Has the SGR benefited anyone?

 

A wind power project: Increases power supply
 and lower cost of electricity

Economists and Engineers, at the conception of a project, begin with a theory of the potential benefits the project will engender to the project area. The benefits at that point are purely anecdotal but are feasible. They then move on to study the area’s characteristics, economic and physical, determine the size of the project service area, the population, and economic activities.

The Project’s financial costs and pricing of the service come at the tail end of the study. For instance, at conception, a piped water project is justified on the strength of the economic, health, nutrition, and welfare benefits. A road project is justified on ease of access to markets, faster travel time, and increased economic activity in the project area. All-weather roads generate more economic activity due to ease of access. 

These activities are assigned monetary values which are compared to the financial cost of building the project. If these benefits exceed the construction costs then, the project is developed.

That process is called the Cost-Benefit analysis.  CBA is the evaluation of all potential benefits of a project compared to its costs. The costs here include the opportunity cost of the resources invested in a foregone project.

If the benefits exceed the costs, then the project is good to go. It is worth noting that the benefits are not only direct gains from the project per se. Public projects are mainly enablers that improve productivity in other sectors. Among the benefits of a piped water project in a rural area, for example, is improved hygiene, improved nutrition, improved health, and poverty reduction as the people are expected to use the water to irrigate kitchen gardens whose surplus they sell.

Phonebooth: Anyone remember queuing to make a call?

 The benefits of the project once implemented can also be viewed as the losses potential users suffer without the project. We must note that we pay for good infrastructure whether we have them or not. Few of us can remember when we used to queue for hours on telephone booths to make a call. Few too can remember when we used to have rolling power rationing and persistent power outages.  

Travelers from Northern Kenya could take days to travel to Nairobi, now it is just a seven-hour journey. 

Long-time users of Thika road in Nairobi can attest to the difference the superhighway has made in their lives and the value of their property.

Infrastructure levels the playing field for economic actors-yes even that passenger in a PSV. That is why they are enablers, things that exist to improve the efficiency and profitability of other economic players. Although they are business activities, they do not necessarily exist to make a profit but to enable others to make profits.

The first benefit of an infrastructure project is, therefore, leveling the playing field for other players. Rural electrification enables the rural folk to industrialize, an all-weather road links farmers to the markets, cutting their losses.

On this score alone,  investment in infrastructure projects- Rails, roads, power generation stations, etc. improve our lives whether they make a profit or not.  Economists call the valuation of loss and benefits of a project Cost-Benefit analysis. It calculates and sums up all potential benefits of a project against financial costs. They also test the potential losses without the project. If the benefits exceed the losses, then the project is viable. 

Among the economic benefits are savings in time spent performing a given economic activity such as drawing water or traveling on bad roads. These are assigned a monetary value depending on the per capita income of the project area. Time has a higher value in urban areas than in rural areas but keeps rising as the areas develop.

To illustrate, we use the Standard Gauge Railway in Kenya. Its services are paid for but have yet to return a financial profit.   For this reason, many commentators dismiss it as a white elephant.

However, was financial profit the primary goal of investing in it? Does the project engender economic benefits way beyond the financial costs? The passenger train travels between Mombasa and Nairobi in five hours. Official data shows that between January and June this year, it ferried 765,000 passengers, an average of 127,500 passengers a month or 4250 passengers a day.  Each passenger saves 5 hours on the trip. Therefore, a single journey adds 5

A Double stack train: Saves $1.7 million per trip

hours to a traveler’s time to engage in other productive activities.

 For all passengers, this adds to 21,250 man-hours that can be used productively. A year has 8760 hours. If we divide 21,250 hours by 8,760 we get 2 years and 4 months of man-hours saved in a single day. Extended to a month, the train saves the country 77 man-years of travel time that is used productively.

 Experts value an hour of travel savings at shs1,461 ($14.61) per hour per passenger. By shaving 5 hours off the journey to Mombasa from Nairobi, the SGR saves each passenger the equivalent of Kshs 7305 ($73.5). The 4250 passengers shipped to and from Mombasa save the equivalent of Kshs31 million ($310,000) a day!

The freight train travels between Mombasa and Nairobi in eight hours, down from 15 to 24 hours by train and 24 to 96 hours by truck. By truck, there is ship-to-shore at the Port in Mombasa. By train, it is ship-to-train and on to the Nairobi ICD.

 A double-stack train carries 216 TEUs, meaning 216 businessmen- manufacturers and traders are saved 88 hours apiece. That is a total of 19008 hours of travel time saved by a single train. A single train saves the country’s business community a total of 2 years and two months of travel time. The ten trains that ply the route per day save the country the equivalent of 20 years and 11 months in a single day!

Experts value the time savings to an importer by train in Africa at $0.02 per Kilometer/ ton. A Twenty-foot Equivalent Unit carries 21.6 tons. Traveling a distance of 500 KM creates savings amounting to Kshs 821,600 ($8,216) per TEU. Now, multiply that 216 times and we get ksh177 million ($1.77 million) in the equivalent value of time savings in a single day!

 Extended to a year, the SGR generates time savings worth US$114 million. These savings also translate into further savings in terms of; bank overdrafts, storage costs, and, ordering lead-time for the business community.

Other users, especially motorists and their passengers along the same road also gain. The trains remove 177 heavy vehicles on the Northern Corridor. That eases traffic on the roads and raises cruising speeds, thus saving on travel time, fuel wastage, and frequent repairs owing to bad roads. This should be added to the benefits of the SGR to say nothing of the costs of repairing the road.

Please note we have just been calculating the benefits accruing to others. Not the direct benefits such as employment, skilling, and other consumables.