PROJECT APPRAISAL AMONG YOUTHS 2

INTRODUCTION
Projects are the cutting edge of development. Perhaps the most difficult single problem confronting managers of development programmes in most developing countries (LDCs). This is mainly because of poor project choice and preparation. Beside aspects of development planning, project choice and preparation involve identifying development objectives, selecting investment priority areas, designing effective price policies and mobilising resources. Unless projects are carefully chosen and prepared in substantial detail, inefficient or even wasteful expenditure is almost sure to result-a tragic loss in nations in short of capital. This entails that careful project choice and preparation in advance of expenditure is cardinal in ensuring efficient economic use of capital funds and increase chances of implementation on schedule.

Projects provide an important means by which investment foreseen in planning can be clarified and realised. This is virtually done in line with systematically elaborated national plans to hasten economic growth and attain social objectives pursued by a particular country in a hurry to develop. This entails that sound development planning require good projects, just as good projects require sound planning. Sound planning rests on the availability of a wide range of information about existing and potential investments and their likely effects on growth and other national objectives that are meant to improve society’s welfare. It is the project analysis that provides this information, and those projects selected for implementation then become the vehicle for using resources to create new income.

Realistic project choice and planning involves knowing the capital investment to be spent on development activities each year and resources (human and natural) required for particular investments. Well chosen and analysed projects often become the channel for obtaining outside assistance when both the country and the external financing agency agree on a specific project activity and know the amount of resources involved in timing of loan disbursements, and the benefits likely to be realised by society. This can be determined by use of the social benefit-cost analysis. The social benefit-cost analysis is recommended by many economists because it fills gaps that result from projects selected on the basis of a positive net present value (NPV) that might not have effective impacts on the lives of the people. It also seeks to incorporate the importance of the principle of income distribution in project selection, since some projects can have a positive NPV without real meaning to the majority people.

The core of this essay therefore lays against the backdrop of the social benefit-cost analysis and the criteria mostly used in project selection. The essay sets to use practical examples in critically analysing the assertion that “in appraising projects, it is quite common nowadays to reject commercial profitability as a basis of planned project choice, but this causes a gap that social benefit-cost analysis has to fill and that the objective of social choice is to maximise social gains including the selection of public projects.”

DEFINING OF KEY CONCEPTS
According to Weiner (1964: 861), “a project is a unique set of coordinated activities with a definite start and finishing point undertaken by an individual or organisation to meet specific objectives within defined schedules, costs and performance parameters.” Social benefit-cost analysis is a process of identifying, measuring and comparing the social benefits and costs of an investment project or programmes, (Campbell, 2003: 12). Although projects may be public-undertaken by the public sector or private, they have to be appraised to determine whether they represent an efficient use of resources. Meanwhile, project appraisal refers to the assessment or study of the feasibility of project proposals in terms of total economic costs and total economic benefits before resources are committed into the project, (Hansen, 1986: 92). Furthermore, Lipalile (2003: 10) states that development means improvement in a country’s economic and social conditions; with emphasis on the improvements in ways of managing an area’s natural and human resources in order to create wealth and improve people’s lives. Gittinger (1984: 35) defines a cost as anything that reduces an objective, and a benefit as anything that contributes to an objective.


ANALYTICAL FRAME WORK
The allocation of resources among competing, but critical areas of the economy is one of the issues challenging all global economies. However, the matter is more serious in LDCs due to the scarcity of resources in these countries compared to the developed world. This means people in developing countries are poorer than those in developed countries and cannot even meet their daily basic needs. These economies mostly depend on donor assistance for sustenance as their economic bases cannot generate enough revenue to meet the numerous challenges they face. Therefore, careful use of resources in competing needs is important. Some of the techniques several scholars have proposed in project appraisal are the use of the social benefit-cost analysis and investment criteria in resource allocation or the input analysis as sustainable techniques. But some scholars argue that the use of the market mechanism is a very important way of allocating resources using the price mechanism. The method uses market forces of demand and supply and the capacity of consumers to pay-off for the products on demand or supply. They further argue that the state can only come in to correct market imperfections when need arises to ensure the consumer gets the best price.

However, from the social view point, the best mechanism to use in the allocation of resources in public projects is the social benefit-cost analysis. This is because this technique looks at how the chosen project is likely to contribute significantly to the development of the total economy and how justifiable the use of scarce resources will be in that particular project. The view takes into account the contribution of the project to the economy as a whole not only to the particular investor’s interests. Some commercial projects are rejected when the maximisation of net income for the investor supersedes the costs of the project to society. According to Hassaballa (1987: 17), “both private and public projects must be appraised from the social benefit-cost analysis point of view to ascertain their likely contributions to society because even the use of resources from the private view point involve costs and benefits to a wider range of individuals than the private owner.” For example, a private project may pay taxes, provide employment for the otherwise unemployed and generate pollution. These are effects of social benefits and costs. It is on this basis that the social benefit-cost analysis is preferred in appraising both public and private projects to weigh project costs over its contributions to society’s welfare. The benefits (or costs) could be directly or indirectly like provision of road networks into areas that are non-proximity to the project area or pollution of water sources even in areas far away from the project area.

The Kafue Steel Plant was for example rejected by the Environment Council of Zambia on the basis that the Environmental (or Social) Impact Assessment for the project showed that its costs on society would be more than benefits. (However, the project was later approved based on short term political demands). According to Sadler at el (2000: 08), “the social impact assessment focuses on the social and cultural effects of development initiatives and decisions and their consequences on human populations, communities and individuals.” The assessment primarily aims at minimising the adverse effects that some projects may have on natural resources, the ecosystem and human beings. Such assessments are part of a broad based planning approach in project choice to ensure that development opportunities and options are adjusted to environmental potentials and capacities.
Campbell (2003: 10) claims that public projects should be thought in terms of the provision of physical capital in the form of infrastructure such as bridges, highways and dams. There are however other less obvious types of physical projects that augment environmental capital stocks and involves activities such as land reclamation, pollution control, fishery management, investment in forms of human capital like health, education and skills and social capital through drug-use and crime prevention and reduction of unemployment, (ibid). This shows that there are few, if any, activities of government that are not amenable to appraisal and evaluation by means of social benefit-cost analysis. Additionally, most scholars argue that economic efficiency measured as the difference between benefits and costs ought to be one of the fundamental criteria for evaluating proposal projects because society often has limited resources to carry all competing projects. In this regard, the social benefit-cost analysis can help illuminate the trade-offs involved in project choice in different types of social investments. That is, the mechanism is a project choice barometer on how scarce resources can be put to the greatest social good, (Arrow at el, 1997: 322). This means balancing of benefits and costs of the project to society can help to promote more efficient and effective project choice.
This entails that project analysts should consider the social patterns and practices of the clientele a project will serve. They should carefully examine the broader social implications of proposed investment by including its weights for income distribution in the analytical framework to ensure that the project benefits favour lower-income groups, (Gittinger 1984: 16). Ascertaining the impact of these benefits on society is not easy, hence public project choice is somewhat challenging than private projects. For a private commercial entrepreneur, project choice is determined by how best the project satisfies the project owner’s objectives. Such commercial projects have often been rejected by national planners (whose evaluation is beyond positive NPV) by looking at the big picture of society’s welfare in project choice.
National planners look at alternative projects that best satisfy the interests and objectives of the nation. This kind of planning is complex not only because defining national interests is problematic, but also because identifying these interests by different planners could be different. Furthermore, if different planners pursue different national objectives using different mechanism in project selection, the result may be unsatisfactory and conceivably disastrous. Therefore, the main reason of doing social benefit-cost analysis in project choice is to subject the process to a consistent set of general objectives of national policy. Thus, the choice of one project rather than the other must be viewed in the context of the total national impact, and that total impact should be evaluated in terms of a consistent and appropriate set of objectives.
For example, there was agitation to the sale of Zambia Consolidated Copper Mines (ZCCM) when the privatisation project took root in Zambia because the mining sector was the anchor of the country’s economy. Different national planners proposed particular views on how it was to be pursued. This was because ZCCM was a sensitive and critical enterprise in the country’s economy, and if the state surrendered such economic power to investors, the entire economy would crumble if the investors for example decided to shut down the mines because the realisable returns on the investment is lower than expected, (Matale, 1996: 03). Taking the social benefit-cost analysis as a yardstick, in line with government long-term objectives of bringing economic efficiency, extricating government’s involvement in running industries, and focus scarce resources on education, infrastructure, and other social welfares, the project was implemented. This enhanced the meeting of long-term government objectives of promoting growth of the private sector by leveling the playing field for better competition on the market. Additionally, it meant broadening share ownership so that the public has mechanisms for saving money and participating in the economies of the country. This was meant to broaden the country’s revenue base.

The broader national parameters planners used in opting to privatise ZCCM against the other view of keeping it under state control was based on long-term benefits of the project which were more than the costs it could bring to society. The project created confidence in the country’s policies that new investors injected their capital in different sectors of the economy. Foreign investors confidently invested their money in the country because a favourable environment for more investment was created. For example, following the pull-out of Anglo America Corporation from the running of ZCCM and its consequential privatisation, government identified Vedanta Resources Plc of India as the Strategic Equity Partner in Konkola Copper Mines Plc (KCM). And KCM embarked on key projects that have increased the life span of its mining activities to more than 30 years after the privatisation of ZCCM. The main projects KCM is developing are the Konkola Deep Mining Project (KDMP), the construction of the ultra modern Nchanga Smelter, Konkola Concentrator and the green field project, which is a new open pit mine called Fitwaola, (Ndumingu 2008:03). These expansion projects involve an investment capital of over US$1 billion. Currently, KCM is rated as one of the major contributors to Zambia’s tax base with an estimated tax of US$75-80 million per annum, (2007, Parliament Estimates).
Furthermore, Gittinger (1984: 37) states that the social benefit-cost analysis is cardinal in appraising any type of a project to ensure that the project builds-upon society’s objectives of increasing income generation and distribution to other areas of the economy. That is, the whole society mainly aims at broadening the national income base, which should be carefully distributed to increase the number of productive job opportunities. This means more jobs could be created in other beneficiary areas from the revenue generated by viable sectors. As a result the number of the unemployed would fall, hence reducing dependency in the country. The proportion of savings would thus increase, and there will be more to invest as households are able to save when dependency reduces. In addition, economic growth would be faster and there would be more income in future.
The other concerns of society to consider in project choice would be addressing broader issues than narrow economic considerations such as increasing regional integration, upgrading the general levels of education, improving rural health systems or safeguarding national food security, (ibid). Any of these objectives may lead to the choice of the project that would contribute more to national income. For example, to ensure food security in the country during the Structural Adjustment Programme phase, government engaged the Food Reserve Agency (FRA) in the supply of inputs (fertilizer and seeds) and credits to small-scale farmers through primary cooperatives and associations, (Nyanga 2006: 49). The project enable farmers to access inputs as most of them could not afford to buy at the market price since they were concentrated in rural areas where incidences of poverty were as high as 74%, (ibid). The government objective was to ensure food security in the country, tallying with millennium development goals’ overview of enhancing household capacity of accessing food in order to reduce malnutrition levels and other health issues.
Additionally, in recognition of high poverty levels in the country, government established the Fertilizer Support Programme and the Food Security Pack under the Poverty Reduction Strategy Programmes (PRSP) as some of the five programmes meant to increase food production and enhance food security among small scale farmers in line with the PRSP, (PRSP 2002/04). The programmes were meant to service small scale farmers so that they improve farm productivity levels, enhance food security and ultimately reduce poverty. Although no evaluation was done to ascertain the project’s effectiveness, there was an increase in food production in the country during the 2002/04 farming seasons to 1, 424, 439 metric tonnes, (Post 2007: 11). This helped in minimise food prices in the country.
This entails that for a project to be meaningful, the social evaluation should be generally tied to factors of financial and economic appraisals. That is, a project cannot be expected to assist consumers in an area unless it improves the supply of a good or service at the price lower than the earlier one the product was offered. Since impacts of the project can be positive or negative, the affected people should be somehow compensated. For example, after the opening of Albidon Munali Nickel Mine in Mazabuka District, communities that were within the mining area were relocated to new areas where they were provided with farming inputs for five years and new housing units were built for them by the company (Radio Phoenix, 06:45 News 8th July 2008). Those that did not benefit directly got jobs at the mine in various sections of its operations. The company is also estimated to be contributing more than US$76 million to the government treasury when it starts full operation, (Post 2008: 12).
Negative social impacts of projects were also heavily felt during the privatisation project. According to Kaitisha (2008: 15), “… the pace at which the privatisation process was implemented was so quick that new firms had to hire labour…and this had repercussions of souring unemployment and destitution forcing government to form the Zambia Privatisation Trust Fund to facilitate share buying.” Additionally, through the establishment of Employee Share Ownership Plans by companies like Bonnita, Chilanga cement, Zambia Sugar and others that sold shares to management and employee buy-out teams, Zambian workers became shareholders in a number of profitable and growing privatised enterprises, (ibid). Furthermore, Lusaka Stock Exchange (LuSE) created a platform tailored to the needs of smaller growth companies and shareholders called LuSE Alternative Investment Market to encourage local and foreign investment in shares. This initiative was meant to increase the availability of loanable funds to other business ventures in the country, which would reciprocate into more job opportunities.
An expansion on the level of employment or a reduction in unemployment is one of the most important measures of project choice. This is because employment impacts on two measures of project selection; consumption and income distribution. Since unemployment makes it difficult for people to have an income (thereby contributing nothing to income distribution and consumption), employment represents the most important measure of project benefits and selection. Income distribution comes in the equation when people have jobs from which they earn income, because they contribute to the national treasury through tax either directly or indirectly. This could be through pay-as-you-earn (PAYE) or value added tax (VAT) when they pay for goods or services they purchase or use. People also consume more when they earn an income and that raises their standard of living. The raise in the standard of living is equally a fundamental goal of national planning and this naturally includes project selection. The key way of measuring the standard of living is determining the level of aggregate consumption per head. When the aggregate level of consumption goes up, it shows that people are living better; and this determines whether the project is beneficial to society.
An increase in fuel prices is for example likely to reduce the consumption level of the commodity in the country. Consequently, the distribution of income will be poor as the purchasing power of the commodity by the majority will be eroded; hence their contribution to the national revenue through VAT reduces. The state also loses revenue realisable from road levy as few vehicles will be on the road. Therefore, since prices are influenced by demand and demand by income distribution, employment is cardinal in project selection. For example, in its broad strategic plans to enable the transport sector attain the overarching goal of improving fuel supply in the country; Zambia (in conjunction with the Tanzanian government) sought for funds to construct Tanzania-Zambia oil pipeline (TAZAMA) from Dar-es-salaam to Indeni Refinery in Ndola, (Babati 2007: 03). The project meant to improve the flow of crude oil in the country, which could consequently maintain fuel prices at manageable levels by the majority. This was in realisation that cost-effective fuel prices impact greatly on the standard of living of the majority in the country. That is, the consumption levels of goods and services reduce as suppliers have a tendency of passing the costs they incur to the consumer. The Zambian economy currently depends on TAZAMA for imports of crude oil for domestic use and export to neighbouring countries.
The TAZAMA project, which gave birth to Indeni oil refinery, has many economic impacts on the immediate vicinity of the project. The project provided employment to different types of workforces that were/are engaged in the construction and maintenance of the facilities of the project. In addition, Indeni refinery has some spiral effects on other industries that supply inputs to it and those that depend on its outputs for their production. For example, Zambia Electricity Corporation (zesco) supplies power to the plant, while Unilever use Indeni’s by-products in its production of Vaseline and other products. According to Graciela (1996: 124), “inter-sectoral costs and benefits that may arise from the proposed project should be considered and then ascertained in terms of how market prices of goods and services and factors of production would be adjusted in response to the project’s economic value to society at large.”
In the final analysis, project choice can be based on its contributions to the increase in physical production, which could be the most common benefit of society. For instance, an irrigation project that permits better water control so that farmers can obtain higher yields to improve food security would be selected. And a credit project can make inputs available for farmers to increase their production. According to www.sp.org, “…using the 2006-2010 Fifth National Development Plan, government has introduced the Agriculture Support Programme to support increased food security and income by promoting ‘Farming as a Business’ concept in Central, Eastern, Northern and Southern provinces through a process of facilitation, infrastructure improvement, capacity building and other support mechanisms relevant to the sector.” The selection of the project was also meant to increase home-consumption of agricultural products, which expands the project’s net benefit to the nation.
In some instances, project benefits could be in form of an improvement in the quality of the product. For example, the analysis of the Cattle Restocking Exercise, which was to extend loans to producers of exogenous cattle and supplied the Ministry of Cooperatives and Agriculture, was meant to increase cattle production for the benefit of local farmers within the vicinity of the restocking project, (FNDP 2006: 105). The project also meant to improve the supply of animal produce like milk and beef after the animal population has grown, which could consequently lead to a reduction in prices of these products. According to Gittinger (1984: 47), “price effects on the local markets are cardinal in project selection because when prices decrease because of the project; this is a gain to consumer surplus and has to be considered as a value of the project to society.” In this vein, the selection of the cattle restocking exercise took into account the benefits it would have on the welfare of society when weighed against costs.
A project can be chosen as profitable to society when the social benefits exceed its social costs, rather than its NPV being positive, Thirwall (2006: 316). For example, the displacement of local family households in the Lumwana Mine project was weighed against the benefits to be realised from the project in the country. According to Radio Phoenix (June 17th 2008: Face the Media), “the Lumwana Mine project will lead to a production of more than 3000 metric tonnes of copper per day and will create between 4,100-6,200 new jobs in North-Western province.” The project is also estimated to inject more than US$60 million per year into the nation treasury, (ibid). The project further resulted into the construction of new houses, guest houses and other auxiliary services like banking and communication services in order to enhance quick productivity in the area. Other benefits the project spurred are the creation of new job opportunities in businesses outside the project, better health care (to reduce infant mortality as a result of more rural clinics to cater for the company workforce), better nutrition, reduced incidence of waterborne diseases as a result of improved water supplies, national integration, or even national defense. Such benefits are real and reflect true values of the project.
CONCLUSION
Since the allocation of resources among crucial competing areas of the economy seriously challenges all global economies; projects provide an important means by which investment can be clarified and its benefits realised. This is virtually done in line with elaborated national plans meant to hasten economic growth and further various social objectives of the nation. The achievement of these national objectives can be hastened by project choice vis-à-vis social benefits and costs rather than a mere positive NPV. This means the selection of projects involves ascertaining the project that satisfies best interests of the public and national objectives. Virtually, the objectives of social choice are to maximise social gains. Therefore, project choice should take into account the effective project contributions to the whole society and whether those contributions justify the investment of scarce resources into that project. The selected project should be supportive by the public and should tally with the national economic policy. Thus, the social benefit-cost analysis is cardinal in project selection on the basis of net gains that translate to the whole society rather a positive NPV that has no real impact on people’s lives. Therefore, the investment chosen should stimulate productivity to satisfy the market demand, thus creating new employment opportunities to match the level of production. This will in turn increase consumption levels that can spur re-investment, hence improving income distribution in the country as the newly employed will buy more thus contributing to national treasury.






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