Abstract
The article deals with the preferred approach to determine the cost component in the social cost-benefit analysis (SCBA) of road projects in South Africa. The article is in four parts. The first part, the introduction, provides the reasons why investment cost should be identified as a single cost entity in the SCBA of a road project, regardless of the criteria according to which a project is adjudicated. The second part discusses the principles that guide the determination of the social opportunity costs (SOC) of road projects. The third part identifies the two items that form the cost component of the SCBA of road projects; the SOC of (i) the land required to accommodate the road reserve, and (ii) the construction of the road. The cost component of the latter is sub-divided into labour, plant, equipment, fuel, materials, and normal profit. The section also details a recommended procedure to convert the financial budget of a road construction project to an estimate of its SOC. The fourth section draws some conclusions from the study.
Highlights
This article is a continuation and extension of the article ‘Principles of social cost-benefit analysis of public road projects followed in South Africa’ [1], which discussed the most pertinent principles that underlie the preferred social cost-benefit analysis (SCBA) methodology to evaluate public road projects in South Africa
Execution of a uniform SCBA methodology is a precondition for rational investment decision-making when relative advantage has to be used as a criterion: inconsistent mixing of investment cost components and negative benefits will distort the magnitude of the quotient of the B/C ratio of different projects as well as the size of their internal rate of return (IRR)
In view of the fact that the net present value (NPV) technique determines the economic viability of a project on the basis of net benefit as an absolute amount, the technique does not require a systematic distinction between investment costs and negative benefits to arrive at its result
Summary
The article deals with the preferred approach to determine the cost component in the social cost-benefit analysis (SCBA) of road projects in South Africa. The second part discusses the principles that guide the determination of the social opportunity costs (SOC) of road projects. The third part identifies the two items that form the cost component of the SCBA of road projects; the SOC of (i) the land required to accommodate the road reserve, and (ii) the construction of the road. Die artikel sit die werkwyse uiteen wat aanbeveel word om die kostekomponent in die sosiale koste-voordeel-ontleding (SKVO) van padprojekte in Suid-Afrika te bepaal. In die derde deel word aangedui dat die kostekomponent in die SKVO van padprojekte uit twee items bestaan, naamlik die SGK van (i) die grond wat vir die padreserwe benodig word en (ii) die bou van die pad.
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