Viability
Martin's analysis examines the projected earnings from the
buffalo population in relation to costs (Analysis
4).
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Analysis 4: cash flow excercise
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The project contribution to the State operating and capital
costs can be varied and this will be reflected in the cash
flow:
- If the State contributes nothing to the costs, the project
can meet the entire set of operating and capital costs for
the State from the outset and, provided the interest rate
on the bank loan does not exceed 2.5% per annum, the loan
will still be acquitted before the buffalo population reaches
carrying capacity.
- If the State meets 50% of its operating costs, the project
makes a healthy profit after 22 years. Any donor grants
would increase the project viability.
- Under the default scenario, the total loan debt rises
to a peak of some US$3.5 million about 8 years after the
start of the project and is acquitted in the 16th year of
the project, after which all revenue is profit and the annual
operating costs can be met internally.
Assumptions
- The buffalo population grows at 5% per annum. At this
rate it will increase from 3,000 animals to 15,000 animals
in 33 years in an area of 10,000km2. For the purposes of
these financial calculations, the effects of illegal hunting
on the growth rate are assumed to be zero.
- The theoretical income which could be derived from the
present safari hunting operations in the Caprivi Strip is
assumed to be US$2.5 million. This is likely to be higher
than the true figure because most of the secondary species
on which the calculations are based are probably not present
at the assumed densities. Under the Economic Objectives,
it is assumed that, at full development of the safari hunting,
safari operators will make a net profit of US$2.5/hectare.
It is assumed that this is the baseline and that there is
zero income for the State and Conservancies from the present
net earnings of US$2.5 million from 10,000km2 - the entire
profit is taken by safari operators. Although this is not
true, it simplifies the analysis.
- As the buffalo population increases from 3,000 animals
to 15,000 animals, the surplus income from safari hunting
rises from zero to US$5 million. On a simple proportion
of areas, 80% of this income will accrue as revenue to the
State (8,000 km2) and 20% will accrue to Conservancies (2,000
km2).
- Annual operating costs are assumed to remain the same
for the full period until the buffalo population reaches
carrying capacity. No allowance is made for inflation of
operating costs in the table because it is assumed that
this inflation would be balanced by a similar inflation
in the values of buffalo in the safari hunting industry.
- The budget includes a contribution of 10% of the running
costs and capital costs required for management of the State
Protected Areas. It is assumed that the State is meeting
the balance. As the revenues from safari hunting increase
it becomes possible for the full operating costs to be met
from the revenue.
- The capital costs are assumed to be a bank loan at an
interest rate of 10% per annum. It is further assumed that
the annual deficit in operating costs in the early stages
of the project are met by the bank and added to the loan.
- Repayments of the loan begin when the State revenues exceed
operating costs and all revenue goes into repaying the loan
until it is acquitted.
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