AN INVESTIGATION INTO SOCIAL COST-BENEFIT ANALYSIS PRACTICE IN THE APPRAISAL OF PUBLIC PROJECTS IN KENYA
Stephen Odock and Muranga Njihia
Department of Management Science
University of Nairobi
Social Cost Benefit Analysis (CBA) is a popular technique to evaluate public sector investments. It is theoretically and methodologically sophisticated but continues to receive heavy criticism from difficulties encountered in practice. In this study we investigate how Kenyan project analysts undertake public project evaluation and how they cope with CBA limitations. We find that CBA understanding is low while practice is hobbled by methodological difficulties and complexity. Project analysts are divided almost equally for and against CBA’s perceived utility. We conclude with a research proposal for a complexity theory and system dynamics based approach to project evaluation.
Public projects are identified, planned and implemented by government ministries to address given social needs. They are geared towards improving the citizens’ welfare and the country’s economy as a whole which explains the wide and increasing attention accorded project appraisal (PIP 1997). Project appraisal involves making a more concrete assessment of a project’s viability and its ability to meet its objectives in the light of available information (Little and Mirrless 1976). Its importance today and hence of Social Cost-Benefit Analysis (CBA) to national economic planning cannot be overstated (Rwigema, 1974).
CBA is undoubtedly the most used and arguably most useful form of applied welfare economics (Lal, 1974). According to Donahue (1980) CBA brings facts and values together. It establishes predictions of a project’s impact and evaluates them in light of the proclaimed goals and priorities to provide concise, organized information. The province of CBA is largely confined to public projects because costs and benefits are defined in terms of social gains and losses (Dasgupta and Pearce, 1972). Specifically it is an attempt to identify and express in monetary terms all the effects of proposed government policies or projects (Portney, 1993). The government’s overall aim is taken as maximizing social welfare subject to constraints over which it has no control (Layard, 1972).
Issues in public projects and CBA in Kenya
Since the late 1990s Kenya has had rocky relations with development partners that saw a steady decline in development assistance. It was occasioned by a perception of poor governance and mismanagement of public resources and development assistance (World Bank Project Bulletin, 2002). According to the Kenya’s Public Expenditure Review (1997) only 2% of development projects were completed within budget and on schedule. For example the World Bank had to extend the closing date of projects that were due in 2002 like the Arid Lands and National Agricultural Research Project (II) and the Economic and Public Aspects project. Others due in 2003 were extended or restructured such as the Kenya Urban Transport Infrastructure Project, and the Nairobi - Mombasa Road project (World Bank 2002).
Although investment decisions may be taken on political or non-economic grounds, the evaluation and appraisal of projects is necessary to relate costs and benefits (Ngunjiri, 1999). One gets the impression that this important phase is often overlooked in Kenya. A titanium mining project at the coast delayed over concerns about proper environmental assessment and failure to look into the plight of the affected families (East African Standard, April 3, 2003). The Lake Victoria Environmental Management Project has been slow for similar reasons (World Bank Project Bulletin, 2002). This resulted in increasing public concern about development projects as seen in headlines such as Mombasa Highway Nightmare Far from Over (Daily Nation, March 3, 1999), Government Should Inform Interest Groups How Executive Decisions are Arrived At (Daily Nation, January 31, 1999), NGOs Must Be Investigated, (Daily Nation, March 23, 2001), NGOs Slammed, (East African Standard, June 6, 2000), NGOs Takes Side By Fighting Poverty, (East African Standard, May 2, 2001), in local newspapers.
Development projects underperform for many reasons, one of which may be failure to undertake proper CBA. For example the Early Childhood Development Project1 did not perform as expected (World Bank 2002). Caufield (1996) cites possible general reasons such as: the initiators may not have learnt enough about people's attitude towards education in rural villages. It may not have occurred to them that the costs of children in rural villages attending school could outweigh the benefits. This view may arise from: the walk to school being on average many miles in each direction, expensive feeding children during school days, families need their children’s labor, the school buildings are deteriorating, and most important schooling may not improve the chances of getting a job. May a well-executed CBA have captured some of these issues? How well is this being done? How well does the implicit economic (conventional) wisdom fit such complex project realities?
The literature on CBA gives an impression of theoretical sophistication, but indications are that it lacks in practice (Chybire, 1974). Few studies have been undertaken on CBA in Kenya, notable ones being Chybire (1974), and Rwigema (1974), discussed further below. From the foregoing discussions and the need for better project performance, the following questions arise: Do project analysts undertake CBA in appraising development projects in Kenya? How do they do it? Does doing it appear to improve project performance?
To find out the extent to which project analysts carry out formal Social Cost-Benefit analysis in appraising public development projects in Kenya.
To find out the difficulties/ problems encountered by CBA practitioners in Kenya.
To find out whether CBA practitioners consider CBA valuable in improving overall project performance.
Find out why some may not undertake CBA.
We shall now review CBA in the literature to situate the study.