Governments in Southern Africa are showing growing interest in the application of environmental economics instruments (EEIs) to improve the management of their natural resources.  Many promoted this interest, among which are:

• Frustration with the limited success of regulations.  Regulations are easy to make, are often difficult to enforce and implement;
• The need to raise government revenues as governments often have no other ways to finance natural resource management;
• The growing diversity and complexity of environmental issues required additional instruments;
• A global trend in favour of the use of EEIs other than environmental regulation.

In general, environmental policies have three types of instruments at their disposal: 

• legislative or regulatory instruments;
• EEIs; and
• Consultative instruments.

In contrast, consultative instruments seek voluntary, environmentally friendly, adaptations of individuals or groups.  Such instruments can be non-binding and  binding.  Examples of non-binding instruments include education, awareness raising and consultation.  Governments hope that these instruments will improve resource attitudes and behaviour, but there is no guarantee that this happens.  Non-binding consultative instruments have long been used with mixed success.  During drought and other natural hazards, they have proven to be effective.  However, in many cases environmental behaviour does not change voluntary.  During the last two decades, binding consultative instruments have been pioneered.  The covenant offers the best example.  A covenant is a binding environmental plan agreed upon after discussions between the resource user and government.  A covenant has clear environmental targets and spells out the responsibilities of the resource user(s) and government.  In addition, it has an agreed time frame for its implementation and sanctions for non-compliance.  No examples are known of covenants in Southern Africa.  The management plans, which communities prepare prior to receiving wildlife user rights, are close to covenants, but most do no have all the characteristics described here.

Environmental-economics offers financial gains for environmentally friendly behaviour and imposes financial costs on environmentally damaging behaviour.  In this way, they aim at indirectly influencing the behaviour of resource users and polluters.  The second aim of EEIs is to raise revenues for government's efforts in natural resource management.  Not surprisingly, revenue raising often becomes the major result of these instruments.  The advantage of EEIs is that polluters and resource users have a choice, i.e. to reduce pollution and resource use or to pay more.  They will choose the solution, which is cheapest to them, and thus minimise their costs.  This makes EEIs efficient.  The roots of EEIs lie in the polluter-pays principle and in the user-pays principle, which stipulate that polluters and resource users should pay for the damage and use of natural resources.  A growing number of Southern African countries has adopted these principles.  Usually, the instruments are sub-divided into revenue raising and non-revenue raising instruments.  The former generate revenues (e.g. charges), whilst the latter do not or may even cost money (e.g. subsidies).  Charges are the most common instrument world wide.  In Southern Africa, property-rights are also commonly used.

With respect to the application of EEIs, two concerns require special attention in Southern Africa.  First, the interests of the majority of low-income groups need to be carefully considered.  Affordability should be considered together with opportunities for cross-subsidisation (for example: high-income resource users subsidise low-income groups).  Second, inflation is high in the region (by global standards), and this requires that most financial instruments be regularly adjusted to remain 'constant' in real terms.

Each type of instrument has its strengths and weaknesses.  Therefore, instruments should be chosen carefully.  In many cases, a mixture of instruments is most suitable. 

User Charges
Charges are frequently used in Southern Africa.  Charges are payment for resource use or pollution.  Resource use charges are often low, mostly for three reasons.  First, charges are not regularly adjusted, and therefore their 'real' value is eroded.  Second, low charges are often applied for economic empowerment of citizens (e.g. livestock, fisheries).  Thirdly, the base or principle underlying charges is often not clear.  As a result, charges are set haphazardly and are not transparent. 

It is well known from the literature that low charges are not effective and generate low government revenues in addition to discouraging growth and economic development.  It is therefore better for governments to have proper charges together with targeted, temporary subsidies to assist citizen entrepreneurs.  Charges are unlikely to change environmental behaviour if:

• the price elasticity of demand is low (people responsiveness is weak);
• they are not linked to the volume of resource use (e.g. use of flat rates);
• they are linked to the wrong resource.  For example, charges for irrigation farmers are linked to the irrigated area rather than the amount of water consumed.
• Dual resource supply systems exist: one free of charge and one at costs.  The former erodes the effectiveness of the latter.

Property rights
This instrument is widely used in the region in the form of privatisation, de-privatisation and community-based natural resource management (CBNRM).  They include ownership rights (e.g. land), development rights (e.g. land and water) and user rights (e.g. water, fish and wildlife).  The idea is that through property rights resource users themselves will experience environmental externalities such as land degradation or wildlife depletion and consequently look better after the natural resources.  Moreover, property rights would also improve resource security and warrant investments. 

The performance of property rights has been mixed.  Private land rights may have saved some resources from the perils of open access, but they have generally been unsuccessful in improving land management, economically, socially and environmentally.   Factors that negatively influenced their performance include:

• Persistence of other management constraints;
• Continued access to communal areas (dual grazing rights);
• Failure to enforce resource management conditions; and
• Institutional fragmentation and imperfect markets. 

The results of community-based property rights are promising, but it is too early to reach definite conclusions.  With respect to wildlife, CBNRM contributes to sustainability and equity.  Tendering proved to be useful in promoting efficiency and equity.  The programmes are now diversifying into other resources (e.g. veldproducts in Botswana and water in Namibia).  Increased benefits to local population lead to a more positive attitude towards natural resources.  Constraints include:

• Community conflicts and cohesiveness;
• External resource threats beyond the control of local communities;
• Illiteracy, limited community skills and experience.

While property rights are useful to shift resource management responsibilities from government to civil society, governments need to ensure that market and institutional failures (CBNRM) are minimised.  This requires that conditions are attached to property rights and that monitoring takes place. 

Tax measures
Tax measures are currently hardly used to improve resource management.  This is undoubtedly due to the limited scope of the tax system and inadequate collection mechanisms.  Tax measures tend to be efficient as they use existing mechanisms.  There is scope for the use of a two-tier VAT system, where environmentally benign products would fall in the lower VAT rate.  In addition, tax concessions could be offered to commercial companies for investments in environmentally friendly technologies.

Environmental subsidies
These conflict with the purchasing power parity (PPP) rules but may be utilised to encourage environmentally friendly technologies and behaviour.  They may be justified for activities with net benefits to society but are not taken up by because the net benefits to individuals or companies are negative. Examples may include solar power, water harvesting and re-cycling.  Such subsidies should not become permanent. 

Deposit-and-refund schemes
Deposit-and-refund schemes mostly address litter and waste management.  The purposes of the instrument are to reduce littering and encourage recycling and re-use.  In Southern Africa, these schemes are restricted to bottles and cans.  The region does not yet expand the scope of these schemes to, for example, PET bottles and durable consumer goods.  Interestingly, two factors were found to encourage recycling and re-use in the region.  Firstly, high unemployment offers opportunities for informal recycling/ collection schemes (e.g. aluminium cans). Such schemes run without government involvement.  Secondly, shortage of foreign exchange offers a strong incentive for recycling and re-use.

In Southern Africa, three issues have captured the attention of policy makers: 

To-date, EEIs do not play a major role in resolving these issues.  The most important gap in the use of EEIs is the allocation of land resources.  Land allocation is primarily based on land-use planning, and does not pay adequate attention to economic factors in whether land should be used for livestock or for wildlife. 

Land degradation is often the by-product of subsidies that failed to incorporate environmental concerns.  In most cases, these subsidies benefit agricultural sectors such as livestock, irrigation and forestry.  Agricultural subsidies have led to agricultural expansion into marginal areas, at the expense of other sectors such as wildlife.  For example, removal of livestock subsidies made Namibian farmers switch to wildlife and derive more income from this sector (a rise from N$ 31 million in 1972 to N$ 56 million in 1992; Dima and Katjiua, 1999).  Clearly, government need to conducts an environmental review of all subsidy programmes. 

Three EEIs are used to address these issues:

• Land charges;
• Property rights; and 
• CBNRM 

Property rights have been used in three ways: 

Policy makers are increasingly concerned about the rapidly growing demand for water and escalating supply costs.  In general the following concerns exist (Hassan, 1998):

• Water shortages, locally, nationally and regionally;
• Rapid rise in marginal costs of water supply from transfer schemes, desalination plants, etc.;
• Inefficiencies in water allocation that may inhibit future economic growth;
• Water pollution by industries, inadequate sanitation facilities, fertilisers and pesticides.

• Greater emphasis on water tariffs and cost recovery (all countries).  Cost recovery targets and tariffs however differ;
• Greater emphasis on water demand management (all countries);
• Adoption of a catchment area approach to overcome institutional fragmentation and to improve water allocations (South Africa and Zimbabwe);
• Recognition  of environmental water rights, i.e. water needed to maintain these systems (South Africa and SADC treaty on shared river courses);
• Prioritisation of water needs.  For example, South Africa gives absolute priority to basic human water needs and environmental water needs;
• Restriction/abolishment of riparian rights, which entitled farms along rivers to extract unlimited water resources (Zimbabwe and South Africa);
• Growing use of EEIs. 

• User charges;
• User rights. Individuals or groups are granted water abstraction rights; and
• Development rights. Individuals or companies are granted the right to develop water sources such as boreholes;

User charges
User charges are common for institutional suppliers.  Charges primarily aim at recovering all or part of the production costs.  The charging principles differ among countries.  For example, until recently Zimbabwe had a countrywide blend price for water based on the average historical supply costs.  Botswana aims at full recovery of the marginal production costs in urban areas, while rural charges aim to recover recurrent costs only.  It is assumed that the rural population cannot afford to repay the high investment costs of rural reticulation systems.  In most countries water charges vary spatially reflecting difference in supply costs.  Spatial price differences offer, other things being equal, an incentive for high-water use activities to be located in water abundant areas.  Most countries have progressive rates with a low rate for the low use band (also called the lifeline or social band) and increasing charges for higher user bands.  The results of staggered charges are twofold:

• The large users, presumably richer households, companies and the public sector, subsidise water consumption in the social band, i.e. upon which the low income groups depend;
• They offer an incentive to save water as high use is 'punished' with extra high charges. 

• For domestic use, most households use water for sanitation, and have little room to save water irrespective of charges;
• For most industries, water constitutes a small portion of the production costs.  It is therefore not a business priority to save water;
• For the public sector, the bill may be centrally paid through the Ministry of Finance.  In that event, individual ministries and departments probably do not know their consumption, and will not respond to an increase in charges.

• Make communities responsible for their management (Namibia).  Social control will reduce wastage;
• Restrict access and give local residents a water quota in the form of water cards.  Trials in Botswana have shown that this system yields significant water-saving potential;
• Replace standpipes with individual connections.  This has adverse equity impacts unless governments subsidise the connections and a limited amount of water consumption each month. 

Development rights have generally been successful in improving access to water. However, maintenance of the systems proves difficult in countries with macro-economic problems. Illegal connections, leakages and inadequate maintenance may seriously disrupt the water supply. 

Institutional water suppliers usually enjoy a monopoly in their area of jurisdiction. Monopolies do not encourage cost minimisation.  Therefore, most governments have retained the prerogative to approve price changes.  This has the disadvantage that political motives may become an important price determinant.  Another measure to improve efficiency is the integration of the institutional responsibilities of water supply and wastewater treatment.  This would offer an 'in-house' incentive to make optimal use of treated effluent.

Several factors need to be considered in the choice and design of EEIs. 

Firstly, poverty is endemic in the region reducing people's willingness to pay for resource use and for substitutes of scarce resources and certain technologies.  On the other hand, poverty provides an incentive for labour-intensive recycling and re-use of waste.  Secondly, it is often stated that economic instruments are incompatible with the African culture.  This generalisation is misleading, as culture is dynamic and adaptive.  It is also important to recognise that the traditional culture has a strong element of consultation and inclusiveness that could be well exploited through a combination of economic and consultative instruments.  The promising results of CBNRM (an African blend of property rights instruments and a covenant between communities and government) serve as a good example.

Thirdly, the history of countries influences the attitudes towards and feasibility of economic instruments.  In the region, historical injustices such as appropriation of land and user quota by minority groups (e.g. fisheries) need to be incorporated in the design of new economic instruments.  Fourthly, political motives play an important role in the choice and implementation of instruments.  Reasons include citizen empowerment, social equity concerns, and interest protection.  In many cases, political interference has compromised resource sustainability and economic efficiency, and the equity impacts have been mixed.  It is important to be transparent about the motives, and to seek the best way of achieving the goals. 

Fifthly, The capacity of governments is limited.  This requires greater involvement of other stakeholders in society.  This is currently done through two instruments: devolution of development rights to self-providers of water outside urban areas; and granting of user rights to communities, which reduces the implementation, monitoring and enforcement burden of government.  Finally, the Southern African economies depend on primary production sectors.  Consequently, sustainable resource management should be considered a priority to sustain economic growth.  Moreover, a substantial, but diminishing part of the economy is subsistence-oriented.  Financial incentives may be hard to introduce in this sector, and are unlikely to have the same effect as in the market sector.

ArntzenJ., 1999. Economic instruments and the Southern African Environment. 
Dep. of Environmental Science, University of Botswana.

Dima,S and M. Katjiua,  1999. Economic Instruments and Namibia’s Environment.  University of Namibia. 

Hassan, R M, 1998.  Conserving and efficiently allocating water resources through demand management: The potential for emerging policy instruments, IUCN-ROSA Policy Brief No. 1, Harare, Zimbabwe

Lange,G.M. and R.Hassan  1999. Natural Resource Accounting: a Tool for Sustainable macroeconomic policy in Southern Africa. IUCN-ROSA Policy Brief No. 3, Harare, Zimbabwe.

SADC-ELMS, 1996.  SADC Policy and Strategy for Environment and Sustainable Development: towards Equity-led Growth and Sustainable Development in Southern Africa.  Lesotho.