1. 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. 2 Reconstruction

3. 3 Threats to the Future of Afghanistan The most serious threat is lack of funding:  Fiscal Year 2009-2010 $3.2 billion USD shortfall  $18 billion USD shortfall through 2015  2009 GDP growth only 3.4% missed targeted 9%

4. 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. 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. 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. 7 Afghanistan’s Foreign Aid and Gross Domestic Product Trends

8. 8 Afghanistan’s Needs

9. 9 Afghanistan’s Development Goals

10. 10 Status of Infrastructures Government Infrastructure20032015 Paved roads16 %48% Paved roads in Km per 1,000 people0.150.23 Motor vehicles per 1,000 people13.7140 Buses per 1,000 urban population0.060.30 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. 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. 12 Social Indicators20032015 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)257130 Maternal mortality (per 100,000)1600205 Measles cases per year7180 Polio cases per year100 Malaria (% at risk)16%8% Tuberculosis cases per year32148 Access to safe drinking water13%80%

13. 13 Afghanistan’s National Development Strategy  Requires $50 billion from international donors from 2008 through 2015.  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. 14 Economic Development Goals GDP (USD Million)2003200420052006201020152011-152004-15 Non-drug GDP4,8685,4286,0856,7449,88614,45412,5109,618 Drug related income2,4492,2622,0751,888885-3671,103 Growth (%) 2011 8.8 12 16.1 11 8.2 9 10% 889 2009- 3.4%

15. 15 Required Economic Growth

16. 16 Sector Components of the Development Budget 2004 - 2010

17. 17 Re-Prioritizing Afghanistan’s Development Goals

18. 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. 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. 20 Business Enterprise Survey

21. 21 Prioritization of Afghanistan’s Development Goals

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

23. 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. 24 Education

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

26. 26 Bayesian Probability Tree

27. 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. 28 Transportation

29. 29 Highway to Hazarajat

30. 30 Road and Drainage Improvements

31. 31

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

33. 33 Access to Markets

34. 34

35. 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. 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.

37. 37

38. 38 The Drug Economy

39. 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. 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. 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.