By:
Abinet Gebrekidan
1. Introduction
According to the World Development Indicators 2003,
with gross national income per capita of USD 100 in year 2001, Ethiopia was
ranked 206th exceeding Democratic Republic of Congo (with gross national income
per capita of USD of 80) (World Bank, 2003). This is a very low figure even
compared with other developing countries. Using the conventional measure of
poverty (1 USD a day), about 44 percent of Ethiopia’s population falls under
the poverty line, which is close to the African average but very low by LDCs standards. According to World Bank Development
Indicators (2004), if one uses the 2 USD a day measure, the percent of population
that falls under the poverty line exceeds 80 percent. By any standard, the
country is one of the poorest nations in the world.
Although it is
intense in urban areas, the fact that 85 percent of the population is residing
in rural areas makes poverty mainly a rural phenomenon. The agricultural
sector, which is denominated by small holding peasant farmers practicing
traditional farming system, is the key sector to the economy. It generates more
than 90 percent of the total export earning and employs about 85 percent of the
population. The fact that majority of the population earns its livelihood from
this sector, and that it is highly dependent on nature, makes sustainable
agriculture and natural resources management at the heart of overall poverty reduction
program. More importantly, the very poor, landless laborers, small farmers and
female-headed households in both rural and urban areas are highly dependent on
natural resources for income generation. Women fuel wool carries in
Rapid
population growth (of 3 percent annual average) together with widespread
poverty in the country has led to unsustainable uses of natural resources.
Certainly, the
causal relationship between poverty and environment is not quite clear, as
whether poverty causes environmental degradation or environmental degradation
causes poverty. However, most of the environmental degradations in developing
countries are due to poverty driven human activities. In
Although
deforestation is common in tropical areas,
Failure to
incorporate the external social costs of deforestation has contributed a
critical role for quick loss of forest resource in the country. At national
level, the System of National Accounts (
Given the above
general background on shortcomings of conventional national income accounts as
a measure of welfare, and its implications on natural resources management
(NRM), NRA is though to be one way to make operational the notion of
sustainable development and a step to better conserve natural resources. Hence,
this paper tries to develop better current and future welfare indicators by
incorporating the missing non-marketed benefits of forest resources and
constructing natural capital inclusive asset account in
In
particular the research project aims at valuing forest resources for improved
national income accounts of the country. The specific objectives of the
research are:
a)
To develop a
theoretical framework to account for true contributions of forest resources,
b)
Create
separate forest accounts that incorporate the values of forest services and
non-timber forest products.
c)
Incorporate
forest accounts into the national accounts for a comprehensive understanding of
the relationship between the performance of the economy and the utilization of
forest resources.
d)
Demonstrate
the usefulness of natural resource accounts and build capacity and awareness
among the relevant stakeholders.
e)
To discuss the
implication of the changes made to national account figures on NRM and
sustainable development.
Unlike conventional
national income accounts, which measure the value of total marketed goods and
services ignoring interactions between economic activities and the environment,
NRA tries to adequately capture such interaction. Hence, NRA is adjusting the
conventional national income accounts for the interaction between the economy
and the environment. The amendment to national income accounts in two fronts;
flow accounts like
NRA is adjusting the
conventional national income accounts for the interaction between the economy
and the environment. The amendment to national income accounts in two fronts;
flow accounts like
Adjustment to the
flow accounts involve estimating monetary values of non- marketed benefits that
individuals generate directly from forest resources and are missing from
national accounts. Contingent valuation
method will be used to estimate the value of these benefits where estimates are
not available from secondary sources. Correction to the capital accounts
requires estimating physical and monetary value of stock of forest. Net Price Method will be used to
estimate monetary value of forest stock to generate natural capital inclusive
asset accounts. This will enable to generate sustainability indicators like
genuine domestic saving and green NNP.
4. Expected Results
and Dissemination
As briefly,
discussed above, NRA tries to adjust conventional national accounts for true
contribution natural resources, or to capture both the short and long-term
impacts of environmental degradation on economic growth. Hence this study tries
to show how distorted conventional
In doing so, it
suggests some policy recommendations which will greatly help in measuring the
contributions of forest resources in the country. The results will be
disseminated by various means such as conducting familiarization seminars and
distributing copies for concerned government ministries and other bodies.
Given the economic/
poverty structure, the majority of the people are living in rural areas
generating many non- marketed tangible and intangible benefits from forest
resources, which lie outside the production boundary of
Since well–organized
data related to natural resources in general and forest resources in particular
is limited in the country, the paper will utilize both published reports and
web sites of different organization like Ministry of Agriculture (MOA),
Environmental Protection Authority (EPA), Food and agricultural Organization
(FAO), the World Bank and others. Data pertaining to national accounts will be
obtained from Ministry of Finance and Economic Development (MOFED) and National
Bank of Ethiopia (NBE). To estimate the value of non-marketed benefits, primary
data will be gathered from specific vicinity in the country.
As Vincent, J.R
(2000) stated focusing on a single resource like forest does not generate
comprehensive estimates of green net national product (NNP), hence this paper
could only be one major step toward natural resource accounting in the country.
In addition, due to limited time available for this project, estimate of the
true values of the benefits that will be used to adjust national account
figures are generalizations of estimates of specific area that will be used in
the study.
7. Literature Review
Literature on
failure of System of National Accounts (
7.1 Theoretical Literature
Failure to
incorporate non-marketed goods and services; like the values of work people do
at their home for themselves or their families, the value of leisure time,
costs of environmental damage and the underground economy makes GNP less
accurate as an index of national well being.
Generally, national
income accounts fail to record fully the interaction between the economy and
the environment. Among the above missing values, the one related to
environmental resources are of big relevance for this study as it tries to
investigate the missing values of non-marketed services obtained from forest
resources and incorporating natural capital to the total capital stock. Hence,
the adjustments made in environmental accounting are in two respects: one is in
adjusting flow accounts and the other one is adjusting the capital (stock)
account. Similar to conventional national income accounts, here green NNP, true
forest resource contribution adjusted
In addition to be
inadequate indicator of social well-being, standard measures of national income
accounts provides wrong signals to policy makers which has contributed to
faster resource depletion. Although Malthusian and Meadows et al (1972) gloomy
prediction were proved wrong, the growing depletion of natural resources and
environmental disaster strengthened the importance of environment in
development process. As a global level, the concern for natural resources got
attention following the 1978 world commission report, our common future and
sustainable development. Therefore, natural resource accounting (NRA) is
considered as one-way to operationalize sustainable
development and means which helps better natural resources management.
NRA involves two
steps: one is estimating monetary values of goods and services obtained from
natural resources which remained missing and two integrating natural capital
into capital stock accounts. Although the general framework is common, there
may be differences between renewable and non-renewable resources. Even among
renewable resources, the adjustment process may differ depending on the nature
of the resource and ownership structure.
For non-renewable
natural resources like petroleum, adjustment is only in the stock account as
revenue generated from the extraction of such resources ids fully captured in
current account/
For renewable
resources, however, the adjustments are complicated as there are many missing
flow benefits, which are not, recorded in conventional national income accounts
in addition to its stock value which is not included in total capital stock.
Natural resources like forest provide many goods and services, which are
directly consumed by local people. This flow of benefits includes the value of
wood people directly harvest for fuel, construction and grazing services (Hassan R., 2002 and Malbugu R.,
2000).
Among the
shortcomings of conventional system of national accounting as a measure of
well-being is, it does not fully capture the interaction between environment
and the economy. There are several tangible and non- tangible benefits
generated from natural resources that are not accounted in the national
accounts. Fuel wood, construction materials, fodder, fruits, traditional
medicine, watershed protection and carbon sequestration, wildlife habitat,
weather condition stabilization etc., are among the tangible and intangible
benefits generated from natural forests and remained missing from national
accounts (Ramos, M and Chitiga, M.2002 and Hassan, R.M.2002).
Hence, conventional
7.2 Empirical Literature
NRA in developing
countries emphasizes accounting for natural resources like water, fisheries and
minerals while pollution dominates the efforts in developed world. Hechet (2000) summarized environmental accounting findings
from nine case studies:
The study done by Hassan (2002) is a comprehensive empirical research done in
The study conducted
by Mabugu (2000) to account for true contribution of
forest resources in
8. References
Disrupt, P., Kristrom, B., and K.G. Maler (1995) ‘Current Issues in Resource Accounting’ in
Johansson (eds.), Current Issues in
Environmental Economics,
De Bruyn, S.M. and Heintz,
R.J. (1999) ‘The Environmental Kuznets Curve
Hypothesis’ Chapter 46 in Jereon, C.J.M. and Van den
Berg (1999) Handbook of Environmental and
Resource Economics, Edward Elgar Publishing
Limited
Glenn-Marie, L. Rashid, H. and K. Hamilton (2003) Environmental Accounting in Action: Case Studies from South, CEEPA,
Hassen R.
and Hertzler, G. (2000) ‘Depletion of
Ministry of Finance and Economic Development (2002)
R.M. Hassen (2002) Accounting for Stock and Flow Values of Woody Land Resources: Methods
and Results from
Sisay A.,
and Adugna L. (2001) ‘Eradicating Rural Poverty and
Food Insecurity in
United Nations Commission of the European Communities, International
Monetary Fund, Organization for Economic Cooperation and Development ands World
Bank (1993), System of National Accounts
United Nations Development Programme (2003)
Human Development Report 2003, and Millennium
Development Goals: A compact among nations to end human poverty,
Van
Vincent, J. (2000) “ Green Accounting Issues:
from theory to practice, Introduction to the Special issues’’ Environment and
Development Economics, Vol 5, Part I,II.
World Bank (1999) World
Development Indicators, World Bank