Cost-Benefit Analysis is the definitive assessment for determining whether a project should proceed on economic grounds. A project is deemed economically efficient if the societal benefits outweigh its costs over the project’s full lifespan.
In South Africa, CBA is a key criterion used by the National Treasury when evaluating which projects to support, including assessments for public-private partnerships (PPPs) and applications to the Budget Facility for Infrastructure (BFI).
StratEcon conducted its first CBA in 2003, evaluating the proposed relocation of Durban International Airport. We subsequently refined our methodology in a study on pollution reduction, published in a leading international journal and still cited in academic research. Since then, CBA has become one of the central competencies of our practice, applied across transport, energy, water, ICT, convention centres and industrial development.
CBA involves quantifying all costs and societal benefits associated with a project across its entire lifespan. These are converted into economic values using shadow pricing and discounted to present values using an appropriate social discount rate The project is economically efficient when total discounted benefits exceed total discounted costs. Key outputs are the Benefit-Cost Ratio (BCR), Net Present Value (NPV) and Economic Internal Rate of Return (EIRR), internationally recognised metrics that funders and decision-makers require.
The Budget Facility for Infrastructure (BFI) was established by the National Treasury as a specialized reform process to evaluate and approve large-scale public infrastructure projects exceeding R1bn. The BFI provides technical assessment, ensures fiscal sustainability and connects high-priority projects with budget allocations through quarterly application windows.
One of the requirements for projects to receive BFI funding is an economic cost benefit analysis (CBA) that demonstrates economic efficiency. The CBA must be in a specific format and conform to the requirements established by the National Treasury. StratEcon has experience in assisting clients with these applications for transport and water reuse projects and is therefore familiar with the specific requirements for this funding vehicle.
StratEcon can support your application by implementing an analysis that conforms with all the requirements and within short possible timeframes.
No project operates under conditions of certainty. StratEcon stress-tests CBA outcomes across a range of demand, cost and timing scenarios, identifying the assumptions that most affect viability and giving decision-makers a clear view of downside risk. This analysis is standard in all our CBA engagements and is increasingly expected by funders and regulators.
Our CBA work spans sectors and borders. Clients include:
CBA demands both technical depth and sector knowledge. The methodology is internationally standardised, but its correct application requires an understanding of how to identify, scope and value the relevant benefits and costs in each specific context. StratEcon has been applying CBA across infrastructure, energy, water and ICT for over two decades and across South Africa and 12 African countries. Our work meets National Treasury requirements, international development institution standards and the scrutiny of legal and regulatory proceedings.
StratEcon works with government departments, project sponsors, development finance institutions and private sector clients on CBA, BFI applications and economic feasibility across South Africa and Africa. Contact us to arrange a no-obligation introductory discussion.