Emerging economies set to take a financial hit as rising temperatures raise the risk of overheated workers and electricity blackouts
It is one of the unfair ironies of climate change that some of the world's poorest citizens will be those hit hardest.
Now it seems that not only will countries in regions such as Africa and South East Asia have to face the social impacts of climate change - which are likely to include increased levels of conflict and migration - but it could also turn the clock back on their economies as well.
New research released today from Verisk Maplecroft has found that worker productivity and export revenues in countries in these regions will take a hit in the coming decades due to climate change, unless steps are taken to mitigate the impact of rising temperatures.
The paper found that between 2026 and 2045 workers across Africa and South East Asia will struggle to cope with sharp spikes in peak temperatures, resulting in slumping labour productivity rates. Meanwhile growing demand for power as people move to cities and crank up air conditioning will raise the risk of power cuts, threatening firms' ability to source from, and operate in, affected countries.
Record temperatures are already sweeping the globe under this summer's heatwave, prompting schools in Japan to close their doors and construction sites to spray mists of cool water on workers.
Verisk Maplecroft predicts such conditions will get worse over the coming decades, with West Africa the most vulnerable to productivity drops caused by heat stress (generally present when temperatures climb above 32C). In this region, VeriskMaplecroft suggests more than 10 per cent of export value - almost US$10bn a year - could be at risk by mid-century. Oil outputs from Nigeria, West Africa's largest economy, are likely to suffer, while cocoa exports from Cote d'Ivoire and Ghana are particularly vulnerable.
South East will also be hard hit, in part because of its larger economy, with 5.2 per cent (US$78bn) of the region's export value at risk. In particular its manufacturing sector may struggle to maintain output, with the risk centring on the manufacturing hubs of Vietnam and Thailand.
This could have major knock on impacts on corporate supply chains, warned Alice Newman, environment and climate change analyst at Verisk Maplecroft. "In export markets, labour capacity losses could mean price rises for importers if product availability drops or production costs increase," she said in a statement. "Supply chain disruption may also drive businesses to consider sourcing from lower risk locations, which would have a major knock-on effect on regional economies."
Meanwhile, already strained electricity grids in developing economies may be pushed to breaking point due to increased urbanisation and soaring demand for air conditioning. Energy demand for cooling is set to triple by 2050 according to the International Energy Agency (IEA), and analysis by Verisk Maplecroft suggests Africa will face the greatest risk to electricity supply disruption as demand for power soars among its rapidly expanding urban population.
"It's pretty much established that energy demand for cooling will rise, but the real question for investors is whether aging power systems will be able to handle peak demand," Newman added. "Identifying these risks early and implementing measures to mitigate the worst impacts is going to be crucial for businesses operating in these markets over the long-term."
A study released earlier this month from the Sustainable Energy for All NGO identified a major market opportunity for companies to develop efficient low-cost cooling methods to protect the one billion people most at risk from rising global temperatures. Major economic sectors would also benefit - food supply chains rely on a "cold chain" to keep food fresh, while medicines degrade quickly if transported in high temperatures. Developing these systems without dramatically pushing up energy demand is a major challenge for emerging economies.
Europe, by comparison, is set to escape the worst the economic impacts. The 10 lowest risk countries for heat stress include the UK, Ireland, Finland, Norway, Sweden, and Denmark. Although given the inter-woven system of global supply chains, it is likely some disruption is inevitable. Firms around the world would therefore be wise to think about how to prepare their business for a hotter, more unstable future.
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