The SA Reserve Bank warns that climate change has emerged as a key threat to economic and financial stability in the country, following the devastating floods in KwaZulu-Natal (KZN).
In April this year, flooding in KZN killed more than 400 people, destroyed houses, factories, roads and key economic infrastructure, and cost the economy more than R50 billion in subdued activity.
Reserve Bank Governor Lesetja Kganyago on Friday said that the floods that wreaked havoc in KZN represented a tiny fraction of the climate-related destruction visited on the global economy in the year under review.
Speaking at the Reserve Bank’s 102nd annual general meeting, Kganyago said greater rainfall in the eastern parts of South Africa and less in the west were clear indications the economy will need to adjust because catastrophic weather events will occur more frequently and cause greater damage.
Kyangago said that in response to this, the Reserve Bank was looking at important projects on climate change and these were being implemented through various policy and support areas.
“The economic research department is assessing the implications of climate related shocks for monetary policy execution and implementation,” he said.
“Climate change and the transition to a greener economy have the potential to generate larger, longer and often more frequent economic and financial shocks, with disruptive effects for economic activity and high inflation.”
Climate change is already manifesting rapidly in the form of droughts, fires, floods, resource scarcity and species loss, among other impacts.
In January, the World Economic Forum (WEF) Global Risk Report 2022 flagged “climate action failure” as the number one long-term threat to the world, and the risk with potentially the most severe impacts over the next decade.
The WEF said short-term domestic pressures would make it harder for governments to focus on long-term priorities, adding that climate action failure would limit the political capital allocated to major global concerns.
The African Development Bank Group (AfDB) this week presented to the IMF its 2022 African Economic Outlook report, which highlights climate change as a growing threat to lives and livelihoods in Africa.
The AfDB said African countries needed to mobilise $1.6 trillion between now and 2030 to meet their nationally-determined contributions to fight climate change, but they have so far received $18.3 billion, leaving a financing gap of $108bn annually.
AfDB acting chief economist Kevin Urama called for policy co-ordination and a more holistic approach to tackling climate change.
“One fundamental, existential issue for Africa is climate change. The countries that are receiving climate financing are the less vulnerable ones,” Urama said.
“We have been losing five percent to 15 percent of GDP per capita growth in Africa because of climate change, and that is in addition to other issues that climate change is driving on the continent.
"As we prepare for COP27, honouring the 2009 $100bn yearly climate finance commitment that high-income countries promised to developing countries will help to restore confidence that we are serious about climate change, even though it is not enough.”
Meanwhile, Kganyago said additional headwinds to South Africa’s economic growth included a sharp correction in commodity prices, rising inflation and increased strike activity.
However, he said South Africa’s commodity export price basket had moderated in recent weeks as metals prices have declined.
“Despite the implied weakening of the terms of trade, we still expect the current account surplus to extend into 2023 as import demand continues to recover slowly,” he said.