Cost-Benefit Analysis of Ikumba-Ruhija Road Upgrade and Alternatives

1. Cost-Benefit Analysis
of Ikumba-Ruhija Road
Upgrade and
Alternatives
Summary of Findings
September 2014

2. About this
Study
This 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.

3. Roads (Ruhija and Buhoma)

4. 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.

5. Road alternatives in the area

6. 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

7. 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.

8. 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

9. 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)

10. Impact scenarios for NPV
calculations
1. 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)

11. Putting gorillas into the
equation

12. Results

13. 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
--1133..6666 mmiilllliioonn UUSSDD
--1188..4400 mmiilllliioonn UUSSDD
--1166..6655 mmiilllliioonn UUSSDD

14. Putting gorillas into the
equation

15. 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

16. 1. Forgone revenues from
additional group not
forming in 2020
Growth scenario
(annual % of
tourism growth)
NVP forgone
revenues
(million USD)
* Permit revenue plus contribution to local economy through daily tourist expenditure
Adjusted NPV of
Upgrade of Current
Road (NPV of forgone
revenues + NPV from
RED)
3 -2.41 (-0.02) -16.07
Permit revenue 10 -4.82 (-0.04) -18.48
(loss to community) 17 -4.91 (-0.04) -18.57
3 -3.91 -17.57
Total spending in
Bwindi*
10 -8.22 -21.88
17 -8.46 -22.12
3 -30.18 -42.84
Revenue to Uganda 10 -66.92 -80.58
17 -69.49 -83.15

17. 2.Forgone revenues from
group lost to tourism in
2015
Growth
scenario
(annual % of
tourism
growth)
NVP forgone
revenues
(million USD)
* Permit revenue plus contribution to local economy through daily tourist expenditure
Adjusted NPV of
Upgrade of Current
Road (NPV of forgone
revenues + NPV from
RED)
3 -4.67 (-0.04) -18.33
Permit revenue 10 -7.80 (-0.06) -21.46
(loss to community) 17 -10.74 (-0.09) -24.40
3 -7.58 -21.24
Total spending in Bwindi* 10 -13.89 -27.55
17 -17.80 -31.46
3 -58.54 -72.20
Revenue to Uganda 10 -117.76 -131.42
17 -140.72 -154.38

18. 3. Total Possible Forgone
Revenues
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)
Permit revenue
(loss to community)
3 -7.08 (-0.06) -20.74
10 -12.62 (-0.11) -26.28
17 -15.65 (-0.13) -29.31
Total spending in
Bwindi*
3 -11.48 -25.14
10 -22.11 -35.77
17 -26.26 -39.92
Revenue to Uganda
3 -88.72 -102.38
10 -184.68 -198.34
17 -210.21 -223.87
* Permit revenue plus contribution to local economy through daily tourist expenditure

19. 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)
--1133..6666 mmiilllliioonn UUSSDD
--1188..4400 mmiilllliioonn UUSSDD
--1166..6655 mmiilllliioonn UUSSDD
--8833..1155 mmiilllliioonn UUSSDD ((sscceennaarriioo 11))
--115544..3388 mmiilllliioonn UUSSDD ((sscceennaarriioo 22))
--222233..8877 mmiilllliioonn UUSSDD ((sscceennaarriioo 11 aanndd 22))

20. Translating avoided costs into
benefits (Additional group
forming in 2020, inverse of
Scenario 1)
Growth
scenario
(annual % of
tourism
growth)
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 -15.99
10 4.82 -11.83 -13.58
17 4.91 -11.74 -13.49
Revenue to
Bwindi*
3 3.91 -12.74 -14.49
10 8.22 -8.43 -10.18
17 8.46 -8.19 -9.94
Revenue to
Uganda
3 30.18 13.53 11.78
10 66.92 50.27 48.52
17 69.49 52.84 51.09
* Permit revenue plus contribution to local economy through daily tourist expenditure

21. 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
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

22. Additional benefits to local
people

23. Socio economic findings-Hospital
visitations
Average hosp visits/yr Average dist. to Hosp.
Average cost to Hosp.

24. Access to schooling-Education levels of
population

25. Access to schooling
Completion of Sec Sch-Adults

26. 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.