estimate of natural capital wealth for vietnam patricia silva, university of copenhagen workshop on...
TRANSCRIPT
Estimate of Natural Capital Wealth for Vietnam
Patricia Silva, University of Copenhagen
Workshop on “Vietnam’s Natural Resources Wealth”
Hanoi, 29 July, 2008
Outline1. Sustainability and Growth
2. Measuring Wealth: Theory and Evidence
3. Natural Capital Wealth Estimates for Vietnam
4. Policy Applications and Conclusion
1. Sustainability and Growth
Traditional vs. Sustainable Growth Concepts A traditional view of GDP
Increasing output measured by gross national product A sustainable view of GDP
Output should be adjusted for other important elements: Depreciation of natural capital (subtract) Damages caused by pollution (subtract) Defensive expenditures (subtract)
The result is the maximum sustainable consumption Sustainable growth is growth that does not affect
future growth
Sustainable Growth and Welfare A development path is sustainable if social welfare
does not decline along the path Future generation are allowed a level of welfare at least as
high as current generations’ Social welfare is determined by the level of capital
Produced capital Natural capital Human, social, and institutional capital
Non-decreasing welfare requires non-decreasing capital
Key Elements of Sustainable Growth Invest in produced capital Invest in human capital: health and education
programs Manage natural capital
Allow sustainability of renewable resources Invest rents from exhaustible resources
Manage pollution through regulations and incentives
Key Elements of Sustainable Growth
Sustainability = non declining wealth
Natural capital is an important share of wealth in developing countries
Sustainability requires that depletion of natural capital be balanced by investment in other forms of capital
2. Measuring Wealth: Theory and Evidence
Why Measure Wealth? A useful conceptual framework: development
as a process of managing a portfolio of assets A useful measure of sustainability A means to integrate environment and natural
resources issues into financial and economic planning
Wealth Estimation Method Total wealth – corresponds to the present
value of future consumption
Produced capital – includes structures, equipment, machinery and urban land. It is obtained from historical investment data
Natural capital – the value of the stock of natural capital is the present value of net rents from natural resources estimated using international prices and local costs
Intangible capital – includes human capital, quality of institutions and governance. It is estimated as a residual
Wealth Estimation Methods Capital value can be estimated in two ways:
1. The sum of additions (investment) and subtractions (depreciation) over time made to an initial stock
2. The present value of future earnings over the capital stock
Method 2 is particularly appropriate to estimate natural capital, where:
Earnings = Rents = Price – Marginal Cost
Wealth across Income Levels
16% 19% 17%
26% 13%2%
59% 68%80%
0%10%20%30%40%50%60%70%80%90%
100%
Low Income Middle Income High IncomeOECD
Per
cen
t
Produced capital Natural capital Intangible capital
Intangible capital is the largest share of wealth
Natural capital share declines with income
In low income countries, natural capital is more important than produced capital
Source: World Bank (2006) Where is the Wealth of Nations? World Bank: Washington DC
Importance of Land Resources Value of Natural Capital, 2000 ($ per capita)
Group Natural capital (total)
Subsoil assets
Timber resources
NTFR PA Cropland Pasture-land
Low-income countries
1,925
100%
325
17%
109
6%
48
2%
111
6%
1,143
59%
189
10%
Middle-income countries
3,496
100%
1,089
31%
169
5%
120
3%
129
4%
1,583
45%
407
12%
High-income OECD countries
9,531
100%
3,825
40%
747
8%
183
2%
1,215
13%
2,008
21%
1,552
16%
Note: NTFR: Non timber forest resources. PA: Protected areas. Oil states excluded. Dollar values at market exchange rates. Source: World Bank, 2006
Composition of Wealth Across East Asia and the Pacific
0%
20%
40%
60%
80%
100%
Pe
rce
nt
Ch
ina
Fiji
Ind
on
es
ia
Ma
lay
sia
Ph
ilip
pin
es
Th
aila
nd
Natural K Man-made K Intangible K
Source: World Bank (2006) Where is the Wealth of Nations? World Bank: Washington DC
3. Natural Wealth Estimates for Vietnam
Vietnam’s Natural Capital—An Overview of Results
Energy and Mineral Wealth 3 energy sources (oil, gas, hard coal) and 7 minerals
(chrome, copper, iron ore, lead, nickel, phosphate rock, tin and zinc)
Growth rate of rent is assumed to be constant (nearly 3% growth)
The exhaustion time is estimated to be on average 25 years (which likely to be an underestimate of the exhaustion time for some resources, such as coal)
Energy and Mineral Wealth, (cont’d) Energy resources account for nearly all mineral
wealth—particularly oil (80%) Uncertainty of estimates
Cost of extraction often not available Reserves unknown, new discoveries
Oil Natural Gas Coal
$958 $115 $117
$600-1,773 $261 $309
Agriculture Land Wealth Country level data on land values not available and
affected by price distortions Agriculture land wealth is based on the present
discounted value of land rents Land rents
International price of crops minus local cost of production
Crop yields are assumed to grow at a constant annual rate of 1.94% for the period 2005-2025 and stabilize thereafter
Agriculture Land Wealth (cont’d) Representative crops:
2 cereals (maize, rice) 4 fruits (bananas, oranges, pineapple, mango) 2 vegetable crops (peppers, sweet potato) 2 beverage crops (coffee, tea) Other (rubber, cassava)
Data: Vietnamese statistics on total output production and area cultivated
for each type of crop International export price of crop (FAO) Rental rate—estimated from local production cost for some crops,
while others come from sector studies in literature Wealth = $1, 134 per capita
Agriculture Estimates
CropLand Area(1000 ha)
Output(1000 tons)
Revenue (1000 $)
Rental Rate
Land Rent( $/ha)
Paddy Rice 7,411 35,365 6,482,036 0.45 394
Maize 961 3,321 472,378 0.36 177
Coffee 507 829 646,258 0.30 381
Rubber 464 422 489,634 0.31 329
Cassava 400 6,000 683,350 0.47 804
Sweet Potatoes 205 1,538 716,222 0.61 2,129
Tea 118 514 504,036 0.43 1,832
Bananas 105 1,365 233,074 0.42 930
Orange 53 519 264,716 0.42 2,081
Peppers 50 89 127,425 0.29 753
Pineapple 34 413 273,897 0.35 2,776
Pasture Land Wealth Same methodology as agriculture crop land Representative products:
Beef, buffalo meat, pig meat, chicken, and fresh milk
Growth rate of 2.95% a year is assumed Wealth = $486 per capita
Vietnam’s Forest Resources
Designated function
Area (1000 hectares)
Primary function
1990 2000 2005
Forest
Production 5.707 4.653 5.148
Protection of soil and water 2.925 5.502 5.881
Conservation of biodiversity 731 1.57 1.902
Total forest 9.363 11.725 12.931
Source: Global Forest Resource Assessment 2005, FAO: Rome
Vietnam’s Timber ProductionVolume (1000 cubic meters over bark)
Forest
1990 2000 2005
Industrial roundwood 3.446 2.376 2.500
Fuelwood 32.059 24.843 21.235
Total 35.505 27.219 23.735
Value (1000 US$)
Forest
1990 2000 2005
Industrial roundwood 212.062 90.037 91.579
Fuelwood 197.286 94.141 77.788
Total 409.348 184.178 169.367
Timber Wealth - Assumptions Necessary to distinguish between forest available
and not available for wood supply Assumed that 50% of natural productive forest area
and 100% of plantation forest area is available for wood supply
Time to exhaustion Estimated as forest volume divided by the difference
between production and increment At current extraction rates, forest resources exhausted in
about 20 years in Vietnam
Timber Wealth Estimates- Data and Assumptions
Plantation forest area (100% available for wood supply) 2.21 million ha
Natural production forest area (50% available) 2.55 million ha
Volume of forest per hectare 66 m3/ha
Estimated wood supply 230 million m3
Timber removal 25.5 million m3
Average annual increment (4 m3/ha/yr) 14.2 million m3
Net depletion 11.3 million m3
Time to exhaustion 20 years
Stumpage price (wt avg industrial and fuelwood) US$3.48
Timber Wealth Estimates-Results 1. Base scenario $15
2. Slower forest depletion (40 years to exhaustion) $16
3. Increase share roundwood to 50% $43
4. Double productivity to 8 m3/ha/yr $23
5. Double productivity and roundwood share 50% $67
6. Increase forest area by 3 million hectares $28
7. Same as 6 + double productivity $35
8. Same as 7 + roundwood 50% $121
9. Maximum sustainable yield $11
10. MSY with additional 3 million ha of forest $21
11. Same as 10 + double productivity $38
12. Same as 11 + roundwood share 50% $111
Non-Timber Forest Wealth Assumed that only 50% of protective forest
area is accessible for NTFB Based on Dixon and Lampietti (1995), returns
per hectare per year from NTFP: Developing countries: $145 Developed countries: $190
Protected Areas Wealth Nearly 2 million ha forest area for conservation of
biodiversity Benefits ranging from recreational values to
existence No comprehensive measure of WTP for protected
areas exist Fall-back is a quasi opportunity cost:
Lower of per-hectare return to pasture land and cropland
NTFP and PA Wealth NTFP wealth - $87 PA wealth - $196
2 million ha agriculture land value
(capitalized value of land rents between
~ $8,000 to 10,000/ha)
Protection forest area available for NTFP extraction
Wealth per capita
25% $44
75% $131
4. Policy Applications and Conclusions
Natural Resource Revenue Management (Norway)
Significant amounts of rents generated by oil industry but with high
fluctuations
Forests generate substantial rents – but rents accrue to producers (which are also
subsidized)
Oil and gas – Resource rents and taxes (1985-1996)
Forestry – Resource rents and taxes (1985-1995)
Some Conclusions In low income countries, natural capital is about 25% of
wealth—or twice the share of produced capital – managing natural resources matters Natural resources are a basis of subsistence Natural resources – especially commercial ones – are a source of
development finance But, for growth to be sustainable rents should be invested in some
other form of capital
The value of natural capital per capita (at world prices) actually rises with income – maintaining or increasing the value of natural capital is a realistic policy goal
Some Conclusions (2) Agricultural land accounts a large share of
natural capital in Vietnam (+50%) – maintaining soil quality and boosting its productivity is a priority
Potential exists to further increase wealth generated from forest resources — increasing forest area as well as managing productive forest more efficiently are important