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Regarding agricultural land, changes may only become apparent over a period of time longer than a year. Holding world market prices constant, agricultural productivity in a given year results from a combination of factors, mainly soil quality, annual weather, technology, and management decisions. Because all these factors fluctuate from year to year, their long-term implications for the value of agricultural land are hard to determine. When the calculation is done at the country level, with access to much more information, it may be possible (although difficult) to estimate these changes.
ANS can be a particularly useful indicator for resource-rich countries, those where resource rents are at least 5 percent of GNI. For these countries, transforming nonrenewable natural capital into other forms of wealth is a major development challenge. The rule for interpreting ANS is simple and clear: if ANS is negative, then we are running down our capital stocks and reducing future social welfare; if ANS is positive, then we are adding to wealth and future wellbeing. Figure 2.7 shows the performance of resource-rich countries, measured by the importance of resource rents in GNI. Positive ANS occurs in countries like Botswana and China, where mineral depletion is offset by investment in other types of capital. Those countries with negative ANS, below the zero ANS line, such as Angola and Uzbekistan, are depleting their natural capital without replacing it and are becoming poorer over time.
Figure 2.8 shows ANS for six developing-country regions.
While there is marked volatility from year to year, two trends are clear: the upward trend of East and South Asia, where per capita wealth is increasing rapidly, and the downward trend of Sub-Saharan Africa, where per capita wealth barely changed between 1995 and 2005 (although, as noted earlier, this African trend is dominated by figures for Nigeria and a handful of other countries, particularly oil-exporting countries).
FIGURE 2.7 Adjusted Net Saving in Resource-Rich Countries, 2008
Source: Authors’ calculations based on World Bank data.
40 THE CHANGING WEALTH OF NATIONSFIGURE 2.8 Adjusted Net Saving for Developing-Country Regions, 1975–2008
Population Growth and the Adjusted Net Saving Gap ANS captures change in total wealth, but for development, we are concerned with per capita wealth in order to maintain the standard of living for each person.
So when population is growing, wealth must increase just to maintain the same amount of productive capital and income-generating potential per person. If ANS is negative, it is clearly an indication that wealth is declining. When ANS is positive, on the other hand, the signal for development is less clear. If ANS is high enough to maintain per capita wealth, then the economy is on a sustainable path; but if ANS is not sufficient, then the economy will not be able to maintain the same standard of living for its growing population.
Using the comprehensive wealth accounts, we can calculate the amount by which ANS must increase each year simply to keep per capita wealth intact. This amount is called the “Malthusian term.” If we subtract the Malthusian term from ANS, the remaining savings (divided by population) is the amount by which per capita wealth increases. For example, countries as diverse as Gabon, Algeria, República Bolivariana de Venezuela, the United States, and New Zealand have had positive ANS but a decline in per capita wealth because savings has not been sufficient to compensate for population growth. In Gabon, for example, despite positive ANS of $393 in 2008, population growth caused per capita wealth to decline by $641 (see appendix E).
Figure 2.9 shows ANS adjusted for population growth scattered against the rate of population growth in 2005.
The downward trend suggests that higher population growth rates are associated with lower per capita wealth accumulation, but it is notable that some countries had positive per capita wealth creation even at high rates of population growth. At the lower right-hand side, where ANS adjusted for population growth is extremely negative, we see countries that already had negative total ANS, like Angola and the Republic of Congo.
Surprisingly, Uganda appears here as well. In the previous section, where we discussed changes in comprehensive wealth, Uganda appeared as one of the countries that had increased per capita wealth. Its negative performance under ANS reflects the fact that ANS does not include agricultural land and intangible capital—forms of capital that increased significantly in value in Uganda between 1995 and 2005. If they had been included, the population-adjusted ANS would have been positive.
The adjusted net saving gap measures, as a percentage of GNI, the difference between actual ANS and the amount necessary to maintain per capita wealth.
Appendix E reports the adjusted net saving gap for more than 150 countries. For example, the ANS gap for Algeria is 2.3 percent of GNI. So, for wealth per capita to at least stay constant, saving in Algeria should increase from the current rate of 12.2 percent to 15.5 percent. The savings gap for the United States and New Zealand is 2 percent.
42 THE CHANGING WEALTH OF NATIONSFIGURE 2.9 Population-Adjusted ANS and Population Growth Rates in Developing Countries, 2005
Conclusions The decade from 1995 to 2005 saw a large increase in global wealth, with intangible capital—already the largest share of global wealth—accounting for nearly 80 percent of the change. Whether looking at changes across income groups at a single point in time, or at changes for a single income group over time, the wealth accounts confirm that development is a process of building wealth and shifting its composition from natural capital to produced and intangible capital. The large disparity in wealth has persisted, although the distribution of wealth shifted slightly in favor of low- and middle-income countries, whose share increased from 14 percent to 17 percent.
In most developing countries, wealth creation is dominated by intangible capital—increases in human capital, improvements in institutions and governance, and technological changes that support more efficient use of produced and natural capital and higher levels of consumption. At the global level, the share of natural capital in total wealth is small and declined in all income groups over the period. But natural capital remains important for low-income and WEALTH AND CHANGES IN WEALTH, 1995–2005 43 lower-middle-income countries, where it accounts for 30 and 25 percent of wealth respectively in 2005. Agricultural land is the most important form of natural capital in most developing countries (aside from oil producers) and remains the basis of livelihoods for the majority of their people. Good management of agricultural land is therefore a priority for these countries.
Total wealth grew rapidly over the decade, outpacing population growth, so that per capita wealth increased 17 percent. Asian countries, mainly China and India, saw phenomenal growth in per capita wealth, nearly 70 percent.
Sub-Saharan Africa accumulated a great deal of wealth, but high population growth kept per capita wealth increases very low, around 4 percent over the decade. The low growth of per capita wealth in Sub-Saharan Africa was strongly affected by the poor performance of a handful of resource-rich countries, led by Nigeria, where per capita wealth declined. Per capita wealth in many other Sub-Saharan African countries increased, led by intangible capital and the resulting improvements in efficiency of produced and natural capital.
Adjusted net saving provides a window on the dynamic process by which wealth grows over time. Most resource-rich countries had positive ANS in 2008, indicating that depletion is being offset by other forms of capital. But nine of these countries had ANS of 15 to 60 percent of GNI. While there may be gains in unmeasured capital, it is extremely unlikely that it would be sufficient to fully offset this loss.
Looking at regional ANS from 1975 to 2008, clear trends emerge, with ANS (as well as per capita wealth) increasing in Asia and ANS declining in Sub-Saharan Africa. In both instances, a few countries dominate the trend: the stellar performance of China and, more recently, India drives the positive trends in Asia, and the poor performance of Nigeria and a handful of other countries outweighs the positive performance of many other African countries.
Finally, adjusting ANS for the population effect—the amount of additional capital necessary to maintain per capita wealth for a growing population—shows that even countries with positive ANS may fail to maintain per capita wealth.
The adjusted net saving gap is not just a phenomenon of developing countries, although arguably it is more critical in such countries because of the very low level of per capita wealth with which they start. Even developed countries such as the United States and New Zealand have had positive ANS but a decline in per capita wealth because saving has not been sufficient to compensate for population growth.
44 THE CHANGING WEALTH OF NATIONSAnnex 2.1: Countries Excluded from the Analysis of Changes in Wealth The world wealth database for 1995 included 124 countries; over time, data for 28 additional countries became available and country coverage for 2000 and 2005 expanded to 152 countries. The 28 countries without data for 1995 are listed in box 2.2. Most of these missing countries (18) are in Europe and Central Asia.
Our analysis of wealth by income class is based on the restricted set of 124 countries for which we have data for all three years. In the analysis of developing countries by geographic region, however, we include Europe and Central Asia but analyze change in wealth between 2000 and 2005 only.
Annex 2.2: Per Capita Wealth, 1995 and 2005, and Changes in Per Capita Wealth and Population, 1995–2005, by Region and Income Group TABLE 2A.
Notes 1 All figures are reported in constant 2005 U.S. dollars.
2 Analysis of wealth accounts in this chapter is based on data for 124 countries for which wealth accounts are available for 1995, 2000, and 2005, as described in annex 1. An additional 28 countries for which wealth accounts are available only from 2000 are not included in this analysis.
3 As discussed in chapter 1, high-value ecosystem services associated with nonagricultural land, such as aesthetic services provided by natural landscapes, are missing from the wealth accounts due to lack of data. They are likely to be of particular importance in developed countries. If they were included, they would probably increase the share of natural capital in total wealth, at least in some countries.
4 Including those that make up the vast majority of countries in the low-income region.
5 Although the high-income oil producers are excluded, there are a number of developing countries in the region that rely heavily on oil and natural gas as well as other minerals.
6 Data are not available for most of these countries in 1995, so the analysis is reported for 2000 and 2005 only.
Changes in Natural Capital:
Decomposing Price and Quantity Effects
AS NOTED IN CHAPTER 2, WORLDWIDE GROWTH IN WEALTHbetween 1995 and 2005 has been driven by growth in intangible capital, which accounted for nearly 80 percent of the change. Developing countries differ sharply from developed countries with respect to the composition of new wealth.
In developing countries, growth in intangible capital contributed 60 percent to growth in total wealth, compared to 86 percent in countries of the Organisation for Economic Co-operation and Development (OECD); growth in produced capital contributed 24 percent, versus 14 percent in OECD countries; and growth in natural capital contributed 13 percent, versus 1 percent in OECD countries (figure 3.1).
Developing countries, however, are not a homogeneous group. Investments in produced capital drive much of the total wealth growth in East Asia and the Pacific (33 percent), Middle East and North Africa (25 percent), and South Asia (22 percent). Growth in intangible capital is most important for changes in total wealth in Europe and Central Asia (106 percent), Sub-Saharan Africa (100 percent, dropping to 78 percent if South Africa and Nigeria are excluded), and South Asia (80 percent).1 The contribution of growth in natural capital to growth in total wealth is very high in the Middle East and North Africa, and is relatively high in Latin America and the Caribbean and in East Asia and the Pacific; natural capital actually declined in Sub-Saharan Africa. But natural capital’s contribution
52 THE CHANGING WEALTH OF NATIONSto changes in total wealth is often hidden by the opposite signs of changes in land and subsoil assets. Therefore, to understand the impact natural capital has on changes in total wealth, we need to decompose the effects of different natural assets such as land, forests, and nonrenewable resources.
This chapter explores what has driven the changes in natural capital over the period 1995–2005. In addition to examining different types of assets, it decomposes the effects of changes in prices, or unit rents, from the effects of changes in physical stocks.2 Agricultural land values can change because of changes in crop prices, input costs, yields, and area under production. Forest land values can change because of a change in production forest, which can result in a higher extraction rate or a change in depletion time, or because of a change in the value of timber. Subsoil asset values can change because of new discoveries, which extend the exhaustion time of the resources, changes in the unit rents from existing assets, or changes in forecasted production patterns.3 The first section of the chapter provides a short description of the methodology (a more detailed description can be found in annex 3.1). Subsequent sections analyze the data appearing in annex 3.2.