Multipolarism: The Sustainable Geopolitical Green Industrial Investment Policy

In today’s rapidly evolving multipolar global economy, industrialized countries face a critical decision on how to harness the multipolarity in global trade, to reimagine the balance of trade policies: Either continue to rely on traditional export revenues or pivot to a multipolarism geopolitical model that prioritizes investments in Emerging Markets (EMs) with a focus on climate transition resources.

by adopting this new multipolarism model, where regional alliances and sovereign economic interests collaborate to meet each other’s development and finance needs instead of competing,  industrialized nations can secure competitive investment returns while positioning themselves to capitalize on the burgeoning $10 trillion per annum global green industrial economy. Here’s the investment case for making this strategic shift.

Here’s the investment case for making this strategic shift.

1. Capitalizing on the Growing Green Economy Market Growth Potential

The global green industrial economy is expanding at an unprecedented rate, estimated to reach $10 trillion annually. By investing in EMs’ climate transition projects, industrialized countries can tap into this lucrative market, positioning themselves as leaders in green technology and sustainable development.

Premium Pricing for Green Products: Products and services emerging from green investments can be sold at a premium. Consumers and businesses are increasingly willing to pay more for sustainable and environmentally friendly products, providing higher margins and enhanced profitability.

2. Competitive Investment Returns

Higher Returns in Emerging Markets: Emerging markets offer higher growth potential compared to mature markets. Investments in renewable energy, sustainable infrastructure, and climate adaptation projects in EMs can yield competitive returns, outpacing those from traditional export revenues.

Risk Mitigation Through Diversification: By diversifying investments across various EMs, industrialized countries can mitigate risks associated with single-market dependencies. This approach spreads risk and enhances the stability of investment portfolios.

3. Driving Technological Innovation

Accelerating Green Technology Development: Investing in climate transition resources in EMs spurs technological innovation. Industrialized countries can lead the development and deployment of cutting-edge green technologies, which can then be marketed globally.

First-Mover Advantage: Early investments in green industrial projects position countries as pioneers in sustainable technology, securing long-term competitive advantages in the global market.

4. Strategic Geopolitical Benefits

Strengthening Global Alliances: By supporting EMs in their climate transition efforts, industrialized countries can build stronger geopolitical alliances, fostering cooperation and stability. These partnerships can lead to favorable trade agreements and enhanced diplomatic relations.

Soft Power and Global Leadership: Leading the charge in global climate initiatives enhances a country’s soft power. It positions industrialized nations as responsible and forward-thinking global leaders committed to sustainable development.

5. Enhancing Domestic Economic Resilience

Job Creation in New Sectors: Transitioning to a green investment model creates jobs in emerging industries such as renewable energy, sustainable infrastructure, and green technology. This can offset job losses in traditional export sectors.

Economic Diversification:Investing in green projects abroad and developing corresponding industries domestically reduces reliance on traditional exports. This diversification strengthens economic resilience against global market fluctuations.

6. Meeting Global Climate Goals

Addressing Climate Change: Industrialized countries have a critical role in combating climate change. By investing in EMs’ climate transition projects, they contribute significantly to global emission reduction goals, aligning with international climate agreements and enhancing their environmental credentials.

Corporate Social Responsibility: Companies in industrialized nations can bolster their corporate social responsibility profiles by supporting sustainable development initiatives, and attracting environmentally conscious investors and consumers.

 

Implementation Strategies

Institutional Investor-Public Partnerships (IIPPs): Collaborative Projects where Governments, Universal Owners, and private sector portfolio companies, jointly fund and manage industrial climate transition projects in EMs, sharing risks and rewards.

Risk Mitigation: Align co-investments with African asset owners and strategic at-scale long-duration, bankable offtake and blended investment alliances, with initiatives such as the Inflation Reduction Act, African Growth and Opportunity Act (AGOA), the EU Green Deal’s Value Addition Partnerships and bankable long duration global corporate commitments for green technologies to mitigate historical barriers to global market access, foreign exchange, and political risks associated with investing in African markets.

Utilize instruments like guarantees, and insurance to protect investments against political and economic risks in EMs.

Employ the world-class Institutional Investor-Public Partnership (IIPP) framework, to safeguard investments.

 

Green Bonds and Climate Investment Funds

Innovative Financing: Leverage green bonds and dedicated climate funds to finance sustainable projects in EMs, providing a steady stream of capital for green investments.

Blended Investments: Combine public and private investment to enhance the scale and impact of climate transition projects.

 

Policy Support and Incentives

Regulatory Frameworks: Develop supportive regulatory frameworks that encourage green investments and ensure fair market conditions for green industrial cities and long duration bankable offtakes agreements for green technologies.

Tax Incentives: Offer tax breaks and other incentives for companies investing in NDC and green industrial infrastructure investment projects in Africa, especially those in Green Industrial Cities.

 

Capacity Building and Technical Assistance

Training Programs: Implement training programs to build local capacity and ensure the effective implementation and management of green industrial projects.

Technical Support: Provide technical expertise to help Africa develop robust and scalable climate transition and NDC industrial scale projects.

 

Comparing import revenues to investment returns (prospects and dynamics)

Investment Returns

1. Rate of Return:
   • Green Investments: Investments in green technologies and infrastructure tend to have attractive long-term returns. Renewable energy projects, for example, can offer returns ranging from 5% to 10% or more annually.
   • Emerging Markets: Investments in Emerging Markets generally come with higher potential returns, often in the range of 10% to 20% annually, depending on the sector and market conditions.

2. Compound Growth:
   • Compound Interest: Over decades, compound growth significantly boosts the value of initial investments. For instance, a 10% annual return on a $1 trillion investment could grow to approximately $2.59 trillion over 10 years, and around $6.73 trillion over 20 years.

3. Diversification:
   • Risk Mitigation: Diversifying investments across various green technologies and regions can help mitigate risks and ensure more stable returns.

Import Revenues

1. Export Revenues vs. Import Costs:
   • Traditional Model: In a traditional export-driven model, revenues are generated from selling industrial goods to Emerging Markets. These revenues are typically subject to market fluctuations, competition, and trade policies.
   • Premium Pricing: If industrialized countries can command premium prices for advanced green technologies, the revenue per unit sold could be higher, but total revenue would still depend on market size and demand.

2. Market Size and Growth:
   • Global Green Economy: The global green economy, projected to reach $10 trillion annually, represents a significant market. Capturing even a fraction of this market through premium pricing can lead to substantial revenues.
   • Export Revenue Potential: If industrialized countries capture 5% of this market with premium products, annual revenues could be around $500 billion. Over a decade, this could amount to $5 trillion, assuming consistent growth and market share.

Comparative Analysis

1. Investment Returns:
   • High Potential: Assuming an average annual return of 10%, a $1 trillion investment could yield approximately $1.59 trillion in returns over 10 years, and $5.73 trillion over 20 years.
   • Impact of Scale: For larger investments, say $3 trillion, the returns could be $4.77 trillion over 10 years and $17.19 trillion over 20 years, highlighting the power of compounding.

2. Import Revenue:
   • Steady Flow: Import revenues from selling industrial products might provide a more consistent revenue stream, but may not grow as rapidly due to market saturation and competition.
   • Market Dynamics: Factors like trade barriers, geopolitical tensions, and economic cycles can affect import revenues more directly than diversified investment returns.

 

Investing for a Sustainable Future

While both import revenues and investment returns have their merits, long-term investments in Emerging Markets’ green transitions offer potentially higher and more sustainable returns. The compounding effect of investment returns over decades can significantly outweigh the steady but potentially lower growth of import revenues.

• Investments in the hundreds of billions to trillions: With high rates of return, these investments can substantially grow over time, providing robust financial gains.
• Import revenues: Though they provide a steady income stream, they are more vulnerable to market conditions and might not scale as dramatically as investment returns.

Thus, from a strategic perspective, prioritizing investments in green technologies and infrastructure in emerging markets could yield higher overall returns than relying solely on import revenues from industrial product sales.

 

In Conclusion

Adopting a multipolarism geopolitical industrial trade policy that prioritizes climate investments in EM’s over immediate export revenue benefits offers a compelling strategic investment case for industrialized countries.

Mulitpolarism not only yields competitive returns and capitalizes on the $10trn per annum and growing expanding global green industrial economy, but also drives technological innovation, strengthens geopolitical alliances, and enhances domestic economic resilience.

By leading on multipolarism-led green industrial policy, industrialized nations can secure their economic future, address the just energy transition, and arrest global climate challenges while demonstrating leadership commitment to a more equitable and sustainable world.