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Nations Nations Measuring Sustainable Measuring Sustainable Development Development in the New Millennium in the New Millennium Gianni Ruta Environment Department The World Bank
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July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Jan 29, 2015

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World Bank presentation of Changing Wealth of Nations to IFAD in Rome on July 4, 2011. Seminar delivered by Gianni Ruta, Senior Environmental Economist, Environment Department, WB, moderated by Kevin Cleaver, Associate Vice President, IFAD.
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Page 1: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

The Changing Wealth of The Changing Wealth of NationsNations

Measuring Sustainable DevelopmentMeasuring Sustainable Developmentin the New Millenniumin the New Millennium

Gianni RutaEnvironment Department

The World Bank

Page 2: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Wealth and Sustainable Wealth and Sustainable DevelopmentDevelopmentStiglitz: we don’t judge a company solely on the

basis of income statements—look at both income and balance sheets.Why do we assess country economic progress on the basis of national income alone?

The source of income and well-being is wealth broadly defined to include◦ Manufactured capital◦ Natural capital◦ ‘Intangible’ capital: human capital and social capital

Comprehensive Wealth Approach to Sustainable Development:

Economic development is a process of building wealth and managing this

portfolio of assets 2

Page 3: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

OutlineOutline

The wealth of nations in 2005What changed? 1995-2005WAVES

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Page 4: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

The Wealth of Nations in 2005

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Page 5: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Where is the wealth of Ghana?Where is the wealth of Ghana?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Intangible

Natural

Produced

78%

21%

1%0%

Agricultural land

Forests

Protected area

Subsoil assets

Shares of total wealth, 2005

Shares of natural wealth, 2005

Total wealth / capita:$9,500

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Page 6: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Where is the wealth of the UK?Where is the wealth of the UK?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Intangible

Natural

Produced

35%

3%

13%

49%

Agricultural land

Forests

Protected area

Subsoil assets

Shares of total wealth, 2005

Shares of natural wealth, 2005

Total wealth / capita:$663,000

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Page 7: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Composition of WealthComposition of WealthShares by country income class, 2005

Intangible wealth—human and social capital—dominates in almost all countries

…but

Natural capital is especially important in low income countries—averaging 36%, and in some countries more than 50% of wealth

Low incomecountries($ 6,523per person)

50%

14%

36%

Middle incomecountries($ 30,662

59%20%

21%

High incomecountries($ 581,424per person)

80%

17%3%

IntangibleProducedNatural

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Page 8: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

For developing countries--especially For developing countries--especially low-income countries--the challenge low-income countries--the challenge is to leverage natural capital for is to leverage natural capital for growth growth ◦Subsoil assets: essential to transform non-

renewable capital into other forms of capital◦Land: efficient management of agricultural

land, forests and protected areas, especially where competing land use is an issue

Shares of natural wealth (%), 2005Crop Land

Pasture Land

Forest and Protected Areas

Subsoil Assets

East Asia-Pacific 55 6 16 23Europe-Central Asia 14 11 13 62Latin America-Carib. 33 10 27 30MidEast-North Africa 20 8 2 69South Asia 49 25 13 13Sub-Saharan Africa 35 13 17 36

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Page 9: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Importance of human and Importance of human and social capitalsocial capital

Investment in human capital—but especially in good institutions, the rule of law, transparency—is critical for wealth creation.

Social capital increases the return to all assets by improving management◦ Most of the increase in wealth in Sub-Saharan

Africa was human and social capital◦ In China, 1995 institution and market reforms

increased returns to human capital (9.2% annual growth in value of HC after 1995)

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Page 10: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

What changed? 1995-2005

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Page 11: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

How did wealth change from 1995 How did wealth change from 1995 to 2005?to 2005?

Growth in total and per capita wealth by region

0

10

20

30

40

50

60

70

80

90

100

East Asia & Pacific

Europe & Central Asia

Latin America & Caribbean

Middle East & North Africa

South Asia Sub-Saharan Africa

Perc

ent c

hang

e in

wea

lth

Wealth

Per capita wealth

Globally, wealth grew 34% in total and 17% per capita

Cha

n ge

in w

e al th

(%

)

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Page 12: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Development & changing composition of Development & changing composition of wealthwealthLower-middle income countries: shares of total wealth 1995-2005

0%

10%

20%

30%

40%

50%

60%

1995 2000 2005

Perc

ent o

f tot

al w

ealt

h

Produced Capital

Natural Capital

Intangible Capital

Per

cen t

of

t ot a

l wea

lth

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Page 13: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Change in total wealth by type of Change in total wealth by type of assetasset $ billion, 1995-2005 $ billion, 1995-2005

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

East Asia & Pacific Europe & Central Asia

Latin America & Caribbean

Middle East & North Africa

South Asia Sub-Saharan Africa

Intangible Capital Produced Capital Natural Capital

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Page 14: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Implications for ministries of Implications for ministries of financefinance

From increasing GDP…

…to◦ Strengthening natural resource

management◦ Investing resource rents in other

assets◦ Investing in people◦Building institutions

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Page 15: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Wealth Accounting and Wealth Accounting and Valuation of Ecosystem Valuation of Ecosystem

Services: Services:

Expanding accounts for Natural Expanding accounts for Natural CapitalCapital

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Page 16: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Why do we need Why do we need WAVES?WAVES?

MEA: undervaluation of natural capital a major cause of ecosystem degradation and biodiversity loss

Progress with valuation: wide support in the environment community (TEEB),

How do we convince Ministries of Finance, Treasury, Planning agencies that they have a stake in sustainable mgmt of natural capital

bring natural capital into the national income accounts to show the link between natural capital and long-term growth, sustainable development

Framework for implementation of WAVES: SEEA

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Page 17: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Major Components of WAVESMajor Components of WAVES

1. Implementation of natural capital accounting, physical and monetary, in 6-10 countries:Colombia, Madagascar, Botswana, Philippines, India (Costa

Rica, Mexico, Vietnam, Indonesia)Australia, Norway, UK, (Canada, Japan)

2. Incorporate natural capital accounts in policy analysis and development planning

3. Help develop methodology for ecosystem accounting for the SEEA

4. Promote adoption of natural capital accounting beyond the pilot countries

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Page 18: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Natural Capital Accounting Natural Capital Accounting under WAVESunder WAVES

Accounts include• Physical measures & monetary value of ecosystem

services produced annually and cost of degradation• Distribution of benefits from ecosystem services, and

burden of degradation among different stakeholders• Value of assets, Comprehensive Wealth accounts

Issues:• Scaling up from specific ecosystems to national level• Valuing public lands, global commons• Handling thresholds, irreversibilities

Valuation techniques:• Market prices for provisioning & recreational services• Other techniques—ecological production functions-- for

regulating services, drawing on models such as ARIES, InVest, and others 18

Page 19: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

Overcoming obstacles from Overcoming obstacles from past environmental past environmental accounting initiativesaccounting initiatives Identify policy links early on & Identify

strong ‘champion’ within a country to lead a cross-sectoral national steering committee

Provide technical support & training

Scientific credibility/internationally endorsed approach

• Link to the SEEA to provide credibility on the accounting to Ministries of Finance, statistical offices

• Policy &Technical Experts Group—important to link policy and science early on

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Page 20: July 4, 2011 World Bank Changing Wealth of Nations seminar (at ifad) by Gianni Ruta

How we measure development will drive how we do development

Thank you!http://data.worldbank.org

www.worldbank.org/programs/waves 20