CRI, in collaboration with the Ministry of Finance and Economic Planning of Rwanda (MINECOFIN) and the World Bank, has developed a database of Commodity-Specific Conversion Factors (CSCF) for Rwanda. The database contains conversion factors for:
- More than 5000 tradable commodities categorized in the country’s Harmonized System (HS), and
- Non-tradable goods and services such as transportation, construction, electricity, and telecommunication.
The database provides easy access from anywhere in the world for project appraisal specialists, and allows them to conduct an up-to-date economic appraisal of investment projects in a professionally satisfactory manner.
The database is accessible through http://rwanda-cscf.cri-world.com/
In 2010, the government of Rwanda began developing local capacity for appraisals of projects. In line with this effort, government and private sector professionals underwent training through World Bank funded programs on the technique of integrated investment appraisal (IIA). This method utilizes financial, economic, stakeholder and risk analyses of a potential investment project using a single consistent model.
In many cases, projects may be beneficial in economic terms, but have issues on the financial or stakeholder side. An important feature of the integrated approach is that it allows analysts to directly link the economic evaluation to the financial model of the project. Thus, the economic module of project appraisal is completely consistent with the financial analysis, and allows the analyst to make inquiries into the project’s financial and economic performance at the same time.
The use of CSCF database
To ensure that a consistent transformation is made from the financial evaluation into the economic analysis, Commodity-Specific Conversion Factors (CSCFs) are estimated for project inputs and outputs. A conversion factor is defined as the ratio of a good’s economic price to its financial price. CSCFs are convenient as they can be applied directly to convert a financial cash flow item into an economic resource flow statement.
The difference between the economic and financial values is referred to as the external impact. In competitive markets, the external impact is caused by market distortions such as taxes and subsidies and is therefore an impact on the government budget office. Such distortions are specific to commodities rather than a particular project. One can estimate an index for converting the financial value to economic value for a commodity (CSCF) once and use it in the analyses of all projects that produce or consume that commodity. The database will allow the analysts to obtain the CSCFs quickly and avoid spending their valuable time on collecting information about the distortions available for each input or output of their project, hence reducing the cost of conducting an integrated feasibility study of investment projects in Rwanda.