SECTOR ASSESSMENT (SUMMARY): ROAD TRANSPORT

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1 Road Asset Management Project (RRP AFG ) Sector Road Map SECTOR ASSESSMENT (SUMMARY): ROAD TRANSPORT 1. Sector Performance, Problems, and Opportunities 1. Background. Afghanistan s fragile and conflict-affected situation remains the prevailing constraint on the transport sector. The withdrawal of international troops and decline in foreign assistance have led to increased emigration, and scarce human resources are again being drained. Afghanistan s vulnerability to natural disasters and climate change aggravates the situation. Poverty remains widespread, with almost 36% of the population living below the poverty line. 2. Afghanistan has traditionally been an agricultural and pastoral economy. More than 75% of the population lives in rural areas, and agriculture employs about 41% of the labor force while contributing 32% of the country s gross domestic product (GDP). The manufacturing industry employs only 7% of the labor force, but contributes about 21% of GDP. Economic growth slowed from 14.0% in 2012 to 1.5% in The country s narrow economic base is reflected in the value and composition of Afghanistan s exports, which consist of agricultural commodities that are sensitive to climate conditions and market volatility. Strategies to diversify the country s economy may yield benefits in the future, especially if the potential of natural resources can be exploited. 3. Road infrastructure investments. Since the 1960s, significant efforts have been made to expand and improve Afghanistan s roads, with a particular emphasis on developing the Ring Road, a circumferential road extending from Kabul to Kunduz and Mazar-e-Sharif in the north, Herat in the west, Kandahar in the south, and back to Kabul, covering about 2,300 kilometers (km). The core network has grown from about 14,000 km in the early 1970s to about 23,000 km in During the same period, the share of paved roads has risen from 15% to about 41%. Most regional and national roads are paved, but years of conflict and neglect have reversed many of these gains. Since 2002 when major reconstruction programs began, the Government of Afghanistan has made efforts, supported by the development community, to reconstruct damaged or destroyed roads as well as rehabilitate roads that have fallen into disrepair. 4. Sustainability. With most attention focused on reconstruction, the sustainability of these investments has become a major issue. About 85% of the road network is in a poor condition, and only 50% is serviceable throughout the year. Irrespective of the cause of these conditions, whether war-inflicted damage or neglected maintenance, development partners have intervened to rebuild infrastructure to pre-conflict conditions since In doing so, they have enabled the government to substitute regular preventive maintenance with capital-intensive rehabilitation and reconstruction. This has created a build neglect rebuild cycle. 5. Creating the conditions for sustainability has been the most critical transport sector challenge. The financial dimension of sustainability remains an issue. While resource allocations to the transport sector have generally increased, asset maintenance continues to be underfunded. The amount of financial resources that can be mobilized for maintenance is essentially a function of the country s economic base, which in Afghanistan is narrow. Unless past trends are reversed, the situation is likely to worsen as new assets are added. The problem of sustainability is largely attributable to inadequate sector governance, including poor financing mechanisms, institutions, and sector planning.

2 2 6. Poor maintenance has reduced the benefits of better accessibility and mobility. One example of this is the Salang Corridor (including the Salang Tunnel), which is essential to the integration of Afghanistan s economy as it links the two important economic centers of Kabul and northern Afghanistan. The Salang Corridor is the only north south pass in use throughout the year. Without the tunnel, approximate travel time on this corridor would increase from 10 to 72 hours. The tunnel has fallen into a state of severe disrepair after 50 years of service, conflict-related acts, vehicle accidents, fires, and lack of proper maintenance. Conditions within the tunnel are dangerous for users due to inadequate ventilation, poor lighting, and a failing road surface, all of which constrain the flow of traffic to 5,500 vehicles per day. 7. The government faces the following three major challenges in ensuring the sustainability of its road assets: (i) Weak institutional capacity of the responsible authorities. The United States Agency for International Development is providing assistance for capacity development to address this issue. It aims to create an autonomous road authority and road fund that will help allocate operation and maintenance (O&M) funds in a more rational way. (ii) Lack of an asset management system. Faced with limited resources, the Ministry of Public Works must optimize its O&M budget, by determining maintenance needs and scheduling O&M interventions rationally. The Asian Development Bank (ADB) plans to support the development of a road asset management system to this effect. (iii) Insufficient funding for operation and maintenance. To address the prevailing low level of O&M funding, sufficient and reliable funding sources must be secured. Thus, the efforts of the United States Agency for International Development to develop a road fund will be critical. 8. Trade logistics. Deficiencies in transport infrastructure and services are reflected in the poor performance of trade logistics. Despite significant improvements in recent years, the performance of Afghanistan s transport and logistics sector is still affected by excessive delays, inadequate logistics and supply chain management, and cargo flow imbalances leading to low capacity utilization on return hauls. Delays at border crossings not only lengthen transit times, but also undermine supply-chain reliability, leading to high inventory costs. Transit traffic is constrained by poorly maintained infrastructure, high transit fees, and security concerns, which make transport costly when combined. The high cost of transport logistics reduces the country s trade competitiveness. The World Bank s Logistics Performance Index ranks Afghanistan 150th in the world The country needs to reduce its trade transaction costs and improve its transport logistics by (i) removing barriers to regional trade and cooperation, (ii) building efficient and integrated transport systems, and (iii) removing the backlog in sector financing and capital investment. Membership in the Central Asia Regional Economic Cooperation (CAREC) program is moving Afghanistan closer to integration with an increasingly prosperous region, as infrastructure lays the foundation for sustainable economic growth. The focus on building transport and energy networks is helping Afghanistan increase regional trade and promote private investment. Economic integration with its CAREC neighbors will also enable Afghanistan to maximize the value of its natural resources. 10. Climate change. Although Afghanistan is not a major contributor to the causes of climate 1 World Bank International Logistics Performance Index Ranking.

3 3 change, the impacts thereof threaten the country s economy, stability, and food security. Afghanistan must address extensive climate adaptation needs urgently, as its transport sector is vulnerable to changes in climate variables and in the frequency and intensity of extreme weather events. Building resilient transport infrastructure systems will significantly reduce the country s exposure to hazards and vulnerability to climate change. 2. The Government s Sector Strategy 11. At the London Conference on Afghanistan in December 2014, the government presented its program for the Transformation Decade, , which aims to (i) reduce aid dependency, (ii) improve security and political stability, (iii) eliminate the root causes of corruption, (iv) restore fiscal sustainability, and (v) streamline development planning and management. The drivers for achieving greater self-reliance are inclusive growth, regional integration, private sector development, and increased government efficiency. Economic growth will be export-led, relying on a transport sector with enhanced connectivity, improved infrastructure, effective logistics management, and rational tariffs. The London Conference reflected many of the elements developed in connection with the government s Afghanistan National Development Strategy (ANDS), The goal of the ANDS for the transport sector was a safe, integrated transport network that ensured connectivity and enabled low-cost and reliable movement of people and goods domestically, as well as internationally. ANDS prioritized the rehabilitation of the transport system, including the completion of a fully upgraded and maintained Ring Road and connector roads to neighboring countries, improved transportation services, regional cooperation, and enhanced trade logistics. 12. In 2010, the ANDS was refined and updated with a list of priority programs and projects, including the National Regional Resources Corridor Initiative, which aimed to create the right conditions for tapping Afghanistan s mineral resources. Developing the minerals subsector has been identified as the single most important lever to diversify the economy, create employment, and raise government revenues. Therefore, connecting locations with known mineral deposits to transport infrastructure (rail and/or road) will be prioritized. 3. ADB Sector Experience and Assistance Program 13. ADB s operational focus in the transport sector has been aligned with government priorities. Resources mobilized by ADB have helped improve 1,725 kilometers (km) of regional and national roads. Technical assistance has been extended to conduct pre-feasibility and feasibility studies of major projects, such as the North South Corridor, East West Corridor, and Kabul Ring Road, as well as preparing and updating a Transport Sector Master Plan. 14. ADB has also pursued the goals defined by its corporate strategies, notably the CAREC Transport and Trade Facilitation Strategy This strategy stresses the importance of extending and completing the six strategic multimodal corridors, which are expected to handle most future transport and trade growth in the region. Due to Afghanistan s central location, four of the six CAREC corridors traverse the country and will involve major investment projects in the road and rail transport and logistics subsectors. The Transport and Trade Facilitation Strategy 2020 emphasizes policy and institutional reforms to maximize the impact of both past and future investments. This includes harmonizing regulations, procedures, and standards for the 2 Government of Afghanistan Afghanistan National Development Strategy, ( ): A Strategy for Security, Governance, Rule of Law, Social-Economic Growth and Poverty Reduction. Kabul. 3 ADB CAREC Transport and Trade Facilitation Strategy Manila.

4 4 cross-border movement of goods and people, in addition to implementing an enhanced approach to make border management more efficient. Significant efforts have been made to improve the Afghan section of CAREC Corridors 5 and 6, including (i) the completion of the North South Corridor Project, 4 (ii) ongoing construction of the Jabul Seraj Nijrab road, (iii) ongoing construction of the Kabul Jalalabad road, and (iv) planned construction of the approved, yet still un-rehabilitated link in the North South Corridor between Dar-i-Suf and Yakawlang. The latter three interventions are being funded under the Transport Network Development Investment Program Projects have often been impeded by (i) deteriorating security conditions at the project site, (ii) poor contractor performance, (iii) inadequate project management capabilities and work supervision of the implementing agency, and (iv) overreliance on the design build procurement modality. This has also resulted in high construction costs. Concrete steps have been taken to address these deficiencies and reflect lessons learned in new projects. ADB has worked together with the Ministry of Public Works to reorganize and strengthen the program management office, and has reviewed the procurement approach, including the selection of national contractors. 16. The prevailing sector issues and constraints reflect the need for ADB to remain engaged in a number of priority areas, including: (i) Support for road asset management, (ii) Continued support for Afghanistan in its efforts to improve regional connectivity through the CAREC program, (iii) The exploration of opportunities for public private partnerships, especially on primary roads with high traffic volumes such as the Salang Corridor, (iv) The development of a national transport policy that is specific, enforceable, and structured so that its implementation can be easily monitored. ADB technical assistance is required to review and revise the existing policy and ensure that an adequate consultation process is followed to make the policy quasi-legislation. 4 ADB Completion Report: North South Corridor Project. Manila. 5 ADB Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to the Islamic Republic of Afghanistan for the Transport Network Development Investment Program. Manila (see Periodic Financing Requests for Tranches 1, 2, and 3).

5 5 Problem Tree for the Road Transport Sector National impacts Loss of economic opportunities and reduced welfare Sector impacts Increased trade and logistics costs Unsafe road conditions Emissions Long travel times and reduced mobility Infrastructure vulnerable to climate change Core sector problem Insufficient road infrastructure and poor quality transport services Main causes Weak institutions and sector policies Lack of enforcement of rules and standards Insufficient investment Insufficient attention to operation and maintenance Underlying causes Fragile and conflict-affecte d nature of the country Insufficient and large turnover of human resources Lack of a sufficient resource base Lack of a road asset management system