Jeremy Wakeford discusses how green innovation holds the key to sustainable industrial transformation.

 

The Federal Government of Ethiopia aspires to transform the country into a middle-income economy within the coming decade. To achieve this goal, the government has adopted two successive five-year Growth and Transformation Plans (GTPs), which are focused on industrial transformation.

At the same time, though, the authorities are acutely aware of how dependent the economy and society are on natural resources and the environment – and also of the country’s extreme vulnerability to climate change. Consequently, the government has committed the country to a low-carbon development trajectory within a so-called Climate Resilient Green Economy (CRGE) Strategy.

The Sanetti Plateau in Ethiopia Credit: Rod Waddington via Flickr (http://bit.ly/2r1m7Jc) CC BY-SA 2.0

The big policy question is how to marry these two aims into sustainable industrial transformation. Although there is no ‘silver bullet’ to accomplish this goal, green innovation presents one of the keys that could unlock the gates to this new developmental path.

Defining green innovation

Innovation refers to the introduction and diffusion of new knowledge, techniques and products into an economy. In a developing country context, innovation is often something that is not new to the world, but is new to the society in question and can deliver significant economic, social, or environmental change.

Innovation is typically carried out by private sector firms, but they depend on partnerships with state and non-state actors, including government agencies and regulators, higher education institutes, public research institutions, industry associations, financial organisations, non-governmental organisations, and consumers. Such innovation ‘ecosystems’ are therefore networks of actors and institutions that are involved in the generation, transfer and application of new ideas and technologies. These systems can be defined on different scales, including national, regional, sectoral and technological systems of innovation.

Green innovation means introducing new or improved products, processes, marketing approaches or organisational modes that bring about environmental improvements such as reductions in resource inputs (such as energy, water and materials) and reductions in solid, liquid and gaseous waste products, including carbon emissions. Green innovation is increasingly viewed as critical for societal transitions to sustainable socioeconomic systems – or inclusive green growth.

Progress off a low base

Ethiopia’s innovation systems are in their infancy, but the government has recognised the importance of innovation for the developmental agenda. A national Science, Technology and Innovation (STI) Policy was introduced in 2012, but implementation has been somewhat patchy. The government has invested heavily in basic education, and the tertiary education sector has grown in leaps and bounds over the past decade – although the quantity of new universities has outpaced their quality. Government expenditure on research and development has been ramped up impressively, but administration has captured a large share of the budget. Despite improvements, Ethiopia’s innovation performance lags behind some of its peers, such as Kenya. One of the chief reasons is a weakness of linkages between research institutions and firms.

Innovation in key Ethiopian manufacturing sectors

A recent research project investigated the innovation activities and performance of firms in three key manufacturing sectors in Ethiopia, namely cement, leather and textiles. These sectors have been singled out as major contributors to industrial growth, but are also responsible for high levels of carbon emissions and other environmentally harmful waste products. A survey of firms in the three sectors revealed that the extent of product and process innovation is generally rather low, and green innovation is even less common: only 12 per cent of firms reported green product innovations, and 15 per cent engaged in green process innovation.

Increasing market share and reducing unit costs were cited as important drivers of innovation. Of concern from the green innovation perspective, meeting environmental regulations or improving environmental performance were not among the main motivations for innovation. This could indicate inadequate environmental regulations, or a lack of enforcement capacity.

The most important inhibitors of innovation identified by firms were high costs of new technologies and high costs of access to new markets. Lack of adequate finance for innovation was also an issue for many firms. Another important finding was that knowledge transfer links between research institutions and firms are weak (see Figure 1), although sectoral industry development institutes are playing an important role in promoting innovation.

Working through the respective Industry Development Institutes, the Ministry of Industry is introducing sectoral-level programmes to give effect to the CRGE strategy. In the cement industry, the major innovation to reduce carbon dioxide emissions is the partial replacement of coal with biomass energy – using an invasive plant species as feedstock. In the leather (especially tanning) and textiles sectors, the government is collaborating with the private sector to establish eco-industrial parks supplied with renewable energy and centralised wastewater treatment facilities.

How to catalyse green innovation

Numerous policy interventions can help to foster healthy innovation systems and to stimulate green innovations. The first step is to mainstream green innovation policies within industrial development strategies and STI policies. Allied to this, the government should ensure cross-ministerial coordination of innovation policies with macroeconomic, trade, industrial and competition policies – including strategies for moving up the global value chain in a ‘green way’. Second, investment is needed in the so-called ‘framework conditions’ for innovation.

These include basic and tertiary education, as well as vocational training – with a specific focus on environmental programmes at all levels; and infrastructure such as ICT, clean energy and industrial parks with centralised waste treatment facilities. Third, the linkages between the various actors in the national and sectoral innovation systems need to be strengthened. This can be achieved by funding industry development institutes to act as coordinators, and by providing incentives for researchers at universities to commercialise their research findings. Fourth, private sector innovation can be stimulated by way of tax incentives or grants, as well as stronger intellectual property rights. Fifth, the government should use a combination of economic instruments – to price in environmental externalities – and sound environmental regulations backed up by adequate capacity for monitoring and enforcement.

Undoubtedly there is a long and challenging road ahead, but Ethiopia is showing Africa and the world what can be done when there is sufficient political will to chart a new course towards a more sustainable future.

Africa desperately needs industrial transformation to create jobs and lift hundreds of millions of people out of poverty. Yet industrialisation has typically placed heavy and unsustainable burdens on the environment, which is ultimately the foundation of all economies. We have reached a point globally where business-as-usual is no longer an option: planetary boundaries – including carbon emissions – as well as local resource constraints have to be respected.

Hence African countries need to find ways to ‘leapfrog’ environmentally (and socially) unsustainable developmental stages. As one of Africa’s leading countries when it comes to progressive green growth and industrialisation agendas, Ethiopia can serve as an example for much of the continent.


Dr Jeremy Wakeford is Senior Macroeconomist at the Quantum Global Research Lab(QGRL).

QGRL is an independent research partner tasked with providing macro-economic analytical studies of key African development and economic issues

 

The views expressed in this post are those of the author and in no way reflect those of the Africa at LSE blog or the London School of Economics and Political Science.