An Integrated Investment Appraisal of the Cassava Starch Production in Rwanda: The Case of Kinazi Cassava Plant

Abstract

ABSTRACT: The genocide that occurred in 1994 left the Rwandan economy almost at the brink of collapse. The genocide left behind a poverty-stricken economy, dilapidated public and private infrastructure and a disconnection in trade with the international community. Efforts made by the government rebuild the economy resulted in the institution several development and structural adjustment programs and policies to help revamp and bring the economy back on track and in sync with the rest of the world. Some of the numerous programs include the Economic Development and Poverty Reduction Strategy (EDPRS) adopted by all development partners of Rwanda, the prospective long-term vision 2020, National Investment Strategy and Sector Policies and Strategies covering different priority areas. Most of these policies were geared towards developing the agricultural sector as a means of improving the living standards of the rural population who are predominantly agrarian, encouraging regional development and alleviating poverty with major emphasis on cassava processing. As a government initiative to pursue its development objectives, Kinazi Cassava Plant was established to produce cassava flour, starch and other value added cassava products. After the establishment of the cassava flour plant, KCP plan to establish a cassava starch plant as a way of pursuing the cassava value addition program. Therefore, an integrated investment appraisal needs to be conducted to ascertain the financial and economic viability, the impact on stakeholder and risks associated with executing the cassava starch project. The integrated appraisal of the project reveals that, a positive net present value accrues to owners; lenders will be reasonably satisfied as the project managers will institute contractual agreements to enable annual debt repayment over the loan duration period since the project is exposed to some level of risk in the initial years of loan repayment. Benefits accrue to the government in the form of tax revenue on domestic sales and foreign exchange premium on export sales from cassava starch. Labour also gains additional wages as the project pays wage rate higher than the current market wage rate. The project is however exposed to certain risks particularly real exchange rate risk as 70% of cassava starch produced is exported to the East-African member countries, Europe and America. Production capacity utilization, price of the major input (fresh cassava roots), domestic inflation, and investment cost over-run all have a significant effect on the project outcome. Nonetheless, different contractual arrangements have been put in place to mitigate the risks exposure. The cassava starch project will therefore be sustainable if the identified risks are managed appropriately. Keywords: financial analysis, economic analysis, risk analysis, cassava starch production, Rwanda.

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ÖZ: Ruanda’da 1994 yılında gerçekleşen soykırım altyapının yıkılmasına, dünya ile ticari ilişkilerin kopmasına ve dolayısıyle geride batmış bir ekonomiye sebep olmuştur. Ekonominin yeniden kalkındırılması amacıyla, ulusal yatırım stratejileri ve 2020 vizyonunun gerçekleşmesi için yasal birçok düzenlemeler yapılmaktadır. Özellikle kırsal kesimin yaşam standartlarının yükseltilmesi için tarımsal projelere ağırlık verilmektedir. Hükümetin önceliğinde olan projelerden biri de Kinazi manyok ekimidir. Bu projeyle beraber manyok unu, nişastası ve diğer katkı maddelerinin üretimi hedeflenmektedir. Bu çalışmanın amacı Kinazi manyok ekimi projesinin finansal ve ekonomik fizibilitisini değerlendirmek, ve hissedarların karşılaşabileceği olası riskleri belirlemektir. Çalışmanın sonuçlarına göre bu proje mali açıdan fizibildir. Fakat bu projenin karlılığı döviz kuruna, üretim kapasitesi kullanımına, girdi maliyetlerine, enflasyon oranlarına ve tahmin edilen yatırım maliyetinin haricindeki ekstra harcamalara hayli duyarlıdır. Ancak, olası risklerin minimize edilmesi amacıyla birçok sözleşmeye bağlı düzenlemeler yapılmıştır. Sonuç olarak belirtilen risklerin uygun şekilde yönetilmesi halinde bu proje sürdürülebilir olacaktır. Anahtar kelimeler: Finansal analiz, ekonomik analiz, risk analizi, manyok nişasta üretimi, Rwanda.