Discuss about the Camrail Finance for German Colony.
The Cameroon railway line was constructed by the German colony. The colony managed to lay two lines from the port at Douala to Esaka and the other from Bonaberi to Nkongasamba. The Esaka line was later continued to Yaounde with a short branch at Mbalmayo when the French colony took over. After Cameroon had gained independence, a short branch railway was opened from Bnga to Kumba, and in 1974 626 km was completed from Yaounde north to Ngaoundere, with funding from European. The entire network is meter-gauged and operates on diesel. Its maximum length was about 1,100 km, but until now only about 977km remains operational (An & Cheung, 2010).
In the year 1974, the government parastatal Régie Nationale des Chemins de Fer de Cameroun (‘Regifercam’) used to operate the railway which had a significant role in the commodity dominated economy. The railway line was convenient in transporting timber products and cotton for export since many main roads were in poor condition especially during rainy season. In the 1980s, the government introduced performance contracts in the railway service which performed poorly and later abandoned the strategy and replaced it with subsidies. Lack of maintenance contributed heavily to the deterioration of the northern line to Douala which little freight traffic (Aquarius 3 financial model rule book, 2002). In the same period, part of the southern section was upgraded, but road transport provided a stiff completion. In the year1999 the railway line was carrying 1.5 million of freight for and an average distance of 600km, 1.3 million passengers for an average distance of 230 km. The line had annual transport revenue were about €40 million, €33 million on freight and € 5.0 million on passengers. Working expenses were about € 35 million plus depreciation and interest charges of € 16 million and € 4 million respectively, contributed to annual loss operating losses of about € 10-15 million. Till 1999 only half of the 61 locomotives were operational, many of the 1,296 wagon freight fleets required refurbishing, and out of the 73 passenger car fleet vehicles only 50 were operational. Regifercam downsized its workforce to 3,800 employees in 1999, down from about 6,000 in 1988. Downsize was brought about by low productivity especially given that about 60 percent of the network was somehow new (“Financial Stability Warning Model for Beijing”, 2013).
According to the study, the railway transport sector had performed poorly ever since it was laid down, till the year when the government resulted in the issue of a consensus. The main reason as to why the Government has continuously supported the railway line despite its non-performance and poor services is the need for a reliable means of transport regardless of the weather conditions (Ford, Baptist, & Archuleta, 2011).
The Cameroon railway project has for years incurred massive losses, but thanks to the government for the issuance of consensus to SAGA/SDV, a company that has revived the railway transport sector in Cameroon. The move promoted the public-private partnership which has seen the private sector get involved in the wellbeing of the economy. Since the takeover by the SAGA, it has been noted that traffic has increased to about 40 percent regarding tone per kilometer. Since 2005 the level of passenger traffic has grown steadily almost getting to previous levels of the 1990s. CAMRAI labour productivity has also increased due to the increase in traffic. This as well has raised the countries and reduced the rate of unemployment. Assets that were idle due to lack of maintenance have now been put into use since the takeover, hence improving the asset productivity. Profit margins have also experienced a turnaround as a 3.0 percentage increase has been recorded since SAGA took over (Subramanian & Tung, 2016). The CAMRAIL project has also received funding of € 32 million in its first two years since SAGA took over with borrowings of up to € 8 million from French/ European agencies. A complementary investment of € 12 million was made by CAMRAIL. This was due to delays in mobilizing international agencies funds. Another priority investment of € 64 million was invested by CAMRAIL with € 19 million from IDA and European/ French agencies. The total funding is € 108 million with CAMRAIL contributing € 55 million this shows that about 50 percent of finding is external. The half way the percentage of funding shows that the project is economically viable as it has not exhausted its debt resources; this also shows the liquidity of the project is high. The low debt level translates to low amounts of interests payable to the lenders. The low interest reduces the burden on the cost of transport which in turn attracts more business to the railway transport thus ensuring its feasibility in the Cameroonian economy. The recorded increase of 3 percent in profits for the year shows that the project has been able to utilize its assets, paid the interests on debts and has also been able to meet its expenses. The outcome leads to a conclusion that the project finances are healthy and also there is still room for improvement. The opportunity for improvement was created by the Government move in 2008 when it amended the concession contract and introduced the following key measures; Increasing the capital to $ 9 million by the Government, setting the fixed and variable fees at $ 4.4 million as part of the fixed concession fee, financing of the new infrastructure renewal program through 2020 at the cost of $ 193 million to be provided by the Cameroonian government. The government also has to finance $27 million passenger only rolling stock and the rest of the amount of $ 290 million to be provided by the concessionaire. The drawback that is affecting the CAMRAIL operations though not in a very significant manner is the failure from the government side to provide the omnibus compensation. The revenue could have been put into good us if the government had kept its end of the bargain.
The railway transport sector largely contributes a lot in every countries economy. CAMRAIL in Cameroon was constructed by the Germans to ease movement across the country as well as generate revenue. After the Cameroonian government approved a concession to SAGA to facilitate the public-private partnership, the railway transport has made a huge change in reviving rail transport. The key drivers that led to the inception of the CAMRAIL project are the for cheaper transport means of goods and passengers across the country during and after the colonial period. A drive to generate revenue from the transport of passengers and goods that is later used to stimulate development in other sectors, to create employment opportunities hence reduce the rate of employment in the country and improve the lively hood of citizens, a drive to increase the contribution of growth in the country’s GDP by providing a cheaper means of transporting timber products and cotton for export, the drive to establish an alternative means of transport that is not affected by the seasonal bad weather that renders roads impassable and finally ensure the government services, as well as dominance, are extended to the societies accessibility level. So far the CAMRAIL project has managed to satisfy these drivers with most of them being achieved after the SAGA consensus was approved. These drivers have with time since the inception of the project been amplified by the construction of new railway roads as well as better management of finances as well as operations (Yescombe, 2002).
Projects are mainly implemented to elevate the wellbeing of a country or business. Project financing incorporates the whole process of budgeting selecting the source of finance, the security for the financing the acquiring of the funds disbursing and expenditure. It is, therefore, crucial that all these steps are taken into consideration ensuring that they are all targeting economic development as economic feasibility. Project financing fosters development in that the source where the finance has been acquired from can expand business e.g. a bank will be collecting interest from the loan acquired to fund the project. In turn government revenue increases in the form of tax due to increase in revenue realized by the financial institution. The revenue collected is further used to fund new projects or sustain the existing thus promoting development. Moreover, the financial institution can open more branches or reinvest the revenues hence expanding the economy as well as promoting development. Budgeting for the project finance requires skilful individuals. The requirements prompt the owner of the project to hire the skills at a fee and thus creating employment which is one of the key drivers of economic development. Also to take out a loan, there is a need for valuation of the security that is to be provided against the loan. Evaluators are therefore required to conduct the evaluation process which creates more employment as well as increase the flow of cash in the economy and hence development. Once a project is underway there is a lot of expenditure that has to be done. The expense is usually on materials needed to complete the project. These materials are usually purchased locally and thus promoting business within the projects environs. These purchase help significantly in expanding the business that is later able to employ more individuals hence reducing the rate of unemployment thus promoting development. To run the project smoothly, it requires services from various stakeholders, such as transport, who provide services at a fee. This fee is treated as income by the government during taxation. Also, the revenue realized is used to expand the economy through government investment and expenditure resulting to economic development. Finally, after the completion of the project, there is income that is continuously realized from its operations, such income is used for further development of the economy. The project also employs individuals to man the completed project as they derive a salary as a way of compensation for their services. Thus further employment is created as well as the increase of government revenue informs of income tax hence promoting development.
The CAMRAIL project had previously attracted negative publicity from the Cameroonian citizens due to poor service delivery. Upon the 2008 contract amendment, SAGA, with the help of the government plans to build a new infrastructure at the cost of $ 193 million (Pretorius, 2008). The planned project will probably be set to operate on routes that at times are forced to be built through private property, forest and game reserves as well as heritage land. This, therefore, will inflate the cost of the reconstruction as compensation will be required to acquire private land. At times rerouting the rail will be the option as a result of social values, and also legal proceedings are bound to be encountered as not every citizen is fully satisfied with the execution of the project. All these factors will increase the size of the financial model as well as inflate the cost of completing the CAMRAIL project. The challenge of incorporating all these external factors is that the value of the expected challenge cannot be easily estimated in monetary form as it is deemed to take place in the future. Another challenge is that the inflated cost as result of factoring in all the factors may lead to the contraction or shortening of the project considering the finances are fixed. Selfish interest, politics and corruption might arise in case the external social factors are to be included. This will mainly be eluded from individuals who want to earn unlawful way to manipulate the project to serve their selfish interest. Finally, to bring these social factors to light, there is a need for research. The research requires time as well as financial resources to take place. This directly shows more funding is required to fund the research. The fund to conduct the research is a challenge as it is not included in the previous amount allocated by the Government.
Good financial models are obtained from proper planning and involvement of all stakeholders together with the affected parties. A financial model should consider planning for the expected or unforeseen costs on the project way before the project is about to start. In this way, the model is able to engage the society regarding the various steps that the project is expected to take and how the society will be affected. Also to provide the best, it is wise to revisit previous financial projects so to ensure that the delivered financial model is the best model. By so doing the model is able to budget for amounts to be used in acquiring of assets as well as land meant for the building of the project (Winsen, 2010). Furthermore, the model will also estimate the future cost of the project as it will have incorporated the expected value of currency come the day of ground breaking. Financial models, therefore, a financial model acts as the heart of the project and there is need to have an almost flawless model that will enable the project to reduce the amount of friction between planned project and all its existing factors. When one is willing to attain the above-mentioned standards, it is wise to outsource the services of financial modeling as it will not only save time and resources also transparency, accountability as well as a public, private partnership will be enhanced.
A good project especially the CAMRAIL project is one that is meant to benefit the state as a whole as well as the ruling government. Such a project requires having met several thresholds to be able to attain smooth implementation.
For the case of CAMRAIL project as the project planner, I will ensure that the project has brought together all the involved parties and that all their grievances are recorded and addressed. The project plan will be structured in such a way that at every phase of the project, the contracted company is ordered by the terms of the contract to ensure that the surrounding community is involved from employment to acquiring of their land. This will smoothen as well as save time taken to implement the project as they will be gaining from the project long before it commences operations. Funding f the project will much less remain the same as the government will be providing the funds for the project. The only addition that the project will require is a contingency fund which will be set at 20 percent of the provided fund, this amount will be used to unforeseen meat need s throughout the project and If the reserve does not have been depleted after the completion of the project it will be used to clear part of the debt acquired from external sources hence reduce the interest payable as well as number of years on loan repayment. Also, the plan of the project will have a provision of continuous review as the project goes on so as to make sure that all the recorded requirements are met. This will be made possible by the involvement of a quality assurance firm that will assess the project at every phase. Finally, the entire project will be structured in such a way that all the functions are to be outsourced from reputable companies with credible profiles. This will put the government at a position of an overseer while at the same time promoting credibility and minimizing corruption (James, 2014). after all the above has been put in place, return on investment will be very appealing as part of their remaining amount of funds is used to clear debt hence lowering the interest payable to lenders. The realized amount that is obtained once the project starts to operate will have a high return on investment since, corruption was minimized, and resources were allocated economically as the aim of the private companies is to achieve maximum profits. The standards were met as the quality assurance company was present to assets the project. On the other hand, the society will also be enjoying the benefits of the project as the surrounding community will be employed, as well as compensation of property that is acquired for construction of the project. Furthermore, the arrangement of the public, private partnership will enhance the popularity of the project in the society as the circulation of cash will also go a long way in improving their lifestyle.
Conclusion
The CAMRAIL project has seen its fair share of the challenges since its inception by the Germans. However, this has not made the determination by the government to have a better rail to weather. The move of engaging the private sector in the project has proven fruitful as it seen the losses have been converted to profits and the assets that had been kept a side due to lack of fund are now fully utilized to generate revenue. About the trend of performance witnessed compared to previous years before concession, it is evident that this project is bound to benefit the society as well as contribute largely to the Cameroon GDP. This project also has better days in future as the government has decided to pump in funds and also since the financial status of the project is sound. In conclusion, the project is viable and economically feasible and at the same time befitting the society.
Camrail Financial Model
References
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