Benefits, justifications and risks

Economic analysis

The economic justification of the project has been assessed by estimating a separate Economic Rate of Return (ERR) for the two sub-components of the tea development component, and for the coffee diversification component. All project costs budgeted under the components have been charged to the related benefits, except for the Government contribution corresponding to the value of the OCIR-Thé estate, as this represents only a transfer of existing economic resources and is a poverty alleviation (distribution), and not a development, measure. All prices used are current market prices, with no allowance for possible higher values of foreign exchange earnings and of equipment imports, and in potential lower value of local labour costs. The ERR of the Nshili sub-component works out at 21.4%, that of the expansion of smallholder tea in Mushubi at 14.3%, and that of the coffee diversification component at 19.37%. The ERR are significantly higher than the IRR estimated in the financial projections, due to the much longer time span over which economic benefits are taken into account (25 years) as against financial benefits (10 years).

No estimate of ERR has been attempted for the new cash crop component, because the specific flow of costs and benefits of the different initiatives that the project may support is not known this stage. No has an estimate has been done also for the credit scheme, as this involves transfer payments only.

Gross project benefits for the Rwanda balance of trade would include annual foreign exchange earnings of the order of USD 5 million at full development, of which USD 2 million on account of coffee exports, and USD 3 million on account of tea. Of these about USD 4 million per annum would be incremental net foreign exchange earnings.