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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.

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Reconstruction

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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%

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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

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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

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Uncertainty Bands

Economic Growth in Dollars

Potential ProjectsBridge

12 km of Road

Mean

95%

5%

5 km of Ir

rigation

$100,000

$200,000$300,000$400,000

$600,000

$500,000

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Afghanistan’s Foreign Aid and Gross Domestic Product Trends

Year Foreign Aid Aid Growth From Prior Year

GDP Aid As A Percentage Of GDP

2000 $135,970,000 - - - 2001 $404,640,000 66% $2,461,638,802 16% 2002 $1,300,490,000 68% $4,387,847,002 30% 2003 $1,590,700,000 18% $4,762,517,011 33% 2004 $2,169,220,000 27% $5,729130,575 38% 2005 $2,750,380,000 21% $6,851,669,702 40% 2006 $2,999,410,000 8% $8,186,204,489 37% 2007 $3,951,080,000 24% $10,169,548,111 39%

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Afghanistan’s Needs

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Afghanistan’s Development Goals

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Status of Infrastructures

Government Infrastructure 2003 2015Paved roads 16 % 48%Paved roads in Km per 1,000 people 0.15 0.23Motor vehicles per 1,000 people 13.71 40Buses per 1,000 urban population 0.06 0.30Electricity access to national grid 6 % 33%Urban electricity access to national grid 27 % 89 %Countrywide natural gas access 8 % 42 %Population with basic services 10 % 100 %Kabul water supply coverage 20 % 80 %Kabul sanitation coverage 20 % 80 %

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Urban Services in 2004

City/Town Access to Safe Water Destroyed Roads

Kabul 29% 60%

Kandahar 20% 25%

Mazar-I-Sharif 40% 13%

Jalalabad 50% 50%

Herat 85% 46%

Kunduz 0% 23%

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Social Indicators 2003 2015Poverty (rural) 53% 21%

Population below min level of dietary energy consumption 70% 35%

Male Literacy (age 15 and older) 43% 56%

Female Literacy (age 15 and older) 14% 56%

Primary school enrollment males 67% 100%

Primary school enrollment females 40% 100%

Life expectancy at birth (2001) 42.8 yrs  

Infant mortality per 1,000 births (2001) 165 55

Under-five mortality per 1,000 births (2001) 257 130

Maternal mortality (per 100,000) 1600 205

Measles cases per year 718 0

Polio cases per year 10 0

Malaria (% at risk) 16% 8%

Tuberculosis cases per year 321 48

Access to safe drinking water 13% 80%

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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.

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Economic Development Goals

GDP (USD Million) 2003 2004 2005 2006 2010 2015 2011-15 2004-15

Non-drug GDP 4,868 5,428 6,085 6,744 9,886 14,454 12,510 9,618Drug related income 2,449 2,262 2,075 1,888 885 - 367 1,103Growth (%)

20 118.8

1216.1

118.2

910%

8 8 9

2009- 3.4%

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Required Economic Growth

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Sector Components of the Development Budget 2004 -2010

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Re-Prioritizing Afghanistan’s Development Goals

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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

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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.

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Business Enterprise Survey

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Prioritization of Afghanistan’s Development Goals

GOVERNANCE ECONOMIC & SOCIAL DEVELOPMENT

1 Transportation2 Information and Communication Technology3 Governance, & Public Administration Reform4 Justice & Rule of Law

5 Energy 6 Agriculture & Rural Development7 Water Resource Management8 Private Sector Development & Trade9 Mining

10 Urban Development

SECURITY

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Sectors Receiving Maintenance Funding

Education Health Refugees Social Protection Culture, Media, and Youth Religious Affairs

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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.

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Education

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Agriculture

52% of GDP is Agriculture

70% of the population in 2003 consumed less than the daily minimal dietary caloric intake

Afghanistan's Gross Domestic Product

Agriculture

Industry

Services

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Bayesian Probability Tree

Project

Selection

Transportation

Energy

Buses

Road

Electricity Lines

Micro-Hydro

B

C

D

E

Growth = B x Transportation Multiplier

Growth = C x Transportation Multiplier

Growth = D x Energy Multiplier

Growth = E x Energy Multiplier

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Project

Selection

Energy

Transportation

Micro-HydroB

B = BX1 * BX2 * BX3 * BX4 * BX5 * BX6 * BX7 * BX8 * BX9

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

BX1

BX2

BX3

BX4

BX5

BX6

BX7

BX8

BX9

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Transportation

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Highway to Hazarajat

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Road and Drainage Improvements

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Access to Markets

Priority should be on those districts that have reasonable access to markets first.

Kandahar

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Access to Markets

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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.

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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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The Drug Economy

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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

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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.

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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.