Where is the Wealth of Where is the Wealth of Nations?Nations?

Measuring capital for the 21Measuring capital for the 21stst centurycentury

The World BankThe World Bank

October 2005October 2005

Why measure wealth?Why measure wealth?

A useful model: Development as A useful model: Development as portfolio management.portfolio management.

What is the composition of the What is the composition of the portfolio? How efficiently is each portfolio? How efficiently is each element of the portfolio being element of the portfolio being managed? How efficiently is one managed? How efficiently is one asset being converted into another? asset being converted into another?

Elements of the portfolioElements of the portfolio

Produced capitalProduced capital Natural resources (minerals, forests, Natural resources (minerals, forests,

land)land) Human capitalHuman capital Institutions / governanceInstitutions / governance

Kenya Kenya ($/capita)($/capita)

GroupProduced capital

Natural capital

Intangible Residual Total

Subsoil assets

Timber resources NTFR PA Crop land

Pasture land

Kenya 868 1,368 4,374 6,609 1 235 129 113 361 52913% 21% 66%

Total wealth

Produced capital,

13%

Natural capital,

21%

Intangible Residual,

66%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Kenya

Natural capital

Subsoil assets0%

Timber resources

17%

NTFR9%

PA8%

Crop land26%

Pasture land40%

Genuine or ‘adjusted net’ savingGenuine or ‘adjusted net’ saving

-20

-10

0

10

20

30

1980 1985 1990 1995 2000

Adjusted Net SavingNet National SavingGross National Saving

% GNI

Sub-Saharan Africa - Adjusted Net Saving reveals a different story from traditional

measures of saving

ConclusionsConclusions

Natural capital is a larger share of Natural capital is a larger share of total wealth than produced capital in total wealth than produced capital in low income countrieslow income countries

Nearly 70% of natural capital in low Nearly 70% of natural capital in low income countries is agricultural landincome countries is agricultural land

The value of total The value of total naturalnatural wealth per wealth per person actually rises with incomeperson actually rises with income

When resource depletion and When resource depletion and population growth is taken into population growth is taken into account, most poor countries face account, most poor countries face declining wealth per capitadeclining wealth per capita

What should we do?What should we do? Support improved natural resource Support improved natural resource

management in low income countriesmanagement in low income countries Help countries to maintain soil qualityHelp countries to maintain soil quality Reduce incentives to over-exploit natural Reduce incentives to over-exploit natural

resources, particularly living resourcesresources, particularly living resources Assist the poorest countries with Assist the poorest countries with

economic reforms – increased efficiency economic reforms – increased efficiency will boost both GDP and saving for the will boost both GDP and saving for the futurefuture

Help build human capital and stronger Help build human capital and stronger institutionsinstitutions