of 7-8 percent (Kenya, Madagascar, Tanzania, and Rwanda).98
Microeconomic Evidence of the Impact of Climate Change on Manufacturing This subsection explores the relationship between temperature and economic performance using detailed production data at the line or plant level. One of the strands in this empirical literature looks at heat stress caused by climate change and heat-related productivity losses. Theoretically, it has been argued that heat-related health effects can adversely impact activity by: (i) reducing the size of the working population due to deaths—including worker mortality, infant mortality, and migration99; (ii) raising medical expenditures100; (iii) reducing the number of working hours if workers are sick and absent from the job101; and (iv) lowering labor productivity due to physiological/clinical heat impacts.102 A recent empirical survey suggests that global economic losses due to heat-related labor productivity losses can, on average, amount to 0.44 percent (RCP 2.6) to 2.9 percent (RCP 8.5) of global GDP in 2100.103 The large economic losses take place in South and Southeast Asia, Sub-Saharan Africa, and Central America. This meta-analysis of research studies highlights that the differences in results occur not only across areas, but also within the same area given the differences in methodologies and assumptions on adaptation policies assumed in those studies. In this context, the adaptation measures considered included air conditioning installation, shifting working hours, mechanization, and increased ventilation. Additionally, adaptation measures were estimated to reduce economic losses by 22-68 percent. Recent evidence from three different manufacturing settings in India—cloth weaving, garment sewing, and steel products—suggests that there is lower worker productivity and higher absenteeism on hot days as well as in weeks with more hot days.104 The temperatureabsenteeism relationship is strong (weak) among workers with paid (unpaid) leave. Additionally,
FIGURE 2.3: Impact of Climate Change on Sub-Saharan Africa’s GDP
0 2020 2027 2037 2047 2067
Percent change in GDP -2
-4
-6
-8
-10 0˚C (no warming) 1.5˚C (Paris Agreement) 2˚C 3˚C (business as usual)
Source: Kompas, Pham, and Che 2018. 2100
98 See Kompas, Pham, and Che (2018). 99 See Chen et al. (2018), Banerjee and Maharaj (2020), and Cattaneo and Peri (2016). 100 See Schmeltz et al. (2016) and Borg et al. (2021). 101 See Zander et al. (2015) and Yu et al. (2019). 102 Adhvaryu, Kala, and Nyshadham (2018). 103 Zhao et al. (2021) review 26 journal articles and four reports. 104 Somanathan et al. (2021). The estimated GDP losses are significantly higher if there is no action against climate change.
annual plant output falls in years with more hot days. For instance, it is predicted that annual output may decline by 2.1 percent per degree Celsius. At a higher level of aggregation, manufacturing output for the average Indian district declines 3 percent per degree Celsius. Given that heat stress plays a role in lowering output, firms should undertake climate-control investments and allocate these resources toward labor-intensive tasks. Overall, climate control can significantly reduce productivity losses. An analysis of the garment factories around Bangalore, India, shows a negative but nonlinear relationship between production (at the line level) and temperature. It also shows that introducing light-emitting diode (LED) technology on factor floors mitigates the adverse relationship between temperature and productivity.105 By emitting less heat than conventional bulbs, LED lighting lowers the temperature on factory floors (through reduced heat dissipation) and increases productivity—most notably, on hot days. This study reveals that adopting energysaving technologies (such as LED) may have important private co-benefits. Failure to account for the productivity benefits of LED technology may underestimate the private returns to adoption by about fivefold. Severe weather—as manifested by extreme rain, snow, heat, and wind—affects the productivity of work that takes place outside. However, it can also hinder the production of work indoors. Evidence of weekly output data from 64 automobile plants in the United States from 1994 to 2005 shows significant production losses amid adverse weather conditions.106 Specifically, for an average plant, weekly production of automobiles declines by 8 percent in a week with six or more days of heat exceeding 90⁰F (or one additional day of heavy winds). Six or more days of rain within a weak reduces weekly output by 6 percent (compared with a no rain scenario). The output losses due to severe weather across locations range from 0.5 to 3 percent, and the evidence shows that plants recover their losses in later weeks rather than the week after the weather event took place. These findings suggest that the prevalence of bad weather is an additional factor under consideration for building or locating a new production facility. Temperature also affects firm performance across Sub-Saharan African firms. Evidence from registered firms in Côte d’Ivoire during 1998–2013 shows that amid increased temperatures: (i) firms’ revenues, profits, and survival rates drop, and (ii) TFP declines—including both labor and capital productivity.107 More specifically, a one standard deviation increase in days with average temperature that exceeds 27⁰C lowers the firm’s TFP by 3.6 percent (compared with the impact of days with average temperature between 25⁰C and 27⁰C).108 The evidence shows that the TFP effects of higher temperatures are transmitted not only through lower labor productivity, but also lower capital productivity. Firms’ revenues and profits decline by 14.8 and 21.7 percent, respectively, in response to a similar increase in temperature relative to days with moderate average temperature. The adverse impact of high temperature on revenues is reduced among firms that invest in climate mitigation technologies. Additionally, increased temperatures would increase production costs and, hence, reduce the firm survival rate. Specifically, a one standard deviation increase in days with high average temperatures raises the firm exit rate by 0.04 percent. Overall, climate change—as proxied by higher average temperatures—has a negative impact on firms’ competitiveness.
105 Adhvaryu, Kala, and Nyshadham (2018). 106 Cachon, Gallino, and Olivares (2012). 107 Traore and Foltz (2018). 108 One standard deviation in days with average temperature above 27⁰C is 51.7 days.
Climate change amplifies the frequency and impacts of shocks that disproportionately affect the poorest households with long-term impacts on human capital. In response to shocks, the poor are often forced to resort to a variety of damaging coping strategies that undermine human capital formation and thus perpetuate the cycle of poverty and vulnerability. This is illustrated by evidence from the Sahel where one in four households is vulnerable to repeated climate shocks.109 In the absence of effective social protection programs, climate shocks through droughts or floods can contribute to maternal and child malnutrition by leading to reductions in food intake, trigger decisions to take children out of school, or lead poor households to sell productive assets, thereby perpetuating and deepening inequities.
Africa has seen a significant expansion in access to safety net programs during the past two decades, with the emergence of a model of “adaptive” social protection (ASP) with cash transfers as a “platform” for climate shock resilience (see box 2.1). The potential of ASP to address the economic and social impacts of climate shocks has been illustrated by the response to the COVID-19 shock, which triggered an unprecedented expansion of social safety net programs. Across the continent, 48 countries adopted social protection response measures in 2020.
Social protection systems in Sub-Saharan Africa can be leveraged to become more adaptive to help build greater household resilience to climate shocks and stresses.
Enhancing the ability of adaptive social protection systems to reach more poor and vulnerable households in the event of climate shocks depends on increasing the robustness of emerging ASP delivery systems around four key system building blocks.
1. Institutional coordination. There is a need to strengthen and clarify institutional coordination for shock response between agencies in charge of social protection, disaster risk management, agriculture, and public finance. Building adaptive national systems is also redefining the role of humanitarian actors and their relationship with development and national actors, with a greater emphasis of adaptive social protection system-building through humanitarian action and a shift in financing through national systems.
2. ASP programs and delivery systems. Cash transfer programs and accompanying productive inclusion measures (cash transfers “plus”) need reinforcing, including by deliberately empowering women to boost their role as drivers of household resilience. Digital technologies allow reaping efficiency gains in government-to-person payments as well as in identifying and targeting households.
3. Data and information. ASP systems can be leveraged better with good climate early warning system data and information that is available quickly to inform shock response programs.
Moreover, this entails efforts to build foundational identification systems and more “adaptive” social registries. which can be built and updated as needed using technology. It also creates new challenges and risks such as personal data privacy, which must be mitigated.
