Accounting for the Environment:
Experiences from Southern Africa
R M HASSAN
Centre for Environmental Economics and Policy Analysis in
Africa (CEEPA), University of Pretoria
Ecological and Environmental Economics Program (EEEP),
ICTP, Trieste, Italy
September 23, 2003
What is the Problem?
● Current information and measures of
economic performance
► The system of national accounts (SNA)
GDP – GNI – Employment
→ Widely used
* Strategic targets for growth and development
* Evaluation of economic performance and progress
What is wrong with the SNA?
• Includes produced outputs that are traded in the market
and hence excludes:
– Products directly harvested from open access resources by
communities for own consumption escaping trade and market
exchange (Fuel wood, wild food, etc.)
– Indirect use benefits and ecological services (watershed
protection, carbon sink, nutrient cycling, bio-habitat functions,
etc.), which do not pass through the market and their values are
usually attributed to the wrong economic activities (recipient
sectors)
– Other values (cultural, aesthetic, etc.)
• Domestic production (work at home)
Major shortcoming: Sustainability
• Exclude depletion/depreciation of natural (N) and
human (H) capital as part of total national wealth (W)
– GDP includes income from extracted resources (minerals,
fish, timber) but not the corresponding value of these assets
lost to the economy (reduced future stocks)
• Social welfare loss due to depletion of natural capital
• Measures of performance wrong and very misleading
– High income and consumption (LARGE GDP) financed
through liquidation of natural assets is desirable
– NDP = GDP - K better but excludes N and H
– On a descending course in long-term social welfare and
sustainability if GDP > NDP
Curse of the resource rich
• Resource-rich countries have performed worse economically
than resource-poor countries over the past 30 years
Number of Annual per capita GDP
countries
growth 1960-1990
Resource-rich
Large economies
10
Small economies, of which 55
Non-mineral exporter
31
Ore-exporter
16
Oil-exporter
8
1.6%
1.1%
1.1%
0.8%
1.7%
Resource-poor
Large economies
Small economies
7
13
3.5%
2.5%
All countries
85
1.6%
Correcting measures of performance
• Sustainable income (NDP) & consumption (C)
NDP = C + W (Unsustainable path if C > NDP)
>> Declining wealth (W < 0 ) - Saving bank account
So,  C ≥ 0 does not guarantee sustainability
•  NDP ≥ 0 non-declining NDP better BUT
– NDP includes only K (W = K = produced assets)
• Broadening the definition of capital (total wealth)
– W=K+N+H
– Weak sustainability - intact W (W ≥ 0, i.e. some
components may decline but net change should not be -ve
• Substitution between K, N and H
– Strong sustainability (at least some of N intact)
• Ecological thresholds – Complementarities
Greening the SNA
• Correcting measures of current income (current
accounts)
– Accounting for flow environmental benefits
• Missing values of environmental G&S (non-traded)
• Green GDP (environmentally adjusted)
• Correcting measures of change in wealth (asset
accounts)
– Expanding the definition of capital
• Include natural capital (e.g. minerals and biological assets –
forest, fish, wildlife, etc.)
• Include other capital (human, etc.) – weak sustainability
paradigm – substitution between different forms of capital
Indicators of sustainability: genuine savings
• Gross vs. genuine saving rates for eastern and southern Africa, 1997
Zimbabwe
Zambia
Uganda
Tanzania
South Africa
Namibia
Mozambique
Malawi
Kenya
Ethiopia
Botswana
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
Savings rate, % of GDP
Gross saving
Series1
Genuine saving
Series2
25.0
30.0
35.0
Genuine saving and mineral depletion, 2000
30
20
Genuine saving, %GNI
10
0
0
10
20
30
40
50
-10
-20
-30
y = -0.7191x + 10.134
R2 = 0.6366
-40
-50
Mineral & energy rents, %GNI
60
Policy instruments for prudent use of N
• Managing the resource rent (RR)
– RR defined: Contribution of endowments to value
• Value of scarcity (e.g. rare talents)
• Residual after other costs including wage and normal profit
– Capture – Recovery: Who should get the rent?
• Extraction rates depend on how much rent is generated and
how much has been recovered by GOV (!)
– How to use the rent?
• Current consumption vs. reinvestment: Financing
sustainable development to compensate the future for
depletion of exhaustible resources
Experiences from SA: Extraction of minerals
• Botswana (diamond extraction on steady increase: 25% extracted)
• SA (extraction slowed down remaining with 80% f gold and 90% of
coal reserves)
Figure 1. Mineral Reserves in Botsw ana and South Africa 1980-99 (index 1980=1)
Percent
1.0
0.9
0.8
0.7
1980
1982
1984
Botswana diamond
1986
1988
1990
1992
Year
South Africa gold
1994
1996
1998
South Africa Coal
Recovery of minerals’ rent
• Bots (76%), Namibia (50%), SA (45%)
Percent
Figure 2. Recovery of mineral rents 1966-1997 (Percent)
180
150
120
90
60
30
0
1966 1975 1980 1982 1984 1986 1988 1990 1992 1994
YEAR
Botswana
Namibia
South Africa
Spending minerals’ rent: Botswana
• SBI = non-investment spending / non-mineral revenue
• SBI > 1 indicates unsustainable consumption (non-inv. exp. > non-min.
rev., i.e. liquidation of minerals finances current consumption)
1.80
1.60
Human Capital, Reccur. Exp. part of SBI
SBI
1.40
1.20
1.00
0.80
0.60
0.40
0.20
19
76
/7
7
19
78
/7
9
19
80
/8
1
19
82
/8
3
19
84
/8
5
19
86
/8
7
19
88
/8
9
19
90
/9
1
19
92
/9
3
19
94
/9
5
19
96
/9
7
19
98
/9
9
20
00
/0
1
0.00
Spending minerals’ rent: SA
• The Capital Component (CC) of the RR
– El Serafy’s user cost approach
– Follows the Solow-Hartwick Rule that requires a component
of the rent to be reinvested to maintain stock of assets intact
• The CC of minerals rent for the 1996-1993 period was
compared to capital formation in the mining industry
(total mining investments) of SA
• The results indicated that the mining sector in SA
invested more than twice the CC of minerals rent
>> The CC has been fully reinvested in alternative forms
of capital (Blignaut and Hassan, 2002)
Components of Wealth
Table 1. Components of total wealth in Namibia, Botswana and South Africa (1981-1996)
Year
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
Botswana
(Billion
1993 Pula)
Total
% Natural
Wealth
15.2
53.1
20.0
62.1
25.4
67.2
29.8
68.6
31.7
63.2
34.1
60.1
36.5
57.5
41.9
57.4
44.9
53.6
50.8
53.5
52.5
49.4
53.2
47.1
53.2
43.7
56.2
43.5
59.4
44.2
64.5
42.7
South Africa (Billion
1993 Rand)
Total
% Natural
Wealth
1028
2.4
1079
2.8
1120
2.8
1160
3.0
1188
3.0
1201
3.1
1213
3.2
1226
3.2
1245
3.1
1272
3.8
1279
3.5
1293
3.9
1302
4.2
1313
4.2
1330
4.3
1221
4.9
Namibia (Billion 1990
N$)
Total
% Natural
Wealth
25.0
7.1
25.3
6.4
25.3
6.1
25.1
5.8
25.6
7.5
26.2
10.3
26.6
11.4
27.2
13.1
27.6
14.1
29.0
17.3
28.5
15.7
28.9
15.5
29.1
14.8
29.4
13.7
28.9
10.3
29.7
10.6
Change in value of assets in Botswana (1980-96)
7
6
4
3
2
1
0
-1
-2
-3
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
YEAR
Total wealth
Natural wealth
Pula Billion
5
Change in value of assets in South Africa (1981-95)
60
40
30
20
10
0
-10
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
YEAR
Total wealth
Natural wealth
Plantations
Rand Billion
50