All projects and policies have a financial impact by creating wealth at the household or national level, though this can occur at the expense of ecological resources that provide ecosystem services and support livelihoods. This tendency leads markets to privatise gains (which accrue to project owners) and socialise losses. Conversely, environmental studies focus on biophysical and social impacts, while economic benefits to society are often overlooked.
SRK’s environmental and resource economists give the economic implications of projects the attention they deserve. These impacts manifest themselves in many ways. Conventional economic impacts arise from the creation or loss of income and jobs, state revenue and investment, and the potential effects of large projects on macroeconomic performance.
SRK calculated that the Tanzanian section of the East African crude oil pipeline will provide an economic stimulus equivalent to 2.1% of Tanzanian GDP and direct, indirect and induced employment for 21,120 Tanzanians during construction. The project will also increase the fiscal deficit as the government takes an equity stake during operation, but tariff revenues will eventually outstrip project-related expenditure.
Resource economics differs from conventional economics because markets seldom exist for environmental goods and services and where these markets do exist, they are often imperfect. Valuing these services requires a different set of tools. By recognising and quantifying the economic value of environmental goods and services their value can be included in a balanced analysis of project impacts. SRK has successfully applied mechanisms to value environmental goods and services to include them in analysing the projects’ net impacts. The economic value forgone by not logging in a forest area subject to a mining application was estimated as 2.5% of the economic value of mining, on top of which increased GHG released by mining would have a present social value (cost) of US$23.7 million.
Economic benefits analysis of a project can be conducted at any stage to quantify project benefits on surrounding communities and the host economy, as we did in Zanzibar. The client had obtained regulatory approvals but continued to face resistance. SRK determined that a project of the nature and scale proposed would increase economic growth and expand the formal labour market in Zanzibar by up to 3%. SRK presented the results of that analysis to support interactions with communities and authorities.
Such analysis can identify methods to optimise a project, and be used for marketing.
Economic and resource economic studies paint a more holistic picture of project impacts and benefits and can help:
- Identify the project’s net contribution to income and job creation;
- Quantify the monetary value of affected environmental resources and impacts; and
- Design adequate compensation strategies where livelihoods are adversely affected.
