Category: development

Categories
Cost Benefit Analysis development Economics Policy

Understanding Appraisal Periods in Cost-Benefit Analysis: Insights for Long-Term Investments

Accurately determining the period of appraisal in cost-benefit analysis is vital for effective decision-making, particularly for finance ministry officials in Pacific Island nations. This strategic understanding significantly influences economic stability and growth in the region.

The period of appraisal refers to the time span over which a project’s costs and benefits are evaluated. Getting this right shapes the analysis and directly affects the perceived feasibility of a project. Selecting an appropriate timeframe ensures all relevant costs and benefits are considered, especially for long-term projects like infrastructure or environmental programs that might produce benefits years later.

The appraisal period should align with the expected life of the asset or investment. For projects with long lifespans, the period should cover decades to fully capture their potential benefits. Both short- and long-term economic benefits need to be accounted for. Furthermore, a well-defined appraisal period is significant in determining the relevance of residual values in project evaluation. Residual values represent the remaining worth of an asset at the end of the appraisal period. If this period is too short, the analysis may underestimate the project’s true value by overlooking residual worth.

Understanding the distinction between economic and financial analysis is also crucial. Financial analysis focuses on investor cash flow and profitability, while economic analysis examines the broader societal impact, including externalities. This broader perspective often requires a longer appraisal period than financial analysis.

It’s also essential to differentiate between the period of appraisal and the tenor of funding, which is the timeframe over which borrowed funds are repaid. Misalignment between the two can skew financial assessments and lead to underestimating a project’s long-term value.

When managing multiple projects, consistency in the appraisal period is vital. Using a consistent time horizon across similar projects enables meaningful comparisons and strategic planning, ensuring investment decisions align with national economic goals.

Equipped with this understanding, finance ministry officials can ensure investment strategies prioritise financial viability and broader economic benefits over each project’s entire lifespan.

#CostBenefitAnalysis #EconomicGrowth #InvestmentPlanning #SustainableInvestments #PacificIslands

Categories
Cost Benefit Analysis development Economics

Appointment

Talofa! Lytton Advisory is pleased to announce that its Managing Director – Craig Lawrence – has been contracted by the Asian Development Bank as an Economist / Cost Benefit Analysis (CBA) expert to assist the Government of Samoa’s Ministry of Finance (MoF)  

Craig will be working with MoF officials to help strengthen the capacity of the Economic Policy and Planning team to produce timely cost-benefit analyses, improve data collection and provide advice to support decision making. 

Categories
development Economics Infrastructure Local Government Policy

Cross Border Infrastructure Challenges and Prioritising Population-Based Delivery

Source: AlburyWodonga.gov.au

Lytton Advisory recently visited Albury-Wodonga, and we have been thinking about some of the challenges of multi-level, multi-jurisdictional infrastructure planning.

Infrastructure Planning in Albury-Wodonga: Navigating Complexities and Embracing Opportunities

Albury-Wodonga, the iconic twin city on the Murray River border of New South Wales (NSW) and Victoria, exemplifies the complexities of infrastructure planning in border regions. As with other border areas, these cities grapple with intricate intergovernmental relations, but their unique geographical and administrative contexts add layers to the decision-making process. Both municipalities recognise this in their joint ‘Two Cities, One Community Approach’.

Key Challenges in Infrastructure Planning

  1. Harmonization of Standards and Regulations: Collaboration is a hallmark of infrastructure projects in this region. Yet, each state brings its unique set of standards, regulations, and bureaucratic processes. Reconciling these differences becomes pivotal. Without a synergistic approach, the twin cities could witness infrastructural discrepancies, leading to inefficiencies and possibly, public discontent.
  2. Interstate Transportation: Albury-Wodonga is not just two cities in proximity; it’s a transportation nexus. Roads, railways, and air links intertwine the destinies of these cities. The imperative is clear: both states must harmonize their efforts. Inconsistencies in funding allocation or project emphasis can stymie fluid connectivity, impeding the economic and social rhythm of the region.
  3. Resource Sharing and Management: Nature doesn’t recognize man-made boundaries. The Murray River, a lifeline for both cities, exemplifies shared natural resources. Consequently, infrastructure like water treatment plants or riverfront recreational areas require scrupulous planning. Both equitable access and the long-term ecological sustainability of these shared resources are at stake.
  4. Economic Development Consistency: Albury-Wodonga, in many ways, dreams of functioning as a cohesive economic hub. Yet, state-driven economic policies, if not aligned, can tilt the balance. For instance, preferential investment in one city’s industrial infrastructure could unintentionally dwarf the other’s economic aspirations.
  5. Community Engagement and Perception: Beyond bricks, mortar, and policy, lies the realm of human sentiment. Residents might oscillate between their state affiliations and a broader twin city identity. Their expectations, molded by these affiliations, play a pivotal role. Striking a balance in infrastructural development that resonates with these sentiments becomes paramount.

The Population-based Infrastructure Planning Dilemma

A proposition of tailoring infrastructure based on relative populations adds a layer of intrigue to the planning discourse.

Pros:

  • At its core, population-based infrastructure seems egalitarian. Larger populations, logically, have augmented infrastructure needs. Meeting these proportionally ensures fairness.
  • Such an approach can be agile, adapting to demographic dynamism and ever-evolving urban needs.
  • Resource allocation rooted in population metrics could streamline funds, optimizing utility and curtailing wastage.

Cons:

  • A myopic focus on numbers could eclipse nuanced needs. A smaller populace might harbor intense infrastructural demands due to myriad external factors.
  • Over-emphasis on population-driven infrastructure could perpetuate developmental imbalances. One city, experiencing organic growth, might inadvertently overshadow its twin.
  • Fragmentation is a lurking danger. The very essence of Albury-Wodonga lies in its intertwined identity. A skewed focus might fracture this cohesion.

Looking to the Future

As we gaze forward, it becomes abundantly clear that Albury-Wodonga’s tale is not merely about connecting two cities with roads and bridges. It’s an intricate dance of administrative alignment, resource optimization, and human aspirations. While the significance of population in infrastructural decision-making remains undeniable, it should meld with other considerations. The ambition should be holistic development, ensuring that both cities, while retaining their unique identities, march forward hand in hand, into a future replete with promise.

Harnessing collaborative synergies, championing sustainability, and placing residents at the heart of planning can ensure that Albury-Wodonga evolves from being two cities on a map to a pulsating, integrated urban entity.

Doing infrastructure planning in a tri-level, multi jurisdictional context has its challenges. Keen to hear about your experiences.

#InfrastructurePlanning #AlburyWodonga #UrbanDevelopment #TwinCities #StateCollaboration #RegionalGrowth #PopulationBasedFunding #CommunityEngagement #InterstateCollaboration #EconomicDevelopment

Categories
development Economics Local Government

From Field to Flask: Sowing the Seeds of Sustainable Tourism with Agriculture

When we talk about tourism, images of sandy beaches, bustling city centers, or historical monuments might flood our minds. However, one of the lesser-tapped yet immensely promising avenues for tourism is agriculture. Transforming agricultural sites into tourist destinations isn’t just about sharing the beauty of farmland; it’s about creating an integrated experience that bridges the gap between field and table, fostering an understanding of food and drink production. An outstanding example of this is leveraging the production of rum from sugar cane.

Economic Spur through Agro-Tourism

The benefits of converting agricultural production sites into tourism attractions are multi-dimensional. At its core, it diversifies income sources for farmers. No longer solely reliant on the unpredictable nature of crop sales, farmers can earn from hosting tours, workshops, and even accommodations.

Rum distilleries can create an entire ecosystem of economic activities. From tours of sugar cane fields and rum-making processes to tasting sessions and on-site sales, each step becomes a potential revenue stream. The surrounding area also sees an upswing with the rise of local markets, eateries, and transport services catering to tourists.

Education and Brand Loyalty

Beyond the pure economic benefits, there’s an educational component. Visitors learn about the history of sugar cane, the intricacies of rum production, and the role of the region in shaping this history. This not only fosters appreciation but can also build brand loyalty. A consumer is more likely to choose a brand of rum they’ve seen produced firsthand and with which they’ve forged a personal connection.

Community Development and Global Exposure

Agro-tourism isn’t just about the immediate producers. It can lead to community development. The influx of tourists means better infrastructure, which benefits locals. Furthermore, the global exposure from tourists sharing their experiences can boost the region’s reputation, leading to even more interest and visitors.

However, as with any venture, turning agricultural production into a tourism hotspot isn’t without its challenges:

Environmental Impact

With a surge in visitors, there’s potential harm to the environment. Agricultural lands are sensitive areas. Increased footfall can disturb the soil, and waste generated by tourists can impact the environment. Sustainable practices are a must. For instance, if rum distilleries witness massive visits, waste management, especially water waste from rum production, must be addressed.

Over-commercialization

There’s a thin line between creating an authentic experience and turning an agricultural site into a theme park. Over-commercialization can detract from the genuine allure of the place, leading to a loss of its unique charm. Distilleries and farms must be wary of not diluting the essence of their operations for the sake of tourism.

Economic Dependence

Diversification of income is beneficial, but over-reliance on tourism can be dangerous. If, for any reason (like a global pandemic or natural calamities), tourists stop coming, it can lead to severe economic repercussions for regions that have become too dependent on tourism. A balance between agricultural sales and tourism revenue is crucial.

Conclusion

Leveraging agricultural production for tourism, especially in the realm of products like rum, offers a promising avenue for regional economic development. It provides a multi-faceted experience that appeals to tourists’ senses, intellect, and emotions. However, to ensure that this integration of agriculture and tourism is sustainable and beneficial in the long run, potential risks must be judiciously managed. With the right approach, the fields of sugar cane can be more than just a source of sweet delight; they can be gateways to cultural immersion and economic revitalization.

Categories
development Economics Infrastructure

AI Infrastructure Planning in the Pacific?

Recently Lytton Advisory is seeing Artificial Intelligence (AI) being applied across a wide range of sectors of economies.  Currently we are engaged in national infrastructure investment planning in Samoa and Vanuatu.  This prompted us to think about some of the issues around using AI in national infrastructure investment planning.  It is a promising approach that can enhance efficiency, precision, and foresight. However, implementing this technology, especially in Pacific Island nations, is not without challenges.  Three big challenges we see are:

  • Limited Access to Quality Data: AI thrives on large, diverse, and high-quality datasets. For AI to be effective in infrastructure planning, it needs access to data on the current state of the infrastructure, usage patterns, environmental factors, and the like. However, in many Pacific Island nations, data collection and management practices may be underdeveloped due to resource limitations, which results in poor quality or incomplete datasets. These nations may lack the digital infrastructure, like advanced sensor networks, to gather sufficient real-time data for AI to work effectively. The issue of data privacy and protection also comes into play, given the sensitive nature of certain infrastructure-related data.
  • Technological Capacity and Expertise: The implementation of AI requires technical expertise and strong digital infrastructure. In many Pacific Island nations, these capacities may be lacking due to constraints in resources, education, and infrastructure. Training locals to use and manage AI systems could be difficult, and attracting or retaining AI talent may also be a challenge due to economic factors and brain drain. There’s also the task of integrating AI with existing systems, which could be outdated or incompatible.
  • Environmental Vulnerability: Pacific Island nations are among the most vulnerable to climate change. Frequent natural disasters like cyclones, flooding, and sea-level rise create an unpredictable environment for infrastructure planning. While AI could potentially help manage and adapt to these issues, the volatile environment also makes data collection and analysis more challenging. Infrastructure and equipment needed for AI, such as data centers and sensor networks, could also be damaged by environmental events.

To overcome these challenges, it’s essential to adopt a strategic approach that includes improving data management practices, investing in education and digital infrastructure, promoting technological capacity building, and implementing robust measures to mitigate environmental risks.

Trying to do this at a national level may be limiting, especially for some of the very small nations of the Pacific.  Developing AI on a regional Pacific basis, rather than a series of national ones, might bring some of the following benefits:

  • Shared Resources: AI development requires substantial resources, including technology, data, and skilled professionals. By pooling resources at a regional level, Pacific Island nations can collectively create more robust AI systems than they might individually. They can share the costs of necessary infrastructure, the development of AI applications, and the hiring or training of experts.
  • Standardization and Interoperability: A regional approach can foster standardization of data formats, protocols, and AI technologies. This makes systems more interoperable across countries, which can facilitate cross-border initiatives and collaborations. This is particularly useful for the Pacific Island nations given their geographical proximity and shared regional challenges.
  • Shared Data: AI relies heavily on data for training and functioning. By pooling data at a regional level, nations can create larger and more diverse datasets, which can help improve the accuracy and reliability of AI systems. This can also compensate for the smaller population sizes and hence smaller national datasets of these nations.
  • Regional Adaptation: Given that Pacific Island nations face similar environmental challenges, such as climate change and natural disasters, a regional AI system can be designed to specifically tackle these issues. AI models could be trained to predict and respond to regional weather patterns, sea-level rises, and natural disasters, aiding in preparedness and mitigation strategies.
  • Collective Bargaining: A region acting as a unified entity has a stronger position when negotiating with global tech companies or other international entities. This can lead to more favorable terms in data privacy, technology transfer, and intellectual property rights.
  • Capacity Building and Learning: A regional approach encourages collaboration and exchange of knowledge and best practices among nations. This can help build capacities in AI and related fields across the region, further fostering a regional tech ecosystem.

While a regional approach offers these advantages, it also presents its own challenges such as coordinating between different national interests and regulations, data privacy concerns, and managing shared resources equitably. Therefore, a balance between regional cooperation and national autonomy needs to be found.

International cooperation could play a vital role in providing the necessary resources and expertise, particularly in kick-starting a regional approach. It’s crucial to develop AI systems with an understanding of local contexts and needs, as well as appropriate safeguards for data privacy and security.

Categories
development Economics Infrastructure

Appointment

Lytton Advisory is pleased to announce that Managing Director Craig Lawrence has been appointed to a Panel of Economic Experts for Australia’s Solomon Island Resource Facility (ASRIF).

ASIRF supports the Department of Foreign Affairs and Trade in meeting the objectives of Australia’s aid program in the Solomon Islands.

Craig previously advised the Ministry of Infrastructure Development there on how to incorporate economic tools to assess climate change adaptation strategies into the transport invesment guidelines.

This year marks the tenth anniversary of Lytton Advisory’s engagement with Pacific Island nations on a range of economic and infrastructure issues.

Categories
development Economics Infrastructure Local Government Transport

Boston Infrastructure

When Lytton Advisory was in the US last month we visited Boston. Moving around the old parts of the city, a number of infrastructure challenges were evident.

Boston’s infrastructure is aging, with many of its roads, bridges, and transit systems in need of repairs and upgrades. This can lead to increased maintenance costs and disruptions to transportation and other services, which can impact the city’s economic competitiveness.

A significant part of the old city is on reclaimed land. The city is practically the Venice of the US. It is vulnerable to the impacts of climate change, including sea level rise, which could have significant impacts on the city’s infrastructure. This can lead to flooding and damage to critical infrastructure, such as roads, bridges, and buildings, which could be costly to repair and disrupt economic activity.

Like many other cities, Boston is facing a housing affordability crisis, with high housing costs and a limited supply of affordable housing options. The city has some of the highest rents in the nation. This can make it difficult for low- and middle-income families to find suitable housing, which can limit economic opportunities for those who cannot afford to live in the city.

Boston also experiences significant traffic congestion, which can impact the city’s economic competitiveness by increasing commuting times and reducing productivity. According to the Global Traffic Scorecard, Boston drivers lost about 134 hours of their lives sitting in traffic in 2022. That’s a jump up of 56 hours from 2021 as more workers head back to the office, though still 10% less than pre-pandemic levels. This can also have negative environmental impacts, such as increased air pollution.

Finally, some locals mentioned to me that Boston is also facing challenges related to digital infrastructure, such as access to high-speed internet and other digital technologies. This can impact economic growth and innovation, as well as limit access to important services and resources for residents. Nearly 15% of households in Boston do not have a subscription to Internet service at home, and more than 32,000 households have no Internet access at all. However, I am not as sure how significant the digital divide is in Boston.

These challenges are all known and potentially solvable. Focus and resources are needed to resolve them. The city has huge potential to address these issues given its role in Massachusetts and the nation’s life, as well as its long history of development and adaptation.

Categories
Climate Change Cost Benefit Analysis development Economics Infrastructure

Infrastructure Planning in the Pacific

Infrastructure investment planning in the context of Pacific Island nations requires a tailored approach that takes into account the unique characteristics and challenges of these countries. This is because Pacific Island nations have small populations, are geographically dispersed, and have limited resources. Therefore, infrastructure planning must be done in a manner that reflects their unique needs and priorities.

One of the best techniques for infrastructure investment planning in the context of Pacific Island nations is conducting a comprehensive needs assessment. This involves engaging with local communities and stakeholders to better understand their needs and priorities. This process is critical for identifying infrastructure gaps and prioritizing investment projects. Lytton Advisory considers this is best done at agency or infrastructure sector level.

Another important technique for infrastructure investment planning is taking a multi-sectoral approach. Infrastructure planning must take into account the interdependence of different sectors such as transportation, energy, water and sanitation, and telecommunications. A holistic approach is essential to ensure that infrastructure investments are aligned with the overall development goals of the country. In our view it also help more effective conversations with donors and private investors, helping countries retain greater sovereignty over national priorities.

Climate resilience is also a critical consideration in infrastructure investment planning in Pacific Island nations. These countries are particularly vulnerable to the impacts of climate change, and any infrastructure investment planning must take this into account. Projects should be designed to withstand extreme weather events and rising sea levels. Risk identification and mitigation are critical factors here.

Engaging the private sector can help to leverage additional resources and expertise for infrastructure development. Public-private partnerships can be a viable option for financing and delivering infrastructure projects. Private sector engagement can also help to promote innovation and efficiency in infrastructure development. However, the ability to engage the private sector also depends on national government capacity to see the commercial interests and incentives with great clarity.

Capacity building is critical to ensure that Pacific Island nations have the skills and expertise necessary to plan and implement infrastructure projects. This includes training in project management, procurement, and technical skills. By investing in capacity building, Pacific Island nations can become more self-reliant in planning and implementing infrastructure projects.

Sustainable financing mechanisms, such as green bonds and climate funds, can be used to finance infrastructure projects that have positive environmental and social impacts. This is important for ensuring that infrastructure investments are aligned with the overall sustainable development goals of Pacific Island nations. This also means identifying and avoiding some predatory financing practices as well, particularly where there might impose difficult burdens on the national treasury.

Finally, it is important to monitor and evaluate infrastructure projects to ensure that they are delivering the intended benefits and to identify areas for improvement. This includes tracking project performance against key indicators and engaging with stakeholders to gather feedback. By monitoring and evaluating infrastructure projects, Pacific Island nations can continuously improve their infrastructure planning and delivery processes. This is one of the hardest things to do, but has the potential to delivery greater informational value for future projects.

Categories
development Economics Infrastructure Lytton Advisory

Appointment

Lytton Advisory is pleased to advise that in December 2022 Craig Lawrence was appointed as a consultant to the Pacific Regional Infrastructure Facility (https://www.theprif.org/what-we-do).

He will be assisting PRIF by helping Pacific Island states develop national infrastructure investment plans to drive economic and social development.

Craig is Managing Director of Lytton Advisory. For the past nine years he has led teams of economists examining infrastructure and public policy issues.

Categories
development Economics Infrastructure Policy

Q&A With David Baxter, PPP Navigator and Infrastructure Specialist

ppp-infrastructureI chatted recently with David Baxter, an infrastructure specialist with significant experience in public-private partnerships. He shared some of his insights with me.

He gave me some meaningful comments regarding challenges facing governments in providing public infrastructure and how commercial interest can be created, risks shared and benefits for communities achieved.

—

So how would you characterise recent PPP activity in the Pacific?

Much of the activity seems to be focused on small island nations or be tied into China’s Belt and Road Initiative. Although there is great merit in building up these island nation trade capabilities through the improvement of port and airport facilities, the following questions need to be asked:

  • Are these facilities being constructed in the interest of the host nations or are they being built for geopolitical leverage?
  • Can these small island nations and even bigger nations afford these projects?
  • Are adequate feasibility studies being done on the financial and commercial viability of the projects?
  • Are full and competitive procurements being pursued?
  • Is the long-term sustainability and resilience of PPP projects being considered?

—

Many countries have PPP policies in place and a PPP unit located in their Treasury or Finance departments. What are some of the biggest mistakes you have seen in implementing PPP policy?

The following are the most common that I see:

  • In many instances, the PPP Units are the initiators of PPP projects when they are imposed upon unwilling line ministries which have not always been consulted on the viability or desirability of projects.
  • Often the laws and best practices that are introduced, get ahead of institutional ability to implement the laws accordingly and so delays occur as everyone tries to meet requirements imposed by regulators.
  • In some instances, the PPP Units try to be autonomous of the Treasury or the Finance Ministry (for political reasons) and this then leads to conflict between the institutions that is not healthy in the long run.
  • Often the PPP Units do not have well define mandates and this leads to confusion on whether they should provide technical support to government institutions or whether they should be the initiator of PPPs. It is important that they realize that their activates should subject to national procurement laws and they are not a law unto themselves.

—

What characteristics do you think differentiate infrastructure PPPs from other types of PPPs?

Primarily the greater level of due diligence that needs to be completed on private sector partners due to the long-term commitments that are required and their ability to manage risk for 30 + years. Most typical contracts rely on the design-build element. PPPs require financing and O&M on top of this which requires that the public sector must monitor the performance of its long-term partner and the performance-based parameters.

—

What are the most significant conditions necessary to ensure an infrastructure PPPs is successful?

Appropriate allocation of risk during the feasibility, procurement, and contract award stages and monitoring and immediate mitigation of risk when it occurs.

—

PPPs are often seen as a panacea for difficult national budget circumstances. What are the risks around developing PPPs with this as the prime consideration?

In many instances, PPPs should not be implemented because they do not pass the litmus tests required such as Value for Money, commercial and financial feasibility, etc. They cannot be seen as an automatic panacea, it needs to be proven that proposed projects are viable and feasible as well as sustainable to be a panacea.

—

What governance arrangements are more effective for infrastructure PPPs?

Governments need to be fully engaged in the management of PPP contracts. They cannot step away and only engage the private sector partner when the close-out phase is reached. Many government employees do not understand the level of commitment required from their side and the need to have a technical understanding of PPPs to ensure that they are implemented correctly.

—

Is a rigorous public sector comparator really that important for an infrastructure PPP?

Most certainly in countries that are still developing or which are launching their first PPP projects. As PPP national markets mature, the private sector can become a more competent partner and this leads to a more trusting and professional collaboration.

—

PPPs often address a particular infrastructure service or need. How effective are they in addressing asset maintenance and preservation of benefit streams from existing infrastructure?

Brownfield PPP projects can be a minefield due to many unknowns. However, experience gleaned from existing projects and infrastructure can be beneficial – so it depends. However, I believe that every PPP project is unique and thus a certain amount of innovation is necessary to improve asset preservation and to do it better than it was done in the past. The goal should always be simple – do it better each time.

—

PPPs are inherently commercial in nature, as risk along with return is transferred to the private sector. How can social benefits and returns be properly incorporated in the development of PPPs?

I believe that this has to do with a mature and well-defined understanding of Value for Money: adherence to people first PPPs is an option as well as incorporating the SDGs into project goals and objectives. This can help project proponents determine the non-commercial elements of risk transfer in socially beneficial projects and the possible subsidies that might need to be introduced to offset non-commercial vitality pertaining to certain risks.

—

If every PPP had to contain one mandated element, what would that be?

By answering the following questions –

  • Why are we doing this as a PPPs?
  • Are we confident that this should be a PPP?

Good answers require completion of due diligence, gaining political support, full stakeholder engagement and full disclosure of all information to all private sector parties equally, so that they all understand the merits of the project.

If these answers cannot be motivated and supported fully – do not do it as a PPP.

—

David, thanks so much for making the time available to talk with us and share these insights.