Financial Cost

Actual damage costs caused by environmental deterioration could be assessed on the basis of defensive expenditures or costs. ese comprise the actual environ-mental protection costs involved in preventing or neutralizing a decrease in envi-ronmental quality and the actual expenditures that are necessary to compensate for or repair the negative impacts of a deteriorated environment (UN, 1993).

Environmental costs are those connected with the actual or potential deteriora-tion of natural assets due to economic activities. ey are caused when economic units are associated with actual or potential environmental deterioration by their own activities. Environmental costs are borne by economic units independent of whether they have actually caused or might potentially cause environmental deterioration. Depletion costs refer to the quantitative depletion of natural assets by economic activities, whereas degradation costs reflect the quantitative deterio-ration of the natural environment by economic activities.

e qualitative impact on the environment comprises the deterioration of land-scape and ecosystems caused by economic activities or the discharge of residuals of economic activities into the natural environment. Degradation costs could therefore refer to the costs caused by economic activities or to those related to the effects of a degraded nature borne by industries and households (UN, 1993).

e actual expenditures connected with environment-related activities are called actual environmental costs. ey comprise environmental protection costs and repercussion costs. Environmental protection costs can be sub-divided into avoidance (prevention) costs and restoration costs, and the repercussion costs into avoidance and (damage) treatment costs (UN, 1993). Actual environmen-tal costs do not include the gross capienvironmen-tal formation of environmenenvironmen-tal protec-tion facilities and of produced assets used for damage avoidance or treatment activities. Only the economic depreciation of those assets is taken into account.

Environmental expenditures on the other hand usually include capital formation (capital expenditures) and running (operational or current) costs.

Environmental expenditures cover the expenditure of several government depart-ments and private individuals and firms. One aspect of environmental expendi-ture is one devoted to the provision of health services. e table below suggests that the share of health expenditure in the GDP of Southern African countries is low, usually below 4 per cent in spite of the critical health problems affecting the sub-region in the provision of adequate water and sanitation and coping with the HIV-AIDS pandemic.

In Zambia, for example, the cost of mitigating climate change brought about by deforestation is estimated at $US 15 million over a 5-year project cycle. is comprises expenditures on various programmes of re-afforestation, enhanced natural regeneration, national parks, agricultural land improvement, the planting of natural timber, fuel wood end-use efficiency, and efficient charcoal production (ECZ, 2001).

Social Sector Expenditure Million Kwacha Share of expenditure (%)

Education 332,121 53.4

Health 204,302 32.9

Social Safety Net 55,039 8.9

Water and Sanitation 25,235 4.1

Table 2.11: Refuse Collection Equipment in Lusaka 1970-1995

Source: GOZ, 2002

e main environmental concerns in Malawi are handled by the Ministry of For-estry, Fisheries and Environmental Affairs. In 1998-1999, the Ministry’s financial allocations was less than 2 per cent of the National Budget while the propor-tion for debt serving was almost 27 per cent (UNCCD, 1999). In Angola, the Ministry of the Environment only receives 0.03 per cent of the National Budget (UNEP, 1999).

In Mauritius, the Government plans to spend Rupees10 billion during 2002-2003 to 2012-2013 on environmental resource management especially on environmen-tal protection and management. is is a country where more than 80 per cent of the population is not connected to the sewerage system, and those who have access reside in a few predominantly urban areas. Rs 912 million is to be spent on major environmental projects such as the construction of the St. Martin Treat-ment Plant, and the Plaines Wilhems, Montagne Jackquot, Baie du Tombeau and Grand Baie sewerage projects. Rs 192 million is being devoted to rehabilitation of the dumping grounds at Roche Bois and Mantagne St. Pierre, construction of a new transfer station in the East of the country and operation of existing transfer stations and landfills (Government of Mauritius Budget Speech, 2002/2003).

e Government of Botswana’s budget for 2002 allocated Pulas 578 million or 11 per cent of the development budget, to the Ministry of Minerals, Energy and Water Affairs, of which, more than half, amounting to P300 million, is allocated

to one major project, the Major Village Water/Sanitation Development. Other projects with significant amounts under this Ministry, together requiring P164 million or 28 per cent of the Ministry’s development budget are: Rural Power Supplies (P78 million), BCL Finances (P58 million) and Village Water Supplies and Technology (P28 million).¹⁶

e budget for the Ministry of Lands, Housing and Environment is P348 million or 7 per cent of the total development budget and is intended to implement nine ongoing projects. An amount of P304 million, or 87 per cent of the Ministry’s budget, is set aside for four projects, namely, Government Office Blocks (P103 million), District Housing (P138 million), SHHA Development (P40 million), and Land Boards Development (P23 million). e remaining P44 million of the Ministry’s budgetary allocation is to be shared among environment management activities, computerization, Botswana Housing Corporation Finances, surveys and mapping, and land use planning (GOB, 2002).

Firms in Southern Africa are increasingly aware of the magnitude of their environ-mental protection costs. e findings of a survey conducted among 19 of South Africa’s top organizations (KPMG 2001), suggests that there is growing awareness of the significant financial implications of environmental performance and that environmental accounting practices are gradually increasing. e current appli-cation of environmental accounting remains extremely low. While the surveyed companies claimed to have financial environmental information of various types, including capital expenditure, operating expenditure, liabilities and provisions, very few seemed able or willing to access and accurately report on this data readily.

Environmental capital expenditures were mostly associated with water, waste and air impacts, while environmental operating expenditure related mainly to technology, rehabilitation and consultants. Environmental liabilities were chiefly incurred in relation to land rehabilitation and water contamination.

Approximately a third of the sample was spending more than R100 million on environmental issues. However, environmental cost savings, cost avoidances and revenues are not widely measured or reported. Where they were disclosed in the survey, most comprised environmental revenues and were related to energy pro-grammes. e South African Paper and Pulp Industry (2001) reports $US 29 million in spending, related to a one-off environmental expenditure in North America (to comply with the Environmental Protection Agency “cluster rules”) and in Southern Africa.

When examining aspects of environmental expenditure in terms of spending on water and sanitation, it becomes clear that there are fundamental problems with regards to social sector spending. e main problem is in connection with waste

16 Government of Botswana, 2002.

disposal. Sewerage facilities appear to be of lower priority than water in many parts of Africa.

In South Africa, for example, increasing South Africa’s Rand Water’s capacity by around 1,200 megalitres per day from the end of 1998 was estimated to cost R1.5 billion. Also in South Africa, the Albany Coast Water Board is developing a sea-water desalination plant, at an estimated cost of R2.5 million. Plans to upgrade and expand the Rustenburg area in order to meet demand are expected to cost approximately R230 million. e Department of Water Affairs and Forestry budget for Community Water Supply and Sanitation was R500 million in 1997-1998, targeting 4.7 million people (US Department of Commerce, 2000).

e priority of South Africa’s Department of Environmental Affairs and Tourism, since 1999, has been tourism on one hand and waste management on the other.

Programmes and resources have been reprioritized to strengthen Government’s capacity in these two areas. South Africa’s annual budgets for environment and tourism during the 1996-1997 to 2002-2003 period are summarized in table 2.12 below. is expenditure is to guide development and conservation of the coastal and marine environment and ensure sustainable use of coastal and marine resources.

Table 2.12: Share of Environmental Management in the Departmental Budget:South Africa

Expenditure Outcomes (%) Medium-Term Expenditure Estimates 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03

Administration 5.9 6.0 5.9 5.3 5.5 4.6 4.6

Environmental Coordination and

Communication 3.3 3.4 4.1 3.1 4.0 3.4 3.4

Marine and Coastal

Management 21.4 20.9 21.7 15.4 17.3 31.3 31.2

Weather Bureau 15.1 15.1 14.6 11.0 10.2 8.7 8.8

Tourism 16.0 18.0 19.6 33.8 37.5 31.1 31.3

Environmental Quality and

Protection 6.7 8.0 5.6 8.0 5.1 4.2 4.2

Biodiversity and

Heritage 26.3 24.1 24.5 19.9 17.1 14.0 14.1

Auxilliary and Associated

Services 5.1 4.4 3.9 3.5 3.3 2.7 2.6

Departmental

Vote (Total) 100.0 100 100 100 100 100 100

Source: Derived from DEAT (2002)