Environmental and Natural Resource Accounting Experiences from Southern Africa Glenn-Marie Lange The Earth Institute at

1. Environmental and Natural Resource AccountingExperiences from Southern AfricaGlenn-Marie Lange The Earth Institute at Columbia University

2. Why do we need Environmental & Natural Resource Accounts? National accounts widely used • indicators to evaluate economic performance (GDP, NDP) • statistics for economic planning What is wrong with National Accounts? – don’t account for: • Depletion of natural capital—soils, fisheries, forests • Environmental degradation (pollution affecting health) • Many non-market goods not in GDP • Non-market services provided by natural resources • wrongly attributed to other sectors (value of water-soil protection by forests attributed to agriculture) • omitted entirely (biodiversity protection, carbon storage)

3. Environmental & Natural Resource Accounts UN has compiled a Handbook, like the System of Integrated Environmental and Economic Accounts, or SEEA-2003 Specialized manuals available for water, fisheries and forestry Currently undergoing revision to bring (parts) up to the level of a ‘statistical standard,’ meaning all countries are expected to implement it, like the national accounts

4. What is the SEEA? STOCK ACCOUNTS (Assets/wealth): • Physical + economic value of stocks of natural resources, such as minerals, forests, fish, etc. FLOW ACCOUNTS (link to SAMs/IO): • Material & energy use, pollution, environmental services, by economic sector • Environmental protection and resource management expenditure accounts: resource user fees, subsidies, expenditures by govt to manage resources. • Environmentally-adjusted macroeconomic indicators: GDP, NDP, Genuine Savings,Wealth

5. Natural Resource Accounting Programme in East & Southern Africa 1995-2002: Regional initiative to implement NRA • Phase 1: Namibia pilot study • Phase 2: Botswana, South Africa joined initiative in 1997 • Case studies, training and networking throughout East and Southern Africa 2003-2007, Phase 3: RANESA/NRAESA expanded to Mozambique, Tanzania, Uganda Regional Steering Committee of government agencies, NGO’s, universities in East and Southern Africa Secretariat at the Centre for Environment and Economic Policy in Africa (CEEPA), University of Pretoria International technical support: from Columbia University, World Bank, Beijer Institute, others

6. Resources in the Environmental Accounts of East & Southern Africa

7. Policy Priorities for “Greening” National Accounts in East & Southern Africa

8. Monitoring sustainable development: The Capital Approach to Sustainable Development • What is the true economic contribution of forests? • Water accounts: managing water scarcity

9. Natural Capital, National Wealth and Sustainable Development: Contrasting Examples from Botswana & Namibia

10. Capital Approach to Sustainable Development Shift in policy focus, from economic development as GNP/GDP growth to economic development as ‘portfolio management’ Total wealth = kProduced + kNatural + kHuman Key to Development in Resource-Rich Economies: transform natural capital into other forms of capital

11. Capital Approach to Sustainability For production, which can be either consumed or invested, as a function of all forms of capital: Well-being, V, is defined as the discounted sum of all future utility, V = Σ U(c)/ (1+δ)τ-t Change in well-being is proportional to change in value of assets, ΔV= Uc · Σ pi ΔSi Where K= Σ Ki = Σ (pi ΔSi)for KP, KN,KH Sustainable development requires that Kt+1 ≥ Kt or Kt+1 / Pt+1 ≥ Kt / Pt , adjusting for population growth

12. Transformation of Natural Capital requires policies to promote: • economic efficiency in resource extraction to maximize resource rent INDICATOR: rent as % of Value-Added, GDP • recovery of resource rent by an agency that will reinvest the revenues INDICATOR: % of rent recovered by taxes • investment in alternative assets that that can replace natural capital VARIOUS INDICATORS: Botswana, % of rent used for govt capital budget

13. Contrasting Examples of Botswana and Namibia High dependence on natural resources in both countries BUT, different resource mgmt. policies BOTSWANA: reinvestment of all mineral rent, indicator to monitor reinvestment (SBI) NAMIBIA: no explicit policy for mgmt. of resource rents

14. Methodology and Data K = KP + KN+ KNetFor.Fin.(no est. of human capital) KP (Produced Capital): time series based on PIM for both countries KNFF (Net Foreign Financial Assets): Botswana: times series for 2 decades compiled by central bank Namibia: times series from 1990 (Independence) compiled by central bank

15. Methodology and Data KN(Natural Capital)—based on SEEA methodology Botswana: minerals (diamonds, copper/nickel, coal) Namibia: minerals (diamonds, uranium, gold) and fisheries (hake, horse mackerel, pilchards) Asset value = present discounted value of future rent • Non-renewable resource: wherept = Rt/Qt (unit rent) and T=remaining lifespan of resource (Stock/Q) Rent, R, is Revenue - costs of production including normal profit 2. Renewable resource (fisheries):KN,t = ptQt/r (assumes sustainable management)

16. Calculating Resource Rent: Residual Value Approach For each type of mineral or fish, Resource Rent = TR – (IC + CE + CFC + NP) NP =  x K Where TR is Total revenue from sales of mineral/fish IC is Intermediate consumption for activity CE is Compensation of employees CFC is Consumption of fixed capital NP is “Normal profit”  is the opportunity cost of capital, 10-20% K is the value of fixed capital stock invested in the industry

17. Calculating rent for Namibian fisheries

18. Data Sources MINERALS Physical stocks and extraction from mining companies and Ministries of Mines Monetary data from national accounts (Botswana) and company surveys (Namibia) FISHERIES Physical stocks and harvest from Ministry of Fisheries Monetary data from national accounts and Ministry of Fisheries Normal Profit: 10% in mining, 20% in fishing Discount Rate: 10% Rent: 5-year moving average used for asset valuation

19. Index of Mineral Reserves Botswana, 1980 to 2000

20. Biomass of Commercial Fish Species in Namibia, 1963 to 2001 Total biomass: 16 M tons in 1964 3 M tons in 2001

21. Transformation Rule 1.Maximize Resource RentIndicator: Resource rent as share of industry value-added Botswana • Minerals: 75-84% of industry VA Namibia • Minerals: 25-45% of industry VA • Fisheries: 25-35% of industry VA

22. Transformation Rule 2. Resource Rent Recovery Minerals, Botswana Minerals, Namibia Fisheries, Namibia

23. Transformation Rule 3. Reinvestment of Resource Rent • NAMIBIA: NO REINVESTMENT POLICY! • BOTSWANA: Explicit reinvestment policy: • SBI = non-investment expenditures/non-mineral revenues. • SBI < 1, fiscal sustainability Sustainable Budget Index of Botswana, 1980-2001

24. OUTCOME: Is GDP growth sustainable?INDICATOR: Growth of Total Wealth

25. Real per capita wealth of Botswana, 1980 to 1997 Annual growth of all assets: 7.6%

26. Real, per capita wealth in Namibia, 1980-2000 Annual change in all assets: -1.9%

27. Index of real, per capita GDP and wealth in Botswana and Namibia, 1980 - 2000 Per capita wealth in 1980 (in US$): Botswana: $ 5,562 Namibia: $10,414

28. Policy Uses of ANS/Total WealthMinistry of Finance, Botswana Doesn’t want ‘bad news,’ but concerned about Moody’s bond rating Env. accounts address 2 of the 3 major areas of investor risk in Botswana • Rising extraction cost/Depletion of diamonds • Water scarcity • HIV/AIDS Affect their cost of borrowing Green accounts • Provide indicators for investors • Provide govt with tools to monitor and manage these problems

29. Policy Use in other countries:Most have PRSPs, MDG programs PRSPs, MDGs main objective: Sustainable economic growth with poverty reduction • PSRP Monitoring matrix: Conventional macroeconomic indicators, e.g., GDP growth • MDGs: no explicit target indicator for sustainable economic growth/development GDP measures economic growth, but does not take into account how much capital we are using up GDP measures economic growth ANS/Change in Total Wealth measures sustainability of growth BOTH ARE NEEDED!

30. Forest Accounts:Bringing Non-marketed Forest Goods and Ecosystem Services into the National Accounts

31. How do countries use forest accounts? A. Total socio-economic value of forests What is total economic value of forests, including non-market values, and what are the benefits from sustainable forestry? What is the distribution of forest benefits among different groups in society, especially the poor? Is economic growth sustainable or based on depletion of resources, what is the cost of deforestation? B. Evaluate the impact of non-forestry policies and projects What are the trade-offs among competing users and how can forest use be optimized? What are the impacts of macroeconomic and non-forestry policies on forestry?

32. Value of forest goods and services in Swaziland and South Africa(figures for Swaziland are for 1999, South Africa are 1998) NAV: not available, *: less than 1

33. Tanzania’s Conservation Forest Reserves: Value of goods and services, 2001

34. Swaziland (national forest accounts) Spain (accounts for Guadarrama Forest) Local beneficiaries, of which:  Subsistence household (non-market timber and NTFP) Foreign-owned local beneficiaries (commercial logging) 68% 55% 13% Local beneficiaries (commercial logging and NTFP) 47% Regional beneficiaries (recreation) 42% Global beneficiaries (carbon storage, international tourism) 32% Global beneficiaries (carbon storage, biodiversity protection) 12% Distribution of Forest Benefits

35. Water Accounts:An economic perspective on managing water scarcity

36. What Do Policy-Makers Need from Water Accounts? Economic information to make decisions: • Allocation of water, water infrastructure among competing users: • economic users • ecological requirements • international requirements • Water pricing and economic instruments: • Variation of water costs/scarcity by region • Impact of water tariffs on different industries and different social groups, especially the poor • Coordinating policy in related sectors: agriculture, rural development, tourism, etc. • Planning for future water requirements, water demand mgmt.

37. INDEX OF WATER USE & PRODUCTIVITY Botswana: 1992 = 1.00 Namibia: 1993 = 1.00

38. Namibia: distribution of water use, GDP and employment by sector

39. Distribution of water use, GDP & employment by industry inNamibia, 2001

40. Water Productivity in Namibia, 2001:GDP per m3 water use(constant 1995 prices) 14,352

41. Water productivity in Botswana, Namibia, and South Africa, 2000(rands of value-added per cubic meter of water used

42. Future of Environmental & Natural Resource Accounting:Conditions necessary for widespread implementation

43. The success of national economic accounts The System of National Accounts was rapidly embraced in the second half of the 20th century because of a confluence of theory, methods to implement the theory and the needs of policy-makers. • Policy challenge facing national economies: economic growth and full employment • Theory to address this challenge: Keynesian macroeconomics • Methodological framework--the information system needed to help address this challenge: System of National Accounts Environmental Accounting will also be embraced when such a confluence occurs.

44. Conditions necessary for success of Environmental Accounting Compelling policy challenge: sustainable development Theory: Capital approach to sustainable development Methodology: SEEA (System of Integrated Environmental and Economic Accounting)

45. The West grew rich by depleting natural resources, so why shouldn’t the developing world?Green Accounting:Ensure that utilization of NR, especially depletion, does result in greater wealth and sustainable economic growth—not short-lived consumption that leaves a country poorer than before