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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. Reconstruction. Threats to the Future of Afghanistan. The most serious threat is lack of funding:
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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.
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%
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
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
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
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.
Economic Development Goals 2009- 3.4%
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
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.
Sectors Receiving Maintenance Funding • Education • Health • Refugees • Social Protection • Culture, Media, and Youth • Religious Affairs
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.
Agriculture • 52% of GDP is Agriculture • 70% of the population in 2003 consumed less than the daily minimal dietary caloric intake
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
Access to Markets Priority should be on those districts that have reasonable access to markets first. Kandahar
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.
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.
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
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.
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.