ASSESSING IMPACT OF A MINERAL PROJECT ON THE ECONOMY OF A DEVELOPING-COUNTRY .2. COST-BENEFIT-ANALYSIS

The cost/benefit ratio is used to rank mineral projects according to their socio-economic profitability. The cost is the capital mobilized for the development of the project. The benefits are identified with the economy-wide increase in value added induced by the project. Value is also attached to future benefits. Both costs and benefits are initially valued at market prices. Their ratio is likely to be an index of economic profitability superior to measures that concentrate on the benefit side of the projects only. To allow for market distortions the concept of shadow prices is introduced. Different methods for the estimation of an economy-wide set of shadow prices are briefly reviewed. The selection of a particular procedure for the revaluation of the costs and benefits is justified. A new cost/benefit ratio at shadow prices is calculated that is more meaningful to the policy-maker for decisions based on socio-economic issues.