cost-benefit analysis of ikumba-ruhija road upgrade and alternatives

Cost-Benefit Analysis of Ikumba-Ruhija Road

Upgrade and Alternatives

Summary of FindingsSeptember 2014

About this StudyThis study was made possible by the support of the American People through the United States Agency for International Development and its program on Biodiversity Understanding in Infrastructure and Landscape Development (BUILD).

Analysis was conducted by the Conservation Strategy Fund and the International Gorilla Conservation Programme (a coalition programme of Fauna & Flora International and WWF).

Full study will be published by Conservation Strategy Fund in 2014.

Roads (Ruhija and Buhoma)

Objectives of Ikumba-Ruhija Road• To improve the performance of the tourism sector

by easing access to the tourist attractions in the region;• To improve access to goods/passenger transport

services, and reduce transport costs along the route;• To improve access to social and economic

development opportunities along the route; and • To ensure no roadside communities become worse

off as a result of the road upgrading works.

Road alternatives in the area

Cost-Benefit Analysis

• Quantifies, based on NPV, the financial and further economic, to compare the proposed upgrade with the two potential diverted routes• Calculates the benefits and costs to society,

typically the Country

Cost Benefit Analysis, objectives• Given Ikumba – Ruhija road’s specific objectives, this

study analysed road alternatives in terms of:1. Overall economic performance; 2. Performance in reduced transport costs (benefits)

versus construction and maintenance costs;3. Effects on rural communities around the Park;4. Impact on tourism revenues; and 5. Ability to offset construction and maintenance cost via

revenue generated by increased or induced tourism.

Net Present Value

Net Present Value is the sum of the discounted values of the expected positive and negative net cash flows over a project’s anticipated lifetime.

Road Economic Decision Tool-RED

Economic Analysis

Assumptions in Models

• Baseline 2013 visitor population of 20,479• Permit price constant at $600; rises to $750 year after permits become

saturated• 10 active habituated gorilla groups; 1 additional gorilla group available for

viewing in July & Aug (research group)• Each gorilla permit is bought by new visitor to Bwindi• 12% discount rate (in line with RED analysis)• NPV calculated based on a 20 year project timeline (in line with RED analysis)• Each tourist spends 2.17 days in Bwindi• Each tourist spends 14 days in Uganda• Each gorilla tourist is considered a leisure tourist• Daily spending of US$172 by leisure tourists• Zero leakage from Bwindi and Uganda • Multiplier effect of 2.5

(Note: Sources of assumptions are referenced in full report)

Impact scenarios for NPV calculations1. Economic losses associated with the loss of one

habituated gorilla group during construction phase in 2015

2. Forgone revenues associated with the non-establishment of one habituated gorilla group in 2020

3. Total economic losses associated with changes in habituated gorilla behaviour (both scenario one and two both occurring)

Putting gorillas into the equation

Results

Net Present Value using RED

Using Roads Economic Decision (RED) Model to calculate Net Present Value (this equals to a Financial Cost Benefit Analysis)RED Model based on World Bank and Government of Uganda parameters

Using Roads Economic Decision (RED) Model to calculate Net Present Value (this equals to a Financial Cost Benefit Analysis)RED Model based on World Bank and Government of Uganda parameters

-13.66 million USD-13.66 million USD



Putting gorillas into the equation

Economic Models for NPV calculations• 3 growth rates

• 3% - current national growth rate for leisure tourists in Uganda• 10% - mid point • 17% - current growth rate for gorilla trekking tourists to Bwindi

• 3 levels of impact• Net present financial losses associated with permit revenues

(including NPV of losses to communities from loss of gorilla levy – approx. 0.8*% of value)

• Associated net present financial losses associated with loss of tourist expenditure to Bwindi area (permit revenue plus local spending)

• Associated net present financial losses associated with loss of tourist expenditure to Ugandan economy

*based on $5 of $600 permit cost

* Permit revenue plus contribution to local economy through daily tourist expenditure

Growth scenario (annual % of tourism growth)

NVP forgone revenues

(million USD)

Adjusted NPV of Upgrade of Current Road (NPV of forgone revenues + NPV from RED)

3 -2.41 (-0.02) -16.07Permit revenue 10 -4.82 (-0.04) -18.48(loss to community) 17 -4.91 (-0.04) -18.57 3 -3.91 -17.57Total spending in Bwindi*

10 -8.22 -21.88

17 -8.46 -22.12 3 -30.18 -42.84Revenue to Uganda 10 -66.92 -80.58 17 -69.49 -83.15

1. Forgone revenues from additional group not forming in 2020


2.Forgone revenues from group lost to tourism in 2015



(million USD)


3 -4.67 (-0.04) -18.33Permit revenue 10 -7.80 (-0.06) -21.46 (loss to community) 17 -10.74 (-0.09) -24.40 3 -7.58 -21.24Total spending in Bwindi* 10 -13.89 -27.55 17 -17.80 -31.46 3 -58.54 -72.20Revenue to Uganda 10 -117.76 -131.42 17 -140.72 -154.38

3. Total Possible Forgone Revenues Growth scenario

(annual % of tourism growth)


(million USD)


Permit revenue (loss to community)

3 -7.08 (-0.06) -20.7410 -12.62 (-0.11) -26.2817 -15.65 (-0.13) -29.31

Total spending in Bwindi*

3 -11.48 -25.1410 -22.11 -35.7717 -26.26 -39.92

Revenue to Uganda

3 -88.72 -102.3810 -184.68 -198.3417 -210.21 -223.87


Summarizing Scenarios – NPV change for Upgrade through Park

Model calculations of NPV with costs of forgone revenues to the Ugandan economy (17% tourism growth rate)

Model calculations of NPV with costs of forgone revenues to the Ugandan economy (17% tourism growth rate)




-154.38 million USD (scenario 2)-154.38 million USD (scenario 2)

-83.15 million USD (scenario 1)-83.15 million USD (scenario 1)

-223.87 million USD (scenario 1 and 2)-223.87 million USD (scenario 1 and 2)


NVP gained revenues

(million USD)

Adjusted NPV of Alternative 2 (NPV of increased revenues + NPV from RED)

Adjusted NPV of Alternative 3 (NPV of increased revenues + NPV from RED)

Permit revenue

3 2.41 -14.24 -15.9910 4.82 -11.83 -13.5817 4.91 -11.74 -13.49

Revenue to Bwindi*

3 3.91 -12.74 -14.4910 8.22 -8.43 -10.1817 8.46 -8.19 -9.94

Revenue to Uganda

3 30.18 13.53 11.7810 66.92 50.27 48.5217 69.49 52.84 51.09

Translating avoided costs into benefits (Additional group forming in 2020, inverse of Scenario 1)


Additional benefits to local people

If, along with the diverted alternatives, an additional 3 km was upgraded between Nyamakale and Mukiyorere (estimated 2 million USD), the total beneficiaries grows to 25,000 people experiencing benefit of improved transport

If, along with the diverted alternatives, an additional 3 km was upgraded between Nyamakale and Mukiyorere (estimated 2 million USD), the total beneficiaries grows to 25,000 people experiencing benefit of improved transport

Benefiting 13,000 people who already have access to a road

Benefiting 13,000 people who already have access to a road

Benefiting 19,000 people (6,000 more people), many who have no current access to a road

Benefiting 19,000 people (6,000 more people), many who have no current access to a road

Additional benefits to local people

Socio economic findings-Hospital visitations

Average hosp visits/yr Average dist. to Hosp.

Average cost to Hosp.

Access to schooling-Education levels of population

Access to schooling

Completion of Sec Sch-Adults

In summary • Road thru BINP, though less costly in Construction

financial terms, returns on investment to the local and national economy are far greater for potential alternatives;• Investment in potential alternatives will ensure the

sustainability of the Gorilla based tourism sector in the Country• More households would benefit from the potential

alternatives.

cost-benefit analysis of ikumba-ruhija road upgrade and alternatives

Environment

ugandaeach gorilla tourist

habituated gorilla behaviour

ruhija road upgrade

roads ruhija

road alternatives

total economic losses

international development

red analysiseach tourist