An Investment Appraisal for a Government Funded Irrigation Project

In Rwanda most public projects do not undergo deep economic analysis before they are implemented. Projects selection is done considering mostly qualitative criteria. However, it is very important to assess the financial viability of projects if private investors are to be potentially willing to invest in them. The Country has objective of becoming a middle-income one in 2020. Therefore the average growth rate of GDP has to be at least 11.5%. There is a political recognition that private sector has to take the lead in the economic development of the economy. The Ministry of Agriculture and Animal Resources (MINAGRI) has to play a major role to achieve the economic targets of Rwanda. Agriculture sector employs 75% of the people. Modernizing the sector was identified as a key in the Rwanda vision 2020. One of the activities planned to boost crop production is increasing the area under irrigation. The target is to have 100,000 hectares irrigated in 2017 from the counted 24,000 hectares irrigated in 2012. MINAGRI has developed a project aiming at augmenting the area under irrigation. That project is called Government Funded Irrigation (GFI). It funds irrigation in various sites of the country. In one site, Mpanga, the Government developed hillside irrigation and farmers are now producing various commodities namely Maize on 600 ha, Beans on 500 ha, Tomatoes on 150 ha and Onions on 150 ha. Attracting the private sector to work together with the Government in irrigation one needs to see if their schemes are feasible. This research conducts an appraisal of the Mpanga irrigation scheme project. The study found that currently the NPV of the Government is highly negative because irrigation infrastructures are set free of charge for farmers and the Government gives subsidies on maize fertilizers. However, farmers are making money and they can make more if they are allowed to change the cropping pattern currently on the ground. In incremental analysis, the study shows that farmers can contribute to the investment without losing on their current NPV, if they practice only Maize on 600 ha and Tomatoes on 800 ha in the Mpanga irrigation scheme. Keywords: Cost-Benefit Analysis, Investment Appraisal, GFI Financing, Economic Development and Poverty Reduction Strategy, Government of Rwanda.