Abstract
This research paper entails an economic analysis of the Amazon Basin as one of the natural resources in South America. In a bid to develop a comprehensive understanding of the role of the Amazon Basin in the economic growth of the Amazon Countries, this research takes into account the case of Brazil and Ecuador. First, the factors motivating degradation and deforestation of the Amazon Basin are evaluated.
Demand for economic growth from oil exportation comes out as the major factor motivating the Brazilian and Ecuadorian governments to consider extracting hydrocarbons in the Basin due to the presence of huge deposits, which can significantly stimulate the countries rate of industrialisation.
Degradation and deforestation of the Amazon Basin are also increased by increased demand for agricultural land and logging. However, this element presents a major challenge in the continued existence of the Basin’s ecosystem and biodiversity as such activities may also increase soil, water, and land pollution. Additionally, the countries’ economic growth and development due to other economic activities such as ecotourism are hindered.
The paper cites a number of alternative economic development models that Brazil and Ecuador can adopt in their quest to achieve economic growth without destroying the natural resources in the Amazon Basin. The main alternatives suggested include investing in ecotourism and carbon trading.
Introduction
Natural resources play a critical role in the economic growth and development of a country and various categories of natural resources can be utilised to stimulate economic growth. Over the past two centuries, the world has undergone unprecedented economic growth due to consumption of natural resources. The growth is associated with increased exploitation of non-renewable natural resources such as minerals and fossil fuels.
Currently, most economies are under pressure to stimulate their economic growth. Consequently, the exploitation of natural resources occurs without considering the aspect of environmental protection.
Moreover, the finite characteristic of most natural resources presents a challenge with regard to whether the natural resources will sustain the economic growth. The world is currently experiencing a high rate of population growth, hence exerting pressure on natural resources. Consequently, natural resources are increasingly becoming scarce.
The demand to achieve a high rate of economic growth has led to uncontrolled extraction of natural resources. Consequently, most countries that depend on natural resources have reached a point where their ecosystems have become very fragile.
The Amazon River Basin is one of the most important natural resources in South America. It is estimated that the basin covers 44% of the total land area in South America or 6,100,000 km2. The basin extends into “Venezuela, Bolivia, Colombia, Peru, Guyana, Suriname, Ecuador, and Brazil” (Bastida 3).
Currently, the Amazon Basin faces a number of environmental issues. The economic analysis of the Amazon River Basin in this paper focuses on the role of the Amazon Basin in the economic growth and development of Brazil and Ecuador by conducting a cost-benefit analysis of deforestation and degradation of the Basin’s ecosystem. The alternative strategies that Amazon Basin countries can adopt are also evaluated.
Analysis
Factors stimulating deforestation and degradation of the Amazon Basin
The Amazon Basin comprises very delicate ecosystems that have been developed over thousands of years. However, the perception towards the region has changed tremendously over the past few decades. The change has arisen from discovery of the Basin’s potential with regard to hydrocarbons.
The Basin is characterised by substantial deposits of hydrocarbons, which has motivated most countries within which the Basin is located to engage in deforestation in pursuit for the hydrocarbons. This aspect presents a major challenge to the Basins. The extraction of hydrocarbons has increased five times over the past eight years.
It is estimated that oil companies were granted over 52 million hectares of land within the Amazon Basin to explore and extract hydrocarbons by the end of 2007. The allocation of land varies from one country to another.
Seventy percent “(70%) of the allocated land is located in Peru, 10% in Ecuador, and 13% in Brazil” (Bastida 6). Moreover, 5 million additional hectares have also been granted for hydrocarbon extraction in Ecuador, which represents that largest proportion of the Amazon’s ecosystem that is set for exploration.
The aggressive extraction of hydrocarbons in the Basin is motivated by demand for high economic growth. Oil revenue has “been the major source of economic growth for most countries within the Amazon Basin; moreover, countries within the Basin are focused on stimulating their economic growth by increasing their oil exports” (Bastida 5). Peru and Brazil have invested in aggressive exploration of oil within the basin.
Case studies
Mining in Brazil
The Brazilian government focuses on increasing its hydrocarbon extraction within the Amazon Basin. The country is experiencing a significant increment in demand for energy due to the high rate of industrialisation (Baer 7). From 1970 to 2007, Brazil depended on oil imports in stimulating its economic growth. However, the Brazilian government discovered substantial oil reserves in the Amazon Basin.
Consequently, the National Petroleum Agency has been allocated $36 million to aid in the exploration of oil and gas in the region. The government also intends to invest in Urucu-Manaus project, which entails a 400-miles pipeline within the Amazon Jungle.
Moreover, the government intends to construct a petrochemical complex within the region in order to maximise the economic benefits of the pipeline. However, these projects will be located within the fragile Amazon Basin.
The Brazilian government projects that the oil exploration projects and the petrochemical industry will enable the country to attain an outstanding rate of economic growth. The Brazilian government is of the opinion that the oil exploration projects within the basin will benefit the citizens directly.
For example, the government holds that the Urucu-Manaus pipeline will be a source of employment to a large number of citizens. It is estimated that the project will generate 10,000 jobs employing approximately 500,000 individuals.
Road construction into the mining sites is also stimulating the rate of deforestation in the Amazon. For example, during the 1970s, the Brazilian government intended to construct a 2,000-miles highway across the Amazon forest. However, the project failed due to heavy rains in the region. However, huge tracks of Amazon land were destroyed during the implementation of the project (Bastida 12).
Mining in Ecuador
The oil industry has played a significant role in the improvement of the living standards of Ecuadorians. From 1971 to 1981, Ecuador ranked as one of the poorest countries in South America. However, the citizens’ living standards changed within one decade. The country’s Gross Domestic Product (GDP) increased from $1,602 million to $13,946 million, which represents an 8% rate of annual growth.
By 1973, the country’s economic growth was estimated to be 25.3%, which is the highest that the country has ever experienced. Moreover, the country’s foreign currency reserve increased by $508 million.
Due to increased oil extraction, Ecuador experienced a high rate of development within other economic sectors such as education and health as illustrated by the decline in the rate of child mortality and the illiteracy levels in the country.
The Ecuadorian government has also invested the revenue generated from the oil industry in other areas of industrialisation such as refineries, roads, telecommunication networks, and hydropower dams (Bastida 9).
Despite its economic growth, Ecuador was adversely affected by the international financial crisis that occurred during the 1980s. Oil prices in the international market declined substantially. Moreover, the country’s oil reserves declined significantly. In an effort to stimulate its economic growth again, the Ecuadorian government intends to revive its economic growth by increasing its oil exploration within the Amazon region.
One of the strategies that the government intends to achieve this goal is by exploring the Ishpingo Tambococha Tiputini (ITT) fields. These fields are located within the Yasuni National Park, which is a relatively volatile ecosystem in the Basin.
It is estimated that these fields have a potential of generating 920 million oil barrels, which is equivalent to US$ 700 million annual revenue. Moreover, the Ecuadorian government estimates that the revenue generated from the oil fields will account for 50% of the country’s budget.
Logging
The Brazilian government has implemented strict regulations with regard to logging within the Amazon Forest. Only the licensed parties are allowed to engage in logging activities. Logging is only allowed in designated areas; however, despite the control mechanisms implemented, illegal logging is widespread.
For example, in 2003, seventeen people were arrested for clearing ten thousand hectares worth of timber (Butler Para. 11). The logging roads within the Basin provide settlers with an opportunity to move deep into the forest in search for temporary farming land, building materials, and game hence exploiting and degrading the forest.
Commercial and subsistence farming
In addition to hydrocarbon energy, the high rate of deforestation of the Amazon Basin in Brazil is motivated by the demand for economic growth through agriculture. Huge tracks of land in the Amazon Basin in Brazil are cleared in order to give way to large-scale cattle ranches. In 2003, approximately 80% of beef exports into Europe originated from the Amazon (Butler Para. 6).
The demand for agricultural land, coupled with poor land tenure laws has increased the rate of environmental destruction in the Amazon. Foreign investors in the country’s ranching sector gain ease access to land in the Amazon.
Ranching is one as the major causes of deforestation and environmental degradation of the Amazon in Brazil. It is estimated that approximately 60% to 70% of deforestation of the Amazon Basin in Brazil is due to cattle ranching. Moreover, subsistence farming also ranks amongst the major causes of deforestation within the region.
Butler (Para. 7) is of the opinion that subsistent farmers in Brazil use crude methods such as fire to clear land in the Amazon. The fires spread deep into the forest and affect other economic activities. For example, some airports within the region are forced to close down due to the smoke arising from forest fires in the Amazon.
The farmers keep pressing deeper into the forest in an effort to increase their agricultural production. The graph below illustrates the major causes of deforestation in the Amazon during the period ranging from 2000 to 2005.
Source: (Butler Para. 12)
During the period ranging from 1988 to 1991, Brazil initiated a campaign that aimed at protecting the Amazon Basin. This move led to a significant slowdown in the country’s economic growth. Despite this effort, the country experienced a high rate of deforestation during the period ranging between 1993 and 1998. During this period, the country experienced significant economic growth.
The land was cleared for agricultural purposes pastureland and other forms of commercial farming. The Brazilian government has not implemented effective strategies to curb deforestation within the Amazon Basin. The graph below illustrates the rate of deforestation within the region from 1988 to 2012.
Source: (Butler par. 9)
From the graph, it is evident that the Brazilian government is committed to environmental protection.
Costs of destruction of the Amazon Jungle
According to Bastida (23), degradation of the Amazon Basin has a direct environmental impact on the two countries’ economy. First, clearing the forest increases the rate of soil erosion and desertification. Bastida (23) further asserts that it may take years in order to restore the destroyed ecosystem.
If effective measures to counter these forms of environmental degradation are not implemented, the Amazon Basin will experience extensive disintegration of the fragile ecosystem. Moreover, increased colonization of the Amazon forest in Brazil and Ecuador prevents the two countries from achieving alternative economic benefits.
The Amazon “rainforest can be a major source of various native agricultural products such as vegetables, latex, fruits, and alternative medicine” (Bastida 6). However, the high rate of colonization in the region has led to destruction of the Basin’s traditional ecosystem. Consequently, one can assert that the two countries have experienced significant ecological and economic loss.
Destruction of the Amazon Basin has adverse effects on the two country’s ecotourism industry and as Bastida asserts, “Ecotourism is more attractive and valuable when carried out within pristine and virgin ecosystem like in remote natural reserves, and national parks located in the Amazon jungle” (23).
However, the presence of oil companies in the Amazon means that the rate of degradation will increase, which will minimise the likelihood of growth in the ecotourism sector.
The oil exploration companies in the two countries will lead to high rate soil erosion. Consequently, local subsistence farmers will incur high costs in maintaining their dams and pumps. Moreover, oil spills from the pipeline that crisscross the jungle may lead to massive environmental pollution.
For example, Ecuador experienced oil spills in the Amazon basin due to oil pipeline burst, which led to deposition of toxic and oily materials into the ecosystem. The Texaco Company, which owned the pipeline, did not prioritize on environmental protection.
Alternative strategies to achieve economic development
The hydrocarbon companies and existence of other human activities in the Amazon Basin present a major challenge to the jungles’ ecosystem. Consequently, it is imperative for governments to consider investing in sustainable development, which will play a significant role in minimising negative environmental impacts.
For example, companies within the hydrocarbon industry should invest in advanced technologies that will not lead to environmental degradation. Countries in the Amazon Basin should ensure that comprehensive environmental impact assessment is conducted to minimise environmental degradation. Moreover, restrictions should be imposed on some areas of the jungle that have fragile ecosystems.
However, these measures may not be adequate in minimising environmental degradation, and thus Amazon Basin countries should consider investing in alternative strategies that will lead to protection of non-renewable resources.
Carbon trading
According to Bastida (32), carbon capture is one of the ways through which governments can benefit from forests. It is estimated that forests are major reservoirs of carbon. Consequently, the Amazon rainforest holds a substantial amount of inorganic and organic carbon. However, the forest’s ability to store carbon is determined by the vegetation type and forest structure.
Brazil and Ecuador can derive high economic benefits by engaging in carbon trading. Currently, governments are increasingly investing in the development of carbon emission markets. The motivation towards carbon trading has arisen from the high rate of climate change. Therefore, conservation of the Amazon Basin will play a significant role in reducing greenhouse gas emissions.
Carbon trading will enhance conservation measures implemented by the Amazon Basin countries, which will lead to reduction in the rate of direct and indirect deforestation. Carbon trading will minimise extraction of hydrocarbons in the Amazon rainforest.
Consequently, illegal logging and colonisation of the Amazon jungle will reduce substantially. Dealing with the menace of clearing the forest for arable land will improve the countries’ ability to harvest carbon hence increasing the economic benefits.
Bastida asserts, “Each hectare of old-growth tropical rainforest typically contains 120-400 tons of carbon in its aboveground vegetation and much more if plant roots and carbon in the soil are considered” (33). Consequently, 1 hectare in the Amazon tropical rainforest is estimated to be worth between $ 400 and $8000.
Therefore, taking into account the Yasuni National Park, which is located in the Ecuadorian Amazon, “at a price of $ 8,000 per hectare, the Ecuadorian government can generate approximately $ 7.86 billion through carbon trading [982,000 hectares * $8,000]” (Bastida 33).
These figures represent only one of the protected areas in the Ecuadorian Amazon ecosystem. Consequently, conservation of the natural resources in the Amazon can contribute to enormous environmental and economic benefits for Amazon countries.
Promoting ecotourism
Amazon Basin countries can stimulate their economic growth by taking advantage of the biodiversity within the forest. One of the ways through which these countries can achieve this goal is by investing in ecotourism. According to Bastida (33), the Amazon Basin presents a perfect opportunity for the Brazil and Ecuador to develop and stimulate their economic growth through ecotourism, which is a highly profitable business.
Ecotourism refers to responsible travel to various areas in which the natural environment is protected and conserved. However, the government should educate the individuals engaged in ecotourism to ensure that they do not contribute to environmental pollution. Tourism ranks as one of the largest employers in the world.
The sector accounts for 10.7% of the total global Gross Domestic Product (GDP). Moreover, the sector employs more than 260 million people.
A survey conducted in 2004 shows that ecotourism has been growing at a rate that is three times faster compared to mass tourism. According to the United Nations Environmental Programme (UNEP), a high rate of ecotourism is being experienced in the remaining natural areas (Bastida 37).
Promoting ecotourism will also play a significant role in the countries’ effort to alleviate poverty. Ecotourism leads to the development of a service chain. For example, the local communities benefit through the creation of markets for their produce in the lodges that are established around the natural resources.
Additionally, Amazon Basin countries can stimulate development of ecotourism by investing in Community-Based Eco-Tourism (CBET) projects. In an effort to curb deforestation and destruction of the Basin’s ecosystem, Ecuador and Brazil have invested in CBET projects.
Conclusion
The study shows that the Brazilian and the Ecuadorian governments seek to stimulate their countries’ economic growth. Exploitation of the natural resources within the Amazon Basin is one of the ways through which the governments intend to achieve their economic growth. Previous scientific studies show that the Amazon Basin has huge deposits of hydrocarbons.
The Brazilian and Ecuadorian governments are of the opinion that extraction of the hydrocarbons will stimulate their countries’ economic growth. By extracting hydrocarbons, the countries’ dependence on oil imports will minimise. On the contrary, their revenue collection from oil exportation will increase significantly.
However, extraction of hydrocarbons may have adverse effects on the countries’ ecosystem and loss of the Basin’s biodiversity. For example, extraction of the hydrocarbons may lead to substantial environmental degradation, water, and soil and air pollution. Some of the strategies that the two governments should focus on relate to investing in carbon trading and promoting ecotourism.
Investing in carbon trading will not only benefit the two countries economically, but will also aid in reducing the rate of deforestation as the governments will minimise investing in projects that might increase deforestation, but will focus on protecting the environment in order to increase the Basin’s carbon sink.
Works Cited
Baer, Werner 2008, The Brazilian economy: Growth and development. PDF file. Web.
Bastida, Jose 2009, Development in the Amazon Basin countries: Alternatives to extraction of non-renewable natural resources. PDF file. Web.
Butler, Rhett.Amazon destruction: Why is the rainforest being destroyed in Brazil? 2010. Web.