Using Economic Modeling to Prioritize Infrastructure Development Projects in Afghanistan

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 2009-2010 $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 $600,000 Economic Growth in Dollars $500,000 95% $400,000 $300,000 Mean $200,000 $100,000 5% Potential Projects Bridge 5 km of Irrigation 12 km of Road

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

8. Afghanistan’s Needs

9. Afghanistan’s Development Goals

10. Status of Infrastructures

11. Urban Services in 2004

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. Economic Development Goals 2009- 3.4%

15. Required Economic Growth

16. Sector Components of the Development Budget 2004 -2010

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. Reliability of Supporting Infrastructures BX1 Security BX2 Corruption BX3 Illegal Narcotics Trade BX4 Micro-Hydro Local Resources for Operation, Maintenance, and Repair BX5 B Energy Transportation Resources Project Selection BX6 Availability of Markets BX7 Weather Conditions BX8 Transportation Ability to Collect Service Fees BX9 B = BX1*BX2 * BX3 * BX4 * BX5 * BX6 * BX7 * BX8 * BX9

28. Transportation

29. Highway to Hazarajat

30. Road and Drainage Improvements

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

33. Access to Markets

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.

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.