Financial analysis for development project

1. Financial AnalFinancial Analysis forysis for DevelopmentDevelopment ProjectProject by ARIFIN ABDUL LATIFARIFIN ABDUL LATIF Founder & Senior Consultant/Economist ArifinLatif ConsultingArifinLatif Consulting THIRD COUNTRY TRAININGTHIRD COUNTRY TRAINING PROGRAMMES (TCTP) 2014PROGRAMMES (TCTP) 2014 [(TCTP) JICA/MOFA/INTAN][(TCTP) JICA/MOFA/INTAN] COURSE ONCOURSE ON DEVELOPMENTDEVELOPMENT PLANNINGPLANNING ANDAND PROJECTPROJECT MANAGMANAGEMENT FOREMENT FOR CAMBODCAMBODIAIA AND LAOSAND LAOS 9-20 June 20149-20 June 2014 INTAN Kiara, Kuala Lumpur, MalaysiaINTAN Kiara, Kuala Lumpur, Malaysia

2. Part 1:Part 1: Development viaDevelopment via Transformation?Transformation?An IntroAn Intro the case for Kampuchea (Cambodia) ~ some current projects and challenging issues in developmentthe case for Kampuchea (Cambodia) ~ some current projects and challenging issues in development

3. q CAMBODIA: A country's comeback - actively seeking investments from SMEs - the next big ASEAN growth story? Are there any difference in Laos?

4. The Stars Cover Story: Cambodia calling - undergoing a quiet transformation?

5. q From killing fields to economic transformation Are there any difference in Laos?

6. Part 2:Part 2: Transformation - Some definitions,Transformation - Some definitions, directions...?directions...? q Transformation towards what end? Transforming Traditional/ Agrarian Societies e.g. Cambodia - From killing fields to economic transformation. Transformation to Transition Economies e.g. Turkmenistan From USSR republic to CIS nation. Transformation to NICs ~ Tigers/Lions? e.g. Malaysia/ Nigeria. Transformation to High Income Nation ~ 1Malaysia towards Realising Vision 2020. Capacity building training in Ashgabad (1998) & Lagos (2000). q Transformation is the fashionable, buzzword today in national development process

7. q Transformation with political will/agenda Government Transformation Program (GTP) Najibnomics Economic Transformation Program (ETP) NKEAs; 10th Malaysia Plan; Economic Corridors (NCER, ECER, Iskandar, SCORE) Budget 2013 & 2014 Najib: nobody is left out!

8. Part 3: Biz Talk Live! (Bernama TV) ~Part 3: Biz Talk Live! (Bernama TV) ~ ETP Is it on Track?ETP Is it on Track?

9. Live! interview invited at short notice, off-the-cuff interactions with audiences on-the-air/ online (on twitter), etc. Live! interview on BERNAMA TV (15 Dec 2012 @9.30pm 1 hour)

10. Part 4:Part 4: A Brief IntroA Brief Intro on Projectson Projects ProjectsProjects are building blocks for growth. They need to grow consistently and if sustained well enough then only well be able to reap the success and achieve DEVELOPMENTDEVELOPMENT!

11. What are ProjectsWhat are Projects,, in the first place?? Timeline exist a beginning & an ending Collectively forms part of a bigger subset in a program Building blocks of development efforts Development projects should benefit the people Should be feasible in the first place and meet criteria in selection in relation to a host of developmental jargons

12. Feasibility Analyses of ProjectsFeasibility Analyses of Projects Technical Analysis Market Analysis Social/Sociological Analysis Environmental Impact Assessment (EIA) Political Analysis

13. While ..... VIABILITY ANALYSIS includes FINANCIAL analysis focus on the financial implication of the project ECONOMIC analysis also impute its impact to the overall economy, include shadow pricing of factors of production

14. PROJECTS should be ......PROJECTS should be ...... Technically feasible; Financially viable; Economically viable; Socially (or culturally) acceptable; Environmentally sustainable (or sound); and Politically desireable

15. FINANCIALFINANCIAL ANALYSIS forANALYSIS for DEVELOPMENTDEVELOPMENT PROJECTPROJECT

16. Financial & EconomicFinancial & Economic Analysis ofAnalysis of ProjectsProjects Capital InvestmentCapital Investment AnalysisAnalysis Financial & Economic AnalysesFinancial & Economic Analyses can be aided/speeded up by computer softwares, e.g. COMFAR Expert III (UNIDO), WinDASI (FAO), and/or Spreadsheet Applications (e.g. MS EXCEL) Project PresentationProject Presentation & Reporting/ Documentation - for Project Financing

17. Capital Investment Analysis:Capital Investment Analysis: involves these concepts Time Value of MoneyTime Value of Money Concept of Discounting & Compounding Financial & Economic AnalysesFinancial & Economic Analyses Preparing Cash Flows Decision Rule: Criteria for Viable Projects/Enterprise Sensitivity Analysis

18. Capital Investment Analysis: The ProcessCapital Investment Analysis: The Process INFO/DATA FINANCIALFINANCIAL ANALYSISANALYSIS ECONOMICECONOMIC ANALYSISANALYSIS Cost-BenefitCost-Benefit ANALYSIS (CBA)ANALYSIS (CBA) Break-even PointBreak-even Point ANALYSIS (BEP)ANALYSIS (BEP) SENSITIVITYSENSITIVITY ANALYSISANALYSIS + ASSUMPTIONS? + TECHNICAL FEASIBILITY? + MARKET ANALYSIS/STUDY? Exports?? + SOURCES ? CASH OUTFLOWS 1 - Production; Capacity; Inventories; 2 - Sales Volume; Sales Revenues A) Capital Investment B) Production Costs - Variable & Direct Fixed Costs - Factory, Operating & Transportation Costs C) Income Statement - Operating Income; Sales; Profits (Losses); - Taxes; Dividends; Retained Earnings CASH INFLOWS - Feasibility Reports, Company Reports - Industry/World Markets, Internet, Reuters

19. PROJECTS arePROJECTS are viableviable iff.....iff..... Net Present Value (NPV) is positive (NPV > 0); Internal Rate of Return (IRR) exceeds the opportunity cost of capital (IRR > base lending rate); Cost-Benefit Ratio (BCR) is greater than 1 (BCR > 1); and/or Quick Payback Period

20. Graphically, a viable project is... Net Present Value (NPV) -200,000,000 -150,000,000 -100,000,000 -50,000,000 0 50,000,000 100,000,000 -4 -3 -2 -1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years of operation NPV(US$) Ammonia-Urea Plant Project in Chardzhou, Turkmenistan NPV @12% = US$44.84 million IRR= 15.77%; BCR= 1.26 Payback period 9.5 years

21. Part 5:Part 5: How to select a FINANCIALLY viableHow to select a FINANCIALLY viable project? A Case Studyproject? A Case Study Relating SWOT/PEST Analysis, project financing, scheduling, market analyses/forecasting, etc. to ensure successful implementation of project selections for development Using an actual Case Study performed during my IDB Consulting Assignment way back in 1998. A New Ammonia & Urea Plant in Charzew, Turkmenistan i.e. related to oil & gas sector, energy, fertilizer (urea) & agriculture in a CIS nation. From a former Soviet Union republic has embraced free market dogma - and is now a transition economy.

22. and was among the earliest Facebook member too! I was a pioneeringI was a pioneering FaceBook addictFaceBook addict

23. CASE STUDY In a Developing/ Transition Economy New Ammonia-Urea Plant Project (Turkmenistan) Location: Free Economic Zone (FEZ), Chardzhou Financing: Project Financing

24. New Ammonia-Urea Plant ProjectNew Ammonia-Urea Plant Project (Chardzhou, Turkmenistan)(Chardzhou, Turkmenistan)

25. Checklist: ViableChecklist: Viable ProjectProject FinancingFinancing

26. Checklist: ViableChecklist: Viable ProjectProject FinancingFinancing

27. NH3-Urea Project:NH3-Urea Project: Financial AnalysisFinancial Analysis

28. NH3-Urea Project:NH3-Urea Project: Financial AnalysisFinancial Analysis

29. NH3-Urea Project:NH3-Urea Project: Information + DataInformation + Data

30. NH3-Urea Project:NH3-Urea Project: Information + DataInformation + Data

31. NH3-Urea ProjecNH3-Urea Project: SWOT Analysist: SWOT Analysis

32. NH3-Urea Project: MNH3-Urea Project: Market Analysis/Studarket Analysis/Studyy

34. NH3-Urea Project: Market Analysis/Study

37. NH3-Urea Project: MNH3-Urea Project: Market Analysis/Studarket Analysis/Studyy Way back in 1959-61, YB Aziz Ishak* proposed the setting up aWay back in 1959-61, YB Aziz Ishak* proposed the setting up a urea factory!urea factory! [* Malaysias first Minister of Agriculture!] M$25mil considered too high then!? Planned capacity 100 tons of urea/day and 60 tons of liquid ammonia. Fertilizer Society Board to award contract to Friedrich Uhde for M$26mil. It took Malaysia over 2-3 decades to finally have our own urea fertilizerown urea fertilizer plantplant at very much higher cost!.. and we were a vital agriculture-basedvital agriculture-based economyeconomy!!

40. Chardzhou plant Main ports Export routesby railroads Export routesby sea/ inland waterways Export routesby highways/ roads POTENTIALEXPORTROUTES

41. NH3-UreaNH3-Urea Project:Project: FinancialFinancial AnalysisAnalysis

42. NH3-Urea Project:NH3-Urea Project: Economic AnalysisEconomic Analysis

43. NH3-Urea: ProjectNH3-Urea: Project viability, CBA-FEZviability, CBA-FEZ

44. NH3-Urea: Project viNH3-Urea: Project viability, CBA-25% taability, CBA-25% taxx

45. NH3-Urea: ProjectNH3-Urea: Project viviability, CBA-tax freability, CBA-tax freee

46. NH3-Urea: Break-NH3-Urea: Break-even Point Analysiseven Point Analysis

47. NH3-Urea: SensitivitNH3-Urea: Sensitivityy Analysis (graphsAnalysis (graphs))

48. Postcript: Thanks for lending your ears ~ hope you have learned some beneficial knowledge along the way use them to assist your nations efforts in the development. All d best! Keep in touch. Thank youThank you SpasiboSpasibo Terima kasihTerima kasih

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Financial analysis for development project

Economy & Finance

Transcript of Financial analysis for development project