Application of Natural Resource Accounting to the Forest Resources of Ethiopia: Case of Shashemane Forest

 

 

 

By: Anteneh Kebede (MSc in Resource and Environmental Economics)

Lecturer in Mekelle University

Address: Tel. 0911-101043

P.O.Box. 3088

Mekelle University

Mekelle, Ethiopia

Email: antkeb@yahoo.com

 

 

 

 

January, 2007

 

 

 

 

Abstract

 

We are living a dynamic world, where the change in the stock of natural resources is increasingly affecting the way people of the world are living. Although the economic activity of the homosapiens species is heavily dependent on the surrounding environment, it is only recently that the contribution of the environment to the well-being of society started to get serious consideration. Even the system of national accounts (SNA), which has been used to generate indicators of welfare in a nation / ignores this fact and does not properly treat the value of natural resources.

One of the natural resources that do not receive proper treatment in SNA of Ethiopia and many other countries is the forest resource. By taking the case study of Shashemane forest in Ethiopia, this paper tries to show which part of forest resources are missing from the national accounts, what would their magnitude look like, and how could they be integrated into the SNA framework. For this purpose the amenity, tangible non-timber forest products, timber and depreciation values of the forest are treated

The total value of the forest (for 2004/05) which only considers the above three components is estimated to be 249, 172, 132 ETB. Out of this, timber value has a percentage share of 51 while amenity and tangible NTFPs take the remaining 5 and 44 percent. Since it is a plantation forest, we found appreciation rather than depreciation in this forest and the value of appreciation is found to be 3,245,524 ETB.

In the CVM survey, age, income, fuel wood benefit, and acquaintance are found to be significant determinants of WTP for amenity benefits.

 

The study also tries to see the interaction between the forest and the surrounding community and results show that the lower 10 percent income group of the community depend more in the tangible NTFPs of the forest than the upper 10 percent income group.

Key words: Natural resource accounting, system of national accounts, Ethiopia, Shashemane forest, amenity value.

Chapter I:  Introduction 

 

Ethiopia, a country of 67 million people (MOFED 2002), is one of the largest countries in Sub Saharan Africa. According to the Ethiopian forestry action program document (EFAP, 1994) the country has a land area of about 110 million hectare. This country has immense resource potential for development in terms of agriculture, biodiversity, mineral and other resources. However, this potential is being degraded due to increasing demand for and lack of proper management of these resources.

 

 History tells us that around 42 percent of the total land in Ethiopia was once covered by natural high forests (EPAP, 1994). This coverage has dramatically been decreased in the early 1950s and reached around 19 million hectare or 16 percent of the total land area. According to Matthias Reusing (1998), between 1955 and 1979 Ethiopia has lost almost 77 percent of the forest stock it had in 1955. A recent estimate of Woody Biomass Inventory and Strategic Planning Project (WBISPP) shows that in 2002, the total area covered by forest is about 4.07 million hectare, which constitutes only 3.5 percent of the total area of the nation.

 

Different studies indicate that in most parts of the country, especially in rural areas, fuel wood is the major source of energy mainly for cooking purposes; energy sector is heavily dependent on traditional fuels although it has a negative effect on the environment. Forest resources are also basic inputs in house construction and for making of house furniture and equipment. According to the National report on Environment and Development (1992), 90 percent of the wood production is used for fuel wood, while the remaining 6 and 4 percent go to construction and furniture and industrial purposes respectively.  

 

Due to the increase in population at an annual rate of 2.7 percent, and deterioration in land productivity, expansion of agricultural land is taking place at the expense of the forest resources of the country. It is estimated that the annual destruction of forest for agricultural expansion is around 59,000 hectare per year for the three regional states of Oromiya, Gambela and Southern Nations Nationalities and Peoples (SNNP) (WBISPP, 2002).

 

 Let us briefly turn our attention to the classification and distribution of forest resources in Ethiopia. First, it is necessary to define what forest is. WBISPP, borrowing from Friis (1992) defines forest as “a relatively continuous cover of trees, which are ever green or semi-deciduous only being leafless for a short period, and then not simultaneously for all species. The canopy should preferably have more than one story”. From now on it is mainly within this context that the word forest is used.

 

Ethiopian land cover contains various types of mountain and low land forests. In the high lands there are broadleaved, coniferous and mixed forests whereas the low lands have semi-evergreen forests (Matthias 1998). WBISPP classifies the Ethiopian forest into three, based on their crown cover namely: closed, dense and open. Out of the total forest cover of 4.07 million hectare around 95 percent  is located in the three regional states of Oromiya, SNNP and Gambela regions. The following table shows forest distribution of Ethiopia

      

 Table 1 : Forest coverage and its distribution

                Region

Total (ha)

%

Oromiya

2,547,632

63

SNNPR

775,393

19

Gambela

535,948

13

Diredawa

0

0

Harari

216

0

Beneshangul

68,945

2

Afar

39,197

1

Somali

4,257

0

Amhara

92,744

2

Tigray

9,332

0

Total

4,073,213

100

          Source: WBISPP, 2002

 

The above figure displays the fact that it is only three regions that takes the lion’s share of forest coverage in Ethiopia. Hence the existing forests of these regions need due attention and protection. Especially in the Oromiya region there are many protected and unprotected forestlands. Among the protected ones Shashemane forest is one.

 

After long years of economic decline during the Derg (command economy) regime (1974-1991), Ethiopia is now showing a good rate of growth especially in the last one decade. There was a poor performance of the Ethiopian economy during the two decades of the Derg regime, which demonstrates itself through declining rates of economic growth. At this time “ GDP growth fell to an average of around 2 percent per annum in the period 1974 to 1990” (EFAP, 1994).

 

However, after the fall of the past regime, the Ethiopian economy has been showing a relatively better performance mainly due to the relative peace and stability that existed in the country. In the years 1992/93 to 2000/01  Ethiopian GDP grew at an annual average rate of around 5 percent. Ethiopia’s Sustainable Development and Poverty Reduction Program (SDPRP) document shows that the sectoral growth rates are registered as follows: 2.5 percent for agriculture, 5.3 percent for industry, 6.3 percent for distributive services and 8.2 percent for other services (MOFED, 2002).

 

Despite this relatively better performance in recent years, economic growth is still constrained by the country’s deteriorating environment and natural resource base. This is mainly reflected in the decline of agricultural productivity due to the loss of soil fertility, a decrease in forest related output due to increased deforestation, and water resource degradation due to various reasons. In fact, all of these resource deterioration problems are interrelated and the problem of one sector will possibly have an effect on the other sector.

 

Coupled with the increase in population, mismanagement of natural resources is really becoming an impediment for growth and development process of Ethiopia. According to EFAP (1994) if present trends in population growth continue, this deterioration will be much faster in the future and its effect in the economy will be much more severe.

 

The above registered growth figures are obtained from the country’s national income accounts. The history of national income accounting in Ethiopia dates back to the early 1950s where the National Bank estimated the GDP of the country using the expenditure approach. After that, different agencies have taken this responsibility and now MOFED is in charge of it.

 

 The system of national accounts (SNA) for Ethiopia shows that in the last few decades the agricultural sector accounts for about 45 percent of the GDP. Out of this, the forestry sector constitutes about 5.5 percent. But still, information on the contribution of forest to the national accounts is not well surveyed and previously the stock of the national forest was not known. Even until now there is no reliable information, although there are estimates of different projects like that of WBISPP.

 

 It is worth mentioning the fact that the official report in the forest resource contribution to the GDP of Ethiopia does by no means reflect the true forest contribution because there are various omitted contributions. In addition to their timber and fuel wood contribution, forests provide other services such as amenity, waste disposal, watershed and others that can be considered as an economic type of contribution.

 

 In this paper, we argue that amenity values and tangible Non Timber Forest Products (NTFP) deserve inclusion in the national income accounts, although its applicability at the national level would require a lot of work, since it may necessitate employing environmental valuation techniques. The watershed benefit need not be included if the adjustment is going to be made from the overall GDP because change in such service could be reflected via the increase or decrease of output in other sectors. However, when sectoral GDP calculations are employed these watershed benefits have to be reallocated to the forest sector benefits. The case of waste management service has also a similar nature with the watershed case and the arguments provided for inclusion of watershed benefits shall also apply here.

 

Hence, amenity values and tangible NTFPs are consumption of the environmental benefits and their values need to be computed and included in national accounts. While computing these amenity and tangible NTFP values there is also a need to see what determines their value, it may be income, education or some other variable.

 

Besides, there is no any estimate of either man-made or natural resource capital depreciation in the system of national accounts of Ethiopia. This implies that the system does not reflect  true sustainable income of the country that can be defined as the maximum amount of income, which can be obtained in a given economy without affecting the country’s ability to produce in the future.

 

It is indicated in the literature that NDP is a better measurement of human well being because it can at least take into account capital consumption allowance, for the wear and tear of man-made capital. This somehow takes into account sustainable production of outputs although it still ignores one important capital viz. natural capital. One of the objectives of environmental policy of Ethiopia is ensuring “renewable natural resources are used in such a way that their regenerative and productive capacity is maintained” (EPA, 1997). From this, we can understand that calculation of natural resource depreciation is necessary because the information to be obtained from such calculation helps to see how much our stock is depreciating and shows us how much reinvestment is required in this sector.

 

 Most importantly calculating such depreciation helps us to see if our production is sustainable and whether we are living beyond our means or not. Although this calculation has to be made for all the resources possible, it would be better to start with few resources and widen the scope gradually especially if there are financial, skilled labor, information and other constraints; which is typically the case for Ethiopia.

 

Hence we have noticed two core problems here, the first one is the deficiency to include amenity and tangible NTFP1 values of forest resources in the national income accounts. The second one on the other hand is the problem of not considering natural resource depreciation of Ethiopia. If there are time and financial limitations, those computations can be made in specific area for a specific resource.

 

This study focuses on Shashmane forest of the Oromiya region. As we have tried to indicate earlier the majority of the remaining forest cover is located in the Oromiya region. One of the areas of this region that can qualify for the definition of forest is the above-mentioned Shashmene forest. Although it is considered as a protected forest, observers in that area think that it has faced some threat of over exploitation from the people residing around the area. This forest is also giving amenity and tangible NTFP values to these people of the area. Therefore it is a very good research place for the purpose in the caption. 

 

Unless there is proper understanding and treatment of forest resource’s (or any other natural resource) contribution and depreciation, indicators in the system of national accounts may be misleading. Especially in resource dependent countries like Ethiopia ignoring the depletion and degradation of natural resource stock in the calculation of national income would be a mistake. This is mainly because; the sustainability of economic activities in the country lies in the proper utilization of these resources.  Understanding this fact, the environmental policy of Ethiopia put special focus for the proper treatment of natural resources in the planning and accounting processes and placed it as one of its major objectives. Since it is very much relevant for our case let us put the full statement of this specific objective; it is to

Incorporate the full economic, social and environmental costs and benefits of natural resource development into the planning, implementation and accounting processes by a comprehensive valuation of the environment and the services it provides and by considering the social and environmental costs and benefits which cannot currently be measured in monetary terms. (EPA, 1997). 

 

This and other objectives of the country’s environmental policy coincide with the general objective of this paper, as our objective here is to initiate the proper inclusion of costs and benefits of natural resources, with particular reference to the forest resources of Ethiopia.

 

CHAPTER II:  Research Methodology

 

To conduct this study mainly primary, and in some cases secondary, information has been used. In the case of measuring amenity and tangible NTFP values, a primary survey research method is employed by directly asking questions to the respondents for which a questionnaire was prepared. The sample size of this survey is 240 households and the selection of the sample was using random sampling method. The other survey for calculating depreciation mainly depends on the physical accounting survey of EPA group of experts  and some registered documents of Shashemane Forest enterprise that give highlights on background information and price.

 

For valuing forest amenity benefits, which can be defined as “those natural or physical qualities and characteristics of an area that contribute to people’s appreciation of its pleasantness, aesthetic coherence, and cultural and recreational attributes” (PCE, 1997). The study employed contingent valuation method. This involves measuring willingness to pay for the amenity value of that forest. Here the study applied a probit model due to the discrete choice nature of the data. The willingness to pay of the respondents takes the following form: -

           

 +

 

Here, we should note that willingness to pay (WTP), depends on income Y, education level E, age A, and other possible variables O.

 

In order to make a rigorous measure of tangible NTFPs and other non-market forest benefits this study tries to utilize two types of information. The first one is the respondent’s own estimate of the good/benefit under consideration and the second is the market price of the good (or its close substitute).  Efforts were made to compromise the difference that may exist from the information of the two sources.

 

For calculating the value of timber resource and depreciation, different options have been introduced in the literature. However this paper will try to use the  net price method for the indicated purposes. This method has the following mathematical form in the case of depreciation.

 

   

 

Where g(s(t)) refers to growth in the  forest resource and q(t) refers to reductions in that resource. The value of timber is calculated using the same method that takes the following form