The green industrialisation agenda for the Global South: A conversation with Ilias Alami
The green industrialisation agenda has been growing in prominence in recent years. As a goal, this agenda is crucial for developing countries as it can unite the aims of decarbonisation, development and structural transformation. In the eleventh episode of Carbon Politics, a video podcast series by the Delhi-based think tank Centre for Science and Environment (CSE), Avantika Goswami is joined by Ilias Alami, Assistant Professor in the Political Economy of Development at the University of Cambridge. They discuss the growing relevance of green industrialisation and the challenges and opportunities for developing economies to advance this agenda for their own aims.
What green industrialisation means
Ilias Alami (IA): Let’s briefly unpack the two terms. Industrialisation, simply defined, is the transformation of an economy from being largely based around agriculture to one based on industry and manufacturing. In other words, industrialisation is about the structural transformation of economies towards higher productivity activities which allow them to become more stable, more diversified and therefore, more resilient.
Next, the ‘green’ in green industrialisation refers to a few things. One, it is a recognition that the precise historical conditions that enabled developed countries to industrialise can no longer be replicated today. The historical process of industrialisation relied on the extensive consumption of natural resources and energy, particularly fossil fuels, without any regard for ecological systems or planetary boundaries, and is completely incompatible with the imperative of environmental sustainability.
The second thing that ‘green’ refers to is the fact that the green transition presents a strategic opportunity for industrialisation. Some countries could industrialise by inserting themselves into renewable energy and clean technology supply chains. Countries could also utilise clean energy generation to develop competitive industries. Finally, ‘green’ also means that industrialisation efforts today should be oriented towards achieving a form of economic growth that is ecologically sustainable, respects planetary boundaries and improves resource efficiency.
This can mean different things for countries depending on their economic structure and their position in the global economy. For developed economies that are facing a declining industrial base, green industrialisation is about re-industrialising, developing new technologies, decarbonising the economy, building climate-resilient supply chains, and moving towards more circular economies.
On the other hand, for countries that are largely or entirely dependent on primary commodity exports, green industrialisation is about economic diversification and moving towards a more sophisticated economic structure by greening the economy and, perhaps, even becoming early adopters of green technologies or early movers into green industries.
Why this agenda is crucial for the Global South
IA: Green industrialisation is particularly important for the Global South for at least three reasons. First, historically, industrialisation has been the material basis for large and rapid development gains and improvements in standards of living. For many economists, industrialisation and structural transformation remain fundamental for development and for building stable and robust economies.
The second reason is that the competition over clean technologies is intensifying—especially between richer countries situated largely in the Global North and East Asia. The risk here is that these countries will end up controlling all the important technologies, intellectual property, green industrial capacities and supply chains for the green transition.
This means developing countries could become relegated to the position of importers of clean technologies or to the position of exporters of raw materials like critical minerals. In other words, if green industrialisation does not occur in the Global South, the transition to a low carbon economy would deepen the very familiar relations of economic and technological dependency between the richer and the poorer world.
The third, and perhaps the most obvious reason, is that many developing countries are particularly exposed to the effects of climate change. This is translating into very difficult living conditions for people, particularly the poor, which can worsen class inequality. Decarbonisation and structural transformation, then, for developing countries, is a matter of economic survival in the warming world, but it is also about reducing class inequalities to ensure a degree of social justice and political stability.
Barriers faced by developing countries in pursuing green industrial goals
IA: There are at least four barriers to be discussed here. The first one is that industrialising today is probably more difficult than ever. In the current stage of capitalism, global manufacturing employment is undergoing a long-term structural decline as a share of total employment. Moreover, China has scale, cost advantages, and incredibly sophisticated supply chains across virtually all segments of manufacturing and industrial sectors—and it is not leaving room for other countries to step in. In this context, it is difficult for developing countries to move into green manufacturing supply chains.
The second obstacle is financing, wherein developing countries have relatively limited fiscal powers and face financing and balance of payment constraints. The constraints relate to the subordinate position of developing countries in the global economy and in the global financial and monetary system. Without going into the details, these constraints make sovereign borrowing unreliable and expensive for developing countries. Furthermore, this drastically increases the cost of capital for green industrialisation projects. In other words, it is really expensive to finance manufacturing projects or projects for energy and green infrastructure in the Global South.
The additional problem here is that these private financing constraints are not compensated by international public finance from developed economies. In fact, foreign aid budgets, including climate finance, are insufficient in terms of scale, volume and speed to address the climate crisis. In addition, they are rapidly declining and will continue to do so in the near future.
The third barrier that developing countries face is the problem of being dependent on foreign technologies and firms, again, largely concentrated in the Global North and East Asia. It is difficult to industrialise by leveraging technologies that are owned by other actors in the short term—while not becoming completely dependent on those technologies over the long term. Therefore, breaking the cycle of technological dependency is a real challenge.
The fourth barrier is that developing countries tend to have limited policy autonomy and limited state capacity. This matters because green industrialisation is essentially a planning question. It is about planning for long term development strategies for the green economy. It involves planning for the downscaling of carbon-intensive and fossil-based activities, as well as the provision of goods and services in an environmentally sustainable way. Therefore, this requires a lot of policy autonomy and state capacity, which can take a long time to build. The other problem is that policy autonomy can be difficult to maintain in a highly unequal global economy and a collapsing world order with an incredibly erratic hegemon, i.e., the United States.
How the Global South can advance their green industrialisation aims
IA: At the national level, there are a few policy options that developing countries can explore. First, they should continue experimenting with ambitious state intervention and extensive mobilisation of state ownership to strategically drive a green transition in a socially just and democratic manner. Many developing countries are already re-embracing policy and development banks, state enterprises, setting up sovereign wealth funds, and state-backed venture capital funds.
Second, they should maximise the mobilisation of domestic resources. This will require enforcing fair and just tax systems to mobilise resources domestically and to prevent capital flight. Third, many developing countries will need to rely on external finance and investment to finance their green industrial ambitions, which means that it is crucial for these countries to attract international industrial firms as well as financial investors. Now, the challenge here is to do this in a way that retains a good degree of control and strategic orientation to plan the long-term process of green transformation.
Moreover, the collapsing world order is both a barrier and an opportunity for furthering green industrial ambitions. We are clearly in a new period of geopolitical competition. Developing countries could leverage this geopolitical context to negotiate better financing terms and technological transfers and foster a form of localisation of industrial capacities and co-development of green technologies with those external partners.
There is also the question of China’s clean technology boom being an opportunity for developing countries. Already, many developing countries are rapidly adopting solar panels and other cheap green technologies coming from China. This could create the opportunity for reducing US dollar dependence for expensive and unreliable fossil fuels imports, thus creating significant headroom in national budgets. This in turn, would soften constraints on balance of payments and free up fiscal space for financing development strategies in the Global South. However, taking advantage of this would require careful development planning and macroeconomic management.
Finally, in terms of international actions, developing countries should continue building strategic coalitions to push for more policy space and policy autonomy, to conduct ambitious and coordinated green industrial policies, and to push for reform of the international financial and monetary system. An important aspect here would be to launch a range of international initiatives that push for delivering public finance and debt relief from the Global North to the Global South.
This article is an edited version of the eleventh episode of the Carbon Politics podcast. Watch the episode here.