DRAFT not to be cited
COST-BENEFIT ANALYSIS OF DIFFERENT MANAGEMENT APPROACHES OF KAKAMEGA FOREST IN KENYA
Paul Guthiga1*, John Mburu1 and Karin Holm-Mueller2
Paper Submitted for the Eighth Annual BIOECON Conference on
“Economic Analysis of Ecology and Biodiversity”
Kings College, Cambridge
29-30 August 2006
1Centre for Development Research (ZEF), University of Bonn, Walter-Flex-Str. 3,
53113 Bonn, Germany
2 Institute for Food and Resource Economics, University of Bonn, Nussallee 21, D-53115 Bonn, Germany
* Corresponding author: Tel +49-228-731731, Fax +49-228-731869, E-mail:
Abstract
This paper applies cost-benefit analysis to evaluate the existing three management approaches of a tropical rainforest in Western Kenya. The forest covers an area of approximately 240 Km2 and is the only lowland tropical rainforest in Kenya and it is world famous for its diversity of unique and numerous flora and fauna. However its survival is under immense threat since it is located in a densely populated area where local communities depend heavily on agriculture and forest extraction for their livelihoods. Currently, the forest is divided into three different parts that are managed through three distinct management approaches/regimes: an incentive-based approach of the Forest department (FD), a protectionist approach of the Kenya Wildlife Service (KWS) and a quasi private-approach of a local church mission, the Quakers (QCM). The results of the analysis show that holding ecosystem services constant across the three regimes, the net present benefits fail to offset the net present costs for all the regimes both at local and national level. The study highlights some important conclusions which could be considered in for designing conservation policies.
Key words: Cost-Benefit Analysis, Kakamega Forest, Forest Management Regimes, Efficiency, Conservation
1.0 INTRODUCTION
Several alternative frameworks or criteria for prioritizing the conservation of biological diversity have been suggested. These frameworks are all based on different perceptions of value. Value can be defined as the contribution of an action or object to user-specified goals, objectives or conditions (Farber et al, 2002). Ecologists often argue that there is “value” beyond what human beings care about and that society has a responsibility or a moral duty to preserve nature irrespective of their self-interest. Some arguments for conservation outside mainstream economics for example advocate for minimum level of biodiversity conservation. In contrast, the economics approach is anthropocentric and it attempts to determine how much society should invest in the conservation of biological diversity. This is because conservation is costly and economic tradeoffs will inevitably arise between its objectives and human activities to meet socio-economic needs. For example setting apart resources to fund conservation of a forest means that fewer resources are available to meet other demands such as building roads and schools.
As a tool to guide society in deciding whether a certain re-distribution is desirable; cost-benefit analysis (CBA) is often applied by economists. CBA is a technique that is used in estimating and summing up the money values (in present terms) of the benefits and costs to the society of investment projects or policy alternatives to establish whether it is worthwhile to undertake them. As noted by Pearce (1998), theoretical foundations of CBA are well established but it has certain shortcomings. Due to its foundations in economic efficiency and limited better alternatives of decision-making criteria, CBA is becoming popular among policy makers world-wide (Hanley, 2001). CBA can inform decision-making especially economic efficiency which is all too often forgotten in the political process (Pearce, 1998). There are currently many instances of the use of CBA in the context of nature conservation policy (MacMillan et al, 2004; Kniivila et al, 2002; Moons, 2002; MacPherson, 1999; Mburu and Birner, 2002). However, there is limited literature on application of CBA in comparing the performance of management approaches in forest conservation and especially in the tropics. Moreover, as noted by Joro and Viitala (1999) there are few studies that have attempted to measure the efficiency of forest management. Kao and Yang (1991) and Kao et al (1993) applied a nonparametric approach to measure efficiency at three different levels; technical, scale and aggregate. These studies however, did not consider future flows of costs and benefits as well as transaction costs in their analyses.
This paper takes the case study of Kakamega forest in Kenya to make a contribution in assessing economic efficiency of different management approaches using the framework of CBA. Kakamega Forest is divided into three different parts each managed by a distinct approaches or regime. One part of the forest is strictly managed as a national forest reserve by a quasi-government body, KWS, on behalf of the central government. Under this management local people are not allowed to harvest any timber or non-timber products from this part of the forest although some illegal harvesting still goes on. Another part of the forest is managed less strictly by the central government through the FD with local people being allowed to use the forest in a limited way through grazing, collection of dead timber for fuel, mushrooms, fruits and collection of medicinal plants. A small fragment of the forests fall under quasi-private management (QCM) and is managed in a flexible manner allowing the local people regulated extraction of forest products. Several categories of benefits and costs, including transaction costs, are included in a dynamic CBA model. In general, forests in Kenya are under serious threat of survival (Mbugua, 2001), and therefore it is important to determine which management arrangement is able to conserve forestry resources efficiently. The paper is organised as follows: the immediate next section gives a temporal-spatial overview of the management of Kakamega forest followed the contextual frame of efficiency consideration in forest management. Section 2 gives the theoretical foundations of CBA and its application in environment. Section 3 outlines the research methods and empirical models applied for the study. Results and discussions are presented in Section 4 and concluding remarks are made in Section 5.
1.1 A Temporal-Spatial Overview of Management of Kakamega Forest
Among the few remaining indigenous forests in Kenya, Kakamega Forest occupies a unique place. It is the only remaining patch of Kenya’s Guineo-Congolean rain forest, which spanned from west and central Africa, with its easternmost edge in western Kenya. The Forest is famous for its diversity of unique and numerous flora and fauna and faces a serious conservation threat. Over the years the forest has been subjected to disturbances of various kinds. In the pre-colonial days, the forest was controlled the forest and they were actively converting the forest into farmland. In the colonial days, various massive disturbances occurred; gold mining and logging, timber extraction by saw millers and fuel wood collection and charcoal burning by the local people. Even in the post-independence years, disturbance of the forest has continued especially through the non-resident cultivation (NRC) locally known as “shamba” system in which people were allowed to cultivate land in the forest without owning it while tending tree seedlings. Overall, the size of the forest has been shrinking rapidly due to human population growth and increased resource extraction in the last century. In the last three decades, approximately 20% of the forest has been lost (Lung and Schaab, 2004). Boundary demarcation for Kakamega Forest began early last century by the then colonial government and was followed by several successive boundary re-demarcations culminating in the official gazettment of the forest in 1933. This meant that although the forest would remain the property of the local people, the government would manage it on their behalf. The argument for this take over was for the improvement and maximization of its economic benefits. A few customary rights of the people to the forest have been reinstated by special rules issued over the years allowing local residents the right to use the forest for grazing, cultivation and collection of firewood. In 1964 the forest was declared a central government forest which technically meant that the forest no longer belonged to the local people but to the nation as a whole. In 1986 two areas were officially excised from the forest to create the Kakamega National Reserve, encompassing Kisere fragment and the northwestern part of the main forest block also called Buyangu. Both are now strictly managed by Kenya Wildlife Service (hereafter referred to as ‘KWS’) as a national reserve. The idea of the national reserve was to protect and preserve the less disturbed area that is representative of the Kakamega Forest. The southern part of the main forest block and several minor forest fragments (such as Malava) are managed by the forest department (hereafter referred to as ‘FD’). There also exists a small fragment of the forest in the South-western side of the main block known as Kaimosi. This fragment has been under the management of the Quakers church mission (hereafter referred to as ‘QCM’) since early 1900s. Part of it has been cleared for construction of a conglomerate of several education institutions. In 1984 a presidential directive banned the conversion of indigenous forest to plantation and another in 1988 banned the cutting of indigenous forest trees. In 1991 a memorandum of understanding was drawn between the FD and KWS, who were supposed to work closely together. However, many of the rules are not strictly enforced by the FD while, by contrast, the KWS very strictly prohibit forest extraction in the National Reserve.
A review of conservation literature clearly point to the important role played by forest management regimes in determining the outcome of forest use (Kant, 2000). In general, management regime may be centralized (where state agencies coordinate regulation), decentralized management (where local people are more actively involved) or quasi-private/private. Management regimes are responsible for assigning property rights to the various stakeholders and guiding use and consequently the outcomes (Meinzen-Dick and Di Gregorio, 2004; Oakerson, 1992). Whatever form of management regime is chosen, there are associated costs and benefits that arise and accrue to different stakeholders that are involved in conservation. From economic efficiency perspective, a regime would be considered efficient if it generates a net positive contribution to the society regardless of the distribution of the benefits among the different stakeholders. However, it has been widely argued that success of forest conservation efforts will depend on the support of the local communities that live adjacent at the local level (Ferraro, 2002; Global biodiversity Strategy, 1992; Wiggins et al, 2004; Trakolis, 2001; Rasmussen and Meinzen-Dick, 1995). Therefore; it becomes necessary to understand not only the efficiency aspects of the management regimes but also the distribution of costs and benefits among stakeholders so as to determine the optimal management regime that would address the people’s need without jeopardizing the conservation efforts.
1.2 Efficiency considerations in forest management
Economic efficiency could be looked at as a measure of the net contribution of an activity or project to overall social welfare. Thus, economic efficiency is designed to answer the question of whether the redistribution of resources implied by a project results in a betterment of society. Public forests are managed to generate different benefits such as production of timber or non-timber materials, water catchment, soil conservation, and recreation as well as being reservoirs of biodiversity. Apart from land on which the forests stand, other resources such as capital, cash, labour and time ought to be allocated in such a way that maximum net benefits are obtained from a given outlay of resources (Kao and Yang, 1991; Kao et al, 1993). Economists use efficiency as a measure of how well a firm (in this study, a management approach or regime) uses inputs (costs) combinations to produce a given level of outputs (benefits). These measures of benefits and costs underlie the concept of economic efficiency. A reallocation of resources increases economic efficiency if the sum of the benefits to those who gain by that reallocation exceeds the sum of the costs to those who lose. In other words, there is an increase in economic efficiency. Economic efficiency rests on the theories of welfare economics (described in more details in the next section). As noted by Mburu and Birner (2002), efficiency in nature (or forest) conservation can be viewed as involving two decision problems; first, identifying the level of nature conservation that is efficient (allocative efficiency) and second, identifying the organizations that makes it possible to achieve the conservation goals at the lowest cost. Therefore, given two organizations that generate the same level of benefits, the one that has lower costs can be said to be more efficient. Evaluation of efficiency of forest management is important for guiding future planning through policy (Kao and Yang, 1991). Debates on conservation of forests involve not only local but also regional, national as well as global impacts (Kniivila et al, 2002). Therefore, it’s very imperative to consider these impacts at different levels; through use of cost-benefit analysis. This paper assess different categories of costs incurred and benefits generated by three forest management regimes at local and national level and the efficiency with which each regime carries out its function.
2.0 THEORY OF CBA AND ITS APPLICATION TO THE ENVIRONMENT
CBA is rooted in the theory of welfare economics which is based on the Kaldor-Hicks principle of potential compensation. The principle states that if the gainers from an action could compensate the losers, the action is an improvement regardless of whether compensation is actually paid. This implies that provided that compensation could occur then no one is actually worse off, hence the Pareto-criterion for improvement in overall well-being. It is clear from the foregoing argument that actual compensation need not occur in reality, but it is potentially conceivable. If compensation is actually paid, the principle is actually the Pareto criterion (Hanley and Spash, 1993). In the case where benefits and costs occur over a span of time, then economic analysis require that the present value of benefits (discounted at an appropriate discount rate) exceed the present value of costs[1] and an inter-temporal compensation should be conceivable. By applying the principle of potential compensation, CBA fails to explicitly account for distribution of benefits in the society. There have been some attempts to integrate distributive issues in CBA by applying weighting factors to a benefit or a cost to reflect the income of individual affected (Pearce, 1998). The theoretical arguments for these weights was based on the declining marginal utility of income i.e. the utility an individual gets from an extra unit of income is higher the lower his/her present income. As noted by Pearce (1998), these attempts are not widespread possibly because of intensive data requirement or the view that distributional issues are not best addressed through project investments. The prevailing feeling among the CBA practitioners is that inclusions of equity goals fall outside the realm of economics (Hanley and Spash, 1993). Although cost-benefit analysis is not specifically designed as a tool for evaluating equity, the analyst should also track the distribution of costs and benefits among the various segments of society. In the particular case of forest conservation distribution of costs and benefits between the forest adjacent communities and the nation as a whole is very important given that the local community bears the bulk of opportunity costs of existence of the forest.