1 Using Economic Modeling to Prioritize Infrastructure Development Projects to Achieve Afghanistan’s Socio-Economic and Political Goals. L.M. Stehr, Ph.D. S.J. Whidden, MD, Ph.D.

2 Reconstruction

3 Threats to the Future of Afghanistan The most serious threat is lack of funding:  Fiscal Year $3.2 billion USD shortfall  $18 billion USD shortfall through 2015  2009 GDP growth only 3.4% missed targeted 9%

4 Addressing the Threat  Maximize the economic growth derived by reconstruction investments  Reduce reliance on international donors  Prioritize reconstruction investments using the Integrated Investment Prioritization Model

5 The Integrated Investment Prioritization Model  Integrates economic modeling with Bayesian probability trees and System of Systems Analysis  Identifies projects which return the greatest degree of rapid economic growth per dollar invested  Uncertainty is presented in the results so decision makers clearly understand the value of the model output  Output is shown as a expected value of economic growth

6 Uncertainty Bands Economic Growth in Dollars Potential Projects Bridge 12 km of Road Mean 95% 5% 5 km of Irrigation $100,000 $200,000 $300,000 $400,000 $600,000 $500,000

7 Afghanistan’s Foreign Aid and Gross Domestic Product Trends

8 Afghanistan’s Needs

9 Afghanistan’s Development Goals

10 Status of Infrastructures Government Infrastructure Paved roads16 %48% Paved roads in Km per 1,000 people Motor vehicles per 1,000 people Buses per 1,000 urban population Electricity access to national grid6 %33% Urban electricity access to national grid27 %89 % Countrywide natural gas access8 %42 % Population with basic services10 %100 % Kabul water supply coverage20 %80 % Kabul sanitation coverage20 %80 %

11 Urban Services in 2004 City/TownAccess to Safe WaterDestroyed Roads Kabul29%60% Kandahar20%25% Mazar-I-Sharif40%13% Jalalabad50% Herat85%46% Kunduz0%23%

12 Social Indicators Poverty (rural)53%21% Population below min level of dietary energy consumption70%35% Male Literacy (age 15 and older)43%56% Female Literacy (age 15 and older)14%56% Primary school enrollment males67%100% Primary school enrollment females40%100% Life expectancy at birth (2001)42.8 yrs Infant mortality per 1,000 births (2001)16555 Under-five mortality per 1,000 births (2001) Maternal mortality (per 100,000) Measles cases per year7180 Polio cases per year100 Malaria (% at risk)16%8% Tuberculosis cases per year32148 Access to safe drinking water13%80%

13 Afghanistan’s National Development Strategy  Requires $50 billion from international donors from 2008 through  Sets 9% GDP growth as the annual average required through 2015 to achieve a per capita GDP of USD $500 in a drug eradicated economy.  Increases in economic growth result in increases in personal income and government revenues to allow them to hit 2015 targets.

14 Economic Development Goals GDP (USD Million) Non-drug GDP4,8685,4286,0856,7449,88614,45412,5109,618 Drug related income2,4492,2622,0751, ,103 Growth (%) % %

15 Required Economic Growth

16 Sector Components of the Development Budget

17 Re-Prioritizing Afghanistan’s Development Goals

18 Input-Output Models  Based on theory that when new money enters a region through investment, revenues or income, some creates additional economic impacts beyond the initial investment, as it is re-spent one or more times in the local economy.  Focus on the interrelationships of purchases (inputs) and sales (outputs). Captures sector purchases from other sectors required to produce a dollar’s worth of goods or services.  Widely used for economic impact analysis

19 Multipliers  Input-output models use multipliers to quantify economic impact of certain industries  Multipliers reflect degree of sector interdependencies  If the agriculture industry has a multiplier of 0.29, every $1.00 increase in sales results in a $1.29 increase in the regional economy’s output.

20 Business Enterprise Survey

21 Prioritization of Afghanistan’s Development Goals

22 Sectors Receiving Maintenance Funding  Education  Health  Refugees  Social Protection  Culture, Media, and Youth  Religious Affairs

23 Education and Health Evaluate on a province by province basis. If adequate education or access to health care isn’t provided by the government, the Taliban will provide it.

24 Education

25 Agriculture  52% of GDP is Agriculture  70% of the population in 2003 consumed less than the daily minimal dietary caloric intake

26 Bayesian Probability Tree

27 Project Selection Energy Transportation Micro-Hydro B B = BX 1 * BX 2 * BX 3 * BX 4 * BX 5 * BX 6 * BX 7 * BX 8 * BX 9 Reliability of Supporting Infrastructures Security Corruption Illegal Narcotics Trade Local Resources for Operation, Maintenance, and Repair Transportation Resources Availability of Markets Weather Conditions Ability to Collect Service Fees BX 1 BX 2 BX 3 BX 4 BX 5 BX 6 BX 7 BX 8 BX 9

28 Transportation

29 Highway to Hazarajat

30 Road and Drainage Improvements

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32 Access to Markets Priority should be on those districts that have reasonable access to markets first. Kandahar

33 Access to Markets

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35 Corruption  Who gets access to the service?  Who collects the fee?  Is the fee going to be invested for maintenance and repair?  Does everyone pay the same fee ? New mansion of a Karzai Minister.

36 Illegal Narcotics Trade  If we eradicate opium production have we provided alternative livelihoods for all engaged in production.  Currently 1.2 million Afghanis are engaged in opium production  Opium accounted for 4% of GDP in 2009.

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38 The Drug Economy

39 Integrated Investment Prioritization Model The Integrated Investment Prioritization Model offers a means to prioritize DOD, ISAF, and USAID reconstruction projects to maximize economic growth. Flexible and can expand to incorporate better data as it becomes available such as:  Threat/security information  Economic data  Mechanical performance data  Contractor performance metrics  PRT team reports  NGO data

40 RECOMMENDATIONS  Quantitative data at the provincial level and below is virtually non-existent. Yet this is the level where the development projects are implemented.  Contractors on USAID and DOD funded projects provide measureable metrics and statistics in their quarterly status reports. We recommend that a data warehouse be created to capture these in a single repository to improve data availability and enable quantitative results analysis.

41 Our Motivation Securing Afghanistan’s future isn’t just about maximizing our investments, it is about creating a better life for the citizens of Afghanistan, creating stability in the region, and depriving terrorist organizations of a safe haven, which makes us all safer.