Using Cost-Effectiveness Analysis to Screen and Rank Road Projects in Namibia

Abstract

This paper uses Cost-Effectiveness Analysis (CEA) to assist the Namibian Roads Authority cost-effectively allocate a €60.0 million loan from International Development Agencies between 8 trunk road maintenance and upgrade projects in Namibia. The investment objective against which the road projects are assessed is to increase economic growth by supporting a world-class logistics hub. But data limitations, which are common for many developing countries, preclude the use of Cost-Benefit Analysis to reliably evaluate the road projects. Because CEA can be run with only project cost and traffic data, this approach is presented as an alternative to screen and rank the road projects. The screening exercise uses the €60.0 million budget constraint to limit the number of alternative road projects. The available road projects are then ranked in order of their contribution to the stated investment objective, with stress tests conducted using Monte Carlo analysis to account for uncertainty in the traffic forecasts. The cost-effectiveness ratios are analysed to determine: the most efficient road project; the road project with the maximum effect; and the optimal combination of road projects to be funded within the available budget.