Here’s a dumb idea

I recently came across a monumentally stupid program the US Agency for International Development (USAID) is implementing in Afghanistan, the Regional Afghan Municipalities Program for Urban Populations (RAMP UP). It’s a $600 million, three-year program for about 50 local governments in Afghanistan. I would call it the Fiscal Reform and Urban Development project or the FRAUD project.

Let’s look at the purpose of the project:

The purpose…is to create effective, responsive, democratic, transparent, accountable, and gender sensitive municipal governance in targeted municipalities throughout the country. The RAMP UP will: (1) increase the capacity of GIRoA  [Government of the Islamic Republic of Afghanistan] municipal officials, (2) markedly improve the delivery of municipal services to citizens in target municipalities, and (3) increase municipal capacity to enable, support, and sustain economic growth…

This sounds reasonable. I am not sure more effective local government is the key to ending the poverty and war in Afghanistan, but it couldn’t hurt. Things get a bit more troubling when we look at the objectives:

Objective: To enhance the capacity of municipal officials, managers and technicians to perform their core municipal management responsibilities…

Expected Outcomes for Option Year 2

All selected municipalities have functioning performance budgeting systems.

All selected municipalities modernize their accounting procedures through computerization, increased access to information technology and/or inventory procedures instituted…

I suppose I have no real objection to this part of the program except to note that it is going to fail because less than 10% of people in Afghanistan have electricity. How are they to use computerized accounting systems without electricity? Clearly, this is not a serious goal. Moreover, it’s going to take far more than two years to have functioning budgeting systems since most local governments don’t have any budget systems at all. But this is not the real problem. That comes a bit further.

Objective: Assist the GIRoA to deliver services to citizens in target municipalities and enhance citizen perception of municipal governance…

The Contractor should allocate at least 40% of the total program budget for implementation of projects…with each municipality receiving no less than $1,000,000 per year…

The end result of the RAMP UP assistance should be tangible improvement in the delivery of services for citizens; for example: increased access to water, improved municipal roads, better trash collection, regular ditch cleaning, comprehensive solid waste management systems, more parks/urban greenery, and other services, as mandated under the municipal law…

It is in this buried detail, I assert, the true nature of the program lies: give $3,000,000 to about 50 local governments over 3 years to provide visible services. This is a terrible idea.

Local governments in Afghanistan have no capacity to spend this much money in useful ways. For example, Kandahar is Afghanistan’s second largest city. In 2004, its budget was $1.5 million. Heart, the fifth largest city had a budget of $750,000. It’s possible these cities could spend this much money on useful services. However, after Heart, city sizes and budgets get pretty small, pretty quick. Faizabad, for example, had a budget of $75,000 and Bamayan’s was about $40,000. These cities have no capacity to spend $1 million per year in useful services. It would make much more sense to allow the cities to put the money in a bank account and live off the interest ($150,000 per year at 5%) or allow the cities to create businesses (i.e., city-owned enterprises) that would create the foundation for growth (at least in theory) by allowing them to make stuff people in other cities could buy.

But no. RAMP UP requires cities to spend the entire $1 million per year in services. If you want to know what type of incentives this creates, watch Brewster’s Millions. It’s not a very good movie, but it makes the point that if you’ve got to spend a lot of money in a very short period of time, you have to find very creative ways to waste money. I have no doubt local government officials will find just these: Land Cruisers, fancy new houses, and lots of gifts to friends and family come to mind.

This project encourages governments to waste vast sums of money, rather than invest it. Let’s return to one my two examples – which this project forbids – to see why my idea is vastly superior. Let the cities put the money in the bank – don’t even let them touch the principal – and give them 5% per year, a reasonably conservative rate of return. This would create $150,000 per city. This could create 150 jobs paying $1,000 per year per municipality. This salary is double the current level of per capita income.  Moreover, most of these cities don’t need more than 150 people working for them. For example, in South Africa – a far wealthier country – municipalities of 100,000 people have about 200 employees. Thus, the interest alone from this program could cover the vast majority of the wage bill (if not all of it) for most cities in Afghanistan. Moreover, $150,000 would be nearly four times greater than Bamyan’s budget in 2004 and it could last for perpetuity without the city having to draw down any of the principal. This seems like a good use of the money. No. You can’t do that. Instead of treating the money like an investment for the future, the project encourages local governments to spend vast amounts of money on unsustainable projects. Does the program recognize this? Kind of:

Objective: To increase municipal capacity to enable, support and sustain economic growth…

Required Services:..

Develop tailored municipal economic development and revenue generation plans for each partner municipality.

Expected Outcomes in Option Year 2:

Increased revenue generation for all partner municipalities, by at least 20%.

All partner municipalities have initiated at least one public-private partnership over the course of the RAMP UP.

Increase in employment opportunities by at least 40,000 man-days, per year, per municipality, in all partner municipalities.

(Banging head on desk, broke desk, banging head against wall) Note above how I said that this program could hire 150 people at $1000 per municipality per year in perpetuity just from the interest on $3 million? Well, this program calls for employment opportunities for 40,000 man-days per year for the life of the project, 3 years, for each municipality. There are about 250 working days per year. Man-work days per year divided by work-days per year thus gives you the number of full-time workers you need to employ to meet this target. What’s 40,000/250? 160, almost exactly the number these cities could hire just on the interest of $3 million. My plan doesn’t just create these work-days for three years, but for ever. (Pulling hair out)

The rest of this objective is just a vague plan for increasing growth in an unspecified way. It’s the “jump start” theory of development: pouring money into a poor place will help the economy “jump-start” to sustainable growth. Yes, the battery is dead. The problem is that the car is a wreck, too. Jump-starting the battery isn’t nearly enough to fix the car when it has flat tires, the windows are broken, and half the engine parts are missing.

The bottom line is that this program has nothing to do with creating sustainable development at the local level or creating better local government. Why would the US government want USAID to spend so much money, so quickly, on highly visible yet unsustainable outcomes? My guess is that the hope is that between now and the end of the project, the US military will be drawing down troop levels and getting out of Afghanistan. To me, this looks like nothing more than a program to give the illusion of progress in the hope that the US will be out of Afghanistan before the Afghans figure this out. This is a colossal fraud and I suspect USAID knows it.