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“Poverty is created scarcity”

Wahu Kaara, point 8 of the Global Call to Action Against Poverty, 58th annual NGO Conference, United Nations, New York 7th September 2005.


Edition 01 : 14 December, 2009

Edition 02 : 21 February, 2011




Chapter 07: Financial Justification 


07.07.01 Costs and benefits analysis.


Detailed analysis of costs and benefits.


07.07.02 Introduction.

Traditional costs and benefits analyses are usually limited to the monetisation on savings on current expenditure in a given project area. Many of the new structures during project execution which improve the quality of life of the populations  are not taken into consideration. For example, 200 schools can be built in a project areas where there were none before. The schools can be staffed with teachers who are not yet available. And in one stroke most of the Millennium Development goals in the area can be achieved and surpassed. Yet these activities are not taken into account in traditional costs and benefits analyses. The formation of 200 nursing centres,  40 medicine distribution points, and the creation of a network of 40 bicycle ambulances are not taken into account either.

Similarly, the introduction of a local money system is not taken into consideration as a benefit, because no equivalent exists at the moment the project starts. The enormous benefits resulting from the local money systems, including some 4.000 new occupations, the formation of numerous sports clubs, cultural centres, productive activities etc have a zero value for traditional costs and benefits analyses, because they do not exist at the moment the initial «photograph »  is taken.

The result of the applications of traditional costs-benefits analyses is that what does not exist at the moment the initial «photograph » is taken, cannot be monetised. No account is taken of  the creation within the framework of each project, of numerous structures enabling most of the Millennium Development goals to be achieved together with a good quality of life for all in the project area.


It can therefore be concluded that practices relating to costs and benefits analyses produce results that are notoriously false, even to the limits of fraud, and benefit the least scrupulous operators who deliberately magnify future revenues and reduce the future costs to produce a good monetary ratio between the supposed benefits and the investments made. The decision to carry out and/or to finance a development project calls for an ethical evaluation which takes the


07.07.03 The project area.


The indigenous population is mostly [                            ].

In general the area can be described as  “abandoned”  where all activities are precarious. [Description]

About  [  ]% of foods consumed in the project area come from outside the project area itself.  Most of the population id deprived of food security.

Economic activity in the area is essentially informal and de-monetised. In line with the above introduction, this make it unsuitable for a western-style costs and benefits analysis.


07.07.04 Some benefits from integrated development projects which could fall under traditional costs and benefits analyses.


01. Water points at 100m from homes.  


Average benefit  1 hour’s water fetching per day (being 10% of a 10 hours working day) x  revenue Euro 3 per day, being Euro 0,30 per day x 10.000 women =  Euro 3000 per day x 365, or Euro 1.095.000 per year.  


02. Washing places.


Benefit 4 hours a week (being 40% of a 10 hour working day) x daily revenue Euro 3 = Euro 1,20  x  52 weeks x  10.000 women = Euro 624.000 


03. Reduction of medical treatment costs for water-borne diseases :


50% of the population (25.000 part of 50.000) at least once a year x average cost for medicines and doctor’s fees average Euro  20 = 25000  x Euro 20 = Euro  500.000


04. Productivity increase due to reduction in illness caused by water-borne diseases :


50% of the adult population (50% de 30.000)  x  ten days per year x revenue Euro 3 a day = 15000 x 10 x 3 = Euro 450.000.


05. Reduction in the costs of treating people suffering from hunger, or due to inadequate hygiene, or caused by smoke in and around homes :


25% of the population at least once a year x average costs for medicines and doctor’s fees Euro  20 = 25000 x  Euro 20 = Euro  250.000.


06. Reduction of 50% in the cases of  malaria 


(being 40% of the population at least once a year) through drainage of surface waters, use of mosquito nets, hygiene education courses etc.  Reduction of 50% of costs for of 40% of the population at least once a year, being 50% of the costs of  20.000 persons average anti-malaria treatment (Euro 10 per case) or Euro 200.000, of which 50%  = Euro 100.000


07. Increase of  productivity due to reduction in the number of cases of malaria :


10% of the adult population (being 10% of 30.000 or  3.000 adults)  x 10 days x revenue Euro 3 per day = 3000 x 10 x 3 = Euro 90.000.


08. Reduction  in the cost of urgent transportation of sick family members


to hospital in a large town  (a car is rented for 38 a time,  paid by a collection amongst all family members) ; 10% of the population of 50.000 at least 1 time a year, being Euro 38 x 5.000 = Euro 190.000.


09. Elimination of the need to fetch firewood: 


60% of families (being 60% of 10.000 families or 6.000 families)  x  4 hours per week (or 40% of a 10-hour  working day) x revenue Euro 3 or Euro 1,20 per week. Euro 1,20 a week x 6.000 women = Euro 7200 per week, or Euro 374.400 a year.  


10. Reduction  in the costs of purchase of wood for cooking (or alternatives) : 


40% of families (or 40% of  10.000 or 4.000 families). In town (or larger centre) a 5=person family typically uses about   +/- € 0,75 worth of wood or equivalent per day. Reduction  of 65% through the use of improved stoves Euro 0,50 per family per day. 4000 families x Euro 0,50 x  365 = Euro 730.000.


11. «Automatic » reforestation 6.5kg (part of  traditional use of 10kg per family per day


for savings in wood x 10.000 families x 365 = 23725 tons per year @  average value of standing timber for pulp Euro 7.5 per ton = Euro 178.000 per year. Refer to Menu  for  : 09. CDM funding indications for the selected applications and methodologies  (in Block 8, Section 5) for details of finance applications for different categories of CDM afforestation and reforestation projects.


12. Fertiliser savings.


A recent conservative source is Richert A. et al  Practical Guidance on the Use of Urine in Crop Production Stockholm Environmental Institute (SEI), EcoSanRes Series 2010-1, Stockholm, 2010, ISBN 978-91-86125-21-9. Table 2  on page 2 suggests an average of 550 kg of urine and 51 kg of faeces per person per year, with a total production of  4550 gr, of nitrogen and 548 gr of phosphorus. Table 8 on  page 3 refers instead to South Africa for which the indications are 3980 gr. of nitrogen  and 580 gr. of phosphorus. A more interesting statistic is provided in table 8 on page 8, where a comparison between human wastes in Burkina Faso and their industrial equivalents is made. The table suggests that the nutrients in the excreta (urine and faeces) of a family (or group) of 9 people is the equivalent of one 50 kg. bag of urea plus one 50 kg. bag on NPK 15:15:15 fertiliser. 


On this basis, the population of 50.000 people in each integrated development project area (5500 groups of 9 persons)  produce the equivalent of 5.500 bags of urea and 5.500 bags of NPK.


This is the equivalent of  275 tonnes of urea and  275 tonnes of  NPK 15 :15 :15 fertiliser per project per year.


Local commercial prices can be calculated when each individual project documentation is drafted. Current world prices are about € 387 per tonne for 46% urea, and € 402 for NPK 15/15/15 fertiliser. The fertiliser savings is therefore to the order of  275 * (387 + 402) =  € 217.000 per project per year.


Local production of fertilisers due to recycling of  urine and faeces is enough to cover the production of all of the food needed by the inhabitants, at the same time guaranteeing a varied diet. This does not imply any extra work load on women during rainy seasons when they have to help their husbands in the fields to cultivate food as well as carry out their normal household chores. Outside the family fields women have heir own fields which they use the generate their own revenue.

13. Reduction of 80% in the costs of  importation of food into the project area.

At the moment poor populations often lack food security. In many areas  80% of staple foods (millet, maize) needed have to be imported into project areas. This may be the biggest single cause of financial leakage in some areas, and therefore of the extreme poverty of the people there. Average cost of food is about Euro 2,20 per family per day, of which 80% is Euro 1,75. Euro 1,75  x 10.000 families x 365 =  Euro 6.387.500 a year.

[In Africa, the price of a family-sized dish of food is +/- € 1,10.  2 dishes of food are needed to feed 5 people, so the cost is +/- € 2,20 a day. Preparation time is very long, as the millet has to be ground by hand, which can take anything up to 2 hours. The price of food is much higher if it is ground by a miller. Milling costs about € 0,15 per kg. This is because of  the high cost of fuel in most project areas. Outside the larger centres, there is often no mill available at all because of the international cost of fuel to run the mills.  The total time needed each day to prepare food for a family of 5 can be anything up to 5 hours, with a total cost up to € 3,80.]

14. Savings through local production of bio-fuels.


09-07.  Demonstration afforestation and/or reforestation projects using Jatropha on lands having low inherent potential to support living biomass.  In case of application, bio-fuels for a value of up to  € 550.000 per year.


15. Through the introduction of mills,


time savings (up to 2 hours per day) to grind millet by hand. Average time saved : 1,5 hours per woman per day being 15% of the revenue of  € 3 per 10-hour working day, or  € 0,45.  € 0,45 per day x 10.000  women x 365 days = € 1.642.500


16. [Excluded from the calculation of costs and benefits.] Cooperative Local Development Fund :


  0,65 per person over  4 years (net of fixed expenditure €  260.000 a year)  and  € 0.75 per person during years 5-10  (net of fixed expenditure  €350.000 a year); €0,90 per person years 11-15 (net of expenditure   390.000 a year) ; € 1,10 per person during years 16-20 (net of expenditure  € 460.000 par an) . The amount recycled systematically interest-free (and cost-free in formal money terms) for micro-credits amounts to at least  € 2.600 per family during each period of  10 years. Euro 2.600 x 10.000 = Euro 26.000.000 over 10 years, or an average of Euro 2.600.000 a year. Average savings in formal money interest and costs 20% :   Euro 520.000 a year.


17. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-01. CO2 savings through the reduced use of non-renewable biomass for cooking purposes through the introduction of improved stoves. Up to € 356.356  per year over a period of 21 years,


18. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-02. Demonstration project for the recovery of forest lands and natural parks and reserves using traditional species. Up to € 210.000 over a period of 50 years,


19. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-03. Afforestation activities in settlements as defined  for the distributed planting of fruit and nut trees and similar. Up to € 172.000 over a period of 20 year, then 105.000 over a period of 30 years, plus fruit and nuts.


20. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-04. Small-scale agro-forestry activities – such as distributed bamboo plantations on grasslands and croplands. Up to € 210.000 over a period of 7 years, plus bamboo shoots, plus bamboo and bye-products ; plus added vaue over an indefinite period.  


21. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-05. Small-scale agro-forestry activities – distributed demonstration plantations for practical purposes for local use, including but not limited to Moringa plantations on marginal lands. Up to € 215.600 over a period of 3 years, plus Moringa products over an indefinite period.  


22. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-06. Demonstration afforestation and/or reforestation (AR) projects on wetlands using traditional species. Where applicable,  up to € 215.600 over a period of 30 years.


23. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-07.  Demonstration afforestation and/or reforestation projects using Jatropha on lands having low inherent potential to support living biomass. Where applicable,  up to € 288.750 over a period of 5 years.


24. Carbon Emission Reduction Certificates under the Kyoto Protocol ;


09-08. Use of renewable biomass instead of non-renewable biomass with improved cook stoves. Where applicable,  up to € 182.000 over a period of 21 years.


25. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-09. Recycling of human waste to avoid the use of industrial fertilisers. Recall.  Application improbable.


26. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-10. Methane recovery from animal waste for cooking and lighting purposes especially in pastoralist areas. Recall. Theoretical potential up to € 840.000 per year over 21 years. Probable application € 0, du to lack of energy use in the project areas.


27. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-11. Replacement of kerosene lamps, incandescent light bulbs, and of the use of throw-away batteries by renewable energy sources (wind, solar and/or renewable bio-mass including but not limited to plant oil, gasification of biomass). Recall. Up to € 10.774 per year over a period of 21 years ; otherwise according to the situation in each project area.


28. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-12. Replacement of non-renewable electrical, diesel- and battery-driven sources for mechanical equipment such as pumps and mills and, where applicable, pubic lighting systems. Recall. Up to € 24.000 per year over a period of 21 years ; otherwise according to the situation in each project area.


29. Carbon Emission Reduction Certificates under the Kyoto Protocol:


09-13. Local recycling and recovery of materials from solid wastes, including but not limited to plastics. Recall. Application improbable. Otherwise according to the situation in each project area.


07.07.05 Summary (in €) of costs and benefits.


Total Investment  Euro 5.000.000


Present value of the investments over 20 years, net of on-going administration and maintenance costs, all discounted at 7% per annum.


Year of activity                             Net result                               Factor annual benefits                                                       

01                                                    -  5.000.000                                            -01.00

02                                                        3.742.767                                            00.75

03                                                        6.493.678                                            01.30

04                                                       8.075.785                                            01.62 

05                                                        9.604.568                                            01.92

06                                                        8.932.251                                            01.79

07                                                       8.306.992                                            01.66

08                                                        7.722.523                                            01.54

09                                                        7.184.717                                            01.44

10                                                        6.681.788                                            01.34

12                                                        6.214.062                                            01.24

12                                                        5.778.753                                            01.16

13                                                        5.374.543                                            01.08

14                                                        4.997.884                                            01.00

15                                                        4.684.314                                            00.93

16                                                        4.322.942                                            00.86

17                                                        4.020.330                                            00.80

18                                                        3.739.015                                            00.75

19                                                       3.447.180                                            00.70

20                                                       3.233.771                                            00.65


Accumulative total                      107.551.863                                            21.53                                      


07.07.06 Graphic showing costs and benfits per activity  groups.


Next file : 07.10 Balance sheet.

Back : 07.05 Economic and financial analysis for funding applications.


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