His Excellency Minister Belete Tafere of the Ministry of Environment and Forests (MEF) officially launched the inception workshop on 15 April 2015 in Addis Ababa of a new project to “economically value Ethiopia’s forests”, highlighting the high level buy-in by the government of Ethiopia to better understand the contribution of Ethiopian forests to the national economy. The meeting, jointly organized by the MEF, UNDP and UNEP, was attended by representatives of the Ministry of Finance and Economic Development (MoFED), the Central Statistical Agency (CSA), the Ministry of Agriculture and other government agencies, non-governmental organizations, universities and research institutes. The project is funded through the UN-REDD Programme’s Targeted Support modality to support countries in their REDD+ efforts.

While economic valuation of forest ecosystems and/or building inclusive wealth accounts that include the value of a country’s natural capital is not requested as part the Warsaw Framework for REDD+, the UN-REDD Programme has seen a surge in demand from partner countries to support them with economically valuing their forest ecosystems and in some cases to use that as a basis to build a national natural capital or forest account.

The first such project was conducted for the government of Kenya in 2012. The project centered on valuing Kenya’s montane forests, which are dubbed the “water towers” because of the importance those forests play in regulating water flows to the agriculture sector and water utilities, two important contributors to Kenya’s economy. The results concluded that deforestation of Kenya’s montane forests deprived the economy US$ 40 million in 2010 because the monetary benefits of revenue from logging were offset due to adverse impacts on crop production in the area, water supply impacts, and costs for the public administration. In addition, the report showed that the contribution of forests in conventional national accounts is undervalued by 2.5 per cent, and estimated that the annual contribution of timber and non-timber forest products (NTFP) as well as regulating and cultural services of forests together contribute around 3.6 per cent to Kenya’s gross domestic product (GDP).

In a similar fashion, UNEP as part of its role in the UN-REDD Programme has been supporting Zambia, Tanzania, Nepal, Indonesia, Panama and Ecuador with similar exercises. But what’s the purpose of ecosystem valuation and how is it linked with REDD+?

The main purpose is that by highlighting the economic value not only of timber resources – which are generally already reflected in a country’s GDP estimate – but also of NTFPs, carbon sequestration, water regulation, soil erosion, contribution to tourism, etc., UN-REDD Programme partner countries strengthen the economic rationale to implement REDD+. This is because in many cases it makes sense from a macro-economic perspective for a country to better protect and sustainably use its forest resources. Depending on the results, they could also be integrated in a country’s National REDD+ Strategy or Action Plan stipulating how REDD+ results-based payments can safeguard a country’s natural forest wealth. Lastly, forest ecosystem valuation can also be the basis of developing a national natural capital account that can be part of broader effort to build an inclusive or comprehensive wealth account. Such an account enables countries not only to understand their yearly income (GDP) but also what the country’s social, manufactured, natural and financial capital is. Joseph Stiglitz, the 2001 Nobel Prize winner in Economics, used the following analogy: “a private company is judged by both its income and balance sheet, but most countries only compile an income statement (GDP) and know very little about the national balance sheet”.

The economic analysis of Ethiopia’s forests will generate a better understanding of how the broad forestry sector contributes to national income. The analysis will focus both on forest ecosystem services that are compatible with the System of National Accounts (SNA), which is a precise manual for countries to calculate their annual national income measured as GDP, and the value of forest ecosystem services that are not compatible with the SNA.

Besides different types of timber products and non-timber forest products, which are to a large extent already accounted for in the SNA, depending on data availability, it may also be possible to identify how forests contribute to the value added of the agricultural, energy and tourism sectors by looking at how water regulation and the prevention of soil erosion contributes to the productivity of these sectors. This will lead to a further refinement of the contribution of the forestry sector and Ethiopia’s forest ecosystems to the national economy.

Additionally, the project will also generate primary data through household surveys in 30 communities across Ethiopia. This will shed light on the extent to which forests contribute to the livelihoods of people in the form of firewood, building material and fodder for livestock, which is likely not or only partly accounted for the country’s total value added because there are often no financial transactions involved. Still, the “GDP of these poor or vulnerable communities” is important to visualize because it adds to the country’s understanding about the value of its forests.

The team that will undertake this challenging project includes Robert Smith, principal of Midsummer Analytics and an expert in environmental-economic accounting and Dr. Tesfaye Yimer, a national expert in agricultural economics, who will work under the guidance of Dr. Tefera Mengistu, Advisor to the State Minister of Forests. Ivo Mulder (UNEP) and Ababu Anage (UNDP) will provide backstopping. The results are expected in October 2015 ahead of UNFCCC COP 21 in Paris.

(By Ivo Mulder, UNEP REDD+ Economic Advisor;
Tefera Mengistu, Advisor, State Minister of Forests, Ministry of Environment and Forests, Ethiopia;
Ababu Anage, Climate Change Specialist, UNDP Country Office, Ethiopia)