BY TEKLEBIRHAN GEBREMICHAEL
Introduction
Every production unit for goods and services that exists was first a project idea. It then went through pre–feasibility and feasibility studies and through appraisal before it became a functioning undertaking. Of course, the levels of project study and analysis may vary widely.
A simple project idea of putting up a retail shop may not require any paper or computer work. The idea may be translated into a practical venture simply by assessing the location if it is to be rented or the location, the bill of quantities and the floor space of the shop to be built.
On the other hand, establishing a sugar factory would require an extensive feasibility including technical and financial studies and analysis. Hence, project studies and analysis range from the very simple to the very complex.
Project study and analysis typically entail economic, financial and technical studies. Overall cost/benefit, supply/demand and price market analysis, income/expenditure, balance sheet profit and loss analysis and engineering and technical studies should be conducted.
Hence, depending on the degree of complexity of the projects in question, project feasibility studies may take a considerable amount of time and money to complete and finalize.
As a matter of fact, a project feasibility study may not be considered completed until after operation has started and the practical outcomes have been found to be generally in line with the anticipated result of the project study and analysis. This is the follow-up phase of project study and analysis.
The situation in Ethiopia
It must be assumed that even a simple business project like opening a retail shop in Ethiopia is likely to undergo some kind of feasibility study. Big sectoral projects including infrastructure and big agricultural and industrial projects by the government undergo project study and analysis by the companies, domestic or foreign, which contracted to build them under the supervision of the concerned local authorities and institutions. The same, more or less, applies particularly to big projects in the private sector.
However, the general problem here is that the contractors are mainly interested in winning the contracts and not so much in the overall long–run cost/benefit of the projects. By the same token, national counterparts, who are mainly tasked with the responsibility to supervise, may easily fall into the corruption trap. Hence, we have seen several big government projects founder, some beyond redemption.
Unlike the situation at present, government development projects under the Derg regime used to be at least appraised by specialized government projects study and analysis institutions, particularly by DEPSA and IPS, Development Projects Studies Authority and Industrial Projects Service, respectively, before they got the green light for implementation. In fact, the two project study institutions undertook medium and large-scale government project studies until they were ready for implementation and did follow–up work to assess actual performance.
Staffs were sent abroad for specialized project study and analysis courses. In this connection, special mention should be made of the University of Bradford (UK) where most of the senior project study professionals were trained.
By contrast, the project study institutions no longer exist today at least in their previous professional and authoritative status. Hence, today not much is known about how big government projects including sugar projects, industrial parks and city and town development projects are prepared.
As a result, many government development projects including the large hydropower projects, large industrial parks and sugar projects have been plagued by problems and shortcomings associated with prioritization, inadequate project study and analysis, including on availability of raw materials, skilled labor, foreign exchange and infrastructure such as power and access roads. Implementation delay has been a major cause of cost overruns implying a heavy fiscal burden and a not insignificant source of resource wastage. Above all, official corruption associated with large government development projects corruption has become endemic.
The economic and social costs of inadequate project study and analysis
The costs of unsuccessful development and business projects are immense not only in terms of opportunity costs but even more as a result of direct partial and total losses. For example, in the case of some ten sugar projects supposed to have been realized a long time ago but never appeared on the scene until very recently and only a few of them at that, some 77 billion Birr has been estimated to have been lost!
Incredibly large losses also seem to have been incurred as regards road, power, telecom and water infrastructure projects some of which are reported to have registered gaps between physical and financial implementation of up to 70 and 80 percent! On the other hand, inadequate or poor project study and analysis have resulted in significant social costs including displacement, environmental degradation, including water and air pollution, and health hazards.
Poor project study and analysis could directly or indirectly give rise to the following more specific problems:
♣ Inadequate GDP growth
♣ Inflation
♣ Unemployment
♣ Official and systemic corruption
♣ Large fiscal deficits
♣ Growing external indebtedness
♣ Local currency depreciation
♣ Internal and external debt default
♣ Bankruptcies, etc.
Hence, poor project study and analysis could very well be the root cause of almost all the macroeconomic and microeconomic problems in Ethiopia if stretched to the maximum damage it can do directly or indirectly.
Concluding remarks
Economic development is an idea. It becomes a reality when it is translated into millions of implementable projects in the various sectors of the economy, including infrastructure, agriculture, agro-industry, other industries, high–tech and all kinds of services. The origin of the idea is of course the human brain.
The human brain gathers direct, indirect and derived information, processes that information and produces knowledge. Education and training enhance the human brain to acquire knowledge already produced by itself and obtain additional information to expand the frontiers of human knowledge.
Because of the vastness of knowledge and information and the complexity and difficulty involved in processing and storing them, the human brain has produced computers, artificial intelligence and robots to store and process them at a much faster speed than it possibly can itself. Artificial intelligence not only processes information but also produces knowledge, thus accelerating human development and progress.
Hence, an economic development project is a well thought-out idea constructed from its various sub-ideas including economic, financial, engineering, environmental and social aspects. Such an integrated idea system is put on paper called a project document.
The project document is a paper plan where workers, management, machinery, utilities and infrastructure are going to be housed in order to carry on the production process, which is expected to produce goods and services for society.
So, an economic development project is not a joke, but a very, very serious matter. The paper work has got to be done very meticulously and it requires specialized knowledge, particularly in the fields of economics, finance, environment, engineering, and sociology.
This specialized knowledge should therefore be institutionalized. So, as a matter of urgency, project study and analysis institutions for agriculture, industry, infrastructure and services should be established by the government separately or as major departments under one big institution. Many development projects in Ethiopia have been implemented and are being implemented without proper study and analysis.
For example, merits and demerits aside, the various Addis Ababa beautification, river development and tourist attractions development projects do not appear to have gone through rigorous project study, analysis and appraisal procedures. However, implementation has already started and the final total cost is estimated at a whopping 271 billion Birr!
In a sense, economic development, its content, distribution and speed, is a function of how well Ethiopia spends its resources, particularly its 500 billion Birr annual government budget and the estimated annual bank credit extended to the private sector (about 540 billion Birr). The sad fact is that a lot of it is simply wasted through poor project study and analysis, inefficiency during implementation and corruption.
Project analysis and project implementation require proven administrative, technical and engineering expertise. In Ethiopia such expertise is lacking and often even the basic capacity to choose the right foreign contractors is in short supply, implying poor design and implementation outcomes. In short, project study and analysis capacity may be rightly said to be the essence of economic development.
In project study, prioritization and availability of natural resources, technical skills, financial resources (including foreign exchange), suitable locations and, above all, entrepreneurial talent are all taken into account before translating the project document (which contains all these critical factors) into a large commercial farm, an agro-industry or a critical infrastructure. Hence, projects study and project analysis are the essence of economic development.
The Ethiopian herald December 15/2020
