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I N C LU S I V E G R E E N G R O W T H: T H E PAT H WAY TO S U S TA I N A B L E D E V E LO PM E N T
and North Africa are exhibiting moderate or extreme scarcity, which is expected to increase in the future. Another worry is poor water quality, which sets back growth because it degrades ecosystems; causes health-related diseases; constrains economic activities (such as agriculture, industrial production, and tourism); reduces the value of property and assets; and boosts wastewater treatment costs. For example, the annual costs of poor water quality stand at 0.6 percent of GDP in Tunisia and 2.8 percent of GDP in the Islamic Republic of Iran (World Bank 2007b). Yet another worry is natural hazards—the vast majority of which involve water—which affect almost everyone and retard growth. Kenya, for example, was hit by several disasters over a 3-year period that undid years of economic growth (an extreme flood cost its economy 16 percent of GDP, and extreme drought 11 percent of GDP) (World Bank 2004). And when these natural hazards strike, it is the poor who suffer most, because of their locations, low incomes, insufficient infrastructure, and greater reliance on climate-sensitive sectors like agriculture. What can policy makers do to better manage water resources? Four green growth water policies—none of them easy to design or implement—can be adopted: • Correct distortions in water allocation decisions. New mechanisms for allocating water resources should embrace economic principles of allocative efficiency to correct for market failures and imperfections. These failures are compounded by the sector’s political economy and the fact that more efficient water pricing boosts costs for some elements of society more than others. Decision makers need to devise efficient and flexible ways to allocate water among competing quantity and quality demands for human use (energy, agriculture, fi sheries, and urban consumption) and ecosystems health (forests and wetlands) (World Bank 2010d). A study of China finds that improving water allocation
could increase per capita income by 1.5 percent a year between 2000 and 2060 (Fang and others 2006). • Expand the use of water pricing mechanisms to manage demand. The price of most water services does not include investment, operation, and maintenance costs or the scarcity value of the resources. Pricing could be used as an effective instrument to ensure the resource’s optimal allocation. Most countries fail to use it because of the political and social sensitivities of water management, particularly the need to ensure affordability for the poorest communities. Most countries allocate surface and groundwater by assigning fixed quotas to major sectors and activities. Although far from effective, these quotas have been politically and socially acceptable. In the short term, they seem to be a more realistic option than full cost pricing. • Create new markets. Tradable water rights are an effective water management instrument in the long term but have proven difficult to implement in the short term in most developing countries— partly because success depends greatly on sound design and partly because it takes a long time to establish the necessary institutions (World Bank 2010d). Thus, in the short term, it is imperative to ensure that the proper institutional arrangements and capacities are in place. • Strengthen the framework for analyzing the relationship between growth and water. There have been few attempts to analyze and quantify the relationship between water and economic growth and development because of the complex spatial and temporal dimensions of water and its management. There is a need to strengthen this analytical framework by examining regional differences in growth within a country or group of countries. This information would allow more informed decision-making processes by providing a clear understanding of the economic tradeoffs of policies in different sectors (such as energy, agriculture, urban, land use, environment, and health).