The Green Business and Decarbonization Agenda

On March 24, 2020, Time Magazine carried an article entitled “What Coronavirus Means for the Possibility of a Carbon-Free Economy” and argued that as governments flood the economy with cash, deep investment in renewable projects would put people to work in the short term and, in the longer term, create decarbonized energy systems better able to compete in the 21st century. This sort of forward-looking thinking is needed in both developed and emerging contexts to ensure that even in the light of the COVID-19 pandemic, policy makers and businesspeople still work to create globally safe environments and green businesses. This article interrogates the impact of COVID-19 on green businesses in South Africa and Ghana.

Socioeconomic Impacts of COVID-19

COVID-19 was declared a pandemic by the World Health Organization (WHO) on 11 March 2020. The virus has exposed structural and systemic inequalities that exist in our African economies and how fragile we are. The personal, social, and economic impact of COVID-19 is unlike anything experienced by the world in the past 75 years. South African and Ghanaian companies and small businesses have been established on the back of an integrated global trade network, and the COVID-19 pandemic has exposed how fragile these markets are. This has shown how systems interact and how their systemic properties shape this interaction of complex, nested, and interconnected systems to deliver goods and services around the globe.

What the pandemic has revealed is that our reliance and dependence on international trade and supply chains (exogenous effects) are vulnerable to sudden and unexpected disruption and unfortunately this cascades down from one system to another (Juttner and Maklan, 2011; OECD and FAO, 2019).

Endogenous effects as a result of COVID-19 lead to a disruption of economic activities resulting in a decrease in domestic demand in tax revenue due to the loss of oil and commodity prices coupled with an increase in public expenditure to safeguard human health and support economic activities.

COVID-19 and the Green Economy

More so, the pandemic has exacerbated the climate change crises and presented trade-offs to economies that were doing well with the green economy agenda. As countries are forced to deal with the current pandemic crisis, what comes to mind is (1) what happens to greening the economy? (2) How have green businesses, and in particular small green businesses, been affected? And lastly, as the financial stimulus packages proposed in response to the pandemic and being rolled out, how green are they? Drawing from the systems and complex theory, this article sought to understand the impact of COVID-19 on small green business and the opportunities that exist going forward in the sector.

COVID-19 is particularly damaging to SMEs because most of these businesses rely on social interaction, like hotels, restaurants, drinking bars, chop bars, small retail shops, hairdressers, barbers, builders, musicians, taxi drivers, and street hawkers. Most economies have been forced to go into lockdown to enforce social distancing and behavioral change. This has stopped all revenue generating activities. In South Africa, the latest Quarterly Labour Force Survey found close to 3 million people were working in the informal sector, or around 18 per cent of total employment. This informal workforce is often the only source of income for many more households, ensuring that they stay above the poverty line. 

Urban dwellers are further impacted by the already rising food prices driven by both panic buying and the disruption of food supply chains through border and transport closures. During the 2014 outbreak of Ebola virus disease in West Africa, social unrest emerged in some of the affected countries, creating a vicious circle leading to even greater fragility. There is thus a need to tackle underlying fragility factors while addressing immediate needs arising from the pandemic.

The worldwide disruption caused by the COVID-19 pandemic has resulted in numerous impacts on the environment and the climate. The severe decline in planned travel has caused many regions to experience a drop in air pollution, a decrease in economic activities, and drop in road transport. This in the process has led to temporarily cleaning skies and decreasing levels of certain air pollutants.

Despite a temporary decline in global carbon emissions, the International Energy Agency warned that the economic turmoil caused by the coronavirus outbreak may prevent or delay companies from investing in green energy and green businesses. Falling costs and strong policy support have made renewables increasingly attractive and competitive in many economies, but they now face three main challenges from the coronavirus crisis: supply chain disruptions that can lead to delays in completing projects; the risk of being unable to benefit from government incentives that end this year; and the likely decrease in investment because of pressure on public and private budgets combined with uncertainty over future electricity demand.

The COVID-19 pandemic thus provides an opportunity to address other emergencies such as climate change, green businesses and promoting green energy more effectively. This is sometimes characterized as not just bouncing back, but “bouncing forward” (Linkov, Trump, and Keisler, 2018; Ganin et al, 2016; Ganin et al, 2017). COVID-19 is a re-evaluation and re-wiring opportunity. Past experience suggests that emission declines during economic crises are followed by a rapid upsurge (2008 global financial crisis, for example). A coronavirus-induced drop in world emissions will mean very little in the long run on its own.

The economic recession caused by the COVID-19 pandemic underscores the need to invest heavily in a greener economy to create jobs and reduce inequalities. In response to the pandemic several countries have introduced measures related to working time shortening, temporary layoff, and sick leave, some targeted directly at SMEs. Similarly, governments provide wage and income support for employees temporarily laid off, or for companies to safeguard employment. In many cases, countries have introduced measures specifically focused on the self-employed[1].

In order to ease liquidity constraints, many countries have introduced measures toward the deferral of tax, social security payments, debt payments, and rent and utility payments. In some cases, tax relief or a moratorium on debt repayments have been implemented. Also, some countries are taking measures regarding procedures for public procurement and late payments.

Ghana has put into effect the following tax measures to mitigate the impact of the pandemic on businesses[2]:

• Extension of due dates for filling of tax returns from the standard four months to six months after end of the basis year; Grant of waiver of penalties on principal tax liabilities owed by taxpayers who redeem their outstanding liabilities by 30 June 2020;
• Waiver of VAT on donations of stock of equipment and goods for fighting the COVID-19 pandemic;

• Waiver of taxes on selected withdrawals from third-tier pension funds;

• Grant of deduction against income tax for private sector contributions and donations made toward addressing the COVID-19 pandemic; and
• Institution of an email filing and direct transfer payment system to allow taxpayers file and pay taxes with the various Ghana Revenue Authority (GRA) offices remotely

South Africa has also responded and put similar measures in place, which include but are not limited to:

1. An increase in the expanded employment tax incentive amount from R500 to R750 per employee. 

2. A skills development levy holiday of four months from 1 May 2020.

3. Fast-tracking VAT refunds. 

4. Deferring the payment of excise duty on alcoholic beverages and tobacco products.

5. A three-month deferral for filing and first payment of carbon tax liabilities to 31 October 2020.

6. A postponement of some of the corporate tax proposals in this year’s budget on interest expenses and assessed losses.

7. An increase in the deferment of employee’s tax

8. An increase in the turnover threshold for automatic deferrals.

9. A Solidarity Fund has been set up which so far has spent R1 billion on personal protective equipment.

10.  Expanded access to living annuity funds by allowing individual to adjust the proportion they receive as annuity income, instead of waiting up to one year until their next contract anniversary date.

In addition, the South African National Government has released a document for public comment on “Financing a Sustainable Economy.” This is a framework for financial institutions to better disclose public information on their green practices and investments. Such information is critical for various stakeholders, including investors, trade unions, financial sector industry associations, regulators, and non-governmental organizations, and enables them to assess how financial institutions are taking account of climate change and other environmental and social risks. 

 The several measures that have been put in place by the national treasuries put a strain on an economy that was already weak going into the crisis. This then follows that, there will be rising debt to Gross Domestic Product (GDP) levels and the rapid growth in interest costs as a share of total spending, squeezing out spending on other priorities. Unsustainable state-owned enterprises are putting enormous pressure on the budget. However, the current challenges present exciting opportunities that governments can adopt, namely instituting a green and inclusive recovery package and rewiring for green businesses.

Green Opportunities in the Light of COVID-19

Opportunity for green stimulus packages

Governments have a unique chance for a green and inclusive recovery that they must seize. This is a recovery that not only provides income and jobs, but also has broader goals, integrates strong climate and biodiversity action, and builds resilience. An inclusive, green recovery is possible in the midst of a pandemic and post-COVID-19.

Stimulus packages need to be aligned with ambitious policies to tackle climate change and environmental damage. Only such an approach can deliver win-win-win policies for people, planet, and prosperity.  

Opportunity for rewiring for green businesses

Governments will need to intentionally design economic recovery packages that support the most vulnerable and promote innovation and clean technologies as the moving force of the economy, while removing subsidies from polluting industries. Businesses will need to decarbonize their operations and investors their portfolios. Individuals will need to change their diets, consumption patterns, and travel behavior. We have learned that every person’s individual effort actually does count.

Green construction

COVID-19 presents a unique opportunity to shift the course of the building sector and earmark investments for green construction. There is need to urgently change the path of the building sector to move toward green buildings, or even zero- carbon buildings. The principles of environmental, social, and corporate governance (ESG) are more relevant now than ever. If ever there was a time for companies to demonstrate their commitment to greening the environment while addressing the economic and social concerns of all stakeholders in the business model, it is now.

References

Linkov, I., Trump, B. D., & K Poinsatte-Jones, P Love, W Hynes, G Ramos (2018) Resilience at OECD: Current State and Future Directions IEEE Engineering Management Review 46 (4), 128-135

Linkov, I. & B. D. Trump (2019), The Science and Practice of Resilience. Berlin, Germany: Springer. doi: 10.1007/978-3-030-04565-4

Linkov, I., Trump, B. D., & Keisler, J. (2018), “Risk and resilience must be independently managed”, Nature, 555(7694), 30-30.

OECD/FAO (2019), Background Notes on Sustainable, Productive and Resilient Agro-Food Systems: Value Chains, Human Capital, and the 2030 Agenda, OECD Publishing, Paris/FAO, Rome, https://doi.org/10.1787/dca82200-en.

Le Maire (2020), Coronavirus: "Il y aura, dans l'histoire de l'économie mondiale, un avant et un après coronavirus", déclare Bruno Le Maire"

https://www.francetvinfo.fr/sante/maladie/coronavirus/coronavirus-il-y-aura-dans-l-histoire-de-l-economie-mondiale-un-avant-et-un-apres-coronavirus-declare-bruno-le-maire_3858603.html

Schelling, T. (1999), “Social mechanisms and social dynamics. In Social mechanisms: An analytical approach to social theory”, edited by P. Hedström and R. Swedberg, 32-44. Cambridge, UK: Cambridge University Press.