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wells, as axe the da~gers of 8*disbenefitsu, the negative
effects, The most obvious of these in Somalia is the
possibility a£ overgrazing the pasture around the well site.
All of these benefits and disbenefits prove difficult, if
not impassible, to 6-?a?-xate in monetary terms. Project
appraisal, in the sense nf determining the nprofitabiLity'r of
the investment, i s not a meaningful exercise. Instead, this
report presents an astimale of the economic cost per unit of
water produced over the life of the investment. when data is
available, this should be compared with the cost of providing
water from other sources, such as uars, ballehs and burkeds, as
an aid to policy-aakers in determining the most economic methads
of providing water in Somalia.
4.3.1, FixancfaL and Economic Appraisal
The analysis of costs presented in this repczt reprssents
those faced by a donor agency implementing a groundWaater project
in Somzilia. Because the major part of these costs are for
imported materials and equipment, the difference in cost faced
by a private company will mainly concern import duties imposed
by the Somali government. in this respect, the analysis
approwihates to n true economic analysis. The cost of imported
materials and e~iprnest represents the world price, except, as
mentioned in Section 4.1.1.2, that the prices include freight
costs to Somalia, but not insurance. A nuder of ather items,
nct significant in terms of the total cost, night be interpreted
differently far the purposes of financial, economic or
socfo-economic analysis. These alternative, or **shadowgv, prices
are disczssed in the fallowing sections.
Labour costs
As dfscussed at ~sction 1 . 6 , h e wage rates used in
this report represent those which would realistically be needed
to operate a qroundwater program in Somalia, The economic cost,
or shadow price of labour, however, is arguably different. If
the shadaw price of Labour is taken ta be the "opportunity
costn, that is, the cost to an alternative sector of the economy
deprived of that labour, then thr shadow price of unskilled
labour is considerably lower than the market price in a cauntry
where unemploynent, or underemployment, is high.
Underemployment is represented by the fact that, f~r the
~ogadishu area, salaried emplotpent accounts for only one
quarter or one fifth of average household expenditure. A large,
but unknown, portion of the rei~aindew undoubtedly derives from
remittances from Somali nationals working overseas, mainly in
Saudi Arabia. In the case of unskiifrd labour, the shadaw price
could be said to be close to zero. For skilled labour, however,
the opportunity cost might well be the cost to the economy sf