Case Study: Assessing the natural assets of Cape Town, South Africa
Cape Town boasts enviable natural assets including world-class mountains, beaches, green open spaces, wetlands and marine life all within the limits of a bustling metro of roughly 3.6 million people. The city has a relatively well-diversified economy and is a world-renowned tourism destination. In addition, it enjoys the status of a ‘global biodiversity hotspot’ due to its location in the Cape Floral Region. This broader region hosts almost 9,000 indigenous flowering plant species of which 70% are endemic.
Cape Town’s latest State of the Environment report indicates that 60% of its original natural areas have been lost and 30% of the remaining vegetation is considered to be either endangered or critically endangered. Its natural assets are under extreme pressure primarily from land transformation, pollution and aggressive alien invasive plant species and are in need of increased investment and management effort.
Municipal budget allocations are heavily contested in Cape Town especially given the existence of often urgent and competing development needs. In this context, the City’s Environmental Management Department thought it was important to be able to assess the ‘business’ case for increased investment in, and protection of, natural assets. This exercise showed the huge value of ecosystem services for the City of Cape Town and highlighted their crucial role in a number of areas, ranging from tourism, where the link is obvious, to waste-water treatment and protection from natural hazards, where the role of ecosystems can more easily go unnoticed. One of the key lessons of this case is that, apart from the impressive results, it was the process of jointly engaging in the analysis with various municipal departments which was most
beneficial.
It was valuable to build a shared understanding of Cape Town’s ecosystems as natural assets, and thereby prepare the ground for future efforts to better secure their maintenance and protection.
The City of Cape Town’s Environmental Resource Management Department set out to determine the economic value of their ecosystem services based on the challenge of rapid biodiversity loss in perhaps the world’s most biodiverse and biodiversity-threatened city. In order to involve stakeholders the Department actively engaged with all other Departments within the City’s management structure that have responsibility for, or impact on, natural assets within the City, including the Finance Department, involving them in the valuation process.
This was done even before consultants were hired to conduct the study and involved a process of relationship building with the other departments – something important not only for the particular study but for general cooperative management within the City.
Identifying and prioritising ecosystem services in Cape Town
Based on the Millennium Ecosystem Assessment (2005); different natural assets, which provide ecosystem services, were examined. This included a participatory process with key decision makers focused on the identification, selection and prioritization of ecosystem services. Personal interviews and facilitated sessions were conducted with invited City line function managers and senior staff, representing all functions related to the management of ecosystem services in the City. The following steps were followed:
- a) Assessment of the relative importance of different natural assets (e.g. nature reserves, wetlands, near shore environments, etc.) for the generation of ecosystem services. This allowed a basic understanding of the relationships between natural assets and ecosystem services flows in order to appreciate which ones were important and to prioritise underlying assets for investment.b) Estimation of the importance of ecosystem services for users/beneficiaries. The number of beneficiaries, as well as estimates on the likely magnitude of value for each of the ecosystem services to these beneficiaries, helped to identify the highest ranked or most important ecosystem service values.c) Assessment and qualitative information of the broad links between natural assets and economic development. Failure to link investment in natural assets to desired developmental outcomes reduces the probability of increased budget allocations.d) Assessment of the City’s ability to influence the value of ecosystem services through management. The assets and flows, which are completely outside of the City’s control, may have high value but will generally be less important when motivating for an increased investment
from the City.e) Ranking of the ecosystem services according to the level of ecological and socio-economic risks they face. This recognises that certain environments are likely to be more vulnerable to habitat loss and degradation and are therefore facing greater ecological risks.
Consultants started with a literature review on ecosystem services (ES) and best practices to evaluate ES, and consulted individual valuation studies that had already been done in the city. The purpose and required outcomes were determined at the outset of the study, i.e. that the economic values of Cape Town’s ecosystem services were needed to make a business case for biodiversity within the city management and throughout the relevant line functions. the value of ecosystem services from an anthropogenic perspective were studied, and values that were purely ecological or that were independent of humans, which are also clearly important, were not considered in this specific study.
City of Cape Town’s ecosystem services valuation process
Expert advice was sought from a group of experienced resource and environmental economists on the consulting team, and validated with experts outside the team. The valuation techniques used and key results were as follows (all values based on 2007 data):
Tourism:
- Total tourism value: US$137 million to US$418 million per annum; based on the amount of revenue generated by visitors who were travelling to, or in, the City in 2007; as a result of the attraction of natural features.
Recreation:
- Local recreational values: US$58 million to US$70 million per annum based on benefits transfer from previous valuation studies in Cape Town for recreation.
Globally important biodiversity:
- Donor funding of US$32 million for conservation has flowed to the region giving a proxy of value – it can easily be argued that Cape Town is one of the most important cities in the world for biodiversity conservation.
Aesthetic and sense of place related values:
- Evidence shows that natural spaces play an important role in improving health and well-being in cities.
- Natural assets help to attract skilled entrepreneurs and others that drive economic development. Cape Town’s branding is now strongly linked to its natural assets.
- Natural assets are a key driver of the film and advertising industry and are valued between US$18.8 million and US$56.4 million per annum, based on industry expenditure ascribable to natural asset locations.
- Cape Town boasts some of the most sought-after property, largely because of its natural assets. At asite specific scale, rehabilitation and restoration projects have created significant values.
Natural hazard regulation:
- US$650,000 to US$8.6 million per annum for natural hazard regulation (wildfires, floods and storm surge) based on estimates of the cost of damages avoided from buffering of fires, flooding and storm surge by natural assets.
Water purification and waste treatment, assimilation:
The evaluation undertaken by the City of Cape Town was integrated into the wider business case and an assessment of additional policy options was undertaken. An estimate of the economic value of ecosystem services does not present a complete case for increased investment in itself.? Case studies show values and risks. For example, the need to dredge Zeekoevlei Wetland for US$8.5 – US$9.9 million represents the minimum clean-up costs needed for the wetland to function normally and avoid ecosystem collapse.
Investment in ecosystem services can be viewed as investments in the local economy and the ratio between these investments and the gross geographical product (GGP) in the City It was estimated that the ratio indicating the relationship between the public value generation and public expenditure for the environment sector exceeds that of the general city economy by between 1.2 and 2 times.economy provides a rough measure of a municipalities’ leverage on the local economy. This ratio was calculated for the City as a whole, and compared to the ratio between City investments in natural assets specifically and the expected value-added flowing from this investment in the form of an enhanced flow of ecosystem services.
Another indicator that was used to communicate the business case was the Unit Reference Value (URV), or the expenditure that is required to generate one Rand’s worth of benefits. URV for Cape Town’s natural capital assets was calculated at a value of 0.16 South African Rand (ZAR), compared to between ZAR2 and ZAR5 for investments in water supply infrastructure. In summary, it was calculated that the return on investing in Cape Town’s natural assets was proportionately high, because this ensured the provision of valuable ecosystem services.
In the case of the Cape Town study the result was not quite what was intended but was nevertheless useful. The study was conducted in the hope that the results – which were impressively in favour of an ecosystem-focus approach – would be able to influence the budget in the following budgeting cycle. However, it was discovered that it is difficult to make direct links between any study and increased budgets given the large number of factors that influence policy decisions. Equally, budget allocations do not change immediately in response to an issue, but tend to be delayed until larger shifts occur as the importance of an issue is internalized and starts building momentum. A better understanding about the value of the City’s natural assets was necessary, but not sufficient to bring an immediate shift in financial policy and budget allocations. To make matters more challenging, timing and competing demands were external factors that had an influence on the outcome:
Timing: results came out in the midst of the global recession. The Cape Town World Cup Soccer Stadium had also just been completed significantly over budget.
Competing demands: service delivery is urgently required making it difficult to increase environmental spending by drawing from service delivery budgets even though the benefits of environmental investment can be clearly shown.
This study provided, in the words of the Environmental Resource Management Department, ‘a fantastic foundation’ for the further development of environmental fiscal reform strategies in the City and turned out to be a long-term investment. The Environmental Resource Department learned invaluable lessons from the other departments with whom it engaged, especially the finance department; while officials from the other departments got a sense of the importance and value of ecosystems in the City for the first time. This is certain to prepare the ground for future project proposals, budget allocations, etc. Furthermore the study indicated the need and the viability for attaching payment for ecosystem services to specific user groups, and options are currently being investigated.
