ENV GLOBAL FORUM OCT 2016 - Session 2 - K. Habtegaber "Natural Capital, Growth and Development"

1. Natural Capital, Growth and Economic
Development
Kookie Habtegaber, October 24th 2016, Paris
OECD Global Forum on Economic Growth and Environment
Giving Nature a Seat around the ‘Economics’ Table

2. Outline
 What is happening – development in
the context of resource use
 What needs to happen – bringing
natural capital into mainstream
economic policy making, urbanization,
spatial planning
 The ‘how’- recommendations
 Concluding Remarks

3. Nature Capital Bedrock of African Economies -Highlights
 Agriculture
 Africa has 65 % of the world’s arable land and 10 % of internal renewable freshwater sources.
 Africa is vulnerable to land degradation and desertification and is most severely affected region. Land degradation affects
two thirds of productive land in Africa. Desertification affects 45% of Africa’s land area. Africa is second world’s driest
continent and water resources are unevenly distributed. The heart of the Congo basin has some of the highest annual
rainfall worldwide There is strong correlation between rate of poverty gap and soil nutrient depletion from cereal
croplands.
 The economic loss associated with land degradation in sub-Saharan Africa is estimated at $68 billion per year. Land
degradation and desertification impacts entire ecosystem good and services such as carbon sequestration, wood
production, wildlife habitat, medicinal and food plants, groundwater recharge, hunting opportunities, and tourism activities.
“Africa could generate about 2.83 trillion PPP USD (or about 71.8 billion USD/year) if all countries take action against soil erosion (for next
15 years) which is causing nutrient losses from the arable land areas used for cereals production, through investment in sustainable land
management interventions. “ The cost of inaction on the other hand (to all countries) accounts for about 4.6 trillion PPP USD over the next
15 year, equivalent to about 286 billion PPP USD (= 127 billion USD) per year”. Report by UNEP for 42 African Countries.
 Tourism
 Important sector for many countries – e.g. in 2013 tourism accounted for 2.9 % of total employment, $71.6 billion or 3.6 %
of the continent’s GDP. Illegal poaching, wildlife trafficking, land conversion, threatening this industry.
 Fisheries
 Estimated to be worth $24 billion, employing 20 million people and with 90 million people dependent on fisheries for their
livelihoods – e.g. in 2011, it accounted for 1.26 % of Africa’s GDP.
 Forests
 Africa is home to World’s second largest tropical forest with over 70% SSA population depending on forests and woodlands
for livelihoods. Forests contribute an average of 6 per cent of GDP in Africa – much more if we take ecosystem services.
Sources: Africa Resource Center, AMCEN, ELD Initiative, UNEP

4. Dividend from Natural Resources Driving Economic
Growth in Africa
 Africa has:30 % of the world’s known
mineral reserves, 8 % of the world’s
natural gas reserves, 10 % of oil reserves,
40 per % of gold reserves, 80–90 % of
chromium and platinum, the largest
cobalt, diamond, platinum and uranium
reserves in the world.
 Minerals account for an average of 70% of
total African exports and about 28% of
GDP.
Resource rents are the main contributor to
tax revenue in Africa. E.g. - In 2008, the
rent from natural resources in SSA was as
high as 24% of GDP( weighted average). In
2014, it went down to 12.8%.
Source: World Bank, Africa Resource Center, IBIS

5. Dividend from Natural Resources Driving Economic
Growth in Africa
 Africa’s pop expected to double by 2050.
 Both urban and rural pop are growing -
delivering a vast growing domestic market.
 Urbanization - equaling 560mln by 2020 (2nd
highest after Asia) but, has occurred without
industrialization and without creating the
almost 30 million additional jobs Africa will
need every year.
 Growing middle class - projected to reach 1.1
billion (42%) by 2060
Source: African Economic Outlook 2015, 2016
 Growth was spurred by demand and supply side:
commodity price spike, FDI inflow from $34
billion to $246 billion by 2012 , debt relief, good
governance, growing middle class , trade increase
and diversified export destinations.
 African economies have shown strong growth
including non-resource rich countries growing at
similar rates (Ethiopia, Sierra Leone, Uganda and
Rwanda) – i.e. being resource rich does not
automatically equate to GDP growth.
 Commodity-focused countries in Africa have
come under pressure when prices have fallen –
lack of diversification and investment in right
skills have been multiplied by the depletion of
their natural capital and pollution.
Economic Growth 2003-2017
Population Growth 1950 -2050 est.

6.  Growth has taken place without Structural transformation, the same can be
said about urbanization.
 Jobs creating sectors - manufacturing and agriculture - are behind and
losing labor to low value adding services sectors (trade), or to the informal
sector.
 Lack of spillovers from the commodity sector to non-commodity sectors
 Industrial policy lacking ( trade-off b/n natural assets not clear)
 Public spending and tax base mainly based on natural resource income –
thus impacted commodity prices – ( the tax mix is more balanced in non-
resource-rich countries).
 Inequality and poverty persists – poverty increased in Africa until about
1993, and fell thereafter. The inequality of opportunities remains in Africa
as a serious constraint on development.
 Poverty reduction in Africa has mainly been driven by income growth,
not by reductions in inequality
 resource-poor countries achieved a reduction in poverty of 16 % points
between 1995 and 2000, resource-rich countries posted only 7 % reduction
for the same time.
Quality of growth – Have African countries been effective in optimizing their natural
resource rent to deliver on social and economic returns with minimal negative impact on the
environment?
“higher GDP growth over the past decade did not
reduce poverty at an adequate pace and failed to
create commensurate employment opportunities since
the mining and energy sectors are less labor-intense
than the manufacturing and agricultural sectors. “
AfDB Development Report 2015
Gap between Africa and other
developing countries has been
widening during this period

7.  Illicit financial flows (IFF) in SSA US$ 500
billion in last decade - more than half from
natural resources revenue. It is greater than
ODA and FDI between 2003 and 2012, it was
equal to 4% of GDP ( 60.3 billion) Responsible:
Large corporates (65%), organized crime (30%),
corruption (5%). Tax breaks also cost countries
huge loss.
 African countries loss 17bln USD due to illegal
logging every year while West Africa alone
loses 1.3 billion USD per year from illegal
fishing.
 In both cases, countries are also losing the
associated ecosystem services ( carbon sink,
water purification, marine ecosystems that
protect the coastal areas).
 Significant loss of domestic resource that could
have been mobilized to invest in public goods
including maintaining and replenishing the
natural capital as well as mitigating
externalities is lost.
 Africa Initiative of the Global Forum on
Transparency and Exchange of Information for
Tax Purposes – efforts to address IFF
Illicit financial flows from Africa compared to official development
assistance and foreign direct investment, 2003-12 Source: AEO 2015
Foreign direct investment to Africa: Resource-rich vs. non-resource-rich
countries, 2000-15 Source: AEO 2015
Quality of growth – Have African countries been effective in optimizing their natural
resource rent to deliver on social and economic returns with minimal negative impact on
the environment?

8.  Rapid demographic change increases migration, puts
pressure on environment and resources in densely
pop areas – e.g. Kinshasa. Urban wood fuel use is
causing deforestation and forest degradation around
many cities in Africa. 80% of household fuel in Africa
and accounts for over 90% of harvested wood.
 Concentrating people in cities without proper
management leads to land use changes,
overexploitation of resources and degradation of
ecosystems and ultimately impacts socio-economic
development. Cities and towns face environmental
risk such as water scarcity if they expand in the wrong
places (wetlands & water catchment areas).
 Land degradation is responsible for large parts of
rural-urban migration. In the Sahel and in the Horn
of Africa, 60 million people are likely to migrate
between 2016 and 2020 because of degraded areas.
Land degradation is exacerbated in regions of both
high poverty and high population density.
 The poorest households are highly reliant on natural
resources and will be most immediately affected by
environmental degradation. Many of these people
are the urban poor living in slums without basic
services such as potable water and sanitation. 72% of
urban population of sub-Saharan Africa live in
slums.
 In 2013, air pollution cost Africa USD 447 billion, a
third of its GDP.
Impact of Environmental Degradation on Economic Growth
Source: Africa Economic Outlook 2016

9. On the positive side, recent UNEP report underlines the increasing use of renewable energy
across the continent and African economies continue to have the lowest footprint globally.
There is also improvement in biodiversity conservation and protected areas. However, fresh
water use vis-à-vis renewable water sources, increasing, as is the overexploitation of fish
stocks above their safe biological limits (UNEP, 2015)
Experts from the continent
acknowledge that these
important and defining
changes have occurred in
unsustainable fashion(AEO
2016 Survey)
Impact of Environmental Degradation on Economic Growth

10. Accounting for Natural Capital in mainstream
economic policy making, urbanization, spatial
planning
‘Develop at all costs’ narrative is changing…

11. Countries are Taking Action
 Governments in Africa have recognized that long term growth depends managing the natural resources
effectively. To that end, some promising developments:
 Gaborone Declaration for Sustainability in Africa ( 2012) calling for integrating the value of natural
capital into national accounting and corporate planning and reporting processes, policies and
programmes ( Gabon, Kenya, Liberia, Botswana, Ghana, Mozambique, South Africa, Rwanda,
Namibia, Tanzania)
 Meeting of African Ministerial Conference on the Environment on managing Africa’s natural capital
for sustainable development and poverty reduction.( March 2015). Eighth African Development
Forum and the 2014 joint annual meetings of the Economic Commission for Africa Conference of
African Ministers of Finance, Planning and Economic Development (2014).
 Several Countries are participating in the Wealth Accounting and Valuation of Ecosystem Services
(WAVES) programme ( Botswana, Rwanda, Madagascar)
Example: Botswana
 Average annual growth rates of over 10% since
mid 90s, now a middle income country
 Contribution of minerals to the economy at 19%
mainly from mineral rents – highest contribution
to GDP, followed by tourism.
 Rainfall is low, highly erratic and unevenly
distributed. Surface and ground water resources
are scarce. Climate change expected to
exasperate it.
 Developedvariousnaturalcapitalaccounts(water,
minerals, energy, land/ecosystems & tourism )to
understandfuture andpresent economicdecisions
and designpolicies that willmaintainnatural wealth
NCA is focused on the part of total wealth
that comes from land, water, mineral,
energy, soil, forests and timber, and
ecosystem assets
Source: WAVES, AMCEN

12. The ‘how’- recommendations

13. 1. Show the “hidden value” of Nature for economic dynamism
• Ecosystem valuation ( e.g. value of wetlands to economic growth at the city and
national level)
2. Better spatial planning and urban strategy linked with national development
Planning
• Connecting cities the right way -cities should be considered as an active part of
a wider mosaic of land and water use to benefit people and the economy linking
with rural communities.
• Link and develop coherence between climate change policies, economic
development plans and urbanization strategies
3. Improve the access of spatially explicit ecological information to development
planning processes
• Integrate Environmental Indicators as part of the National Economic
Development Plans
• Spatial planning can be used to optimize multiple uses of natural resources and
is essential to maintain ecosystem services
• Ensure that such analyses are a requirement of relevant policies and financial
investment safeguards.
4. Good plans need political will to implement
• Political will and long term thinking
5. Economists need to innovate beyond the status quo
• what are growth the models for the 21st C green economy?
• We need to improve knowledge / research / analysis of the issues

14. Show the “hidden value” of Nature for Economic
Dynamism: the Case of African Cities
“The projected increase in urban population
implies that the way our cities are planned
and run will not only have huge economic
and social implications but will also be of
crucial importance for achieving environmental
sustainability.” OECD The Metropolitan City Report
 As of 2005, 75% of global energy and material consumption
was accounted for by cities—which cover a mere 2% of the
world’s land area.
 80% of the world’s output, measured in GDP, is generated in
cities (UNEP 2013).
 Cities are economic hotspots where the growing middle
classes will be living.
 Increased demand for water – agriculture, urban
infrastructure and energy for growing urban population
and increased pollution
 Urban areas can facilitate the efficient use of
environmental resources through sharing land, other
natural resources, goods and services.
 A low ecological footprint gives African cities a window of
opportunity for sustainable development.

15. African Cities Face Serious Environmental Risks
 Cities and towns face environmental risk such as water
scarcity if they expand in the wrong places- conversion of
wetlands and watershed into urban areas (wetlands &
water catchment areas) Wetlands provide both provisioning
services (food, water, raw materials) and regulating services
(flood control, climate stabilization). ( Kampala – wetland –
settlement)
 The International Water Management Institute
estimates total value of wetland services in Africa
as being US$5.25 billion a year. While significant,
this is far less than the $70 billion for Asia, showing
potential for greater returns. A conservative
estimate of the value of the Zambezi wetlands was
US$123 million a year.
 Deforestation of critical forests which support watersheds
and building on wetlands can lead to water scarcity and
slow growth in African cities.
 illegal forest clearance threatens threaten the supply of
water from some economics important cities –
 E.g. The port city of Mombasa, in Kenya, relies on
water from the Chyulu Hills, over a hundred miles
away. Despite Chyulu being a protected area, poor
management capacity means illegal logging and
settlement continue, threatening the security of
urban water.
 Innovative finance in valuing ecosystems services benefits
farmers, businesses and urban dwellers that rely on
environmental goods and services – e.g. Upper-Tana
Nairobi Water Fund provides financing for the watershed
that provides Nairobi 95% of its water.
The cities identified here will likely to see their urban expansion
taking place on the same watersheds used to supply the cities for
fresh water. This may reduce their water provisions. More detailed
research is required to further analyze the resulting socio-
economic risk. E.g. The Zambian capital, Lusaka, draws 44% of its
water supply from the Kafue Flats; demand is growing fast, but
currently over half the potential supply is lost through pipe
leakage.
Source: Africa Economic Outlook 2016

16. Marine ecosystem services are important for many
coastal cities Mangroves protect shorelines and boost fish numbers.
Mangrove forests buffer coastlines against storms, ocean
surge and sea-level rise; they also create spawning grounds
and nurseries for fish.
 E.g. in Vietnam a US$1.1 million investment for
community restoration of mangroves saved an
estimated US$7.3 million/ year in sea dyke
maintenance. The mangroves have effectively
buffered coastal villages against typhoons, when
other villages suffered serious damage.
 There have been few economic analyses of mangroves in
Africa. Yet in many places, they are threatened by
infrastructure (e.g. Ports) as well as urban expansion
taking place without taking their services /value into
account..
 Climate Change makes coastal cities more vulnerable.
Africa is more vulnerable to climate change than other
world regions. Climate related breakdown in ecosystem
services and extreme weather events hit cities hard due to
high population densities and often poor infrastructure.
 Half of the ten fastest growing economies in Africa have
major centers of economic activity on the coast (Côte
d’Ivoire, Mozambique, Tanzania, Sierra Leone and Kenya).
Many of them without effective and implementable urban
strategy that embeds climate adaptation and resilience.
Some progressive examples include cities such as Cape
Town. Source: Africa Economic Outlook/ WWF 2016

17. Better Spatial Planning: Need to Link
Urban Strategy with National /Regional
Development Plan
 Link and develop coherence
between climate change policies,
economic development plans and
urbanization strategies
 multi-level governance and
transparency including reinvesting
resource rents locally
 Understand how biodiversity and
ecosystem service assets fair
against development pressures
such as agriculture, mining,
infrastructure plans, and
demographic trends
 Development strategies should be
more than a collection of sectoral
policies - have a framework that
balances socio-economic and
environmental policies to bring the
optimal combination
 Spatial planning can be used to
optimize multiple uses of natural
resources and is essential to
maintain ecosystem services
 Ensure that such analyses are a
requirement of relevant policies
and financial investment
safeguards in economic corridors
and other SEZ developments.
LAPPSET Corridor - Planned road infrastructure in Kenya in relation to protected areas
Source: Africa Economic Outlook/ WWF 2016

18. Improve the Access of Spatially Explicit ecological Information to
Development Planning Processes
1. Integrate environmental indicators
as part of the National Economic
Development Plans as well as
investing and collecting local level
data ( cities –urban / regional
data)
2. To do so, SSA needs to improve
statistical and data infrastructure
Statistical Capacity indicator: Source: Africa Economic Outlook, 2015

19. Systems Approach: Looking at Opportunities and Risks
Africa Sensitive Ecological Zones
Average Annual Growth Rate in Real Per Capita GDP 1996-2013
Foreign Transactions on Agricultural Land in Africa
Irrigation Potential in Africa
Africa Population Density
Potential flashpoints - Spatial overlap of
multiple sectors and drivers of growth
Source: Africa Ecological Futures, WWF, AfDB,

20. Good Plans Need Political Will to Implement
 Is circular economy relevant for African
countries? Can they find strategies to leapfrog
towards efficient systems –
 What policies are needed and how can those
with the knowledge and expertise i.e.
developed economies enable that?
 Given the resource exploitation model is still
viable and attractive, what is required to think
long and medium term? How should we
incentivize governments? What role can
economic thinking play?

21. What can OECD and others do to addresses to help make choices that optimize
human wellbeing and ecological resilience?
 Sustainable use of natural assets and ecological thresholds
 Qualitative dimensions of natural assets
 Economic values of stocks and flows of natural assets
 Combining economic and environmental data at the macro-level
 Resilience of socioeconomic systems to ecological shocks
 Distributional effects of environmental changes or policies
 Aggregate impacts of environmental policies
 Support the expansion / integration of SEEA – EEA
(Research Results from Green Growth Knowledge Platform Indicators and Measurement
Committee)
We need more Economic Innovation

22. Key Messages
 Pollute now, clean up later is no longer an option and African countries
cannot growth their way out of environmental degradation - Ecological factors
can be fundamentally altered by economic and development decisions made
today.
 Ecosystem services such as water, hydrologic regulation, soil fertility,
biodiversity and climate change adaptation will be critical factors for Africa’s
economic sectors and future growth – Increasingly we are getting better at
improving links between economics and environments: Institutions like OECD
can help accelerate and advance this knowledge – we need to go beyond
GDP.
 By managing and maintaining natural capital, African countries can use the
advantage of having abundance in renewable and non renewable natural
resources to enable key sectors to be competitive and attractive in the
globalized world where most Africans do not yet have the skills required for
high skilled jobs.
 How urbanization takes place and cities are planned matters - cities should
be considered as an active part of a wider mosaic of land and water use to
benefit people and the economy linking with rural communities

23. Thank You
The Future is here and the choices we make today will lock
us into development trajectories far into the future.