Economic analysis of public investment in alternative agricultural water management schemes: a case study from northern Ghana

ABSTRACT

This study assesses the institutions and economics of public investments in three agricultural water management infrastructure and technologies: rehabilitation of small reservoirs, fuel-powered motorized small pumps and electricity-powered large pumps. We find that all three technologies yield positive returns on investment, but their applicability varies spatially and across community due to differences in capital costs and environmental feasibilities or conditions. Sensitivity analyses indicate the base decision parameters – net present value, benefit–cost ratio and internal rate of return – remain stable despite potential changes in the flow of future benefits or costs. This provides further evidence about the worthiness of investment in irrigation infrastructure and technologies. However, significant under-utilized infrastructural capacities exist that warrant complementary investment in human and institutional capacities. Based on the findings policy recommendations are provided.

KEYWORDS:

• cost–benefit analysis
• economic feasibility
• institutions
• return on investment
• small-scale irrigation
• northern Ghana

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Small reservoirs provide multiple benefits to communities across northern Ghana. They provide water for small-scale irrigation, livestock-rearing, fisheries, domestic needs, house construction, provide local employment opportunities and promote local entrepreneurship.

2. At the time of the study, northern Ghana consists of three administrative regions: Northern, Upper East and Upper West. But based on the referendum held on 27 December 2018 on the creation of new regions, two new regions were created in northern Ghana (North East and Savannah). Thus, currently northern Ghana consists of five administrative regions.

3. NPV is the difference between the sums of the present value of discounted benefit streams and cost streams of the project over the lifetime of the project, that is, it is the present worth of the net cash flow streams at a chosen discount rate (see equation 1).

4. BCR is the ratio of the present value of benefits to the present value of costs (see equation 2).

5. IRR is the discount rate that needs to be applied to generate the NPV of the project to zero to the series of discounted net cash flows of a project, that is, IRR represents the average earning power of the funds invested in the project over the life of the project (see equation 3).

Additional information

Funding

This work was supported by the International Food Policy Research Institute (IFPRI) [agreement number 2017X121.IWM].