Counting the Cost

What is the Amazon rainforest worth?

The Amazon rainforest is ablaze and threatened, so what is the cost of saving it? Plus, Etihad’s investment struggles.

The Amazon rainforest is on fire; every minute, an area the size of a football pitch is being wiped out – a priceless resource under threat.

Fires are a regular occurrence in the Amazon during the dry season, but nearly 73,000 fires were recorded between January and August, compared with 39,759 in all of 2018, according to Brazil’s National Institute for Space Research (INPE).

Environmentalists blame the surge in fires on reduced protection of the environment under Brazil’s right-wing President Jair Bolsonaro.

Bolsonaro campaigned on a promise to open up the Amazon to farming, logging and mining, and to strip native Amazonian tribes of their land. And as president, he is defunding the bodies responsible for environmental enforcement.

Bolsonaro and his supporters argue that their economic growth is being held back because they cannot exploit the Amazon.

But how do you put a price on the Amazon rainforest? What is the rainforest – which produces six percent of the world’s oxygen and is home to a fifth of the world’s freshwater supply – worth? And is it time to offset the damage from these fires, and stop buying Brazilian beef and soya?

A study by the science journal Nature suggests the economic benefit of leaving the Amazon rainforest in its current state would be $8.2bn a year. Deforestation of the Amazon would lead to a fall in rainwater and agricultural losses of $422m and other social and economic losses that could result in a loss as much as $3.5 trillion over a 30-year period.

The cost of saving the Amazon would be $64bn, and that could help restore the landscape and change agricultural practices.

“The key point is to question the logic that the clearance of the Amazon … is necessarily a precondition for sustainable economic development,” says Toby Gardner, a senior research fellow at the Stockholm Environment Institute.

“One clear fact that is important to keep in mind in this whole debate … is the area that has already been cleared in the Amazon. The vast majority of the land is not currently under any economically viable, productive use. In fact, the majority of it is in very extensive, low productivity cattle pasture often making a loss economically; and also a huge area of it has been abandoned.”

According to Gardner, Brazil has the opportunity “to make much better use of the land that has already been cleared … and the agri-business community of Brazil is the first to say that they have enough land to expand and satisfy their needs – while also protecting the remaining areas of the Amazon and other native ecosystems that are so vital as well to the economy of Brazil, the wellbeing of Brazilian people, and the wellbeing of people across the planet.”

Environmental groups argue Brazil’s beef, soybeans and other exports are linked to the Amazon fires. But for individual consumers, experts say, it is difficult to have confidence in making a purchase free from any exploitation of the resources within the Amazon rainforest.

“Soy is embedded in countless products that we are buying on supermarket shelves. And we are often very ignorant, blissfully ignorant, about where it’s come from. Most soy in the world is used to feed animals. And you are not thinking when you are eating a chicken burger for example, that you are also eating soy that may come from the Brazilian Amazon,” Gardner says.

Brazil’s handling of the situation has strained its relationship with the EU. At least two countries have frozen their donations to the government-managed Amazon Fund to condemn Jair Bolsonaro’s environmental policies. The drop in donations could impact dozens of environmental projects relying on the fund, as Teresa Bo reports from Itapua.

How Etihad’s ambitions left investors nursing their losses

Back in 2005, Abu Dhabi’s Etihad Airways had some ambitious expansion plans and it began buying stakes in some airlines that were bleeding cash. It decided to fund Air Berlin, Alitalia, and India’s Jet Airways by selling bonds worth $1.2bn. The deal eventually got off the ground with the help of Goldman Sachs.

But as the loss-making airlines filed for bankruptcy or collapse and the bonds became worthless, the investors who bought the bonds thought Etihad would step in and pay the debt.

“They [Air Berlin, Alitalia] were loss-making, they potentially were looking for new ownership or a rescue and Etihad seemed to be the knight in shining armour that would come and rescue them from their losses,” says Robert Southey, CEO of Southey Capital.

“Etihad – although being state-owned and receiving support – has been loss-making for many years … On average, their planes have been running on nearly 10 percent lower capacity than some of their international rivals. And that, of course, has a major impact on their profitability.”

Southey says that “Goldman Sachs’s involvement is absolutely crucial in this matter” and explains that if the investor had not put their name on the paperwork, Etihad “would not have really gotten this deal across the line … The relationship between Etihad and Goldman is a good one. So you probably thought with these two partners involved, the bond is relatively secure.”

According to Southey, it was mainly domestic investors who “trusted the name of Etihad and they thought when they were buying into this they’re supporting one of the national champions and they’re going to be looked after as well.”

Now some investors are hiring private detectives to find out how the deal was put together and to recover the money.