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The South African Economy Now: Towards Markets for Environmental Products that will Benefit Communities 2005-03-03
James Blignaut

By James N. Blignaut, part-time professor of economics, University of Pretoria, and director of Jabenzi, Beatus and GreenGrowth Strategies, three companies aiming at making rural development a reality in southern Africa

The coming to force of the Kyoto protocol in February 2005 placed renewed emphasis on the relationship between economic growth, development and the natural environment.  This renewed emphasis is, however, a cyclical (or “fashion”) thing.  Every now and then there is an environmental disaster and/or international conference on the economy/environment linkages and then it is “fashionable” to discuss the effects of human-induced air and water pollution, resource exhaustion and environmental degradation.  It seems as if the focus on the economy/environmental linkages is therefore almost exclusively a reactive response.  This could be the result of the environment still not being considered a mainstream economic concern.  The prevailing paradigm is still one of man’s ability to dominate and subjugate nature to feed his own greedy aspirations rather than seeking to live in harmony with nature and others.

Complicating matters even further is the fact that the limitations and various ecological thresholds of our natural environment are mostly unknown.  Also, the details of all the economy/environment linkages are generally unknown.  We know that exotic trees reduce water availability and soil quality but that indigenous trees contribute to water supply and quality, soil stabilisation, carbon sequestration (and thereby mitigating the effects of global climate change), but the exact details of these relationships and the link to man and the economy are not always that obvious.  This uncertainty has led many to argue in favour of adaptive policy-making that relies on the precautionary principle, which is a proactive measure.  This principle is based on the notion that prevention is better than cure and that a policy should rather err on the side of caution, or, expressed in layman terms, better be safe than sorry, in the management of environmental issues.  This approach has yet to become a reality within a South African policy context.  It is seemingly the current belief that the future generations of the country will have the means and will to address environmental issues.  The underlying paradigm to this notion is not only unwise, it is fundamentally wrong.  It is assumes that man and nature are completely separate entities and that the one can develop in isolation and independently from the other.  It is interesting to note, though the paradigm is wrong, that it is well-supported by standard neo-classical economics which treats the environment nicely under the ceteris paribus clause, implying a constant non-changing environment as infinite input to production and consumption.

The term “the environment” is used here in its broadest sense to include both sources (water, land, minerals, etc.), services (nitrogen-, hydrological-, biological- and climate regulation, habitat provision, aesthetic values, etc.) and sinks (the assimilative capacity of the biosphere to absorb waste).  “The environment” is therefore actually the multi-faceted pluralistic dimension within which people live and which is essential for not only co-existence but also survival.  Should one, however, consider “the environment” only partially, then it is well known that South Africa’s natural resources, especially those of mining and agriculture, played a significant role in the development of South Africa in the past.  Not only did the institutions involved in these sectors pay taxes and contribute to socio-economic development through the investment in schools and clinics, but also did they provide vast employment opportunities and opportunities for industrial diversification.  

Lately, however, the contribution of these sectors to the economy, as measured in terms of their contribution to GDP, has declined to less than 10 per cent on aggregate, mainly because of the growth of the other manufacturing and service-related sectors.  Significant job losses, for which there are various reasons, also occurred in these sectors during the last decade.  It is therefore not without reason that many analysts believe that the time for the natural resource sector as an engine for growth has gone by: we’re in the information age now and this drives industry, but where will our daily bread, water and oxygen come from?

New developments in the sphere of economic development, trade and the environment might just change this perception, though.  For this about-turn in perception to take place it is necessary to understand that changes in environmental quality and quantity pose both economic threats and opportunities.  Therefore, environmental change is as much an economic concern as it is an environmental issue.  This point is clearly illustrated in the April 2004 UNCTAD Trade and the Environment Review.  In this 170-page document, Lakshmi Puri, the UNCTAD Director for the Division of International Trade in Goods and Services, and Commodities, declares that:

Trade and environment is a complex and cross-cutting subject, which is still relatively new.  In recent years, the international trade and environment debate has moved from emphasis on a situation of inherent conflict between these two areas to a greater political preparedness to identify and seize synergies and to make trade an engine of sustainable development.  This is reflected in the Doha Ministerial Declaration (DMD) of the WTO and the World Summit on Sustainable Development (WSSD).

Through this statement UNCTAD unites forces that used to be at battle.  But simultaneously, Puri challenges both the trade and the environmental sectors to think creatively about solutions on how this trade and environment merger could work.  Nowhere else than in South Africa is the need more urgent to think innovatively and creatively towards integrated solutions.  For example, South Africa has a coal-based highly energy intensive economy with resultantly high greenhouse gas emissions intensity (which contributes to global climate change).  This implies that industrial expansion without taking the country’s carbon footprint into account could be counter-productive.  Simultaneously, however, many households in South Africa do not have access to grid-electricity and suffer severely from in-door air pollution as a result of the wood, coal and paraffin fires!  They have aspirations to join the energy frenzy economy . . . While the demand for more energy use is very real, the need to cut on the country’s supply of carbon is simultaneously essential.

The availability of water is another concern.  While the share of water used by agriculture is on par with the rest of the world (approximately 60% of all water use), the concern is that when compared to the rest of the world, South Africa has limited and dwindling amounts of freshwater resources per person.  Access to potable water is a basic human right.  As was the case for energy, the demand for more and better water is there, but in this case the supply of the resource is finite and adversely affected by land degradation and climate change.  The marginal value of water should therefore be much higher here than elsewhere.  This necessitates proper resource allocation.  It should be said that the National Treasury is well aware of these facts and is starting to consider options to address environmental concerns.  This is clear from the 2005 budget review, pages 88 & 89.

Providing basic services while mitigating the effects of increased industrialisation is a challenge the country needs to face.  Because of its peculiar economic structure, where poverty and affluence exist side-by-side, conventional economic growth, carbon mitigation and water use reduction strategies cannot be applied without modification.  Custom-made policies have to be devised and implemented to reduce the country’s carbon footprint, overall water use, and the loss in biodiversity, while at the same time alleviating poverty and stimulating economic development.  

However, a solution is perhaps in the making through the increased recognition of the value in the investment and trade in ecosystem goods and services.  Such goods and services include watershed protection, carbon sequestration, habitat provision, nutrient recycling, erosion control and soil formation.  A group called the Three Conventions Partnership supports this initiative.  It has become evident that the three United Nations conventions (signed by South Africa as well), namely the Convention to Combat Desertification, the Convention for Biological Diversity and the United Nations Framework for Climate Change could be achieved simultaneously through natural resource rehabilitation projects.  These projects entail the re-establishment of lost, indigenous vegetation in degraded landscapes and thereby producing the ecosystem goods and services mentioned above.  It follows that those countries that are able to undertake such projects can attract international investment in resource rehabilitation in return for biodiversity credits.  Those countries that can provide these investment opportunities most cost-effectively are likely to have a comparative advantage in doing so.  South Africa definitely has that.

South Africa is able to produce new environmental services quite easily.  Apartheid-era ‘homeland’ policies left in their wake huge tracts of severely degraded rural land.  These same rural areas are characterised by massive unemployment, and thus are extremely suitable for labour-intensive rural resource rehabilitation.  Employment creation would be sustainable because many of these rural areas are very scenic and so could eventually serve as tourist destinations.  And while many developing countries can offer similar situations, few can match South Africa’s strength of human and physical infrastructure that would be required to carry out a successful programme of investment in new environmental services.

Proper and appropriate markets for ecosystem goods and services that compensate people to manage and maintain their land in return for providing a product and/or service are needed.  Payment for the provision of ecosystem services is also worlds apart from welfare transfers and other forms of ad hoc-handouts.  It is possible to integrate previously marginalised communities with the formal economy, thus leading to their market participation and empowerment.


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