A framework for improved development appraisals in developing countries

Summary

Development appraisal is inherently fraught with uncertainties. Although there is a certain degree of risk and uncertainty associated with some of the variables used in development appraisal in all countries, the level of risk and uncertainty in developing countries is compounded by several factors such as high and persistent inflation, political instability, government controls and restrictions; and very often, the absence of a market for market value determination. Generally, current analytic methodology in practice entails the adjustment of discount rates to account for some of the unquantifiable variables. Results obtained from such analysis are often difficult to justify.

This paper examines the dilemma of development appraisal in developing countries and concludes that analytic techniques which are more robust variations of those used in industrialized countries, are necessary in developing countries; if the results of such analysis are to be meaningful. In this regard, the narrative approach to scenario analysis (as described in general forecasting literature) would be more practical since this approach would take account of some of the qualitative and subjective variables often encountered in developing countries.

Keywords:

• development appraisal
• developing countries
• narrative scenario analysis
• discount rates