Experiences from PEI in Asia and the Pacific - Economic Assessments

1. Experiences from PEI in Asia and the Pacific - Economic Assessments PEI Africa Regional Economic Forum, Nairobi, 8-11 Nov 2010 www.unpei.org

2. PEI Countries in Asia-Pacific • 6 countries with core PEI country programmes: Bangladesh, Bhutan, Lao PDR, Nepal, Thailand, Timor Leste • Regional Advisory Support to several countries: Philippines, Papua New Guinea • Regional PEI team based in Bangkok, supported by Poverty Environment Facility based in Nairobi. Activities implemented by Country Offices.

3. Environment - related issues that affect the poor Bangladesh: Impacts of climate on development plans and the poor Bhutan: Human wildlife conflict; fuel wood use by HH; unsustainable rural roads; benefits from environmental conservation for the poor Lao PDR: Foreign investment and concessions affecting rural ecosystems and socio-economic conditions of the poor Nepal: Unsustainable rural infrastructure with high opportunity cost; equity and sustainability considerations of revenue from natural resource extraction Philippines: Revenues from extractive industries and ecosystem services not reaching communities Thailand: Communities’ role in local development planning and ecosystem management; Timor-Leste: High unemployment but potential to generate livelihoods from natural resources not tapped

4. Expected Outcomes of PEI Bangladesh: Climate proof investments to protect the poor Bhutan: Communities able to sustain rural livelihoods, benefit sharing to compensate for wildlife damage and restricted access; appropriate HH cooking and heating energy options Lao PDR: Negative social and environmental impacts of foreign investments minimized and sustainable investment promoted Nepal: Sustainable rural infrastructure with livelihood benefits; Revenue from NR increased while discouraging over-extraction of NR and funding poverty and environment measures Philippines: Communities share benefits from responsible extractive industries and ecosystem services Thailand: Communities influence development decisions and share benefits from ecosystem services Timor-Leste: Livelihoods and employment from natural resources www.unpei.org

5. Bhutan

6. Bhutan: Analysis of Public Environment Expenditure • Objective • Analyze the trends in public expenditure in environment sector and review expenditure against policy priorities during the 9th Five Year Plan period • Key findings of the Analysis • High level of Public Environment Expenditure (PEE) in Bhutan compared to OECD and other countries: almost an average of 7% of the total public sector expenditure and around 2.8% of GDP during the 9th Five Year Plan (FYP) period • Declining trend of the proportion of PEE as % of total expenditure and GDP due to competing demands for budgetary resources from other economic sectors (10% to 5-6%): • Lower performance of environment expenditure in public sector institutions: average 81% of total expenditure performance but 67% in environment related expenditure

7. Bhutan: Analysis of Public Environment Expenditure • Key findings of the Analysis • Main institutions responsible for almost 50% of the total expenditure: • Ministry of Agriculture • Ministry of Economic Affairs • Ministry of Works and Human Settlement • Low level of public expenditure in soil and water conservation sectors due to the shift in RNR sector policy focusing on production, access and marketing • Low level of environment expenditure at decentralized units despite high level expenditure performance of their total budgetary allocation • High percentage of donor financing of environment expenditure comprising average 34% of annual environmental expenditure

8. Bhutan: Analysis of Public Environment Expenditure • Conclusions and Recommendations • Maintain the same level of PEE since the high level of PEE led to the country’s strong ability to sustainably manage natural resources and environment • Under-expenditure of budgetary resources in the environmental sector could be one of the reasons for the decline in PEE thus the need for effective monitoring of project implementation and measures to improve the rate of utilization of budgetary resources • Ensure adequate investment in soil and water conservation for sustainable agricultural production and land productivity • Expand PEE by introducing new economic sectors into the environmental sphere and implementing innovative measures without depending on direct budgetary funds, e.g. eco-tourism, public environmental corporations

9. Bhutan: Public Environment Expenditure Review • Next step • More comprehensive public environment expenditure review to influence the budget allocation and planning of sectors and local governments for the 11th FYP • As part of the overall public expenditure review (PER) • More in-depth analysis of efficiency and effectiveness of environmental expenditures providing information on cost-effectiveness • Examine resource gaps and assess potential sources of revenue for sustaining the required level of environmental service delivery • Towards green accounting • Study of the potential for green accounting by the Ministry of Finance

10. Lao PDR

11. Lao PDR: Economic valuation of ecosystem services Land use changes in study cases in Oudomxay Primary Forestry Rubber Second Forestry Agriculture • Assess the ecosystem service values across the four land use options • Provision of non-timber forest products • Soil maintenance (erosion and quality) • Health services

12. Study sites in Oudomxay 12

13. Study sites in Oudomxay 13

14. Lao PDR: Economic valuation of ecosystem services Methodology • A National Experts group established with representatives from the Ministry of Agriculture and Forestry, National Land Management Authority, Water Resources and Environment Administration, and National University of Laos • Land use options selected for this study are based on development priorities identified in the 5-year National Socio-Economic Development Plan for 2011-2015 • Extended cost-benefit framework integrating the ecosystem services to assess their trade-offs from each of the different land use change scenarios • Examine the distribution of the ecosystem services and financial costs and benefits

15. Lao PDR: Economic valuation of ecosystem services Targeted Policy impact The study led by the National Economic Research Institute (NERI), under the Ministry of Planning and Investment. NERI is the designated lead for carrying out feasibility assessments for all medium and large-scale investment projects in the country. The study’s methodology and approach will be a template for future investment feasibility assessments. The capacity building as an integral part of the study to ensure that environmental and poverty concerns are properly accounted for within investment decisions and management processes.

16. Nepal

17. Nepal: Economic Analysis of Local Government Investments in Rural Roads Study sites A Heavy Equipment Based Road at Bhainse, Makwanpur District Common Landslide Events in Equipment Based VDC Roads

18. Nepal: Economic Analysis of Local Government Investments in Rural Roads • Objective of the analysis: • Inform policy makers of the costs and benefits of alternative road construction approaches • Scope of analysis: • Stocktaking of overall local government expenditure on rural road construction through decentralized budgets • Cost-benefit analysis of two different rural road construction approaches • Select two districts (in the Hills and Terai) with both approaches • Identify, measure and compare the economic benefits and costs of the two rural road construction approaches including: • Economic benefits (e.g. local employment, transport cost savings, access to market and public services) • Economic opportunity cost of local government funds • Evaluation of social and environmental externalities • Evaluation of distribution of benefits and costs among stakeholders

19. Nepal: Economic Analysis of Local Government Investments in Rural Roads Scope of analysis (continued): Review local governments decision making process related to approving and financing rural road construction with specific attention to the poor and marginalized groups Provide recommendations on enhancing policy coherence and revision of relevant key policy and guidelines targeting National Planning Commission, Ministry of Finance and the Ministry of Local Development and other relevant sector agencies Provide practical guidance to DDCs, VDCs and communities

20. Nepal: Economic Analysis of Local Government Investments in Rural Roads • Methodology: • Literature review • Field enquiry • Focus group discussions • Evaluation tools and indicators: • Financial analysis taking market prices of inputs and outputs • The same prices are converted to societal or country terms (shadow pricing) using Standard Conversion Factor (SCF) and unemployment compensated labour wage rates. • In both financial and economic analyses, the Net Present Value (NPV), Benefit/Cost Ratio (B/C) and Internal Rate of Return are calculated taking 30 year life of the road • Limitations of the draft study: • Data on costs and benefits were unavailable and, where available, not sufficiently disaggregated by the appropriate cost heads

21. Nepal: Economic Analysis of Local Government Investments in Rural Roads • Main findings of the study so far (as of Aug 2010) • Planning and Decision Making Process at Local Levels • Late disbursal of budgetary grant funds to local bodies (less than 2 months before the end of the fiscal year and budget freezing) • Local people’s craving and political incentives for quick construction of roads, lack of local awareness of full cost and benefits • Opportunities for rent seeking is higher in unplanned heavy equipment based roads

22. Nepal: Economic Analysis of Local Government Investments in Rural Roads • Main findings of the study so far (as of Aug 2010) • Distribution of the benefits • Benefits from road construction to the poor is mainly from the employment during construction, operation and maintenance • Roads which are operational benefit the rich more than the poor • Conditions of rural roads • About 35% of all local roads are not functioning. Almost all of these are VDC heavy equipment based roads • Chances of landslides are about 5 times higher in equipment based roads than in labour based roads (local observations)

23. Nepal: Economic Analysis of Local Government Investments in Rural Roads Selected road analysis: 1) Environment friendly Labour based construction • Per km cost of construction (Rs) = 722390.6 • Social benefits: • About Rs.9 million worth of food and cash was distributed to the local labourers who had less than 6 months of food security. • A total of 1,793 workers from 1,372 households benefited from the construction work • A total of 72% of the workers from the disadvantaged tribal communities • The ratio of women beneficiaries was 55% • Environmental benefits: • Environmental measures put in place decreasing maintenance cost as well as cost of environmental damage and natural disasters

24. Nepal: Economic Analysis of Local Government Investments in Rural Roads Selected road analysis 2) Heavy equipment based construction • Per km construction cost (Rs) = 521825.4 • Limited realization of economic potential of roads: • Poor road conditions making it almost impossible for vehicles to reach villages • Very limited job opportunities for the local communities • Social and environmental costs: • No water draining facilities, unacceptably high gradient, indiscriminate disposal of the debris, lack of soling causing huge environmental and social cost • Many landslides, e.g. one stretch of road putting 36 households at great risk • Heavy losses of vegetation, trees, farmed land, infrastructure

25. Nepal: Economic Analysis of Local Government Investments in Rural Roads Conclusions and recommendations Road is a number one priority at the local level considering the spatial nature of poverty in rural areas The poor will benefit significantly only when the road construction conditions favour the choice of labour-based technology • Labour based roads are more pro-poor, can provide employment to the poor and sustainable road access without negative environmental cost Equipment based technology is financially cheaper and faster but not necessarily associated with high returns • Most of the non-functioning and seasonal roads are constructed using equipment based technologies

26. Nepal: Economic Analysis of Local Government Investments in Rural Roads Conclusions and recommendations Design and Effectively Enforce Local Road Standards and Strategies Reform the Existing Budgetary Process that Compels Road Works to be Done during Monsoon season and at about the Fiscal Year End • Change the fiscal calendar to make development funds available for use at the local level in November • Expedite the budget release process • Stop the budget freezing process at the FY end for development works • Public audit to be made an integral part of a rural road projectto prevent corruption Tailored Social Mobilization for Better Road Maintenance • Assume local ownership of the public goods for their responsible use and maintenance

27. Nepal: Economic Analysis of Local Government Investments in Rural Roads Conclusions and recommendations Meeting the Technical Manpower Deficit • Resource availability with the VDCs have increased by up to 10 times but the availability of the technical manpower remains the same • Set aside a portion of the increased resources within the VDCs for the necessary technical manpower Compensation to the Loss of Private Property • Ensure compensation in case of unavoidable acquisition of private property from the poor, landless and vulnerable groups Align rural infrastructure development with the promotion of social services to the local communities with particular attention to countering elite capture

28. Thailand www.unpei.org

29. Thailand: Valuation of ecosystem services for human well-being Millennium Ecosystem Assessment Sub-Global Assessment (SGA) for Nan, Thailand Policy Questions: At the community level: What ecosystem services do maize, rubber and community forest use and provide, and how do changes in land-use practices influence the well-being of different social groups? At the provincial level: How can the Provincial Development Policy better integrate agricultural development centered on commercial crops with conservation efforts to enhance well-being and maintain ecosystem services? National level: Expansion of commercial crops in many provinces in Thailand. How to gear development towards an environmentally friendly economy? .

30. Thailand: Valuation of ecosystem services for human well-being • Analytical framework • What are key drivers and trends on land-use changes to maize, rubber and community forestry? • What are the relationships between different ecosystem services in maize and rubber plantations, community forestry and people’s well-being in the study area? • What are options for local and provincial development strategy that maintains ecosystem services and people’s well-being? www.unpei.org

31. Thailand: Valuation of ecosystem services for human well-being • Critical areas to be assessed in terms of upland development and ecosystem services • Upland cultivation impacts on soils • Expansion of maize causing higher run off and sediment generation • Conversion of swidden cultivation to permanent mono-cropping, i.e. rubber • Community or State managed forest Study site

32. Thailand: Valuation of ecosystem services for human well-being The economic assessment tools will be used for 3 aspects; o Household analysis for valuing the ecosystem services and livelihood impact o Cost-benefit analysis for assessing trade-offs between key ecosystem services o Trend analysis for forecasting the trend of maize and rubber plantation area

33. Initiating dialogues on Environmental Fiscal Reform in PEI countries in Asia Pacific Bhutan (Ministry of Agriculture and Tax Administration): Payments and benefit sharing for natural resources - watersheds, hydropower and tourism Thailand, (Ministry of Finance and Trade/Agriculture Ministry): Managing environmental and social impacts of agricultural subsidies Nepal (Ministry of Local Development): Natural resource taxes at local government level Lao PDR (Ministry of Planning and Investment): Social and environmental impacts of investment fiscal incentives and charges, Sustainable financing options for Environmental and Social Impact Assessment

34. Thank you www.unpei.org