Public Disclosure Authorized
Optimizing Guinea-Bissau’s
Public Disclosure Authorized natural wealth
Helen Edmundson
Public Disclosure Authorized
Poverty Reduction and Economic Management Africa Region
September 2014
Public Disclosure Authorized
Acronyms and Abbreviations
CAIA Celula de Avalicao de Impacte Ambiental CBA Cost Benefit Analysis CER Certified Emission Reduction CPIA Country Policy and Institutional Assessment DBT Dulombi-Boé-Tchetche EIA Environmental Impact assessment EU European Union EU ETS European Union Emission Trading Scheme FAO Food and Agriculture Organization GDP Gross Domestic Product GEF Global Environment Fund GNI Gross national income MRV Monitoring Reporting and Verification NTFR Non-timber forest resources ODA Official Development Assistance PA Protected areas REDD Reducing Emissions from Deforestation and Forest Degradation RER Real exchange rate SEEA System of Integrated Economic and Environmental Accounts SNA System of National Accounts SSA Sub-Saharan Africa UN United Nations UNDP United Nations Development Programme VER Voluntary Emission Reduction WAEMU West African Economic and Monetary Union
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Acknowledgments
This paper was prepared during 2012-2013, with the involvement and advice of several experts in The World Bank Group and the government and agencies of Guinea-Bissau, as well as local Bissau-Guineans. Without their support and input this paper would not have been possible.
Esther G. Naikal and Marie Le-Grange from the Wealth Accounting and the Valuation of Ecosystem Services (WAVES) team provided support and advice on the methodologies and cross-cutting assumptions needed for the natural wealth and adjusted net savings calculations. Gary Joseph Raymond McMahon and Martin Lokanc gave useful inputs and suggestions on Guinea-Bissau’s minerals, their prospects, and key assumptions on how the sectors are likely to evolve. Jingjie Chu’s work and modelling on West Africa’s Regional Fisheries Trust Fund contributed to the assessment of Guinea-Bissau’s fishing sector, updated with local data. Tanya Yudelman’s expertise and knowledge of Guinea-Bissau’s biodiversity, in addition to support and insights from Institute of Biodiversity and Protected Areas (IBAP) helped strengthen this paper’s overview of protected areas.
The paper also benefited from peer review comments from Sebasstien Dessus, John Virdin, and Glenn- Marie Lange. Fernando Blanco, Miria Pigato and Vera Songwe provided additional comments, which further strengthened the overall narrative and focus of the findings. Judite Fernandes helped coordinate the inputs from the peer reviewers, ensuring their comments were duly addressed.
Finally, this paper could not have been completed without the support and technical expertise of Jose D'Bettencourt. He conducted all of the interviews and collated on-the-ground information. His knowledge of the issues, combined with his familiarly of the country made his insights and findings invaluable.
The preparation and analysis in this paper has been a team effort. I apologize to those highlighted above for any mistakes or misrepresentation of views. The findings are intended to help facilitate a dialogue on Guinea-Bissau’s natural wealth, both exhaustible and renewable forms. I hope therefore that in this regard, the paper starts a useful debate on how best Guinea-Bissau can benefit from its natural resources.
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Contents Acronyms and Abbreviations ...... ii Acknowledgments ...... iii Executive Summary ...... 1 A. Introduction ...... 4 B. What does the past tell us: Guinea-Bissau’s current natural wealth estimates ...... 5 C. What does the present tell us: new estimates of Guinea-Bissau’s natural wealth ...... 8 I. Exhaustible resources ...... 8 Phosphate ...... 10 Bauxite ...... 12 Exhaustible resource considerations ...... 13 II. Non-Exhaustible resources ...... 17 Fishing...... 18 Timber and non-timber forest related resources ...... 25 Mangroves ...... 29 Carbon ...... 32 Crop and pasture land ...... 33 Protected areas/Biodiversity ...... 38 III. Total wealth ...... 42 D. What does the future hold: policy implications for sustainable development ...... 43 Exhaustible resources ...... 44 Non-exhaustible resources ...... 44 Fishing...... 44 Timber and non-timber forest resource ...... 45 Carbon ...... 46 Crop and pasture land ...... 47 Biodiversity/protected areas ...... 47 Appendix A - Methodologies and assumptions ...... 49 References ...... 62
List of Figures
Figure 1. Current estimates of total wealth in Guinea-Bissau ...... 6 Figure 2. Current natural wealth per capita estimates for Guinea-Bissau ...... 6
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Figure 3. Phosphate, Bauxite and Petroleum prices have been increasing ...... 8 Figure 4. Guinea-Bissau’s RER has stayed relatively constant over the past decade ...... 15 Figure 5. Landings of artisanal and industrial fish ...... 24 Figure 6. Exports of processed and unprocessed wood ...... 27 Figure 7. Top five export destinations for Guinea-Bissau’s Exports ...... 35 Figure 8. Top five exported products from Guinea-Bissau...... 35 Figure 9. Tourism arrivals and receipts of West Africa countries with “pre-emerging” tourism sectors ... 39 Figure 10. Average tourism receipts per tourist arrival ...... 39 Figure 11. New and old calculations of Guinea-Bissau’s total wealth ...... 42 Figure 12. Gross and adjusted net savings ...... 43 Figure 13. Total volume of timber exports ...... 55 Figure 14. Export unit values of Guinea-Bissau’s main timber exports ...... 55
List of Tables
Table 1. Biomass and fishing potential estimates for demersal fish, 2011 ...... 19 Table 2. Artisanal and industrial fishers catch breakdown ...... 19 Table 3. Fishing licenses by vessel type and nationality ...... 22 Table 4. Industrial fish landings in Guinea-Bissau, 2010 ...... 24 Table 5. Guinea-Bissau’s changing forest landscape ...... 25 Table 6. Logging permit prices, US$ ...... 26 Table 7. Types and prices of hunting licenses, 2011 ...... 28 Table 8. Tariffs for non-timber forest resources ...... 29 Table 9. Changes in mangrove coverage (1990-2007) ...... 30 Table 10. Guinea-Bissau’s Carbon Stocks ...... 33 Table 11. Average and recent net crop production ...... 34 Table 12. Total food surplus/deficit projected for 2012/13 ...... 36 Table 13. Main livestock production and prices ...... 37 Table 14. Guinea-Bissau’s key laws and strategies relating to environmental protection ...... 38 Table 15. Common assumptions across all natural wealth estimates ...... 50 Table 16. Main assumptions used for the wealth calculations of phosphate and bauxite deposits ...... 51 Table 17. Landings by the artisanal sector, 2010 ...... 52 Table 18. Prices for main categories of seafood landed by the artisanal sector ...... 53 Table 19. Main assumptions used for the wealth calculations of artisanal fishing ...... 53 Table 20. Non forest timber resource estimates ...... 56 Table 21. Carbon Stocks (Mtons) in protected areas ...... 57 Table 22. Crop Unit Price (US$ 2010/ton) ...... 59 Table 23. Product Export Unit Values (US$ 2010/ton) ...... 60
List of Boxes
Box 1. Definition of a mineral resource ...... 9 Box 2. Artisanal fishing assumptions ...... 21 Box 3. What is overfishing? ...... 23
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Executive Summary
With a GNI per capita of $5901, and over 70 percent of the population living on less than $2 a day, Guinea- Bissau is one of the poorest countries in the world. Since independence in 1974, the country has had four coup d’états, with additional coup attempts and other forms of political violence, and a short but intense civil war. While democratic rule has been in place between 2000 and 2012, short lived alliances have resulted in governments that have not survived beyond 18 months. Despite this rather dismal picture the country is not lacking in potential. Guinea-Bissau’s natural wealth could be up to $3,8742 per capita, including minerals such as bauxite and phosphate, fisheries, timber and rich fertile lands and ecosystems (see left). These resources, if sustainably managed, could help Guinea-Bissau overcome the low-income trap the country appears to be stuck in.
Transforming this potential into poverty reduction will not happen overnight. It requires concerted action in areas of governance; macroeconomic management to ensure economic rents are captured and turned into meaningful government programs; and investment climate reform, to facilitate sustainable and inclusive business practices. Following Parliamentary and Presidential elections in April and May, 2014, Guinea Bissau’s new government has started the long journey towards these goals. Budgets for 2014 and 2015 were quickly prepared and presented in Parliament; funding for the country’s Foundation for the national parks was secured, and active negotiations with mining companies have commenced. There is a feeling of renewal and vigor with this new government, and a hope that patterns of the past do not unveil themselves in the future.
One area the new government could focus on is optimizing its natural assets. This paper provides an assessment of Guinea-Bissau’s main sources of natural wealth, building on the World Bank’s work on Wealth Accounting and the Valuation of Ecosystems (http://www.wavespartnership.org/). Previous estimates of Guinea-Bissau’s wealth are based on data from international databases, and assumptions, aggregated from cross-country assessments. This has helped provide a global overview of natural wealth. It has not, however, provided country specific estimates. In-country reports and surveys, alongside on-the- ground interviews with local fishermen, farmers, government agencies and residents of Bissau provide a more detailed insight into Guinea-Bissau’s natural wealth. Using this information, this paper confirms the findings of previous studies: the country is richly endowed with natural resources.
Agricultural land is by far the largest source of natural wealth ($1,734 per capita for crop lands and $591 per capita for pasture land). Given the low productivity levels currently pervading the agriculture sector, and the array of currently unexploited horticultural products, the natural wealth of this sector deserves more attention. In particular, productivity improvements could vastly improve the livelihood of the poorest members of society.
1 2013 data, GNI, Atlas method. Countries with a GNI per capita below $1,035 in 2012 fall under the World Bank’s “low income” country classification. All $ figures in this report refer to US$. 2 All natural wealth estimates are in US$, 2010 prices.
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The next largest component lies in Guinea-Bissau’s forests. In addition to timber ($304 per capita), forest lands provide a multitude of goods and services – non-timber forest resources (NTFR) ($366 per capita). Recent illegal logging practices could however be adversely affecting the sustainability of the forests, as well as reducing the amount of economic rent the government is able to capture. The wealth per capita estimates are also affected by the omission of Guinea-Bissau’s mangrove forests, which act as a nursery ground for fisheries (especially shrimp), benefiting a large swathe of the West African coast. Mangroves also act as a natural flood-defense against storm surges, which is extremely valuable for the low-lying floodplains making up much of Guinea-Bissau. While mangroves have not been quantified in this paper, anecdotal evidence and research from other countries suggests the economic value of these forests is significant.
In preparation for a more buoyant carbon market, Guinea-Bissau is working on a Reducing Emissions from Deforestation and Forest Degradation (REDD) project. While the carbon price is not currently high enough to warrant investment in essential Monitoring Reporting and Verification (MRV) of forestry activities, the country has started to set up the infrastructure and institutional framework required to access the carbon 3 market (potential wealth per capita of $89 should the carbon price rise to $25 per ton of CO2). In the meantime, additional resources are needed to ensure the forestry sector is properly managed.
Fisheries represent the third largest element of natural wealth ($305 per capita). Domestic data suggests that sustainability levels are not being breeched i.e. the maximum sustainable yield has not been met. However, there are two important caveats: first, as with the forest sector, management resources are inadequate. At the artisanal level, public bodies are unable to keep track of foreign vessels (mainly from Senegal and Guinea-Conakry) accessing Guinea-Bissau waters. At an industrial level, they are unable to check the catch levels of boats with license fees, and it is believed that there are significant losses of fish from illegal fishing. Second, aggregate levels mask fishing trends of individual species, which may be under threat. It is likely therefore that domestic level data is underestimating the landing rates, and thus the question of sustainability still remains.
The fourth largest component of natural wealth is the country’s protected areas (PA) and biodiversity that lies within. The data required to fully quantify the “worth” of the country’s rich eco-systems, including global existence values, is beyond the scope of this paper. The opportunity cost of protected lands is therefore used as a proxy for its natural wealth value ($305 per capita).
Rents from biodiversity could be generated by fostering eco-tourism. Such an approach has been successfully adopted in countries such as Costa Rica and Dominica. This is an area Guinea-Bissau could explore, given the large endowment of biodiversity in the country. Ecotourism could simultaneously ensure the protection of the environment and social structures needed to implement this protection, as well as create economic benefits to local communities and the economy at large. Significant investment in tourism related infrastructure, as well as political stability, is needed before this could become a reality.
Finally, minerals could provide Guinea-Bissau with an important revenue stream ($126 per capita for phosphate and $55 per capita for bauxite). Rising mineral prices are making Guinea-Bissau an economically
3 A discussion on the chosen carbon price is presented in the Appendix.
2 viable place to engage in extraction activities. However, poor infrastructure and a potentially difficult regulatory environment limit the rents from minerals, at least in the short term, owing to the large up-front costs required to start operations. In addition to sustainability issues – i.e. converting natural wealth into another form of wealth, it is recommended that the government considers how to manage the funds from mineral extraction so growth is spread over the short and medium term. International experience also suggests a strong macroeconomic framework is needed to avoid Dutch disease and macro volatility, which can be particularly damaging for public investment management programs.
The natural wealth estimates in this study are cumulative. It is worth noting however that there are important trade-offs between the different components of natural wealth, namely:
• Minerals vs. protected areas: extraction of minerals, in particular bauxite, will require access to the port – both the port and a road, which are yet to be built, lie in Cufada national park • Mangroves vs. rice: policies to promote rice-production, may lead to the erosion of mangrove forests • Timber products vs. REDD: reducing deforestation and degradation in PA may impact the local communities that use the country’s forests for goods and services and/or slash and burn farming. Timber rents would also be affected.
Finally, while this paper shows the importance of natural wealth in Guinea-Bissau, it also highlights the poor state of physical wealth – capital investment. Natural wealth makes up a significant proportion of Guinea-Bissau’s total wealth (a third), larger than the low-income average. Meanwhile, physical, or produced capital is less than 10 percent of total wealth. Guinea-Bissau has been dis-saving as the country’s infrastructure has been left to depreciate, adversely affected by fighting and disruption. Rents from the exploitation of the country’s natural wealth could be usefully channeled to other forms of wealth, such as infrastructure and social capital (health and education) to ensure the next generation of Bissau-Guineans is not worse off than today’s. Given the poor state of public investment management, and the high levels of poverty, the country may also want to consider channeling a proportion of rents directly towards current poverty reducing measures.
This paper concludes with some policy recommendations across the areas of Guinea-Bissau’s natural wealth. The recommendations fall under two categories: governance and investment. Strong governance is essential, across all areas of natural wealth, if this potential is to be transformed into shared prosperity. To sustainably manage the country’s mineral resources, the Ministry of Finance needs strengthening to ensure rents are optimally channeled to other forms of investment, including investment in people. The State Secretariat of Environment needs to be part of the dialogue so that mining activities are not to the detriment of surrounding areas and people’s livelihoods. For the countries renewable resources (fishing, forests, biodiversity) these sectors need stronger management and regulation to attract responsible private sector investment while ensuring sustainably limits are not breech. On investment, priority sectors include mining, ecotourism and agriculture – all currently lacking in the infrastructure needed to bring about productivity improvements. Encouragingly, these recommendations appear to be aligned with emergent government thinking.
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A. Introduction
“Adam Smith’s classic was an inquiry into the wealth of nations, not the GNP or NNP of nations, nor the United Nations Development Programme’s Human Development Index of nations”4
Using the internationally agreed System of National Accounts (SNA), the production and output of economies is often used as a proxy for overall social welfare. The main indicator of the SNA – Gross Domestic Product (GDP) - is not designed to provide a measure of wellbeing, welfare, or indeed wealth. More significantly, it does not set out to capture the sustainability of any one growth path; it does not show whether an individual’s consumption today, results in a lower level of consumption by an individual in the future. Governments have a responsibility to ensure social welfare is maximized for people across different segments of society, as well as across generations. Relying exclusively on GDP as measure of success at achieving this goal is not therefore sufficient.
One of the main drawbacks is the static nature of GDP, which looks at value added at a single point in time. GDP does not provide policy makers with a sense of whether government spending is conducive to medium-term growth, the perennial question of when the business cycle starts and finishes, nor does it provide an assessment of how natural wealth is being utilized. This issue is extremely pertinent for a number of countries in Sub-Saharan Africa (SSA). Rising commodity prices and flows of foreign direct investment into mineral and other natural resource sectors have helped bolster SSA’s growth prospects. Growth was estimated at 4.7 percent in 2012 – 5.8 if South Africa is excluded, and over a quarter of countries had growth rates at over 7 percent. The question of how sustainable this growth is remains. Can countries continue growing at these high rates and is this growth supporting the welfare of citizens both today and tomorrow?
Guinea-Bissau has not had the stellar growth rates seen in other SSA countries. After the 1998-99 civil war, economic growth has been anemic, averaging 2.1 percent, lower than population growth at 2.3 percent. The coup d’état of 2012 further damped the country’s prospects, with a transitional government still in place at the end of 2013. GDP contracted by 4.4 percent and 1.9 percent in 2012 and 2013 respectively. The economy was essentially crippled for close to two months during the military’s overthrow of the government in 2012, due to border closures and an exodus of development support. Stability appears to have been restored following the Parliamentary and Presidential elections in 2014. Budgets were quickly drawn up and granted Parliamentary approval not long after the new Ministers took office. Donors are keen to support this fresh start and are convening a meeting in early 2015 to discuss the country’s new growth strategy.
The cashew nut remains the country’s most important source of income, both for national income as a result of vast cashew exports, and at a local level with much of the rural population employed in cashew plantations. There are prospects to diversify, especially given the country’s rich natural resources: phosphate and bauxite reserves are relatively unexplored; fisheries could generate significantly more income; sustainably managed forests would ensure both timber and non-timber forest resources contribute towards Guinea-Bissau’s growth for years to come; and the country’s rich bio-diversity offers a unique
4 P. Dasgupta, Human Well-Being and the Natural Environment OUP, Oxford, 2001 p30
4 opportunity for eco-tourism. All of these sectors could help bolster the country’s country poor rate of revenue collection as well as provide much needed jobs
At present, most of Guinea-Bissau’s resources are not excessively exploited.5 The country is still at the beginning of a journey towards ensuring resources are sustainably managed. The leaders of Guinea-Bissau are in the fortunate position of being able to learn from other countries’ experiences, thus avoiding sustainability traps many nations have fallen into. This does not imply that the journey will be easy or that they have time to implement bad practice. Indeed, severe capacity constraints could limit the country’s ability to implement sustainable policies.
This paper is organized as follows: first, the paper provides a brief overview of current natural wealth estimates and information on Guinea-Bissau’s natural resources. The paper is then divided into three sections – the first looks at the natural wealth of the country’s exhaustible resources, namely phosphate and bauxite, and the second provides an overview of the country’s non-exhaustible, or renewable resources, including: fishing, timber and non-timber forest resources (NTFR), carbon, crop and pasture land, and protected areas (PA). The third part ties the results together by summarizing the different components of Guinea-Bissau’s total wealth. The paper concludes with some recommendations and next steps.
B. What does the past tell us: Guinea-Bissau’s current natural wealth estimates
“Guinea-Bissau houses a wealth of biodiversity that is of local, national, and global significance, particularly its vibrant coastal zone.”6
The World Bank, alongside the United Nations (UN), has been proactive in developing methodologies to quantify the natural wealth of countries. Without some form of measurement not only is it is difficult to gain traction with policy makers, but it is also difficult to assess the impact of social and economic policy. The various approaches to measuring natural wealth have been heavily criticized, with suggestions that they fall more under the category of art rather than science.7 While it is true that there is still a degree of subjectivity involved in creating natural wealth estimates, there is international agreement on most of the methodologies for these calculations.
In 1993, the System of National Accounts (SNA) added subsoil assets to the national balance sheet, making mineral accounts a core component of the internationally agreed methodology for national accounts. The System of Integrated Economic and Environmental Accounts (SEEA) Central Framework, which was adopted as an international statistical standard by the UN Statistics Commission in 2012, provides further discussion of issues related to calculating the asset value of minerals and energy stocks, and provides a methodology for calculating depletion costs. The SEEA also includes guidance on calculating rents from
5 That is not to say that the natural resources are not being utilized, or that current practices are sustainable, rather that there is still time to reverse activities that have the potential of making Guinea-Bissau’s non-exhaustible resources exhaustible. 6 “Maintaining coastal biodiversity and natural resources as mainstays of Guinea Bissau’s economy”, The Global Environment Facility, 2010 7 See for example Solow’s comments on Arrow et al.s recent paper (2012) “ Sustainability and the measurement of wealth”
5 renewable natural resources, although apart from methodologies for calculating rents of timber, this is less well developed.
The process of collecting relevant data and surveying natural resource sectors can often be more useful than the final natural wealth estimate itself. This is particularly relevant for low income countries like Guinea- Bissau where data are not always available or of variable quality. Interviews with local communities and government agencies can shed light on the operation of sectors and the governance of natural resources, which if acted upon can help strength sustainability and boost incomes.
To date, the most comprehensive assessment of Guinea-Bissau’s natural wealth is covered under the World Bank’s Wealth of Nations publications.8 These wealth estimates use international databases to calculate comparable natural wealth per capita estimates for more than 120 countries. In low income countries, natural wealth estimates, on average, account for over a quarter of all wealth, while 16 percent is attributed to physical capital and the remaining 58 percent to intangible (e.g. human and social) capital.9 For Guinea- Bissau, “The Changing Wealth of Nations” estimates show that natural wealth represents close to 50 percent of all capital, demonstrating simultaneously the importance of the natural environment for the country, while at the same time the poor state of public infrastructure (Figure 2).
It is likely that these natural wealth estimates are significantly underestimated. On the one hand the calculations omit key elements such as fishing, carbon credits, and biodiversity, and on the other, the data and assumptions have been aggregated to allow for cross county comparisons; country specificities are ignored. Furthermore, the potential wealth of sub-soil assets in Guinea-Bissau (phosphate and bauxite) has not been included, owing to the relatively nascent prospects for extraction (Figure 2).
Figure 1. Current estimates of total wealth in Figure 2. Current natural wealth per capita estimates Guinea-Bissau for Guinea-Bissau 90% 80% Intangible 70% capital 60% 50% 40% Natural 30% capital 20%
10% Produced Capital 0% Net foreign -10% assets -20% Source: The Changing Wealth of Nations, 2011
8 “Where is the Wealth of Nations?: Measuring Capital for the 21st Century”, (2006) World Bank, Washington, D.C., and “The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium” (2011), World Bank, Washington, D.C. 9 Intangible capital is not specifically calculated, rather it is the residual of the total, physical and natural wealth estimates. This paper does not attempt to calculate more specific intangible capital estimates for Guinea-Bissau, This is an area where future research would be helpful.
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This paper builds on the methodologies and estimates calculated under the publication series mentioned above by including country specific assumptions, where available, as well as estimates for the potential wealth per capita from phosphate, bauxite, fisheries, and carbon. The estimates have been updated using a combination of desk based research and on the ground field work, where local communities and organizations have been interviewed to determine the costs, and production levels associated with various natural resource based sectors. This paper draws on analysis conducted by three main sources: (i) the World Bank’s Country Economic Memorandum for Guinea-Bissau (2011, mimeo), which provides a helpful overview of the country’s main sectors including agriculture, fishing and eco-tourism; (ii) “CarboVeg”, an analysis on deforestation rates and the state of Guinea-Bissau’s forests – a much needed update on the Food and Agriculture Organization’s (FAO) 1990 based assessment and (iii) World Bank analysis prepared to assess the benefit of investing in the management of West Africa’s fisheries. The underlying methodologies are based on quantifying economic rents from different resources. The main assumptions and calculations are set out in the Appendix, with the high level results summarized in the body of this paper.
For phosphate and bauxite, the wealth calculations illustrate the potential wealth, given commercial mining has yet to commence. Deposits of both minerals are thought to be substantial, and so while sustainability issues may not therefore be an issue for the next generation, there are certain macroeconomic factors that need to be considered, e.g. how to spend and manage the volatility of mineral rents, while maintaining environmental and social considerations.
For most of the renewable or non-exhaustible resources the wealth calculations are based on rents if existing practices were to continue. Contrary to previous studies, the fishing and forest sector do not appear to be exceeding sustainability levels. However, there are two important caveats to this statement. First, an aggregate overview of the sectors masks impacts on certain species, which may in fact be threatened, and second, official data and monitoring of these sectors is not particularly strong, suggesting the rents could be much higher if sustainability measures were put in place. Despite these two caveats, the use of national data and qualitative information is preferred to using earlier studies that are either based on outdated data, or extrapolations from neighboring countries.
There are two main areas that have not been quantified: water and mangroves. These resources are particularly important to Guinea-Bissau, but without more research and data collection, estimates at this stage would be purely speculative. There have been some attempts to quantify the economic value of the country’s mangrove forests but this is still at an early stage and would need to be developed further to be useful for policy making.
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C. What does the present tell us: new estimates of Guinea-Bissau’s natural wealth
I. Exhaustible resources
“…income from these sources [phosphate mining, bauxite and possibly oil] could amount to as much as 30% of GDP”10
While mining in Guinea-Bissau is currently limited to small scale production of construction materials (e.g. granite, limestone, and clays), rich mineral reserves of phosphate, bauxite and petroleum could see this landscape change (Box 1 provides an overview of mineral reserve definitions). Poor infrastructure, relatively low mineral prices, and political instability have prevented investment in this sector to date. However, increasing commodity prices may be able to circumvent Guinea-Bissau’s weak institutional environment and dilapidated infrastructure (Figure 3).
Figure 3. Phosphate, Bauxite and Petroleum prices have been Interest in Guinea-Bissau’s minerals is not increasing a new phenomenon. International US$, 2005 prices organizations and companies have been 300 exploring the country’s lands for the past 250 forty years, and more recently, there have 200 been several offshore discoveries of heavy 150 oil deposits. What is new is a more 100 realistic outlook for mining sector 50 investment. The last decade has witnessed 0 a number of long term exploration leases signed between the government and interested investors. While a number of Phosphate ($/Mt) Bauxite ($/Mt) companies are investigating the potential Petroleum (crude) ($/bbl) of offshore oil in Guinea-Bissau, progress
Sources: World Bank commodities database and Bauxite prices from USGS is slow and extraction is still far off. Bauxite, and in particular phosphate, however, are closer to viability. Calculations of Guinea-Bissau’s potential natural wealth from sub-soil assets have therefore been limited to rents from phosphate and bauxite reserves.
This section provides an overview of the mining potential of phosphate and bauxite, as well as an indicative wealth per capita estimate for the two minerals. These estimates are based on a number of assumptions, which could easily change, not least because mining activity has not yet started in either of the bauxite or phosphate sites.
10 S. Kyle, 2009, “The Macroeconomic Context for Trade in Guinea-Bissau”, Working Paper No.26, p8
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Box 1. Definition of a mineral resource Mineral resources can be subdivided into three categories, depending on the level of geological knowledge:
• Inferred: tonnage, grade and mineral content are estimated with a low level of confidence - they are inferred from geological evidence (e.g. outcrops, trenches, pits, workings and drill holes) and assumed but not verified geological/or grade continuity. • Indicated: metal content, grade, tonnage, shape, densities, and other physical characteristics estimated with a medium level of confidence, based on mineral samples. • Measured: grade, tonnage, shape, densities, physical characteristics and mineral content have been estimated by a “competent person” i.e. a trained geologist resulting in a high degree of confidence.
Mineral resources may be further classified as part of a mineral reserve. A mineral reserve includes mineral resources that are economically feasible to extract and may be probable or proven:
• A probable reserve is the economically mine-able part of an indicated and sometimes measured resource. While losses are expected owing to a number of uncertainties, decisions on deposit development can be made. • A proven reserve is the economically mine-able part of a measured resource.
The McKelvey diagram is used to illustrate a mineral’s level of geological assurance and its economic viability.
Identified resources Undiscovered resources Demonstrated Inferred Hypothetical Speculative
Inferred Reserves
reserves Economic Economic
Demonstrated Inferred sub-
sub-economic economic economic
- resources resources
Sub Increasing Increasing degree economic of feasibility
Increasing degree of geological assurance
Source: adapted from V.E. McKelvey, 1972 “Mineral Resource Estimates and Public Policy” American Scientist
No mineral resource naturally exists in its purest form - they are always combined with other materials and elements known collectively as a gangue. The higher the concentration of the mineral resource, the higher the value of the deposit or reserve. It is this concentration, plus the size of the deposit, that investors look at when considering its profitability. Aside from the mineral characteristics there are a number of other factors that determine whether the mineral deposit is economically viable, including: operating and transport costs, which are impacted by the shape of the deposit e.g. how far below the surface it lies, geographical remoteness; market factors, such as the price of the commodity and the willingness of financial markets to provide financing for the mine; and political factors including the stability of the country, and the fiscal and regulatory regime.
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Phosphate
Phosphate rock is found in the north of the country, just 5 kilometers from the small town of Farim (population 7,000). The main deposit site is close to the Cacheu River, 25 kilometers from the border with Senegal, and approximately 100 kilometers northeast of the capital city, Bissau. The Cacheu River has direct access to the Atlantic and is navigable by boat (175 kilometers). At present, there are no tarred roads to the coast. Any mining would therefore need to use river transport, or invest
in an 80 kilometer road to export the mined phosphate. Bissau’s natural natural Bissau’s
- The United Nations Development Programme (UNDP) was the first international
wealth capita per wealth organization to investigate the phosphate deposits, in 1978, shortly after
Guinea independence. Subsequently, in 1981-85, the Bureau de Recherches Géologiques et Minières of France built upon these initial findings, and in 1986, Sofremines conducted a prefeasibility study.
Phosphate Despite promising findings, the infrastructure in Guinea-Bissau was deemed too weak to warrant mining investment and the site was left untouched for over 10 years, before Champion Resources Inc. of Canada acquired a 2 year exploration permit in 1997. Their findings confirmed the results of previous assessments: Guinea-Bissau is rich in phosphate rock – close to 100 million tons of high quality clay bounded ore, with 30.1% raw phosphate rock (approximately 40 years’ worth of mining), plus an additional 400 million tons of lower quality calcium bounded rock (up to 200 years of mining potential). However, in addition to existing concerns of poor infrastructure, the onset of a civil war in 1998 once again put mining prospects to bed for another decade.
After some deliberations with the government, GB Minerals (formerly GB Phosphate Mining Limited) was granted an exploration license in 2009. More recently (February 2013), Plains Creek Phosphate Corporation bought out GB Minerals, including its license in Guinea-Bissau.11 While the coup d’état in April 2012 delayed progress towards the construction of a functioning mine yet again, Plains Creek are trying to move forward with positive pre-feasibility assessments paving the way.12 Negotiations between Plains Creek and the government of Guinea-Bissau (on royalties, taxes, project areas) are moving ahead with the new Ministers in place and the Company keen to start developing the mine as soon as possible.
Guinea-Bissau’s phosphate wealth estimates are based on the assessments made by Plains Creek. The feasibility study outlines two proposals: (i) a 1.3 million ton per year Direct Shipping Option (DSO) product production and (ii) a 1 million ton per year Beneficiated Phosphate Rock Concentrate (BPRC) product production.13 Both proposals are for 25 year mines and rely on barges to transport phosphate down the river
11 Plains Creek Phosphate Corporation has subsequently changed its name to GB Minerals. 12 Refer to www.plainscreek.com for more information. The November 23rd 2012 news release provides details on their pre- feasibility study. 13 The difference lies in the level of processing. The BPRC option involves additional refinement of the phosphate rock to a higher grade, attracting a higher price and a higher variable cost.
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Cacheu, rather than include a road investment linking the mine with the coast. In both cases, phosphate rock will be made available to the domestic market for use in fertilizers.
Owing to the poor electrification rates and reliability of electricity supply in Guinea-Bissau, both proposals will rely on diesel generators for the operations of the mine. Poor transport links and expensive energy supplies make Guinea-Bissau an expensive place to invest. High phosphate rock prices have helped offset these challenges and have made the Farium deposit increasingly attractive to investors. The persistently high demand for phosphate in recent years suggests that prices will remain high,14 however, as with all commodity forecasts, there remains a large degree of uncertainty associated with this outlook.
The natural wealth estimates are extremely sensitive to fluctuations in the price of phosphate. A central price of $125 per ton gives a natural wealth per capita figure of $126.15 However an increase in the price to levels seen in 2012 ($185 per ton), increases the wealth per capita estimates to $682. Conversely, a $60 shift in the other direction would put the rents into negative territory.16
There are a number of positive spillover effects from phosphate mining, which extend beyond essential fiscal revenues.17 The mine could directly employ a number of people living in the neighboring town Farim. There could also be significant multiplier effects with jobs created in the services industry to cater for people’s new found wealth. All of these avenues could create important poverty reducing opportunities for the country’s poorest. Initial consultations with local communities in 2010 suggested that there is support for the mining project, although people are frustrated by the lack of progress. An Association of the Young People of Farim for Phosphate Development has been set up to ensure that any benefits from the mining project spillover to the local area.
There are also a number of potentially negative consequences from the development of a phosphate mine, both in terms of environmental and health impacts, and socio-economic effects. Phosphate mining, especially when beneficiation takes place, requires a substantial amount of water to help with the processing of the mineral. Once the phosphate has been separated from other components such as clays and sands, it may be disposed of via rivers, or in a pre-identified waste disposal area. There is therefore a risk that the local river, River Cacheu, is polluted and possibly drained. This could have a direct impact on the local communities that use the river for washing and income generating activities such as fishing. Furthermore, a large mining project is likely to attract migrants, which could undermine the social fabric of the local area if service provision does not match increasing demand. Strong governance and institutional reform are therefore essential if Guinea-Bissau’s phosphate reserves are to be transformed into poverty reduction and economic growth.
14 There are concerns that the world’s phosphate resources are running low, and that we will reach “peak phosphate” in early 2030s. Given its importance for agriculture, as a key ingredient in fertilizers, efficient use of the resource will be essential for sustainable agricultural practices. 15 All estimates have been calculated in 2010 prices. A $150 per ton price of phosphate in today’s prices is equivalent to $146 in 2010 prices. 16 A full description of the calculations and assumption are included in the Appendix. The price of phosphate is assumed to stay constant over the duration of the mine. 17 Calculations in the World Bank’s Country Economic Memorandum for Guinea-Bissau estimate fiscal revenues of between10- 15 percent of current revenues.
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Bauxite
At the opposite end of the country, in the southeast, there are five neighboring bauxite deposits in the Boe region. Boe, 100 kilometers from the port of Buba and near the border with Guinea-Conakry, was formally the capital of Guinea-Bissau, until the country declared independence from Portugal in 1974. Up until recently, the area was infiltrated by landmines put in place during three periods of conflict: the War of Liberation in the 1970s, the civil war in the late 1990s and the Casamance rebellion in 2006.
The Dutch were the first to conduct a geological survey of the area in the 1950s, Bissau’s natural natural Bissau’s - concluding that the bauxite deposits amounted to over 100 Mt, with average
wealth capita per wealth alumina and silica content of 46.5 and 3.5 per cent respectively.18 Twenty years Guinea later, the Soviets returned to the site and in 1983 the first feasibility study took place. Historical bauxite prices (US$10-15 per ton) have not been high enough to Bauxite attract mining investment in Guinea-Bissau, not least because the Boe region is not Phosphate connected to the shallow and under-developed Buba port, driving up the costs of shipping and transport. Any investment therefore needs to factor in additional up- front capital costs for roads and port rehabilitation.19
Recent bauxite prices have, along with other minerals, increased substantially, and are now in the range of $30-50 per ton (as opposed to $15-20 per ton at the turn of the century).20 This has made Guinea-Bissau’s bauxite deposits look significantly more attractive, and in 2007, Bauxite Angola entered into a contract with the government to start exploring the region. While prospects looked promising, little investment has actually taken place. The Minster of Natural Resources in the transitional government recently announced (March 2013) that no investment had taken place, neither had there been any environmental impact assessments or economic viability reports since the signing of the lease. It has also been suggested that the lease is not in line with current legislation and could therefore be revoked.
Despite these set-backs, Bauxite Angola still maintains an interest in the region and has indicated that it would invest in the road and the port, as well as the mining infrastructure.21 Unlike the phosphate deposits however, there are still a number of outstanding issues and analysis that needs to be conducted before commercial activity can take place. One of the major issues to be resolved, in addition to the legal standing of Bauxite Angola and their relationship with the government of Guinea-Bissau, is the potential environmental impact. While impacts on the environment from the Bauxite mine, if properly regulated, are containable, it is the adverse effects on protected areas (PA) that need to be taken account of. The proposed
18 Bauxite can be refined into aluminum, attracting a much higher price, but at a much greater cost. The higher the alumina content the more aluminum available for extraction. Conversely, the lower the silica content the better, as silica is difficult and costly to remove. 19 Alternatively, the bauxite could be transported to the recently expanded port at Kamsar in Guinea. While farther than Buba, it would only be necessary to build a new road or rail line to the Boke bauxite area of Guinea and use existing infrastructure. 20 Real prices. 21 The United Arab Emirates has recently announced an interest in Guinea-Bissau’s bauxite reserves, offering to build a large port at Kamsar to export both bauxite and aluminum.
12 road to the port would transverse directly through the soon to be established Boe national park, which is to be part of the Dulombi-Boé-Tchetche (DBT) complex. Once at the port, there would be further environmental impacts, both at the ocean access point and the Cufada protected area, impacting fishing, terrestrial areas (Cufada), the riverine (rio buba) and marine biodiversity at the site and neighboring lagoons.
In 2008, Bauxite Angola upgraded part of an existing road through the Cufada national park (widening and improving), in addition to clearing 113 hectares of land to make room for a larger port. There were no environment impact assessments accompanying the construction, and calls to end the developments by the Institute of Biodiversity and Protected Areas (IBAP) were ineffective. Local communities and NGOs are acutely aware of the environmental and subsequent socio-economic damages a mine could bring to the area and are actively rallying the government to prevent these sorts of incidences. It does not have to be one project verses another. A bauxite mine and a national park could work together side by side, providing environmental impacts are managed. Indeed, there could be several benefits, including direct and indirect employment opportunities. Improved access to the region could also improve access to health and education facilities as well as stimulate other income generating activities.
Owing to the uncertainties linked to the potential timing and project specification of a bauxite mine, the natural wealth estimates for Guinea-Bissau’s bauxite reserves are indicative. However, they do at least provide an indication of the scale of potential mineral rents. A number of the assumptions have been taken from reports and studies on bauxite mines in Guinea-Conakry.22 A recent mine investment proposal in Guinea-Conakry assumes a US$37 per ton price for bauxite and a variable cost of US$12 per ton. Bauxite Angola have previously suggested the up-front capital costs for the mine and related infrastructure could be up to $500 million, with some of the financing provided by the government given the public good nature of the road and port. Assuming Bauxite Angola funds $400 million, with a mining start date of 2018, the natural wealth estimate comes to $55 per capita. However, if the company pays for the full $500 million this would drop to negative $86, suggesting that the mine is bordering on commercial viability.
Exhaustible resource considerations
There are three main issues that are worth considering when assessing potential rents from mineral resources in Guinea-Bissau: (i) trade-offs between consumption and investment spending; (ii) managing volatility and ensuring macroeconomic stability; and (iii) environmental and socio economic impacts. All three issues underscore the need for stronger governance.
Consumption vs. investment
One of the main decisions facing governments with newly acquired resource rents, or even just the prospect of resource rents, is whether to spend the resources on consumption, thus benefiting the population today, or on investment, with some benefits accrued today, but with the lion’s share arriving in the future. As a poor, capital scarce developing country, this decision is even more pronounced for Guinea-Bissau, as both avenues represent worthwhile endeavors.
22 Bauxite in Guinea-Conakry is what cashew is to Guinea-Bissau, accounting for close to 85 percent of external revenues.
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Freidman’s permanent income hypothesis can provide governments with a framework to help address this dilemma – borrowing against potential future rents to invest and promote consumption today, and then using the interest and increased productivity of investments to pay for the borrowing in the future. The approach is appealing because of its apparent equality across time. However, Collier et. al. (2010) argue against this approach for capital scarce developing countries, not least because access to finance, especially international finance, is not always possible. This is definitely the case in low income Guinea-Bissau. With over 70 percent of the population living on less than $2 a day, one could easily argue that resource rents should be used to help alleviate poverty in the immediate term.
Social cost-benefit-analysis (CBA) (which utilizes a social discount rate), can help governments determine whether revenues are used to support consumption today verses consumption tomorrow. The Guinea- Bissau government is faced with a choice of spending money on consumption related activities, with a social discount rate of 3.5-7.5, or investment in medium to long term wealth creation, such as capital infrastructure or health and education systems.23
Domestic investment and in particular public investment in essential public goods is historically low in Guinea-Bissau. The investment rate over the past 5 years has hovered around 10 percent of GDP, and national savings closer to 4 percent of GDP. At the same time, health and education indicators are depressing: child and infant mortality rates have been increasing since 2000, with a high proportion of recorded deaths as a result of preventable diseases (malaria, diarrhea, respiratory infections); and just over a quarter of children of primary school age are enrolled in school – only 12 percent of girls actually finish (UNICEF). Given the poor state of existing infrastructure, as well as the abysmal performance of health and education provision, there are a number of domestic investments that could potentially generate a high rate of return, as well as improve the country’s Human Development Index (currently 177 out of 187, (2013)). When this rate of return is greater than the social discount rate, CBA suggests the government should invest in such wealth creating activities.24 The quality of public investment, including the ability to maintain and ensure operating costs are factored into budgetary frameworks needs to be included in this CBA assessment. In some cases it might worth investing in the investment process before channeling money into poorly managed areas.
Volatility and stability
The causes and symptoms of Dutch disease are well documented as is the infamous resource curse.25 The average poverty headcount in the 41 established and prospective natural resource rich developing countries identified by the IMF is as high as 60 percent.26 Many of these countries struggle to raise non-resource related revenues and public infrastructure remains weak and fragmented. An influx of foreign exchange revenues can put pressure on the exchange rate in these countries, leading to an appreciation of the domestic
23 A derivation of the discount rate for Guinea-Bissau is presented in the Appendix. 24 Ideally, an institutional framework for resources rents and an associated communications strategy should be devised before the revenues started flowing to help manage citizen’s expectations on expenditures, as well as internal public finance capacity. This requires sufficient foresight and internal capacity – both elements are difficult to come by in a fragile state. 25 See for example Gelb (1988), Sachs and Warner (1999), Sachs and Warner (2001), and van der Ploeg (2011) 26 See Berg et al., 2012, “Public investment in resource rich developing countries”, IMF working paper. The average poverty headcount is based on the proportion of the population living at or below $2 a day.
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Figure 4. Guinea-Bissau’s RER has stayed relatively currency, thus hindering the tradables constant over the past decade sector. While Guinea-Bissau is unlikely to Annual percentage change CFAF per US$ witness an appreciation of their nominal 12 650 exchange rate, given it is part of the West 10 550 African Economic and Monetary Union 8 450 (WAEMU), which pegs its currency to the 6 350 4 250 Euro, an appreciation of the real exchange 2 150 rate (RER) seems almost inevitable, at 0 50 least in the short term.27 -2 -50 -4 -150 -6 -250 The RER in Guinea-Bissau has stayed relatively constant during the past 10 years, especially as their trading partners CPI (annual average) (LHS) are subject to the same supply shocks and RER (LHS) inflationary pressures (Figure 4). Inflation Nominal exchange rate (average) (RHS) has generally been low over the past decade, apart from in 2008 when soaring
Source: International Monetary Fund international food prices adversely affected the price of the country’s consumer basket – in particular rice. Huge inflows of Official Development Assistance (ODA) since the year 2000 do not appear to have affected the country’s inflation rate either. This may be due to aid money filling an output gap rather than generating excess demand, and the use of the funds, which were mainly used for imported products rather than stimulating domestic consumption.
Mining rents and economic activity from mining, could however, lead to an appreciation of the RER. It would come from two main avenues: first, from increased government spending on both consumption and capital related activities; and second, directly from mining activities.
Aside from inflationary pressures and effects on the RER, resource rents require strong macro oversight, to manage the volatility of flows. Phosphate prices have fluctuated dramatically in recent years, in part because of the concentration of phosphate production in one country: Morocco, and also because of “peak phosphate” speculation – concerns that reserves are running out and the effect this will have on the agriculture sector. As a core component of aluminum, bauxite prices are also likely to fluctuate, albeit in a general upward trajectory.
The uncertainty caused by these fluctuations will make it difficult for the authorities to plan, and can adversely affect welfare.28 Public investment is usually the area of spending that is cut first, adversely affecting the quality and quantity of public infrastructure and thus long-term growth prospects. This is even more marked in countries in a monetary union where other tools such as interest rates and allowing
27 With an estimated 30 percent contribution to GDP, it is impossible for there not to be some effect on the real economy, at least in the short run. 28 Hnatkovska and Loayza (2005) estimate that a one-standard-deviation increase in macroeconomic volatility can lower average annual GDP per capita growth by 1.28 percent. For more details on the model, and for an overview of links between macroeconomic volatility and growth in developing countries, refer to N. V. Loayez, 2007.
15 fluctuations in exchange rate are unavailable. Since the introduction of fiscal convergence criteria in WAEMU, fiscal policy has been found to be pro-cyclical, with capital spending bearing the brunt of government’s need to cut spending (World Bank, 2013).
In terms of taxation, setting the optimal rate requires an assessment of the uncertainty of commodity prices. The larger the unit price, the larger the resource rents (assuming the marginal cost of production remains constant). Governments also need a good appreciation of costs and reserves, as well as strong audit capacity to ensure contract enforcement. Without this, the majority of the mineral rents will leave the country via the international investor, rather than being channeled back into the country. Several Sub-Saharan African (SSA) countries have fallen foul to international firms’ claims of limited profitability, subsequently wooing them by significant tax holidays and royalty free periods (e.g. Zambia’s privatization of the copper mines in the 1990s). While Guinea-Bissau’s environment – investment, governance, and general infrastructure - is weak, careful consideration will be needed when assessing potential benefits to interested mining companies, to ensure the country’s interests are safeguarded. This is a daunting challenge, with countries such as Ghana, which has one of the highest Country Policy and Institutional Assessment (CPIA) ratings in SSA (3.4, where 6 is the highest possible score) still struggling to capture mineral rents and transform them into development assets (World Bank 2012). Prospects for Guinea-Bissau, with a CPIA rating of 2.6 are somewhat daunting.
Environmental and socio economic externalities
The rent calculations used to estimate phosphate and bauxite natural wealth are based on market prices and as such have not taken into account any negative externalities that may arise from mining activity (e.g. carbon emission, air and water pollution, environmental degradation), or any positive externalities such as improved access to public services. This would require a much more detailed assessment and yet would still be relatively high level, given mining activities have not started. As such, they have been excluded from this analysis, however, it should be noted that they could have a significant impact on the above estimates.
Unfortunately, given the country’s historical record – Bauxite Angola’s unauthorized construction through the park – the likelihood of strong environmental regulation seems distant. Capacity within the government to conduct environmental impact assessments is weak, and enforcement of environmental regulation remains significantly under-resourced. Enacting laws to ensure companies abide by environmental standards will only be as successful as the country’s ability to monitor and enforce them. The country’s environment law includes a requirement of extractive industries to undertake an Environmental Impact Assessment (EIA). A body has been set up to oversee and implement this new regulation - Celula de Avalicao de Impacte Ambiental (CAIA). While this is a positive development, the issue of capacity, both financial and human, is still a constraint.
Socio-economic considerations are a compulsory part of any EIA for projects (not for plans or programs) in Guinea-Bissau however the implementation of these assessments remains fragmented and weak. Mining activities could bring significant positive externalities – employment, training, and development of local infrastructure, providing socio-economic considerations are factored into project planning. If regulations are not strictly enforced, the alternative scenario is one of limited investment into local infrastructure and
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slow growth in non-mining income generating activities.29 EIAs help highlight where potential tensions may arise and mitigating factors to help ameliorate these negative side-effects. Stronger governance and enforcement of the outcomes of an EIA is needed in Guinea-Bissau to ensure the recommendations are followed through.
II. Non-Exhaustible resources
“The historical record shows that biological over- exploitation is almost universal at some point in the development of a resource, and even when biological overexploitation is avoided, economic overexploitation is the norm.”30
Unlike the mineral reserves described above, non-exhaustible resources are a form of wealth that if maintained, can continue producing income for many years. This requires sustainable management as if sustainability yields are breached the once non-exhaustible resources develop the characteristics of a finite material.
Guinea-Bissau is rich in natural resources with many areas still left untouched and unexploited. However, this is changing, and at a relatively fast pace. Weak institutional capacity has limited the country’s ability to monitor and regulate key sectors such as fisheries and forestry. Weak administration also means local data for these sectors are limited and of variable quality. Previous studies have relied on data collected many years ago and extrapolated forward – e.g. FAO information on forests was collected in 1990 - or alternatively, studies have used assumptions from neighboring countries. Recent analysis on Guinea- Bissau’s forests, as well as interviews with local authorities and communities, has helped fill in the gaps and paint a more accurate picture, although further work is needed to improve the quality of domestically collected data.
This paper makes two key assumptions when estimating the value of per capita wealth of Guinea-Bissau’s non-exhaustible resources: first, that current practices continue and second, that the estimates are cumulative. By assuming that the status quo is maintained, the natural wealth estimates may be lower than their potential. Recorded exports of fish, timber and agricultural goods are relatively small – although there are genuine concerns that unofficial exports of these goods are much larger. The estimates are based on the historical growth of these exports and domestic production levels. No step changes in production or rental values due to improved infrastructure or training is introduced into the calculations. Given Guinea-Bissau is starting from such a low base in terms of productivity, the potential could be significantly larger than what is currently practiced.
The second assumption may overestimate natural wealth. Maximizing rents from all sectors is not necessarily possible or optimal. There are important trade-offs between the different sectors. For example, limiting forest degradation and/or deforestation to attract rents from carbon credits may adversely impact
29 Take for example the village of Mambia in Guinea-Conakry. Local infrastructure and housing are run down and land-owners are not receiving the tax owed to them by the mining companies for use of their land. In the meantime, environment degradation by the mines has adversely impacted the fertility of the soil and thus agriculture output 30 R. Hilburn et al, 1995, “Sustainable Exploitation of Renewable Resources”, Annual Review of Ecology and Systematics, Vol. 26 p.61.
17 the timber rents as well as the rents local communities get from non-timber forest resources. Similarly, encouraging greater rice production could negatively affect mangrove forests and their associated co- benefits. While this paper does not attempt to answer the question of how these trade-offs should be answered, it does suggest how they should be approached.
This section provides an overview and natural wealth estimates of the following areas: fishing; timber and non-timber forest resources, including mangroves; carbon; crop and pasture lands; and biodiversity/PAs.
Fishing
Despite having a coastline of only 274 km, Guinea-Bissau is situated next to a 45,000 Km2 continental shelf – one of the largest in West Africa. Seven river systems indent the coast, adding fresh, nutrient rich, cold water to the warm shallow waters of the continental shelf. These conditions create a favorable ecosystem for marine fish and other species. In addition to the mainland coastline, the country’s geography is defined by the 88 islands and islets of the Arquipélago dos Bijagós, creating
additional opportunities for artisanal fishing. Bissau’s natural natural Bissau’s
- There are two main types of fish in Guinea-Bissau’s waters: pelagic (living in water
columns e.g. sardines, jacks, tuna), and demersal (bottom-dwelling e.g. cuttlefish, wealth capita per wealth
Guinea breams), as well as crustaceans, cephalopods and others (e.g. shrimp, lobster, octopus). While fisheries data in Guinea-Bissau are of variable quality, there have
Fishing been a number of scientific campaigns undertaken by international research centers Bauxite to assess the biomass and fishing potential of Guinea-Bissau’s coast. The latest review Phosphate took place during September-October 2011 (IMROP-CIPA, 2011) and confirms the biomass and production rates of previous campaigns (2004 and 2008).
Demersal fish biomass is estimated at 126,531 tons, while fishing potential for demersal fish, cephalopod and crustaceans is 47,139 tons (Table 1). 31 The pelagic fish biomass and small pelagic biomass is estimated at 163,000 tons and 200,000 tons, respectively. The Secretariat of State Fisheries estimates the fishing potential of pelagic fish to be approximately 73,000 tons, bringing the total fishing potential to just over 120,000 tons.
31 Biodynamic models are used to calculate fishing potential estimates. These models are based on a set of assumptions relating to the ability of different fish species to reproduce, for example, a ratio of less than 40 percent of biomass for all types of fish is assumed, except for elasmobranches, where a ratio of less than 10 percent is assumed, due to their longevity, tardy reproduction, week fecundity and slow growth rate. The model used to calculate Guinea-Bissau’s fishing potential is based on Diop, M., Abdallahi, I., Bouzouma, M., Sidina, E., Hamady, B., Meissa, B. and N. Abdoulaye, 2004. Rapport du la Campagne D’evaluation des Resources Demersales de la ZEE de la Guinee- Bissau. pp90
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Table 1. Biomass and fishing potential estimates for demersal fish, 2011
Type Biomass (tons) Fisheries Potential (tons) Bony Demersal fish 90,932 36,373 Crustaceans 13,149 5,260 of which 2.3 percent are coastal shrimp and 6.4 percent are Gamba (Parapenaeus longirostris) Cephalopods 8,308 3,323 of which 32 percent are octopus and 15 percent are cuttlefish Gasteropods 2,567 1,027 Elasmobranches 11,575 1,156 (rays and shark) Total 126,531 47,139 Source: The Secretariat of State Fisheries
Information within the Secretariat of Fisheries Yearly Report on Industrial Fisheries (2010) suggests that cephalopods and shrimp are being caught above their fishing potential. While fish appear to be caught within the sustainable limit, there may be pressure on some specific demersal and/or pelagic species. Unlike industrial fisheries, the artisanal sector catches significantly more fish than cephalopods and shrimp (Table 2).
Table 2. Artisanal and industrial fishers catch breakdown
Catch (tons) Type Industrial Fisheries Artisanal Fisheries in 2010 in 2011 Shrimp ~1,302* 128 Cephalopods > 4,200** 51 Fish 58,663 20,775 Sources: Socio-economic assessment on artisanal fisheries (2011) and the Secretariat of Fisheries Yearly Report on Industrial Fisheries (2010). * The reported value of 5,423 includes both shrimp, and fish and cephalopods species, which are caught as accessory fisheries - accounting for 76 percent of the total catch. ** The reported value of 7,973 includes fish species caught as accessory fisheries (accounting for about half). The estimate in the table also includes sepia, squid, octopus, and diversos
Artisanal fishing
Bissau-Guineans are traditionally farmers as opposed to fishers. On average, only 63 percent of fishermen fish for more than 10 months of the year. Even at the Bijagos archipelago, a rich and fertile fishing ground, farming is the main occupation, with fishermen fishing for only half of the year. It is seen mainly as a subsistence occupation rather than an entrepreneurial activity, not least because facilities for fish processing are limited. Fish, frozen in ice buckets on the boats and canoes, have only 2 ice centers nationwide to
19 potentially transfer their fish to. Fish are therefore mainly smoked32 (in the south of the country), salted (in the north) or dried – an occupation dominated by Guinea-Bissau’s women.
The socio-economic assessment of artisanal fisheries, undertaken in 2011 by the Secretariat of State of Fisheries (CIPA 2011), is the latest report on the artisanal sector. 33 While the report provides a relatively comprehensive overview of a sector that otherwise struggles to systematically record information, there are a number of caveats worth highlighting. First, the assessment does not take into account vessels operated by non-residents in Guinea-Bissau, or vessels based in Guinea-Conakry or Senegal that are operating in Guinea-Bissau’s waters; arguably, artisanal fisheries statistics should include landings at Ziguinshor and M’bour in Senegal and Kamsar in Guinea-Conakry. Second, fisheries practiced without a vessel – mainly in rivers and estuaries are not considered. Third, the actual fishing effort (number of vessels) is based on high level estimates, due to the difficultly of monitoring annual fishing. For example, fisheries activities are seasonal, owing to the rainy season, and competing activities such as harvesting or planting; the fishing effort is different for continental fisheries verses ocean fisheries; and while 168 landing sites are considered in the socio-economic assessment, long-term monitoring is usually restricted to 25 sites, owing to limited resources.
The assessment estimates that almost 22,000 tons of fish were landed by the artisanal fishing sector in 2011, an 8 percent increase from 2009. However, these estimates could be grossly underestimated, for the reasons highlighted above. The main factor affecting the artisanal fishing estimates is thought to be the presence of foreign vessels, mainly from Senegal and Guinea-Conakry. While foreign vessels are estimated to make up only 10 percent of the overall artisanal fishing fleet, they are much more efficient– up to 10 times more productive than their Bissauan neighbors (FAO data), mainly due to better equipment and training.
The natural wealth calculations for Guinea-Bissau’s artisanal sector are based on an amalgamation of the results captured in the CIPA study (2011), various West African regional fishing studies; and interviews with local fishermen during February-March 2013. Using these different sources, the rental estimates are calculated based on assumptions relating to the efficiency of different fishing vessels, the average price of a ton of fish, and the costs of fishing (variable, fixed and labor costs) (see Box 2 for an overview). As noted above, the data are of variable quality, and as such the wealth estimates provide more of an indication of the potential scale, rather than a precise figure. Based on these assumptions, wealth per capita estimates from artisanal fishing could be up to $132 per capita ($62.9 from non-motorized fishing and $69.1 from motorized fishing). These estimates are based on the assumption that management of the sector improves, as proposed under the West African Regional Fisheries Program, which is building up institutional capacity. Without this reform, rents would fall to zero with sustainability limits breached and informal activity of foreign vessels increasing, taking Guinea-Bissau’s rents elsewhere.
32 Fish smoking in the foreign fisherman settlements such as in Ilheu dos Porcos, are causing significant damage to the mangrove plantations. 33 III Inquerito sobre os aspectos socio-ecónomicos da pesca na Guiné Bissau, CIPA 2011
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Box 2. Artisanal fishing assumptions
• Efficiency In 2011, 1,274 non-motorized canoes landed 12,675 tons of fish compared to a catch of 9,220 tons by 268 motorized vehicles. Based on indicative figures for the number of outings by each types of vessel per year, and the number of vessels in operation, the average catch for a motorized vessel is approximately 12.5 Kgs compared to 3.7 Kgs for a non-motorized canoe.
• Price of fish The average price per ton of fish caught is based on a weighted average annual fish catch. Demersal fish, at an average of 500 CFA per kg, are the most popular, representing almost 50 percent of the total fishing catch in a year.34
• Fishing costs – products Variable costs include items such as bait, provisions for the crew, ice, salt, and any charges to off-load the fish at the port – for the motorized vessels fuel costs are added on top of this. Fixed costs cover the maintenance of the vessel and any navigation and fishing equipment – fixed costs for motorized vessels are larger owing to engine repairs and the maintenance of generally bigger boats. A standard amortization formula is used to capture the depreciation costs of the vessels and any navigation and fishing equipment.
• Fishing costs – labor There are no set wage rates in Guinea-Bissau, making labor cost estimation difficult. Fishing is often seen as a subsistence occupation, and where the fish are not used directly for household consumption, it may be bartered for other food stuffs rather than sold to a market. Based on interviews with local fishermen labor costs are assumed to be 30 percent of daily profits when the fish is sold to a local market.
Industrial fishing
Guinea-Bissau has relatively low industrial fisheries. Foreign vessels currently pay license fees based on negotiations between the government of Guinea-Bissau and the respective country. The EU and China, and increasingly Korea, are the main fishing vessels licensed in the country (Error! Not a valid bookmark self-reference.). The Secretariat of State of Fisheries estimated that a ton of fishing products caught by industrial means in Guinea-Bissau was worth an average of $1,100 in 2010. The 2010 industrial fisheries catch would therefore be worth close to $80 million, while Guinea-Bissau is in receipt of a much smaller sum of around $18 million from licenses, fines, and sector support arriving from fisheries agreements. Given the concerns of underreporting there are legitimate calls for Guinea-Bissau to renegotiate their licenses, paying particular attention to the agreements with the EU, which are up for renewal.
34 A detailed breakdown of fish caught in each region, as well as the average price the fishermen receive when they sell the fish to market is included in the Appendix.
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Table 3. Fishing licenses by vessel type and nationality
Trawl Trawl Tuna Nationality Demersal Pelagic Pole Total Shrimp Cephalopod Seiner Other Fish Fish line Belize 2 0 0 2 0 0 0 4 China 12 14 19 0 0 0 0 45 Union of 0 0 0 2 0 0 0 2 Comoros Republic of 0 0 14 0 0 0 0 14 Korea Greece 0 1 0 0 0 0 0 1 Spain 23 9 0 0 13 8 0 53 France 0 0 0 0 10 0 0 10 Guinea- 1 1 1 0 0 0 0 3 Bissau Mauritania 0 0 1 0 0 0 0 1 Ireland 0 1 0 0 0 0 0 1 Panama 0 0 0 1 0 0 0 1 Portugal 3 1 0 0 0 0 0 4 Italy 0 2 0 0 0 0 0 2 Senegal 0 3 0 0 0 1 0 4 Total 41 32 35 5 23 9 0 145 Source: The Secretary of State of Fisheries (SEP) annual report, 2010
Guinea-Bissau lacks the resources and capacity to monitor industrial fishing in its waters, resulting in several potentially adverse consequences. For example, many vessels are thought to operate under shrimp licenses, with the vessel owners claiming that any fish and/or cephalopod caught are accessory fisheries. There are also concerns that there may be illegal tuna fishing taking place under the guise of these shrimp licenses, thereby escaping any regulation Guinea-Bissau does have in place. While Guinea-Bissau is not a member of the International Commission for the Conservation of Atlantic Tunas (ICCAT), subscription would facilitate the placement of international observers on all tuna licensed vessels.
The other concern relating to poor regulation and management of the sector is the ability of the authorities to monitor how much fish is being taken out of their waters. Generally, foreign vessels land their catch in ports around the world or in larger factory-vessels. The only fish landed in Guinea-Bissau is a compulsory share (normally around 10 percent) pre-defined in the fishing license. At present, only Chinese operators are obliged to do this as the EU negotiated to have this requirement removed. While the EU does not therefore land any fish in Guinea-Bissau, there is an agreement that the EU or, the governments of the countries with licenses to operate in Guinea-Bissau, will report landings made elsewhere. In practice, however, reports are rarely submitted or are of poor quality. As a consequence, industrial fisheries statistics are based on the reports of scarce on board fisheries observers, and their accuracy varies (Figure 5 and Table 4).
22
Given the limitations of domestically collected data, estimating the potential rents and thus the wealth per capita from industrial fishing in Guinea-Bissau is difficult. It is doubtful whether replicating estimates from other studies would result in a more accurate assessment of the potential wealth found in Guinea-Bissau’s waters. For this reason, the rent estimates found in Sumaila et al.s working paper (2012) have been used to complement the artisanal fishing rents above. The paper’s primary purpose is to assess the difference between two scenarios – (i) the potential rents if the sector is managed sustainably with the elimination of “bad” subsidies (i.e. subsidies that promote overfishing or anti-competitive practices) and the implementation of good subsidies (i.e. subsidies that help regulate and manage the sector); and (ii) the potential rents of the sector based on no change to today’s circumstances.
The report suggests that Guinea-Bissau is receiving zero rents from the fishing sector. This is due to ineffective management resulting in over fishing and therefore depletion of the fishing stock. Overfishing is also leading to lower catch rates than would be possible if fewer vessels were in the waters. Domestic data suggests that Guinea-Bissau is operating within the fishing potential limits i.e. within the maximum sustainable yield to maintain the fishing stocks, however, legitimate concerns about over fishing call into question these data. Without more accurate data it I difficult to confirm whether the maximum economic yield has been exceeded (Box 3). Under a scenario of reform, fishing rents could be up to $173 per capita.
Box 3. What is overfishing?
The maximum economic returns from fishing are not the same as the maximum yield that can be caught before one starts depleting fishing stocks. According to the OECD:
• Maximum sustainable yield (MSY) is the largest long-term average catch or yield that can be taken from a stock under prevailing ecological and environmental conditions. • Maximum economic yield (MEY) is largest positive difference between total revenues and total costs of fishing (including the cost of labor and capital) with all inputs valued at their opportunity costs
23
There are however large coordination failures in fishing, resulting in a tragedy of the commons, i.e. the optimal fishing effort is exceeded due to overcrowding in the waters. As more and more fishermen enter the market, economic rents decrease for all players. It is possible to have a situation where over fishing is taking place, and yet the fish population is still biologically stable.
Given the sporadic nature of domestic fishing reporting, it is assumed that artisanal fishing is not part of this estimate and thus the total wealth per capita from fishing could be up to US$305. While there is a possibility of some double counting, the numerous examples of under reporting in Guinea-Bissau suggest that even if part of the artisanal sector were to be captured in Sumaila’s paper, aggregating the two figures would not lead to a gross over-estimation.
A similar story of the need for stronger governance of the sector emerges from interviews and data analysis. Up-front investment in institutional capacity could help improve revenue collection from fisheries, while capacity improvements in local artisanal fishing could boost incomes.
Figure 5. Landings of artisanal and industrial Table 4. Industrial fish landings in Guinea-Bissau, 2010 fish in tons, fish 100,000 Catch Throws 80,000 Species Hours Days (tons) (no.) 60,000 Shrimp 5,423 164,848 336,896 7,053 40,000 Cephalopods 7,973 174,053 395,045 5,749 20,000 - Fish 58,663 270,261 558,428 8,633 Total 72,059 609,162 1,290,369 21,435
Commerical Fishing Aristanal Fishing
Source: SEP annual reports. Data for artisanal fishing is only available for 2006, 2009 and 2011. Industrial fishing is based on vessel owner reporting of fish, shrimp and cephalopod species
24
Timber and non-timber forest related resources
Guinea-Bissau is host to a diversified set of forest land, ranging from mangroves to densely packed sub-humid forests. Up to 70 percent of the country is thought to be covered by some form of forest, equivalent to 2.58 million hectares. As a potential recipient of REDD financing (Reducing Emissions from Deforestation and Forest Degradation) there has been significant research into the country’s forest coverage and rates of deforestation. Contrary to the FAO’s findings, the use of satellite technology suggests that forest coverage has actually remained relatively stable over
the past 17 years (from 1990-2007). However, these aggregate deforestation figures Bissau’s natural natural Bissau’s
- disguise a changing forest landscape. Open and closed forest coverage has been nea wealth capita per wealth decreasing, while savannah land – areas with fewer trees, has been increasing. NTFR Gui Meanwhile, mangrove coverage has fluctuated owing in part to rice planting Timber pressures (Table 5). The most recent data, covering a five year period from 2002- Fishing Bauxite 2007, show that mangrove forests have stabilized/are marginally increasing. There Phosphate are concerns that they are under threat again as farmers shift back to rice production in the wake of rising international rice prices.
There are limited resources to effectively manage the forest sector in Guinea-Bissau. The General Directorate of Forests and Fauna (DGFF) has several regional delegations, however, both the delegations and national level departments are understaffed, lacking the means to perform field visits and therefore adequately govern the country’s forests. As a consequence, there is very limited information on the state of Guinea-Bissau’s forests. This is made worse by irregular reporting by the delegations to national level staff.
Forest guards have recently been incorporated into the National Guard, in an attempt to improve the regulation of the sector. They now have a structured career path and a significantly increased salary. Despite these changes, submission of information to the DGFF remains sporadic, and usually only when a specific request is made.
Table 5. Guinea-Bissau’s changing forest landscape
1990-1994 1994-2002 2002-2007 1990-2007 Annual Annual Annual Annual Annual Annual Annual Annual Forest type change change change (Ha) change change change change change (Ha) (%) (%) (Ha) (%) (Ha) (%) Closed -4,916 -4.6% -881 -1.0% -5,321 -6.6% -3,136 -2.9% Forest Open Forest -10,828 -1.3% -5,584 -0.7% -5,225 -0.7% -6,712 -0.8% Savannah 5,03 35,981 2.7% 0.3% 4,287 0.3% 12,096 0.9% Woodland 4 Mangroves -1,102 -0.5% 156 0.1% 2,068 0.9% 422 0.2% Total 19,135 0.8% -1,274 -0.1% -4,191 -0.2% 2,670 0.1% Source: Carboveg, 2013
25
Commercial exploitation of forests is managed through concessions. There are three main types of licenses – (i) logging permits, (ii) wood export permits (iii) charcoal and firewood permits.
Only concessionaires can request logging permits, and historically they are held by sawmill owners, partly because exports of raw wood are legally forbidden. According to the law, concessions are valid for 15 years, with a requirement to submit a management plan to the DGFF every 5 years. Concession agreements are signed by the Minister of Forests, following consultation with the General Director of Forests and the Technical Council - the Technical Council looks into the appropriateness of exploitation, including any biodiversity impacts. A high turnaround of staff within the DGFF – both at a political level and of civil servants, has rendered this process practically obsolete.
Under the Forest Law (DL 5/2011), logging permits are valid for 9 months, and the forest guards are responsible for identifying which trees can be cut down. Upon a permit request, a team from the DGFF is required to visit the site and produce a report for the General Director. Permit prices vary according to the tree species, with prices of “second class” wood ranging from 20-35 $/m3 (Table 6).
Sawn wood exports are charged 25 percent and 10 percent of Free on Board (FoB) prices for thicker and thinner boards respectively. These prices correspond to the wood that is for sale – whether domestically or for export – rather than the volume of the tree that has been chopped down. Logging companies reportedly only use about 30 percent of the tree (i.e. the trunk), leaving the remains in the forest, thus disrupting the ecological equilibrium, as well as potentially fuelling forest fires. Additional forest degradation occurs when firms seek out the most profitable and as a consequence most precious trees, using heavy machinery, which impacts the surrounding forest.
Table 6. Logging permit prices, US$
Pau Conta Pau Sangue Bissilão Pau Bicho Amarelo Price per m3 100 100 90 90 Source: The current values were updated by the Technical Council in 2011 and are still valid as of December 2012.
The concessionaire is obliged to reforest their licensed forest area, however, the DGFF has come to realize that concessionaires are unable to maintain newly planted trees. The DGFF has therefore increased the price of permits (price per m3 of log) to cover the service of a DGFF technician to support the concessionaires conduct this maintenance. Despite this opportunity for additional funds and monitoring, nothing has yet transpired.
Licenses are also required for the export of wood, and according to the law, the amount of wood that can be exported should be defined every year. This has not yet happened. A worrying phenomenon that has recently come to light is the sudden increase in the exports of raw wood (Figure 6) – an illegal activity in Guinea-Bissau. There are 13 sawmills in the country, and they have been practically inoperative over the last decade. There are concerns that foreign operators, mainly from China, are partnering with these sawmills to obtain their logging permits. Given these sawmills have remained closed, wood must be leaving the country in raw form. This is particularly damaging to the forests – trees are "peeled" with a motor-saw, acquiring a parallelepiped form. The Joint Order, which establishes the new tariffs on wood, hunting, and
26
Figure 6. Exports of processed and unprocessed wood other forest products, claims that “in recent in tons years, 85 percent of exported wood was 6000 produced outside of a sawmill (with the help of 5000 motor-saws).” 4000 While the quality of customs data have been 3000 improving over the years, there are still a 2000 number of discrepancies. For example, the 1000 export unit prices used to calculate the natural wealth of Guinea-Bissau’s timber change 0 2008 2009 2010 2011 2012 significantly from year to year – up to a 90 percent annual change. 35 Another issue is the China Total classification of wood - in some years raw wood Source: DG Customs (2013) is considered to be “paneis” (thick boards), in others it is classed as sawn wood. In addition, owing to the prohibition of raw wood exports, raw wood is rarely classified as such, even though in reality these exports are likely to be much higher.
For the purposes of calculating natural wealth stemming from timber, production of Guinea-Bissau’s wood has been grouped under four categories – (i) sawn wood, (ii) other processed wood, (iii) rough, or raw wood, and (iv) charcoal. Guinea-Bissau’s national customs data has been used to ascertain an average annual export figure, looking at data over 5 years.
Production of charcoal is calculated separately. The latest available estimates are based on a paper on wood use in Central Africa, which suggests that the average adult in Guinea-Bissau uses 548kg per year.36 Licenses are required for charcoal and firewood (approximately $200 per year),37 and are restricted to public rather than concessionary forests. These restrictions are rarely enforced, due to the absence of management plans identifying forests covered by other licenses. It is also forbidden to export charcoal, however, customs data show exports of 4.5 tons in 2009.38
Cost data for timber production is unavailable in Guinea-Bissau and so the assumed rental rate of 41 percent used in the “Changing Wealth of Nations” publication has been applied. Based on the above assumptions, Guinea-Bissau’s natural wealth from timber is calculated at $249 per capita. This is driven mainly by rents from charcoal (95 percent of all timber wealth). Changes to the rental rates have a large impact: if the default assumption of 41 percent is reduced to 30 percent, the wealth per capita estimate falls to $182. Conversely, if it is increased to 50 percent, the per capita estimate rises to $304. A firm based study on logging companies active in Guinea-Bissau would help unravel a more accurate assessment of the rental
35 Total volume of exports divided by total price of exports. 36 Jamin, J.Y. et. al. (2002) “Survey of fuel wood and service wood production and consumption in the Sudano-Sahelian region of Central Africa. 37 Joint Order by the Minister of Farming and Fisheries and Minister of Finance, 2012 38 During the consultation period for this study, a permit authorizing the export of charcoal, issued by the DGFF, was discovered by the National Guard, who were holding a truck carrying the banned merchandise.
27 rate. Firms are protective of this information, and at present the DGFF has no information on their activities or financial statements.
Better governance of Guinea-Bissau’s forests would help improve the sustainability of the land while also creating a sector that could contribute to the country’s budget. Tighter regulation of the sector could help support a thriving forestry sector with small scale manufacturing of wood based products rather than the export of raw wood currently happening today.
Non-timber forest resources
Apart from timber, forests offer local communities a multitude of other goods and services, ranging from hunting and the provision of food stuffs, to furniture and medicine. Placing a value on these activities is difficult as often there are no market prices for goods and services provided by forests to the local community.
In terms of recreation, official hunting by national citizens is rarely undertaken, with only 2 licenses granted in 2007. Licenses for foreign residents and tourists are more common, although there were still only 37 authorized in 2007. While the market for game hunting is not well developed, it is possible that these figures underestimate the amount of hunting that takes place, especially by local communities. Given the sector is so poorly managed it is almost impossible, in the absence of more detailed survey data, to estimate the true scale of hunting activities.
Hunting permit prices in Guinea-Bissau are exceptionally low when compared to permit prices in other SSA countries (Table 7). Larger animals, such as buffalo, hippopotamus, wolves, lions, dolphin, etc. require specific permits that attract different and often higher tariffs. There are also monthly quotas for both nationals and for foreign residents or weekly quotas for tourists.39 Low permit prices have not and are unlikely to stimulate demand for hunting tourism given the poor state of tourism infrastructure and political instability. Moreover, low permit prices do not provide the authorities with sufficient income to regulate and monitor any recreational or illegal hunting, calling into question the sustainability of such activities. Table 7. Types and prices of hunting licenses, 2011
Price Prices in other SSA Hunting permit Period (CFA) US$ countries Nationals - Larger November-May 25,000 50 animals US$ 2,00-10,000 Tourists - Larger One week 80,000 160 animals Nationals - Smaller November-May 20,000 40 animals US$ 1,000-2,500 Tourists - Smaller One week 75,000 150 animals Commercial Hunting 90 days 15,0000 300 Scientific hunting Exempt (CITES agreement)
39 Recent reports from the DGFF suggest that most of the hunting conducted by tourists is for smaller animals, mostly birds.
28
Sources: Joint Order Minister of Farming and Fisheries and Minister of Finances, 2012 and author’s research
The DGFF sets tariffs for other forest related products (Table 8), but as yet there is very little information on how many licenses are issued or payments received, underscoring the weak capacity of the ministry.
Table 8. Tariffs for non-timber forest resources
Description CFA US$ Unit* Wood for construction 400 0.80 Unit Bamboo for internal consumption 50 0.10 Unit Bamboo for export 250 0.50 Unit Wood for building canoes 75,000 150.00 Unit Honey – internal consumption 250 0.50 Litre Honey – export 450 0.90 Litre Bee Wax - internal consumption 300 0.60 Kg Bee wax – export 500 1.00 Kg Palm tree wine – per harvester 10,000 20.00 Monthly Palm oil – internal consumption 250 0.50 Litre Palm oil – export 500 1.00 Litre Broom 50 0.10 Unit Small set of broom for export 40,000 80.00 Pack larger set of broom for export 60,000 120.00 Pack Latex 50 0.10 Kg Wild fruits (tamarind, velvet, baobab fruit) – 100 0.20 Kg internalWild fruits (tamarind, velvet, baobab fruit) – 300 0.60 Kg exportMedicinal herbs – internal 100 0.20 Kg Medicinal plants – export 300 0.60 Kg Certificate of origin of non-wood products 150,000 300.00 Unit Source: DGFF * Where unit is referred to, the measurement is of one item or piece rather than a specific weight
Given the paucity of data for this sector, the natural wealth calculations rely heavily on previous estimations. In particular, this study replicates the rental rates for hunting, recreational activities and watershed services, that are utilized in the “Changing is the Wealth of Nations” publication. Based on these assumptions, the natural wealth estimates are in the range of $366 per capita.
In addition to the above estimate, IBAP commissioned a study on the economic value of the Cacheu Natural Park (2011). Non-timber forest resources40 are estimated at $35.6 million a year, with an additional $1.5 million for construction related materials, including straw. Assuming a 50 percent rental rate, the natural wealth from this one park could be up to $190 per capita.
Mangroves
While all of Guinea-Bissau’s forest lands offer an array of eco-services, their mangrove forests are particularly important to the country’s sustainability. As a salt-tolerant species, with complex food webs
40 Non wood forest products include nuts, species, fruits, vegetables, aromatic preparations, decorative plants, oils and sap, hunting, meat, live animals, honey, animal and vegetal products used in traditional medicine, raw material for the production of ink, and art crafts.
29 and ecosystem dynamics, mangroves are one of the most productive ecosystems in the world, acting as a nursery ground for fish and other seafood.41 In addition, they contribute to the protection and stabilization of coastlines, dissipating the energy of breaking waves, and trapping sediments. This is especially important for low-lying Guinea-Bissau where most of their coastal in-land is barely 25m above sea level.
Guinea-Bissau’s National Adaptation Program of Action against climate change (NAPA) highlights the importance of mitigating the impact of floods, which occur relatively frequently. Flooding, caused by high tides or torrential rain, has had a deleterious impact on the country’s already stretched infrastructure as well as food production. It has been reported that the floods of 2003, 2004, and 2005 destroyed up to 63 hectares of land in the eastern regions ((Bafatá and Gabú) used for agricultural purposes. During flooding in 2005, communities lost their paddy rice fields due to salt water invasion, which proved too strong for the weak protective dam infrastructure. Almost 3,015 hectares of rice growing fields were made fallow and unproductive.
About 6.5 percent of Guinea-Bissau’s land is covered by mangrove forests (approximately 9 percent of total forest coverage). They constitute the basis for artisanal fishing and harvesting of oysters, shrimp and fish, as well as acting as a nursery ground for fish and other seafood found further afield. Oyster fishing is one of main incomes of the Bijago women and the largest source of protein in the archipelago. Other none fishing related activities include salt production - the salt is often used as currency by women living in coastal areas; honey – in 1999 honey production occupied 4 percent of the population living near the mangrove areas; and hunting – mainly birds, but also crocodiles, manatees and the green monkey.
Deforestation of mangroves is mainly due to swamp rice production (replacing trees for the installation of rice paddies through a dykes system), and the production of fuel wood and charcoal (partly for smoking of fish, but also for other uses). These pressures have fluctuated over the years, at a country wide level but also in specific geographical locations (Table 9). Mangroves are relatively good at regenerating, which partly explains the varying coverage as populations migrate throughout the country.
Table 9. Changes in mangrove Both international and domestic factors have influenced the coverage (1990-2007) nation’s rice production – the main pressure on mangrove Area Change in forest coverage Bissau -38% Bafata -35% Tombali -9% Cacheu 21% Bolama/Bijagos 21% Biombo 20% Quinara 10%
Source: CarboVeg
41 Estimates of the annual market value of fisheries supported by mangroves range from $750 to $1,670 per hectare, depending on the type of fish and crustacean (see Ronnback 1999 for a literature review of the economic benefits).
30 plantations.42 Historically, Bissau-Guineans are rice farmers, holding extensive traditional knowledge on salt water rice paddies. In the early 1990s the Balanta tribe (about one third of the country’s population) migrated towards Quinara and Tombali, which later became known as the barn of Guinea-Bissau. Fluctuating international rice and cashew nut prices have influenced the population’s tendencies towards one crop or another. The government has interfered in this market based structure by fixing the price of both cashew and rice at one point or another. During the 1990s farmers shifted their activities towards cashew, to take advantage of the favorable price ratio between cashew and rice. At the same time, the government actively supported cashew plantations, further bolstering the country’s production of the heart shaped nut.
As production increased, the price of cashew fell, corresponding with a global fall in cashew prices and an increase in the price of rice. As a consequence, farmers are now shifting back to rice, and the government is actively promoting rice farming, just as it did with cashew plantations 15 years ago.
Reducing the impact on mangrove forests does not necessarily mean prohibiting rice production. It does however suggest that productivity improvements could be made in rice farming. The dykes and low level infrastructure required for rice farming are often of poor quality and ill-maintained. This can lead to additional deforestation of mangroves and more work in the medium-long term for the rice farmers.
There is a potential trade-off between encouraging people to farm rice, and maintaining the country’s mangrove forests. Continuous mangrove deforestation would reduce the local communities access to non- timber forest resources e.g. foods, medicine, oils etc.; affect the breeding ground for fish, especially shrimp, one of the country’s more profitable seafood; and eliminate the natural barrier mangroves provide to flooding and coastal erosion. On the other hand, limiting rice production – the country’s main food staple - could adversely affect the nation’s ability to feed itself, while also put pressure on much needed international reserves to fund rice imports. While this study does not attempt to quantify the specific wealth from mangroves, the tension with rice production and the need for, inter alia, coastal protection against storm surges suggests more research is needed to fully inform this trade-off.
Despite cost-based valuations of mangrove plantations becoming more prevalent, a consensus on the methodology behind these valuations is yet to emerge. Most studies separate out the standard benefits from forests, such as wood, food, medicines, shelter etc., from the unique coastal protection services offered by mangroves. Any rents associated with their services as a nursery fishing ground would need to be subtracted from fishing rents to avoid double counting.
A number of studies were completed in the mid to late 1990s with Barbier and Sathirathai coming up with one of the highest estimates ($27,264-$35,921 per hectare) in their 2001 paper on Southern Thailand.43 The
42 The pressure imposed by the production of fuel for domestic use, salt production and smoking of fish is usually sustainable. However, this pressure has been increasing in fishing camps, often occupied by foreign fishermen (in particular from Senegal and Guinea-Conakry), who practice intensive fish smoking. This is a particular problem in Bolama/Bijagós, Tombali e Quínara.
43 See Barbier, E. and Sathirathai, S., 2001, “Valuing Mangrove Conservation in Southern Thailand” Contemporary Economic Policy, Vol 19, No. 2, April 2001, pp109-122. Using these figures, Guinea-Bissau’s mangroves would be worth $6.6billion-$8.8 billion in 2007.
31 importance of West Africa’s mangroves has only recently come to light as mangrove deforestation rates in the Gulf of Guinea and in countries like Sierra Leone have been recorded.44 While several studies looking at the income generating activity potential of mangroves in various locations have been undertaken during the last 15 years, no holistic overview or quantification of Guinea-Bissau’s mangroves exists.45
Carbon
With such a large part of the country covered in forest land, it is perhaps not surprising that Guinea-Bissau is exploring opportunities to access the carbon market through REDD. Using data from remote sensing and field work on above ground biomass, estimates on Guinea-Bissau’s carbon stocks and rates of deforestation have been captured under the “Carboveg” research. This study has vastly improved the quality of data on Guinea-Bissau’s forests undertaken by the FAO and other authors, who use estimates and extrapolations based on data corresponding to 1990.
Forest land provides the population of Guinea-Bissau with much needed income and support. Up to 80 percent of the population is believed to live in coastal areas, taking advantage of the eco-system provided by mangroves. Further inland, forests are being transformed into cashew nut farms, and as a consequence, the landscape and level of carbon stocks are also changing. Other deforestation pressures include poorly managed forest fires and socio-economic conditions and cultural practices.
The proposed REDD projects currently under discussion are focused on the country’s PAs, rather than attempting to reduce deforestation across the board. Carbon leakage is a common problem when defining REDD carbon credits.46 The Carboveg study is working with the government to establish an agreed methodology to measure the
Bissau’s natural natural Bissau’s baseline scenario and changes in carbon stocks so that carbon leakage can be
-
a alth alth percapita
Carbon measured. we NTFR Guine It may not be possible to set up REDD projects in all parks, because of the Timber complications caused by cashew plantations. For example, at Cacheu National Park, Fishing Bauxite where the natural flora (mainly mangroves) are protected, deforestation of open Phosphate forest and savannah has been increasing due to the plantation of cashew trees. The transformation of forest land is creating an environmental pressure, which could turn into a societal problem, not only in PAs but throughout the country: the destruction of natural ecosystems twinned with the reliance on cashew as an income-generating activity increases the vulnerability of the country. A REDD project cannot be used to monitor this change, since cashew tree plantations are not considered to be “deforested” land: cashew plantations are small to medium sized trees, lasting for 20 years or more. They are not structurally dissimilar to other forests, and cannot therefore be distinguished using
44 See for example research by the Wetlands International. 45 See for example ECOST (2005), “Environment and Economics of Production and Transformation units. The case of the Farim/Cacheu, Mansoa and Geba/ Corubal Rivers”, in the “Ecosystems, Societies, Consilience, Precautionary principle: Development of an assessment method of the societal cost for best fishing practices and efficient public policies” project; and INEP/INEC (2007): Recensaemento e estudo sócio-económico e ambiental nas áreas protegidas e 2 km limítrofes 46 Leakage is said to occur when deforestation is simply deferred from one part of the country – a protected area – to a neighboring site; thus the overall deforestation rate in the country stays the same.
32 satellite imagery with standard image processing tools. Identification of cashew can only be obtained through research and development of new algorithms, or alternatively through high resolution aerial photographs and field work.
Guinea-Bissau’s carbon stocks have been decreasing at a rate of 0.8% per year (Table 10), with carbon stocks within closed forest decreasing at a rate of 4% per year as a result of changes to other forms of forested land. Deforestation rates vary over time due to an array of agro-ecological, social, cultural and economic factors. The international markets (cashew prices, rice prices, etc), together with cultural soil use practices (e.g. burning for hunting or for agriculture) and preferences of the communities determine the migration of the population, and consequently changes in forest coverage. Although not quantified, it is thought that the regeneration capacity of Guinea-Bissau’s forests is high.
The first REDD projects are currently being set up in Cacheu and Cantanhez, with further field work to fine tune the baseline. The yearly annual cost of MRV (monitoring, reporting and verification) in addition to monitoring the relationship between the population distribution and the distribution of different agricultural systems in the territory is estimated at US$200,000. This is based on a system (SIMOFLOR) devised by the Secretary of State of Environment.
The CER (Certified Emission Reduction) price within the EU Emissions Trading Scheme (ETS) was trading at an all-time low in mid-2013, barely reaching $0.50. Voluntary Emission Reduction (VERs) credits are following suit. Such low prices do not provide the necessary incentives for a REDD carbon credit. Assuming all deforestation in PAs is prevented, and using the current CER trading price of €0.51, and an MRV cost of $200,000 per year, results in a negative wealth per capita value as the revenues from the carbon credit are insufficient to cover the costs of monitoring and reporting. If the carbon price were to rise back up to $20-25, the wealth per capita figure could be in the range of $70-89.47
Table 10. Guinea-Bissau’s Carbon Stocks
Transition from Transition to other Proportion in Carbon stocks in 2007 forest to non-forest types of forest Forest Type protected (Mt of Carbon) (1990-2007) (1990-2007) territory yearly % yearly % Closed Forest 6.2 2.0% 0.0% -4.0% Open Forest 33.3 33.3% 0.3% - 0.9% Savannah 52.6 60.0% 1.3% 0.8% Woodland Mangrove 4.6 9.0% 0.4% 0.2% Total/average 96.7 0.8% 0.1% Source: Carboveg, 2013
Crop and pasture land
47 The community led REDD projects currently being developed in Guinea-Bissau are based in two of the country’s protected areas, focusing on mangrove forests. Carbon stocks within mangrove forests (“blue carbon”) are estimated to be much higher, potentially 20 times greater, than general forest land. The smaller forest coverage, and therefore small MRV costs, alongside higher carbon stocks mean the break even carbon price estimated for these community-led REDD projects is around $6 per ton of CO2.
33
Crop land
Agriculture is the mainstay of Guinea-Bissau’s economy, accounting for almost half of GDP and over 60 percent of employment – this figure is even higher in rural areas. Pasture Despite the importance and relevance of the agriculture sector, its productivity has been waning in recent years. Income growth has barely kept pace with population growth and with few incentives for entrepreneurial activity, agriculture is largely subsistence. According to the General Directorate of Agriculture (DGAg), the Crop Land population involved in farming is about 1,270,000 persons (20 percentage points
greater than the official employment statistics). There are about 120,000 family farms, Bissau’s natural natural Bissau’s - ranging in size from 0.5ha to 1.5ha, and 1,200 larger farms ranging from 20ha to Carbon wealth percapita wealth 2,500ha per producer (ponteiro), with an average size of 136ha/producer.
NTFR Guinea
Timber While subsistence farming is not uncommon in low income countries, the Fishing exceptionally weak physical and institutional infrastructure is particularly acute in Bauxite Phosphate Guinea-Bissau, further hindering the ability of the sector to reach its full potential. This potential is not insignificant. The terrain and climate are both conducive to high yields of a variety of crops, with good soils and abundant water resources. The country has approximately 1,410,000 ha of arable land, yet only 27 percent of that is being utilized.
Horticulture is practiced by some 21,000 producers, covering 200 ha with a production of 40,000 ton/year, i.e. nearly 2 ton per producer. Despite a 6.8 percent average annual increase in production of cereals over 2000-2008, cashew is still the most dominant crop – accounting for a third of the agriculture sector’s output. Other fruits and cereals each contribute close to a fifth of sector’s output. Livestock accounts for 12 percent.
While cashew is the most dominant crop in the country, the production of other crops should not be discredited. Rice, the principle food staple is produced throughout the country, although the production loss and amount set aside for seeds for the following year is substantial at 40 percent (Table 11). During recent years the price of imported rice has been cheaper than domestically produced rice, due, in part, to a reduction in the reference price for imports set by the government.48
Table 11. Average and recent net crop production
Average Campaign Net Production 2012/2013 Crops 5 ans * 2012/2013 Tons Tons Tons (% difference from gross)** Rice Plateau 49,735 53,915 Rice valey and Bolanha 68,808 97,083 Rice mangrove 48,292 43,506 Rice (produced in Bissau) 3,760 4,000 Total Rice 170,595 198,504 119,102 -40% Corn 8,339 7,195
48 The Harvest Evaluation Mission found that locally produced rice in 2012 attracted a price of 400CFAs per Kg, whereas imported rice cost just 375CFAs.
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Sorghum 17,066 23,547 Millet 18,055 16,954 Fonio 478 580 Dry cereals (produced in Bissau) 1,474 2,000 Total Dry cereals 45,412 50,276 42,735 -15% Total Rice and Cereals 216,007 248,781 161 ,837 -35% Cassava 44,197 20,755 15,774 -24% Sweet Potato 18,253 13,340 11,459 -14.1 Peanut 34,695 45,214 45,214 0 Bean Mancanha 1,531 565 565 0 * 5 years average (2007-2011) ** The difference between gross and net production is due to either lost production, or grains set aside for seeds Source: Harvest Evaluation Mission 2012/2013, GoGB/CILSS/WFP/FAO, 2013
Other fruits and cereals are an important source of food for the domestic market. Exports of these other agricultural products are however limited, with cashew representing 99 percent of agricultural production destined for export. Given the higher profits obtained from cashew, due to its low cost of production and relatively low labor requirements, more and more land is being converted into cashew plantations. This is true for non-irrigated land as well as for forest and savannah areas.
Over 95 percent of Guinea-Bissau’s exports are concentrated in just 5 export partners, with India alone accounting for 76 percent. Out of these top five exporters, 70 percent of exports fall under the category of raw cashew nuts. Guinea-Bissau therefore has a twin risk of an undiversified export portfolio, and an undiversified set of export partners (Figures 7 and 8). In addition to the risk of cashew price fluctuations, there is also a risk from relying on just one species, – one plague or disease of cashew trees would have severe consequences. According to Harvest Evaluation Mission 2012/2013, the areas of Biombo, and Pitche and Pirada in Gabu are considered structurally at risk. Nearly all of the arable land in these areas is occupied by cashew.
Figure 7. Top five export destinations for Guinea- Figure 8. Top five exported products from Guinea- Bissau’s Exports Bissau Rape or Pakistan Togo Other Fish, colza Other 3% 2% 5% frozen, Brazil seeds 10% excludin 3% 3% g fish fillet Vietnam 3% 11% Copper ores and concentr ates 5% Coconut India s, Brazil nuts and 76% Petroleu m oils cashew 11% nuts 68%
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Source: UN COMTRADE, mirror statistics
The shift towards cashew production, coupled with limited incentives to farm other products has left the country in a vulnerable position. Despite rich agricultural potential, the country relies on food imports and food aid to feed itself. A stark reminder of this vulnerability is the recent harvest evaluation’s mission for 2012/13, which concluded that even with food aid, the country faces a likely deficit in cereals, the country’s main food staple (Table 12). A survey in June 2013, conducted by the World Food program (WFP), in conjunction with the National Institute of Statistics (INE), confirms this worrying situation. According to the survey, the percentage of the rural population under severe food insecurity increased from 20 percent in 2011 to 40 percent in 2013 (or 260,000 people). Furthermore, the farmgate price of cashew fell by 59 percent, dramatically reducing farmers’ income and no doubt adversely affecting poverty rates of Guinea- Bissau’s rural poor.
In 2006 and 2009, imports of non-processed agricultural products amounted to 26 percent of total imports - rice alone accounted for 17 percent of total imports. The instability of 2012 no doubt affected domestic production, reflected in the import figures - the share of imported rice increased to 21.5 percent and non- processed agricultural products increased by 5 percentage points to 31 percent total imports.
Previous natural wealth calculations for croplands in Guinea-Bissau were limited to selected crops. Even with this limitation in place, crop land accounts for the lion’s share of the country’s natural wealth at over $1,000 per capita. A number of assumptions have been updated to calculate new crop land estimates, including changes to prices, production and rental rates. Based on these updates, new natural wealth per capita estimates for Guinea-Bissau are around $1,734 per capita.
Table 12. Total food surplus/deficit projected for 2012/13
Rice Blé Millet/sorghum Total Forecasts 2012/2013 corn/other Tons Tons Tons Tons Domestic availability 122,602 656 4,3363 166,621 Gross production 198,504 50,276 248,780 Net production 119,102 42,735 161,837 Initial Stocks 3,500 656 628 4,784 Needs 229,508 15,864 64,023 30,9395 Gross surplus/deficit -106,905 -15,208 -20,660 -142,774 Balance of imports and exports 101,291 9,203 5,131 115,625 Foreseen imports 100,055 9,203 109,258 Foreseen aid 1,236 0 5,131 6,367 Foreseen exports … … … … Total surplus/deficit -5,614 -6,005 -15,529 -27,149 Source: Harvest Evaluation Mission 2012/2013, GoGB/CILSS/ PAM/FAO, 2013
Pasture land
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Livestock contributes 17 percent to GDP, and represents 32 percent of the agriculture sector’s overall contribution (Livestock Policy Letter (2010). Non-arable land is over 1.5 times as large as arable land at close to 2,223,700 ha, mainly covering savannah land and open forests, as well as fallow lands and postharvest grazing. The total-grazing area is estimated at 1,268,000 ha, or about 35% of the land area, of which about 300,000 ha are in the north of the country, 800,000 ha in the east and 167,000 hectares in the southern zone. These areas have fallen sharply in recent years, with the expansion of the cultivation of cashew. Water is a main constraint, particularly in the east of the country (especially around Gabu) resulting in transhumance.
Domestic data availability, and quality, on pasture farming is as difficult to come by as crop farming. Similarly, production cost data requires an in-depth survey into farming practices. Natural wealth estimates have combined FAO and domestic data with rental rates from other countries. These assumptions have a significant impact on the natural wealth per capita estimates. For example:
• FAO data and West Africa prices results in a wealth per capita value for pastoral farming of $651. When Guinea-Bissau production and prices are used (2012/3 estimates), the rents are smaller at $591 ( • Table 13). • A rental rate ranging from 30-60 percent means the wealth estimates could range from $461-$922 (FAO data) or $394-$788 (local data).
Table 13. Main livestock production and prices
Prices, CFA (per Production (2012-2013) Brute (Tons) Prices, CFA (live) kg) Total meat 10 750 Beef/Cow 5 500 1,500-3,000 150,000-450,000 Lamb 2 100 3,000 15,000-35,000 Pork 1 050 2,500 60,000-90,000 Poultry 2 100 2,750-4,000 … Eggs 1 575 75-100 … Sources: Harvest Evaluation Mission 2012/2013, GoGB/CILSS/WFP/FAO, 2013, and the General Directorate of Livestock (2013). Prices ranges are due to seasonal variations
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Protected areas/Biodiversity
Guinea-Bissau has an extensive range of eco-systems, flora and fauna, and marine life which, due to the
Biodiversity country’s instability and inadequate tourism infrastructure, have yet to be fully exploited. Policy makers are aware of the importance of the country’s biodiversity, Pasture and since the early 1990s, have developed a number of plans and visions for its protection. More recently, since the early 2000s, the government has established a network of five national parks, and one community protected area (Urok), covering close to 15 percent of the country. This area is expected to expand to cover Crop Land approximately 25 percent of the country in late 2014. The Institute of Biodiversity and Protected Areas (IBAP) was set up to manage, coordinate and monitor these PAs.49 Carbon NTFR Over the past 5 years, several additional laws have been ratified to ensure Guinea- Timber Bissau’s biodiversity is managed sustainably (Table 14). Implementation of these Fishing Bauxite laws remains a key constraint to environmental protection. The country lacks the Phosphate necessary resources to provide oversight and monitoring of activities in protected areas. To address this issue, and in recognition of the global existence value of the country’s biodiversity, a Global Environment Fund (GEF) and World Bank project has been working with the government and other international and national partners to help establish the BioGuiné Foundation. This conservation trust fund aims to provide a long-term financing mechanism to support the conservation and management of Guinea-Bissau’s parks and biodiversity, a much need solution to help support the financially autonomous IBAP, and its partners.
Table 14. Guinea-Bissau’s key laws and strategies relating to environmental protection Year Laws and Strategies 1997 and 2011 Law on Protected Areas decreto-Lei 3/97; decreto-Lei 5- A/2011 2000 decret N°6-A/2000 Creation of Joao Vieira e Poilao National Park 2000 decret 11/2000 Creation of Orango National Park 2000 decret 12/2000 Creation of Cacheu Mangrove National Park 2000 decret 13/2000 Creation of Cufada Lagoons National Park 2004, decreto-Lei 2/2004 Law on Fauna 2004 National Plan for Environmental Management 2004 National Strategy on Protected Areas and Biodiversity Conservation 2004 Creation of CAIA 2005 decret N°9/2005 Creation of Urok Community Protected Area 2005 Creation of IBAP 2006 National Action Plan for Adaptation to Climate Change
49 IBAP currently operates under the 1997 Protected Areas Framework Law (Decree-Law 22/97)
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2010 Environmental Impact Assessment Law 2011 Framework Environment Law 2011 National Action Plan to Combat Desertification 2011 Law on Forests 2011 decret n°1/2011 Environmental Framework Law 2011 decret n°14/2011 Creation of Cantanhez National Park
Park fees, at around $10 are low, and well below the amount needed for IBAP to manage the country’s national parks. In addition, only two parks are currently collecting fees (Orango and Joao Vieira e Poilao). Willingness to pay studies in other SSA countries with rich biodiversity and wildlife suggest that park fees could be increased to $25, provided the fees are earmarked for the park’s preservation. The distribution of park fees is currently legislated in Guinea-Bissau with the proceeds split between IBAP’s headquarters, the PA where the fee is raised, and the communities in that PA. Oversight of the funds remains weak and the criteria by which the funds are spent could be strengthened.
One way of estimating the natural wealth from biodiversity, and more specifically, Guinea-Bissau’s PAs, is by calculating the rents from activities, such as tourism, which utilize the country’s ecosystems. Tourism numbers in Guinea-Bissau are low when compared to other West African countries with similar “pre- emerging” tourism industries.50 Average receipts per tourist are also low, highlighting the weak tourism multiplier effect in Guinea-Bissau (Figures 9 and 10). Weak infrastructure and poor linkages with local communities limit the potential development effect tourism could have. This potential is significant: the country is home to several animal species that have global significance e.g. five species of sea turtle, 51 salt- water hippos, and several migratory water birds. In addition, the Cantanhez National Park has been recognized by the WWF as one of the world’s 200 most important ecosystems.
The tourism industry as a whole is estimated to account for over 9 percent of the world’s GDP. Within tourism, ecotourism52 is estimated as the fastest growing sector, growing at between 24-30 percent a year (World Tourism Organization). The prices “eco-hotels” charge vary tremendously. Ghana, an already established destination for tourists, has developed an ecotourism segment, riding off the back of the sea turtles that visit the coast. Hotels range from $60 a night for a small hut on the beach, to $160 for something more upmarket. Ecotourism packages can be much more exclusive; for example, watching turtles in Zanzibar for 8 days can cost up to $4,000 per person.
Figure 9. Tourism arrivals and receipts of West Figure 10. Average tourism receipts per Africa countries with “pre-emerging” tourism tourist arrival sectors Millions, US$ Tourist arrivals US$, Receipts per tourist arrival
50 The World Bank’s recently published “Tourism in Africa” (2013) report classifies countries into four groups: consolidating, emerging, potential, and pre-emerging. Guinea-Bissau falls under the pre-emerging category. 51 Guinea-Bissau has protected the green turtle by law and has made efforts to remove foreign fishermen from the nesting ground on Poilão Island. Despite being included in the protected areas list, the sea turtle remains under threat, as implementation of the laws is weak and egg poaching is still prevalent. (“Status, Ecology, and Conservation of Sea Turtles in Guinea-Bissau” Catry P., et. al. 2009) 52 Ecotourism was defined by The International Ecotourism Society (TIES) in 1990 as “responsible travel to natural areas that conserves the environment and sustains the well-being of local people”.
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120 250,000 Guinea- 100 200,000 Conakry 80 150,000 Guinea- 60 100,000 Bissau 40 20 50,000 Chad - - Niger
Togo
Tourism recipts (US$ LHS axis) - 500 1,000 1,500 Tourist arrivals (RHS axis)
Source: World Tourism Organization (WTO), all data 2010, apart from Chad’s tourist arrivals, where the earliest data available is 2007
Ecotourism could be a significant generator of income for Guinea-Bissau, creating substantial economic rents, which could be captured and turned into government revenue. The sector could also provide many Bissau-Guineans with employment. Currently, however, Guinea-Bissau’s tourism infrastructure is in significant disrepair. There are about 40 hoteliers, with a total accommodation capacity of around 1,000 beds.53 Most of these hotels are found in Bissau, with the lion’s share providing a minimal service and only a hand-full that can be classed as 3-5 star. A few entrepreneurs, none Bissau-Guinean, have set up accommodation out in the Bijagós islands, which could be classified as ecotourism friendly.
Over the past few years, the government has built-up an institutional infrastructure for ecotourism. An ecotourism section sits underneath the State Secretariat for Tourism and directly liaises with the ecotourism department in IBAP, helping to ensure ecotourism policies are directly linked to ecotourism implementation. A familiar story on capacity constraints emerges, in the tourism specific departments and across the State Secretariat for Tourism as a whole. The ecotourism section has helped consolidate some of the relevant policies, but in the absence of a formal strategy, and few resources, both human and financial, the section’s overall effectiveness remains limited.
Some of these capacity constraints are being addressed through the MAVA Foundation and International Union for Conservation of Nature’s (IUCN) “Promotion d’un tourisme écologique et durable en Guinée Bissau ecotourism” project, which is facilitating the preparation of a National Strategy for Ecotourism. This initiative is also looking into the links between ecotourism and PAs in Guinea-Bissau. The Direcçao Geral de Turismo, IBAP, CAIA, CDB_Habitat, (Foundation for the Conservation of Biodiversity and its Habitat), AD (Action for Development), local communities and the private sector are all involved, suggesting that the relevant stakeholders are both being consulted and actively involved in designing the strategy. However, the government has yet to receive game-changing amounts of finance from the Bijagos resorts and has minimal control over their activities, although IBAP is becoming increasing active. Tourism may not therefore be one of the main contributors to Guinea-Bissau’s GDP during the next 3-5 years, but
53 Estimates taken from “Diagnosis of Tourism in Guinea Bissau”
40 perhaps 10-15 years. This may be a positive outcome, as it provides the country with more time to ensure any bourgeoning tourism industry grows in a way that protects the environment and is directly tied to poverty reduction. Countries such as Costa Rica and Dominica for example, have successfully put in place measures to promote socially inclusive ecotourism. Guinea-Bissau could follow suit, ensuring biodiversity is sustainably managed, while simultaneously, maximizing economic rents from the PAs.
In the absence of more detailed information on tourism potential, the wealth of PAs is estimated by calculating its opportunity cost, where the alternative is to use the land for farming as opposed to preserving it for recreational purposes or preservation, both for domestic and global existence values. Assuming half of the land in PAs is suitable for farming results in a wealth per capita figure of $305. While this may capture the opportunity cost of farming, it is likely to be significantly below the potential wealth this land brings, not least because it does not include Guinea-Bissau’s marine biodiversity, nor the additional terrestrial areas due to be classified as PA by the end of 2014. IBAP is commissioning work to analyze the country’s tourism potential. The results from this study should provide additional evidence to support their work and potentially help improve the natural wealth per capita estimates. A more accurate valuation of the country’s rich biodiversity should support IBAP and other partners generate the necessary resources they need for its protection and sustainable use.
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III. Total wealth
“…productivity growth is higher in countries with an adequate and efficient supply of infrastructure services.”54
Guinea-Bissau’s macroeconomic data are of variable quality. Weak governance and institutional capacity has limited the authorities’ ability to routinely track core macro-variables. Much of the data is recorded manually with electronic updating undertaken in only a few sections of the Ministry of Finance. Estimates for Guinea-Bissau’s total wealth rely on the availability of total consumption expenditure (for total wealth) and 25 years of gross fixed capital formation data (for produced capital) – both series are somewhat patchy.
The National Accounts were revised in 2010, resulting in a GDP increase of almost 90 percent. These recent updates to historical time series data have altered the original estimates of total wealth substantially. What was previously calculated as $3,740 per capita (in 2005 prices) is now $8,500. Updating to 2010 and in 2010 prices increases the total wealth per capita figures further to $12,326. Total produced capital has not changed as significantly, confirming Figure 11. New and old calculations of Guinea-Bissau’s total the poor rates of public and private wealth In percent of total wealth per capita investment into the country’s capital 100% stock. At present, government revenues finance just 80 percent of 80% the payroll and capital investment is Intangible capital 66% 76% entirely donor driven. Private 60% investment is equally stagnant, with few opportunities and a weak 40% financial sector as an alternative for 33% 20% 24% NaturalNatural capital capital savings or financial assets. Using the Produced capital new natural capital estimates 0% 7% 8% -7% Net Foreign Assets -7% increases the proportion of wealth attributed to natural resources from -20% 26 percent to almost one third of Old Calculations New Calculations total wealth in Guinea-Bissau (Figure 1). Source: Old calculations are from “The Changing Wealth of Nations”. The new calculations are based on the author’s own estimates presented in this paper. Compared to other low income countries, these new estimates suggest that Guinea-Bissau’s relative level of natural wealth is high (33 percent as opposed to 26 percent) and that produced capital is exceptionally low (8 percent as opposed to 16 percent). In the very short term, these indicative results highlight the importance of investing in other forms of capital – physical, human, or social.
Consumption of fixed capital is slightly lower than low income country and SSA country averages (8 percent of GNI compared to 9 percent and 10 percent respectively). Savings rates are exceptionally low.
54 Calderón, C. 2009. “Infrastructure and Growth in Africa” Policy Research Working Paper, 4914, World Bank Washington D.C.
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Guinea-Bissau’s gross national savings were around 2 percent of GNI in 2010. This is below the SSA average (close to 17 percent) and well below the rates seen in high growth countries (20-25 percent of GNI) (Figure ). The low adjusted net savings estimate is mainly due therefore to the low levels of overall savings, rather than natural resource exploitation. Recent illegal logging activities would push these estimates down further. This creates even more of an impetus to improve natural resource management to capture resource rents and transform them into meaningful assets that can contribute to poverty reduction. Improving the business climate so that the private sector can also take advantage of the opportunities presented by Guinea- Bissau’s natural wealth would also help the government in raising tax revenue and delivering its shared prosperity goals.
Figure 12. Gross and adjusted net savings In percent of GNI (2010) 4%
2%
0%
-2%
-4%
-6%
-8%
-10%
Source: UN and World Bank data, author’s calculations
D. What does the future hold: policy implications for sustainable development
“Sustainable development, implies meeting the needs of the present without compromising the ability of future generations to meet their own needs”55
This paper confirms the presence of significant natural wealth potential in Guinea-Bissau. Some areas appear to be under exploited, but with thoughtful policy responses rents could be increased, revenues captured, jobs created and poverty reduced. There are, however, some areas that may be over-exploited. Strengthened the governance of these sectors is essential to ensure their sustainability. This section provides suggested policy responses and recommendations for each component of natural wealth.
55 Report of the World Commission on Environment and Development (11th December 1987).
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Exhaustible resources
As yet, Guinea-Bissau has yet to commence with commercial mining activity, although prospects for phosphate in particular look promising and negotiations are actively taking place with the government. The mining sector offers Guinea-Bissau the opportunity to generate significant resource rents, which if invested wisely could help plug the country’s substantial infrastructure gap while also supporting current expenditures to support the poorest. This approach requires strong governance and management to ensure rents are channeled towards other forms of productive capital, be that infrastructure or human resources. At the same time, there are legitimate concerns that a poorly regulated mining sector could have an adverse effect on local communities and the surrounding environment. To help mitigate some of these concerns, the government may want to consider:
• building capacity in the Ministry of Finance to analyze the impact of mineral resource revenues; • balancing taxation levels and mining benefits, so that investors are not deterred while ensuring the country captures essential revenue; • strengthening capacity in the State Secretariat of Environment and associated regulatory bodies to ensure environmental legislation is enforced; and • improving the business and investment climate to attract interested private sector entities (both domestic and foreign) into the sector and related activities.
Non-exhaustible resources
Non-exhaustible or renewable resources are responsible for providing most of Guinea-Bissau’s population with a form of livelihood. Agriculture dominates the country’s employment and growth statistics, as well as the natural wealth per capita estimates. Fisheries, forests and resources from the rest of the natural environment provide additional forms of income. Maximizing rents and capturing revenue, while ensuring sustainability, requires concerted policy action and an investment in governance. One of the key issues for consideration by policy makers is how these sectors work together as important trade-offs are present. In particular:
• Conversion of natural habitat to cashew plantations may reduce the wealth from timber and non- timber forest resources. • A shift towards rice plantations in mangrove areas could negatively affect the ability of mangroves to act as a fishing nursery ground as well as diminish their natural flood defense mechanism. • REDD projects to limit forest degradation and deforestation could reduce the resources available to rural communities e.g. charcoal, timber for furniture
A more thorough analysis of these issues is needed to determine how to maximize social welfare, revenue, economic growth and poverty reduction.
Fishing
Nationally collected data underestimate the quantity of fish caught and thus calls into question the sustainability of the sector. Mass fishing by boats from neighboring Senegal and Guinea-Conakry are reducing the rents available to domestic boats as well as important revenue for the government. There are
44 also concerns that commercial, foreign operated vessels are catching far greater quantities of fish than are being reported.
Given the currently low license fees and variable terms and conditions, Guinea-Bissau struggles to finance effective management of the sector. Poor surveillance further hinders their ability to charge higher fees as countries do not want to pay for something that is not managed. The fishing license with the EU is coming up for renewal. Given the rich fishing stock in Guinea-Bissau’s waters, the country could use this as an opportunity to renegotiate the terms and condition of the licensing agreement and ask for support to manage the sector.
Weak port infrastructure is a further constraint to optimizing fisheries potential. A new fishing port has been concluded in Bissau by an AfDB grant, however, the operation of this port relies largely on private initiative. At the moment, the port is not being utilised as there is a dispute between the Ministry of Infrastructures and the Secretariat of State of Fisheries on where the management of the port should lie. This internal disagreement is obfuscating private sector interest and delaying much needed port activity, which could help stimulate value added in the sector.
In light of these barriers the recommendations for the fisheries sector are as follows:
• assess current monitoring capabilities against what is required to significantly reduce illegal fishing; • include more stringent reporting requirements on foreign vessels, and ensure this reporting takes place; • reassess the current licence fees, working with regional players to determine what fees may be appropriate; and • expeditiously resolves current tensions on the management of the port to enable private sector involvement in its operation.
Timber and non-timber forest resource
Aggregate figures suggest that forestry is not under threat of breeching sustainability indicators. However, there may be significant underreporting with certain tree species harvested more than others. Data for the non-timber forest resources sector are limited, demonstrating the poor level of management and regulation. Information that is available suggests that license fees are low and not regularly collected, limiting the amount of finance available to monitor the sector.
While laws and regulations are in place, they are rarely enforced. Given the challenges currently facing the sector (e.g. exports of raw wood and stripping of precious trees), the Forest Technical Council proposes that the following regulations are adhered to and/or put in place:
• Production and export of wood to take place only by officially registered wood producers (sawmills), with regular monitoring by the DGFF; • logging permits to be issued only to officially registered wood producers (sawmills currently in operation), with regular technical monitoring by the DGFF both in the forest and in the sawmill;
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• land preparation (clearing and logging) permits only issued to owners who can prove they can use the land; and • monkeys to be included in the protected species list due to pressures from poaching.
In addition to these specific recommendations, there are other areas, which if strengthened could help protect the sector from unsustainable behavior. For example:
• Strengthening the capacity of regional delegations to improve monitoring and reporting. Poor availability of data severely affects the Ministry’s ability to assess progress and areas of concern. • Establishing an information system of forestry data, especially results of monitoring activities. All relevant parties should have access to the system, including the National Guard where the forest guards operate. • Conducting a survey and consolidating existing information to feed into a forest inventory. Using this information, the Ministry will be able to assess forest management plans and their interaction with public and community forest lands. A detailed map of forest land ownership and licenses will help the Ministry implement the law regarding concessions; and • Ensuring sufficient finance is available for the DGFF to conduct these activities. While a forest fund is already in place it is under-funded. The forest sector may want to consider increasing the tariffs of forest permits or license fees for hunting to help capitalize this fund.
Carbon
After much excitement and research into the possibility of a REDD project, the collapse of the Certified Emission Reductions (CER) price in the European Union’s Emission Trading Scheme (EU ETS) as well as broader Voluntary Emissions Reduction (VER) credits has, at least temporally, quashed these plans. The preparation for these projects has, however, meant that the country has a much more detailed overview of the forestry sector, and historical deforestation rates. It has also drawn the attention of the international community, including from the World Bank and the Global Environment Facility.
To develop the projects further, in readiness for carbon credits, or indeed a REDD window in the Green Climate Fund, additional research is needed on how to account for cashew plantations. A credible monitoring, reporting and verification (MRV) system will also need to be in place to ensure leakage is minimised and credits can be issued.
Aside from deforestation, Guinea-Bissau may also want to consider developing projects that consider forest degradation. While Guinea-Bissau’s overall deforestation rate is only 0.8 percent per annum, (annual average 1990-2007) there has been a shift in the types of forest, from high density, high carbon content closed forests, to more open savannah land. This is due to a combination of commercial exploitation of forests, disrupting eco-systems in search of the most profitable trees; and local communities removing trees for personal use, especially charcoal. At present, charcoal represents a major threat to forest land. With
46 limited accessibility to modern forms of energy, local communities have no alternative but to use charcoal for cooking and heating.56
As part of the broader climate change agenda, the forest sector would benefit from a more detailed overview on the socio-economic dynamics between farming and forest systems, both in terms of mitigating and adapting to climate change. This is particularly pertinent for the relationship between rice farming and mangrove plantations, but also the cashew fruit and other forest areas.57
Crop and pasture land
Guinea-Bissau’s agriculture sector has significant potential. The lands are rich and fertile, the weather is favorable, and the variety of crops allows for some diversification within farms. Dilapidated infrastructure is, however, holding the sector back.
The natural wealth per capita estimates in this report are based on an assumed rental value for developing countries. It is possible that these rental rates over-estimate the current wealth of Guinea-Bissau’s agriculture, given the reportedly poor state of productivity in the sector. At present, the estimates give an indication of the potential wealth if improvements were made to productivity. To date, attention has focused on shifting production of cashew from raw exports to processed (de-shelled). It is estimated that 25,000 tons of processed cashew nuts, could lead to an increase in earnings of $20.4 million a year, while also producing 18 million kWh/year of energy, using the husks of the nuts in biomass power plants. However, it is not just cashew that needs support. Other areas of agri-business could benefit from investment. Guinea- Bissau’s National Plan of Investment in Agriculture estimates that investment worth $200 million is needed over 2010-2015, to address the main constraints in agriculture – both crops and livestock with an additional $108 million for the fishing and forestry sectors. This investment would help the country close its cereal deficit by 50 percent, increase agricultural production by 6 percent and meat production from 6 to 12 Kg/hab/year. Given most of Guinea-Bissau’s poor work in agriculture, investment in this sector would also have a significant poverty reducing impact.
Biodiversity/protected areas
Guinea-Bissau has made progress towards sustaining its ecosystems by establishing a network of national parks, and enforcing its protection by law. As with the management of other natural resources, the implementation of these laws is weak and requires additional funding. As an extremely poor country, Guinea-Bissau has limited resources to channel towards protecting the environment. New revenues could be generated through increased park fees or creating ecotourism licences. Ultimately though, explicit political commitment is needed to safeguard the country’s biodiversity, and if ecotourism is to really take off, the following elements should be considered:
• Engaging the private sector on tourism bottlenecks: while there are likely to be several constraints, the government will need to prioritize which area to invest in first e.g. transport infrastructure,
56 Up to 90 percent of the population is thought to rely on biomass as a source of energy. 57 For example, completing and operationalizing “The Monitoring Plan of Mangroves”, initiated by IBAP in 2008, would help the country understand its rich mangrove resources and how best to preserve them.
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telecommunications, ecotourism accreditation, transparent tax system, management of the national parks. Understanding the restrictions to sustainable growth of the tourism industry will help the government prioritize its resources.
• Learning from previous models of ecotourism: if Guinea-Bissau wants to promote ecotourism, then the government will need to decide upon which model it wants to adopt. There are several examples e.g. Costa Rica, Dominica, and closer to home, Kenya, and Rwanda, that Guinea Bissau can learn from. This will also help manage expectations. Niche ecotourism packages can take time before they are fully established. For example, the Nihiwatu project in Indonesia took 10 years before investors were fully integrated into the local community, with a foundation set up for guests to pay into, to support social and environmental development.
• Stabilizing the political environment: while poor infrastructure and a weak investment climate are no doubt affecting the country’s ability to expand tourism, the main constraint is likely to be the country’s fragile political environment. The number one recommendation in the Tourism in Africa (2013) report for pre-emerging economies is to stabilize any fragility by empowering “responsible democratic governments”.
Guinea-Bissau has a number of natural wealth assets, which have the potential of reducing poverty and supporting economic growth. The challenge is how to transform this potential into something meaningful, either directly reducing poverty, by boosting rents captured by households and business, or indirectly, by raising revenues that can be channeled into development assets. Sectoral reform plans are beyond the scope of this paper, however, one theme emerges across all areas of natural wealth: the need for strong governance and institutions. Natural resource management, be that of exhaustible resources such as bauxite or phosphate, or renewable resources such as the country’s land, forests, and fish, is essential if these assets are to contribute to the country’s development goals.
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Appendix A - Methodologies and assumptions
This appendix sets out the assumptions and methodologies used to calculate Guinea-Bissau’s natural wealth.
Common assumptions across all natural wealth estimates
As detailed in the United Nations’ Integrated Environment and Economic Accounting Operational Manual (2000), there are three methods of valuing natural resources:
(i) Net present value: the present value of a natural resource is the sum of the expected net revenue flows i.e. revenue minus fixed and variable costs, including any “normal return” to capital. (ii) Net price: the total quantity of the resource is multiplied by the market price at time t minus the unit production cost. (iii) User cost: the difference between the net returns from the sales of a resource and a “perpetual income stream”, which comes from the investment of the user cost at an interest rate r.
Out of the three methods, the net price methodology offers the simplest and least data intensive way of calculating resource rents – the wealth from natural resources. The user cost method is the most complex, and offers policy makers a useful overview of the different streams of income from extracting exhaustible resources. Theoretically it can help government determine how much economic rent needs to be re-invested into capital, income generating activities, to create a steady stream of income, and how much can be used for current expenditures. The net present value method is also data intensive, although less so than the user cost methodology. Summing the expected net revenue flows, and discounting back to the present day, directly addresses the question of inter-generational rents. While a number of assumptions have to be made about extraction rates, resource prices, capital costs etc. it allows for some flexibility in estimating the rents as well as sensitivity analysis
The net present value methodology has been used for the purposes of the natural wealth accounting exercise in Guinea-Bissau. For the exhaustible resources, the mining companies have used the same methodology in their own cost benefit analysis. The natural wealth calculations are therefore tied to proposals that are being used to develop plans in Guinea-Bissau, and will ultimately be discussed with the government.
For the non-exhaustible resources, many of the assumptions/variables used in the first year are assumed to stay constant throughout the discounting period. While this is not necessarily very realistic, the model used to estimate the natural wealth can easily be updated with new information or used to assess the impact increasing prices or costs would have on per capita wealth.
There are a set of common assumptions used across all components of natural wealth (Table 1).
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Table 15. Common assumptions across all natural wealth estimates
Variable Value Rationale Time period 25 years This represents a generation. In terms of the exhaustible resources, it also represents the life time of the mine. For the mineral resources, net wealth is calculated based on the mine operating for 25 years, irrespective of the start date. Social discount rate 4% The social discount rate is based on the following derivation:
r= δ+(γ+c/g)
The pure rate of time preference (δ) represents whether, as a society, we care more about consumption today as opposed to consumption in the future. One off catastrophes that would wipe out a population and thus future generations increases this rate. Under the assumption that the catastrophic risk is small, and that future generations are valued as much as the current population, (δ) would be around 1.
The elasticity of marginal utility of consumption is captured by (γ). Assuming society is moderately adverse to income inequality this would also be low, at around 1.
Whereas mature or slow growth countries have low per capita growth rates, and therefore a small social discount rate (the UK government for example uses a 3.5 percent social discount rate), fast growing developing countries tend to have a much higher c/g – consumption over growth of GDP per capita. In essence, this tells us that people will have higher incomes in the future and therefore marginal consumption is worth more now rather than later. Guinea-Bissau’s growth rate has not reached the levels of some developing countries. The average GDP per capita growth rate has been negligible over the past 10 years, although increasing cashew prices have helped this increase to around 1.5 percent. If we assume that growth continues at this rate, or potentially higher under a scenario of productive resource rents, then the social discount rate could be in the range of 3.5 to 6.5, with future generations only mildly better off than today’s citizens.
A discount rate of 4% represents a slightly below mid-range estimate, reflecting the significant downside risks to growth in Guinea-Bissau. Population 2010 figures All natural wealth per capita calculations are made using 2010 population estimates and 2010 US$ prices
Natural Wealth Estimates for Phosphate and Bauxite
Mineral wealth estimates are based on the net present value (NPV) of the resource rents over the life of the mine. The resource rents (R), in year t are calculated as follows:
푅푡 = ((푃푢 − 푉퐶푢) ∗ 푄푡) − 퐹퐶푡 − 퐴
Where:
푃푢 = the unit price of a ton 푉퐶푢 = the unit variable cost associated with the extraction of one ton 푄푡 = annual mineral production
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퐹퐶푡 = annual fixed costs 퐴 = amortized capital
The amortized capital represents the opportunity cost of capital or “allowed profits”:
푝푟 ∗ (1 + 푝푟)푛 퐴 = 퐼 ∗ 푡 푡 (1 + 푝푟)푛 − 1
Where n = the life of the mine and pr = the private sector discount rate.
The NPV of the rents are calculated by discounting the sum of annual rents using a social discount rate of
4 percent. Year 푡0 starts in 2013 and the final year, year 푡푛 is when the mine ceases to operate – 2040 for the phosphate mine and 2042 for the bauxite mine.
푡=푛 1 푊 = ∑ 푅 ∗ 푡 1 + 푟푡 푡=0
To obtain wealth per capita estimates, W is divided by 2010 population figures for Guinea-Bissau.
The assumptions used to calculate wealth estimates for Guinea-Bissau’s phosphate reserves are based on the latest feasibility studies conducted by Plains Creek Phosphate Corporation. Assumptions for the Bauxite reserves are taken from a number of different sources, since the planning by Bauxite Angola is less well developed. Some of the costs have been taken from mining projects in neighboring Guinea-Conakry. Other assumptions have been taken from press releases on the intentions of Bauxite Angola. Given the high degree of mineral price volatility over recent years, the price is assumed to stay constant over the life of the mine (Table 2).
There is a large degree of uncertainty associated with both estimates, as mining has not started at either of the sites.
Table 16. Main assumptions used for the wealth calculations of phosphate and bauxite deposits
Assumption Phosphate Bauxite Year production commences 2015 2018 Life of the mine 25 years 25 years 165,114,000, split over two years Upfront capital costs (US$) (57,504,000 in year one and 400,000,000 107,610,000 in year two) Opportunity cost of capital 16% 16% Unit cost of production (U$/ton) 73 11 Unit price (US$/ton) 121 36 Annual production (tons) 1,000,000 3,000,000 Annual fixed costs (US$) 2,590,000 6,000,000 Natural wealth per capita estimates ($) 126 55
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Natural Wealth Estimates for fishing
There are two different wealth per capita estimates for fishing in Guinea-Bissau – artisanal estimates and industrial fishing estimates.
Artisanal fishing
Fishermen in Guinea-Bissau either use a non-motorized vessel – akin to a canoe - or a motorized vessel for fishing. The motorized vessels are more efficient at collecting fish, but also have higher variable and fixed costs. There are no official wage rates for fishing in Guinea-Bissau; rather it depends on the price collected on the day. Based on local interviews, fishermen, on average, are given 30 percent of the revenues. This labor cost has been applied for fishermen using both motorized and non-motorized vessels
The average price per ton of fish is based on an assessment of the average catch composition and prices the fishermen obtain when they sell their fish to the market – rather than the actual market price, which is significantly higher (Tables 17 and 18). While a more detailed assessment would disaggregate the catch composition in more detail, data limitations mean that averages have been used to calculate the natural wealth estimates.
Table 17. Landings by the artisanal sector, 2010
Crustacean Large Other Continenta Area Demersal Pelagic s & Total pelagic seafood l molluscs Bafata 40 5 1 - - 711 757 Bissau 154 274 - - - - 428 Blombo 1,808 1,104 6 - 31 - 2,949 Bolama 421 527 - 1 - - 949 Bubaque 552 624 14 12 - - 1,202 Cacheu 1,820 1,010 7 - - - 2,837 Cacine 1,643 1,720 125 39 - - 3,527 Caio 418 32 - - - - 450 Catio 399 484 - - - 886 Farim 260 91 10 - 74 - 435 Gabu 0 0 0 0 0 172 172 Porco 551 1,502 - - 6 50 2,109 Quinhamel 1,802 1,268 - - - - 3,070 Sao 166 53 1 - 13 8 241 vicente Uno 11 195 - - - - 206 Uracane 235 839 - - - - 1,074 Varela 469 134 1 - - 604 Total 10,749 9,862 165 52 127 941 21,896 Source: 2011 Socio-Economic Assessment58
58 III Inquerito sobre os aspectos socio-ecónomicos da pesca na Guiné Bissau, CIPA 2011
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Table 18. Prices for main categories of seafood landed by the artisanal sector
Fishing product Average CFAs/kg between Average CFAs/kg between market fishermen and the market* and end consumers** Pelagic 250 500-1,000 Large pelagic 250 800-1,500 Demersal 500 1,500-2,500 Continental 500 Crustaceans and molluscs 1,000 5,000 Tiger shrimp 6,000 10,000 Other 200 250 * As reported in the 2011 Socio-Economic Assessment ** Based on interviews conducted in Bissau during February-March 2013
Other assumptions on costs and fleet sizes, as well as their annual growth, have also been taken from the 2011 socio-economic assessment of Guinea-Bissau’s fishing sector. The fleet sizes of both the non- motorized and motorized vessels have been capped, to reflect the size at which diminishing returns may kick in due to overcrowding (Table 5). This is an estimate and could easily change if for example the productivity of the fishermen vastly improved.
Table 19. Main assumptions used for the wealth calculations of artisanal fishing
Assumption Non-motorized vessel Motorized vessel Number of vessels in 2011 1,274 268 Annual vessel growth 2% 5% Maximum fleet size 2,000 500 Average catch per outing (tons) 0.08 0.38 Annual number of trips per year 127 89 Average price per ton of fish (US$) 775 (753 in 2010 prices) 775 (753 in 2010 prices)
Costs In US dollars, 2010 prices, unless otherwise indicated Variable costs per outing $13 $143 Annual fixed costs $74 $258 Labor costs 30% of revenues 30% of revenues Capital depreciation $110 $1,047 Natural wealth per capita estimates ($) 63 69
The estimates are limited to domestic artisanal fishing, but in practice there are likely to be a number of foreign vessels operating in Guinea-Bissau waters, mainly from Senegal and Guinea Conakry. While no specific estimates are available, anecdotal evidence based on conversations with the local population, suggest this number could be quite large.
Industrial fishing
Ideally, resources rents from commercial fishing would follow a similar methodology to artisanal fishing, using landings data, international fishing prices, and commercial fishing costs to calculate the resource rents. However, domestically captured data are not readily available in Guinea-Bissau. Only the Chinese are required, as part of their license, to land fish for domestic consumption – which is recorded; other fish, destined for international markets, and the catch from other vessels, are not.
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An indicative wealth per capita measure is therefore taken from Sumalia et al.s paper (2012) “Marine fisheries as a source of sustainable wealth of nations”. The key assumptions are as follows:
• Landing data: the FAO’s global fisheries catch database, supplemented by the Sea Around Us project, which provides a better assessment of country specific catch information. • Fish prices: Sumaila et al. (2007) ex-vessel marine fish prices, using data from 1950-2007 in 35 countries (representing about 20 percent of global landings). This data has been augmented with new sources and rules as to how prices relate across taxa, markets or years. • Fishing costs: global database developed by Lam et al. (2011), capturing both variable and fixed costs in 144 countries (98% of global landings).
The paper presents two different categories of fishing rent estimates: (i) a scenario where there is insufficient management of the fishing industry, including “bad” subsidies i.e. subsidies that promote anti- competitive behavior in the fishing market that can ultimately lead to over-fishing; and (ii) a scenario where management of the fishing industry is adequate, and there are good subsidies that help regulate the sector and ensure sustainability. For the purposes of this paper, the rents from scenario 2 are chosen, to illustrate the potential fishing rents available to Guinea-Bissau. This is estimated at $224 per capita ~$173 in 2010 prices. However, it should be noted, that without active management of the fishing sector, scenario one seems more likely and would result in zero rents captured by the government.
Natural Wealth Estimates for timber and non-timber forest resources
Historically, timber and wood production statistics for Guinea-Bissau have been computed by the FAO, based on findings from 1990. Reports and reviews of the forest sector have relied on these estimates in place of a better alternative. With the emergence of potential funds under the UN’s programme of Reducing Emissions from Deforestation and Forest Degradation (REDD) the government of Guinea-Bissau has explored opportunities to protect their forests. This has involved a more detailed overview of annual rates of deforestation and better data capture of wood exports. These new data tell a very different story to the FAO’s data and provide a more detailed assessment of the forest sector.
While the new data, especially from the customs authorities, has its flaws, it is more up-to-date and shows progress towards better management of the sector. The natural wealth calculations of timber are based on wood export data from the customs authorities in Guinea-Bissau. Rents from timber production are calculated as follows:
퐴퐸 푇푅 = (퐸푈푉 ∗ ( ) + (0.548 ∗ 퐶푈 ∗ 130)) ∗ 푟푇 0.85 where:
TR = timber rents
EUV = Export unit values
AE = annual average exports
CU = adult population using charcoal
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푟푇 = rental rate of timber
The export unit values are calculated by dividing the total export volume in a given year by the total income or value of the same export. An annual average value is taken based on values over a five year period. For Guinea-Bissau, timber has been categorized as (i) sawnwood, (ii) other processed or sawnwood and (iii) raw or rough wood. In theory, there should be no exports of raw wood as this is illegal, however as can be seen from the customs data exports do occur (Figure Figure 2).
The export unit value data jumps around from year to year (Figure 11). One possible explanation for this is the misclassification of wood types so as to mask potential raw wood exports, especially in recent years. Comparisons with FAO regional data – for West Africa – suggest that sawnwood and raw wood prices in Guinea-Bissau are higher than the regional average, whereas other wood attracts a much smaller price than the rest of the region. To smooth out the EUV, an average of each individual consignment has been taken for each year, eliminating values that look too high or low.59
Figure 13. Total volume of timber exports Figure 11. Export unit values of Guinea-Bissau’s main timber exports in tons in $ per ton 4,000 700 3,500 600 3,000 500 2,500 400 2,000 1,500 300 1,000 200 500 100 - 2006 2007 2008 2009 2010 2011 2012 0 2008 2009 2010 2011 2012 West Sawnwood Africa Sawnwood regional Other wood processed/sawn Rough Wood average Rough Wood Other wood processed/sawn
Source: Guinea-Bissau national authorities, World Source: Guinea-Bissau national authorities, World Bank calculations Bank calculations
Unfortunately there is no domestic timber production data available for Guinea-Bissau. The DGFF remains under resourced and unable to monitor all timber and forest related activities in the country. While the forests offer the local communities an important source of wood for furniture and other household goods, most of Guinea-Bissau’s timber is destined for export. It is therefore assumed that exports represent 85
59 Raw wood unit values less than $100 per ton and greater than $500 per ton where eliminated. Similarly, values less than $125 per ton and greater than $850 per ton of sawn wood were removed to calculate average figures. For the “other” wood category the ranges varied according to the type of product. For example, the bands for wood furniture are higher than the bands for wood artifacts. The ranges were chosen based on an assessment of prices throughout the period 2006-2012.
55 percent of total timber production in the country, based on the quantity of wood that is produced outside of domestic saw mills.
Charcoal estimates are added to the timber production estimates above. Data on charcoal production is not readily available, and as such, this study relies on an estimate from a 2002 study, which suggests each person uses 548kg of charcoal a year. By assuming 80 percent60 of the adult population (59 percent of the total population in 2010) uses charcoal in Guinea-Bissau, the annual production of charcoal can be estimated.
A rental rate is then applied to the revenue data which takes into account the cost of production. As this is not readily available for Guinea-Bissau, the value adopted in the World Bank’s “Changing Wealth of Nations” publication is used. This rental rate (41 percent) is based on a literature review of other developing countries. A more accurate assessment of Guinea-Bissau’s natural wealth from timber resources would require a detailed assessment of the cost structure of the different firms operating in the country. As present, this information is not readily available.
Natural wealth estimates for non-timber resources are based on an extensive literature review on the value of forests on livelihoods in developing countries, undertaken for the “Wealth of Nations” publications. The main activities include hunting, recreational activities and watershed services. These rates have been applied to the updated forest coverage figures for Guinea-Bissau. It is assumed that hunting and other recreational activities take place in 10 percent of open forests and savannah land. Watershed services are assumed to apply to all land with forest coverage (Table 6). Each of the four forest types are assumed to either increase or decrease over the next 25 years depending on historical deforestation rates during 2002- 2007 (i.e. the latest available data).
Table 20. Non forest timber resource estimates
Forest area activity undertaken in Rental rate ($ Wealth per Type of Activity Hectares per hectare, % of total capita (2013) 2010 prices) Hunting and $4 10 % 729,469 5.9 Fishing Recreation 10 % 2,282,284 14.2 $35 Watershed 100% 2,576,382 11.8 $327 Services Total 5,588,135 $366
Natural Wealth Estimates for carbon
Carbon estimates are based on the certified emission reduction price (CER) traded in the European Union’s Emissions trading scheme. Wealth calculations are estimated as follows:
60 Rate of charcoal use as captured be the UN
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푡=0 1 푊 = ∑[(퐶 ∗ 푑 ∗ 퐶퐸푅 ) − 푀푅푉 ] ∗ 푡 푡 푡 푡 1 + 푟푡 푡=푛
Where:
C: carbon stock in Guinea-Bissau’s protected areas, d: deforestation rate
CER: certified emission reduction price (CER) traded in the European Union’s Emissions trading scheme
MRV: annual costs of monitoring, reporting and verifying the carbon stocks in the protected areas r: social discount rate
The carbon stocks estimates are based on analysis conducted by Carboveg, who have been supporting the government in their REDD plans. This is a vast improvement on previous FAO data, using modern techniques to capture the forest areas as well as carbon embedded in the soils and forests (Error! Reference source not found.). The assessment also takes into account forest degradation, not just deforestation. Current logging practices in Guinea-Bissau mean that forest degradation is of particular concern as forest land is often destroyed when loggers are searching for the highest quality trees.
Carbon rents will vary overtime, as the carbon price fluctuates. The financial crisis and the inability of the EU to tighten the cap on emissions in the EU ETS have driven the CER price down to record low levels (less than €0.50). At this price, it is not economical for Guinea-Bissau to enter the carbon market, owing to the relatively high costs of MRV. If however, the CER price, and thus the VER price were to increase to previous levels ($20-25), the rents from reducing carbon loss could be positive. A carbon price of $20-25 is commensurate with research on the cost of carbon required to offset damages from climate change. Estimates for Guinea-Bissau’s wealth from carbon therefore range from $0, if the CER price remains low, or up to $89 per capita if a carbon price of $25 is assumed.
Table 21. Carbon Stocks (Mtons) in protected areas
Proportion in Carbon stocks Forest type a protected (Mtons) area Closed Forest 2% 0.1 Open Forest 28% 9.3 Savanah Woodland 60% 31.5 Mangroves 9% 0.4 Total 41.4 Source: Carboveg
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Natural Wealth Estimates for Crop and Pasture Land
Crop land
Guinea-Bissau’s agriculture sector, while mainly subsistence, is very rich in terms of the variety of products farmed. Domestic data is limited; information from the FAO has been used to complement the domestic data that is available. The small scale nature of farming also means that rental values are impossible to compute without a detailed household study on farming income and costs. Rental rates are therefore based on previous literature reviews as set out in the “Changing Wealth of Nations”. The yearly resource rents are estimated as follows:
푡 퐶 퐶푅푡 = (퐸푈푉 ∗ (퐶푃 ∗ (1 + 푟) ) ∗ 푟 where:
퐶푅푡 = crop rents in year t
EUV = regional export unit values, domestic prices are used where available
CP = 5 yearly average crop production (2006-2010), based on FAO harvest (H) and yield (Y) data:
∑푡=2006−2010 퐻 ∗ 푌푡 푡 5 r = estimated annual average crop growth rate (1.7 percent)
푟퐶 = rental rate of crops
Natural wealth per capita estimates are based on the summation of these yearly rents for 25 years, discounted, and then divided by 2010 population.
Prices/Export Unit Values
Domestic prices for agricultural products are difficult to come by, and can often differ from region to region. The prices used for the rental calculations are therefore based on a five year average of Export Unit Values (EUV) of crops exported in West Africa (FAO data). The export unit values are calculated by dividing the total export volume in a given year by the total income or value of the same export.
Export prices are not necessarily a good reflection of domestic prices as countries frequently impose quotas and export tariffs. For example, sometimes the cost of trade facilitation measures (of which transport within a country is one element) can dramatically increases the export price. However, these export unit values offer a good alternative where domestic data is not available. Local rice and cashew prices are available, and have been used in place of the regional averages (Table 7).
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Table 22. Crop Unit Price (US$ 2010/ton)
Crop Average (2005-2009) EUVs Local Price from FAO data Bananas 458.5 Cashew nuts, with shell 653.7 463.0 Cassava 116.6 Cereals 824.8 Citrus Fruit 2,275.8 Coconuts 449.3 Fibre Crops 390.1 Fonio 71.3 Fruit Fresh 2,898.2 Groundnuts, with shell 464.1 Lemons and limes 1,669.2 Maize 138.3 Mangoes, guavas 757.2 Millet 156.1 Oil palm fruit 1,040.7 Oilcrops 246.2 Oranges 183.0 Papayas 856.3 Pineapples 494.3 Plantains 821.0 Pulses 356.6 Rice, paddy 1,155.6 500.0 Roots and Tubers 738.4 Sorghum 270.7 Sugar cane 2,742.0 Fresh Vegetables 1,045.1 Source: FAO, country research, EUV based on author’s calculations
Production
Production data was taken from the FAO’s database. There are a selected few crops where local data is available: cashew, rice, sorghum, millet, fonio, other cereals, and cassava. In general, the locally produced data is similar to the recorded values in the FAO database, the notable exceptions being cashew (domestic data suggests production is almost 60 percent greater) and millet (domestic production should be 40 percent lower).
Rental values
Production cost data is difficult to come by, especially as most farming is undertaken by families looking after relatively small plots. Large scale commercial farming, of crops other than cashew, is non-existent. The previously assumed rental rate of 30 percent (under the “Where is the Wealth of Nations” calculations) is therefore applied, in place of anything more country specific. There are however two exceptions: cashew and rice.
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Cashew production in Guinea-Bissau, while profitable in terms of mass, is not that profitable once all of the costs have been taken into account. The World Bank’s Country Economic Memorandum estimates that the average profit on a $463 ton bag of raw cashew is $20 – a rental rate of less than 5 percent. This could be dramatically increased to almost 50 percent (~$220) if the nuts were processed before export.
Rice production in Guinea-Bissau also suffers from low productivity and as a consequence low rental rates. Irrigation costs of rice are high and while labor costs cannot be easily ascertained owing to the lack of information on average wage rates in rural areas, rice is much more labor intensive than cashew farming. Rising rice prices have meant that the rental price, compared to cashew, has been increasing, and so while it may not be as high as other crops with a 30 percent rental rate it should be higher than the 5 percent currently recorded for cashew.
Pasture land
Rents from pasture land are calculated in a similar way to crop land:
푡 퐶 푃푅푡 = (퐸푈푉 ∗ (푃푃 ∗ (1 + 푟) ) ∗ 푟 where:
푃푅푡 = pasture rents in year t
EUV = regional export unit values, domestic prices are used where available
PP = 5 yearly average crop production (2006-2010) r = estimated annual average pasture growth rate, assumed to be 0.9 percent across all products
푟푃 = rental rate of pasture,
Prices
Locally recorded prices per ton of meat are higher than the export unit values calculated for the West Africa region (Table 8). This may be due to the limited supply of domestically produced pastoral products – the FAO for example, estimated that the annual consumption of milk in 2007 was 10.8 liters per capita, which is far below the recommended standard (62 liters per person per year).
Table 23. Product Export Unit Values (US$ 2010/ton)
Product Average 2005- Local 2009 EUVs prices in from FAO 2012/3 (2010 prices) Sheep meat 4,299 5,832 Goat meat 4,564 4,564 Hen eggs, in shell 3,765 2,430 Chicken meat 1,565 6,561
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Cattle meat 3,255 4,374 Pig meat 3,357 4,860 Cow milk, whole, fresh 928 928 Source: FAO, country research, EUV based on author’s calculations
Production
The production data from the FAO corresponds with the latest data from the national authorities, the only discrepancy is the production of pork. The FAO’s data is 10 times greater than the pork production figures recorded by the DGAg in 2012. This has a significant impact on the rents from pastoral farming, as they account for about a quarter of the final wealth per capita figures.
Natural Wealth Estimates for Biodiversity/Protected areas
There is growing awareness of the importance of biodiversity, not just for preservation’s sake, but the innate economic value that it holds. Initiatives such as TEEB, The Economics of Ecosystems and Biodiversity, have progressed this agenda by helping place values on these otherwise unquantifiable resources. For policy makers, ecotourism offers a tangible way of both protecting the environment, and generating revenues. Rents from ecotourism services can then be used as a proxy to measure the natural wealth of a country’s biodiversity. Ecotourism is definitely a possibility in Guinea-Bissau given their plentiful supply and diversity of flora and fauna. Estimating the potential wealth from biodiversity via this method requires more information on tourists’ willingness to pay (via contingent valuation surveys) for services in Guinea-Bissau. On the cost side, more analysis is needed to determine what the minimum cost is to make Guinea-Bissau ecotourism friendly.
In the absence of this information, the opportunity cost of Guinea-Bissau’s protected lands is calculated as a proxy for biodiversity. The average wealth per hectare of crop and pasture land ($102) is multiplied by the number of hectares covered by half of the country’s protected areas (277,978 hectares). Only half of the land is assumed to be appropriate for farming. Using this method, the natural wealth per capita of biodiversity comes to $305.
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