Research

WEF Nexus Publication // Applying the Water-Energy-Food Nexus Approach to Catalyse Transformational Change in Africa

RES4Africa Foundation’s new study carried out in collaboration with Open Economics, looks at a WEF nexus project in rural Tanzania integrating hydro-powered mini-grid and agri-business usages that distributes water, power and food services to the surrounding communities. The aim of this study was to evaluate the effects that the innovative Nexus project can have on a specific area. In doing this, a microeconomic impact assessment was developed to evaluate economic, social and environmental costs and benefits, in order to further and promote sustainable institutional programmes and policies.

Executive Summary

This document contains the premises, results and analysis of the impact evaluation of the Ikondo-Matembwe project, including the positive externalities on the socioeconomic system of Tanzania. The main aim of the study is to explore the potential economic contribution from the implementation of the pilot project and its scalability, in support of Africa’s path toward a sustainable economic growth characterized by a high level of climate mitigation and social inclusion.

The project is a comprehensive and holistic set of activities aiming to bring access to un-polluting electricity from renewable resources, fresh and potable water and improve nutrition and food security of a target population. In order to analyse in some detail project feasibility and impact, a two level (microeconomic and macroeconomic) analysis has been carried out, which investigates the project economic effects as well as the externalities and the general benefits for the population and the investors involved.

An important part of the document is the presentation of the WEF Nexus transformational approach: this implies a new concept for development projects, focusing on long-lasting changes in target countries that, thanks to the project replicability, may bring about a lasting and beneficial transformation in the socioeconomic structure of a country.

From the point of view of the individual project, using the cost benefit methodology for marginal projects, we have found significant economic, social and environmental benefits for the community, which justify project’s implementation and technological replicability in other similar areas. These benefits result in positive indicators for project feasibility.

We have also found some interesting economies of scope, since implementing the three subprojects that compose the integrated project (Energy, Food and Water) is likely to achieve a greater impact in economic terms (an economic NPV of USD 5,940,652 of the Energy sub-project, an increase of USD 1,827,448 for the Energy and Food sub-project and an increase in NPV of USD 4,711,139 for the Energy and Water subproject).

A further indicator analysed within the microeconomic cost-benefit analysis is the Benefit-Cost Ratio (BCR). BCR attempts to summarize the overall value for money of a project proposal. This indicator shows the relationship between the relative costs and benefits of an activity, expressed in monetary or qualitative terms. The BCR is calculated by dividing the proposed total cash benefits of a project by the proposed total cash costs of the project. If a project has a BCR greater than 1.0, the project is expected to deliver a positive net present value to its investors. Among multiple projects, the one that has a higher BCR will be preferred. The CEFA’s project here presented, as resulted in the microeconomic analysis, has a BCR of 4,5, which means that the Ikondo-Matembwe will deliver an important positive net present value (NPV) and an internal rate of return (IRR) above the discount rate used. This suggests that the NPV of the project’s cash flows outweighs the NPV of the costs and the project is therefore “consistent enough” to be considered.

The Nexus BCR is much higher than the sole energy component (that is 3.1) and this result confirms as the project integration allows to get wider benefits also thanks to the economies of scale that the enabling project (namely energy) setup to the comprehensive project. Once the scale-up is implemented, the transformative nature of the project results in more than proportional impacts on all the macroeconomic variables for both the project area and the whole country, giving not only a significant boost to the economy, but also putting the country on a clear course to reach its development targets.

In the following pages, we will discuss in detail some of the reasons why a Nexus project shows consistent benefits and may be effective as a transformative policy instrument to achieve sustainable and inclusive economic growth in Africa.

This study has been coordinated by RES4Africa Foundation and developed by OpenEconomics with the technical support of the FS4MGO International Research Group. The study was made possible thanks to the collaboration with CEFA Onlus and the support of Enel Green Power.

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