Technical Assistance Islamic Republic of Afghanistan: Capacity Building for Regional Cooperation

Technical Assistance Report Project Number: 39651 December 2005 Technical Assistance Islamic Republic of Afghanistan: Capacity Building for Regional Cooperation

CURRENCY EQUIVALENTS (as of 25 November 2005) Currency Unit afghani(s) (AF) AF1.00 = $0.020 $1.00 = AF49.50 ABBREVIATIONS ADB Asian Development Bank CAREC Central Asia Regional Economic Cooperation CSATFF Central and South Asia Transport and Trade Forum ECO Economic Cooperation Organization MOC Ministry of Commerce MOF Ministry of Finance MoFA Ministry of Foreign Affairs MPW Ministry of Public Works NDS National Development Strategy RETA regional technical assistance SAARC South Asian Association for Regional Cooperation SECSCA - Subregional Economic Cooperation in South and Central Asia TA technical assistance TECHNICAL ASSISTANCE CLASSIFICATION Poverty Classification Sector Subsector Themes General intervention Law, economic management, and public policy Economic management Sustainable economic growth, regional cooperation. NOTE In this report "$" refers to US dollars Vice President L. Jin, Operations Group 1 Director General K. Senga, South Asia Department (SARD) Director E. Haugh, Senior Advisor (Afghanistan Operations), SARD Team leader A. Azimi, Senior Environment Specialist, SARD

I. INTRODUCTION 1. The Government of the Islamic Republic of Afghanistan requested Asian Development Bank (ADB) technical assistance (TA) in developing regional cooperation to realize the country's potential as a land bridge between Central Asia, South Asia, and the Persian Gulf region. 1 Twelve regional countries 2 met in Kabul on 4 5 December 2005 in a conference organized by the Ministry of Foreign Affairs (MoFA) for the purpose of promoting regional economic cooperation. Major regional economic organizations, including the Economic Cooperation Organization (ECO) and the South Asian Association for Regional Cooperation (SAARC) also participated in the meeting. 3 The focus of the conference was on promoting economic cooperation in areas of critical concern to the region s countries. The areas included (i) electricity and energy generation; (ii) transport; and (iii) transit trade and trade facilitation including border management, investment, and improvement of the business climate. The participants to the conference acknowledged that the Kabul regional economic cooperation conference builds on important steps in recent years, including inter alia (i) the Good Neighbourly Relations Declaration of December 2002, (ii) the Dubai Declaration of 2003, (iii) the Berlin Agreements of 2003, and (iv) the Bishkek Conference of 2004. The Central and South Asia Transport and Trade Forum (CSATTF) 4 was established in July 2003 to promote regional transport and trade facilitation along the corridors connecting Central Asia and South Asia via Afghanistan. CSATTF is supported by the Subregional Economic Cooperation in South and Central Asia (SECSCA). 5 The statement of G8 foreign ministers' meeting on June 2005 in London (i) recognized the importance of expanding regional economic cooperation, which it said was crucial to Afghanistan's future prosperity and stability, and (ii) encouraged all interested parties to come forward with proposals to achieve this goal. ADB undertook a fact-finding mission from 22 to 29 October 2005 and reached an understanding with the Government on the goals, purpose, scope, implementation arrangements, cost, financing agreements, and terms of reference of the TA. The TA design and monitoring framework is in Appendix 1. 6 II. ISSUES 2. Successful regional cooperation is a crucial element in the future peace and prosperity of Afghanistan and its neighbors. Sharing their rich human and natural resources and establishing efficient transport links within the region and beyond are keys to achieving sustainable economic growth and to improving living standards. Regional cooperation involving governments, the private sector, and other nonstate actors is essential to the sustainable reconstruction of Afghanistan because, however prolonged the involvement of the international community may be, the country will have to eventually be responsible for its own development. 3. Changing geopolitical circumstances, starting with the breakup of the former Soviet Union in the early 1990s and, more recently, the overthrow of the Taliban regime and the end of major conflict in Afghanistan, have opened up opportunities for regional economic cooperation, 1 The concept paper was approved on 29 November 2005 by the Vice President, Operations Group 1. 2 Afghanistan, India, Iran, Kazakhstan, Kyrgyz Republic, Pakistan, People s Republic of China, Tajikistan, Turkey, Turkmenistan, United Arab Emirates, and Uzbekistan. 3 The member countries of the ADB supported Central Asia Regional Economic Cooperation (CAREC) program also participated in the meeting. 4 CSATTF member countries are Afghanistan, Iran, Pakistan, Tajikistan, Turkmenistan and Uzbekistan. 5 ADB. 2004. Subregional Economic Cooperation in South and Central Asia. Manila (RETA 6156-REG). The executing agency for the RETA is the Ministry of Finance (MOF), implementing agencies will be the Ministry of Commerce (MOC) and MoFA. 6 The TA first appeared in ADB Business Opportunities on 7 December 2005.

2 with the potential to benefit all the countries in the region. Progress has been made in the development of trade and other economic interactions among some of the countries. This is in large part due to the cessation of hostilities and the economic revival and ongoing reconstruction program in Afghanistan. 4. Regional cooperation is required for the countries to prosper, and for poverty to be reduced. Poverty can only be reduced through rapid, sustained broad-based, and pro-poor economic growth through (i) expanding exports; (ii) developing private enterprise, and (iii) increasing investment in areas currently excluded from economic gains. Regional governments can cooperate bilaterally with Afghanistan and with each other in reconstruction efforts and to redress their common development deficits. The two are linked, as a more cooperative region could provide larger markets for Afghanistan's trade and production, which could fund improvements in infrastructure, create jobs, and thereby enhance security. 5. The countries of the region are characterized by some common economic characteristics: (i) landlocked difficult terrain and underdeveloped infrastructure, (ii) legacy of significant public sector involvement in the economy, and (iii) a vibrant informal private sector. However, there is also considerable diversity in economic size, level of development, energy and water endowments, trade regimes, and economic policy regimes. While diversity in resource endowments and economic structures can be a source of gains from trade with countries exporting to each other on the basis of comparative advantage, diversity can also be an impediment to closer interactions. For example, differing endowments of water resources could be a source of disputes among riparian countries, divergence in per capita incomes could trigger significant cross-border labor movements, and differences in trade regimes hinder trade and drive it underground. 6. Countries of the region are surrounded by a number of important regional powers and have considerable geopolitical importance. However, regional and global rivalries in the recent past tended to hold the region back and fomented instability and violence. The prospects of turning the countries of the region once again into a land bridge on the Eurasian continent will depend on collaboration, not just among the countries of the region, but among the region s important neighbors as well. 7. The delegations of the twelve regional countries issues the Kabul Statement on Regional Economic Cooperation on 5 December 2005 and concluded that (i) in the field of electricity, trade and power development, the possibilities of formalizing power trading agreements and accelerating construction of transmission infrastructure may have the potential for mutual benefit to several countries; (ii) enhancing opportunities for water resources management that offer mutual potential benefits in electricity generation, agriculture and efforts to counter narcotic production; (iii) updating and revising existing conventions and agreements of bilateral and regional nature for the creation and development of regional and inter-continental transit routes; (iv) in the field of trade facilitation, countries will seek to bring together their systems and procedures so that the barriers to cross border movements of goods and services are progressively reduced, transaction costs are minimized and bilateral border management is improved so as to simultaneously strengthen security and encourage legitimate trade; and (v) regional economic cooperation must be supported and enhanced through institutional strengthening and capacity building so that implementation can be ensured. 8. Regional cooperation is a lengthy process with significant benefits in the medium and long term. In recognition of this reality, Afghanistan joined the CAREC program at the 4th Ministerial Conference held in Bishkek on 5 6 November. In addition, the SAARC Summit in

3 November 2005 agreed to admit Afghanistan as a member. Ministers at both meetings agreed on capacity building including in-country roundtable meetings, training workshops, and study tours concerning international best practices for regional cooperation. 9. The Government intends to make regional cooperation a central pillar of the National Development Strategy (NDS) and urged development partners in identifying priorities for regional cooperation projects. The World Bank is currently conducting a comprehensive regional cooperation study which will provide an initial input to the NDS regional cooperation pillar. The Governments of United Kingdom and Germany assisted in the preparation of the recently held regional economic conference in Kabul by providing consultant inputs. ADB provided support under a TA 7 to provide an analysis of the investment requirements and gaps on each of the cross border points and inland facilities along the corridors based on traffic assessments and projections. The recently released report by the United Nations Human Development Program (UNDP) 8 identifies the potential economic and human benefits of regional cooperation for Central Asia and its neighbors in improved trade, transport and transit and improved water and energy management and cooperation to deal with drug trafficking and epidemics. 10. The regional countries recognize the importance of involvement of the private sector in regional cooperation and will need to be incorporated in the country's regional cooperation institutional framework. UNDP provided support to further private sector initiatives through a TA project 9 to follow up the action plan agreed during the Bishkek conference on Afghanistan held in May 2004. ADB organized the Central and South Asia Regional Business Roundtable in November 2005 in Bishkek jointly with CAREC to stimulate a greater role for the business sector in regional cooperation programs in Central and South Asia, and to utilize regional cooperation efforts to create business opportunities in the participating countries and generally stimulate the investment climate. 11. MoFA has a department managed by a deputy minister responsible explicitly for economic affairs. MoFA organized and managed the recent major conference on regional cooperation in Kabul and is envisaged to play a key role in regional cooperation matters within the government. However, the institutional capacity is low in absolute terms and will require institutional strengthening and capacity building so that implementation can be ensured. In addition, enhanced regional cooperation requires effective coordination; the current fragmentation of responsibility among sector ministries will be eased by creating a secretariat for coordinating regional cooperation activities with participation of ministries engaged in regional cooperation such as MOF, MOC, Ministry of Public Works (MPW) and other sector ministries. III. THE TECHNICAL ASSISTANCE A. Impact and Outcome 12. The purpose of the TA is to strengthen the capacity for regional cooperation within MoFA so that it can assume a greater role and responsibilities in planning, implementing, and coordinating regional cooperation activities with the rest of the Government. The main outputs 7 ADB. 2004. Technical Assistance for Cross-Border Trade and Transport Facilitation. Manila (TA 4536-AFG for $550,000 approved on 23 December 2004). 8 UNDP. 2005. Bringing Down Barriers: Regional Cooperation for Human Development and Human Security. Slovak Republic. 9 UNDP. 2004. Promotion of Regional Supply of Goods, Services and Expertise for Afghanistan's Reconstruction. Kyrgyz Republic.

4 envisaged from the TA are (i) a capacity-building assessment plan, (ii) establishment and functioning of a regional cooperation unit within MoFA, (iii) trained national officials involved in regional cooperation, and (iv) create technical working groups to pursue the goals of the Kabul Conference on regional economic cooperation. B. Methodology and Key Activities 13. Capacity building is a long-term process and requires strong commitments by the Government over a longer term. The TA will establish an effective institutional and operational framework under which economic cooperation activities can be promoted, developed, prioritized, and implemented within an interministerial framework. To further this aim, the TA will assist in establishing the coordination mechanisms and institutional capacity within MoFA to further regional cooperation. The Kabul Conference identified key areas for promotion of regional cooperation and the TA will establish technical working groups to pursue those goals and Ministerial Consultative Forums at regional level to monitor progress to regional cooperation. Given that Afghanistan suffers from a serious capacity gap, a flexible approach will be undertaken, which will necessitate adjustments and minor changes in scope, activities, and arrangements during the 12 months of implementation. 14. Assessing Capacity and Developing a Plan. The plan, focusing on institutional strengthening and needs assessment will consist of (i) identifying and analyzing constraints to and weakness for regional cooperation within MoFA; (ii) developing clear mandates, terms of reference, staffing, and work procedures; (iii) formulating criteria and a process for selecting the intended beneficiaries; (iv) listing topics and content of training programs; and (iv) identifying resource persons, trainers, and/or training institutions in and out of the region to conduct training programs. 15. Institutionalizing Regional Cooperation. A regional cooperation unit will be established in MoFA to perform interministerial coordination in implementing regional activities and developing networks among public and private institutions. The TA will provide consultant inputs and equipment for the initial operations of the unit. 16. Building Capacity. The TA will provide targeted training for officials involved in regional cooperation, including other relevant government agencies. Training areas will include, but will be limited to, (i) planning, implementing, and monitoring regional programs and projects; and (ii) case studies of successful regional cooperation initiatives and projects. Training courses will be provided for officials in regional training institutes or universities to be identified. 17. Technical Working Groups. The TA will establish interministerial technical working groups in (i) electricity trade and development; (ii) water resources management; (iii) transport; (iv) tourism; and (iv) trade facilitation within Afghanistan and Ministerial Consultative Forum at the regional level. C. Cost and Financing 18. The total cost of the TA is estimated at $440,000 equivalent. ADB will finance $400,000 equivalent on a grant basis by ADB's TA funding program. The Government will provide $40,000 equivalent. The TA will support the provision of consulting services and expertise, training at the regional level, and equipment. The detailed cost estimates and financing plan are in Appendix 2.

5 D. Implementation Arrangements 19. MoFA will be the Executing Agency for the TA. A steering committee comprised of MoFA staff and headed by the Advisor to the Foreign Minister will supervise the implementation of the TA. The Steering Committee will facilitate coordination between MOC, MOF and regional institutions such as Central Asia Regional Economic Cooperation (CAREC) and will provide technical guidance. MoFA will be responsible for the planning, implementation and administration of the TA. The consultants will report to the ADB project manager and will prepare progress report on a quarterly basis for submission to ADB. The TA will be monitored and reviewed by the ADB project manager and by the reports of the consultants. The TA will be implemented during 12 months, beginning February 2006 to February 2007. The draft TA completion report will be submitted to ADB in January 2007. 20. The services of individual international consultants (8 person-months) and individual domestic consultants (38 person-months) will be engaged. Consultants will provide advisory and technical services as specified in their terms of reference. Outline terms of reference are in Appendix 3. The consultants will be selected in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the selection and engagement of domestic consultants. Office equipment for the TA will be procured by the consultants in accordance with ADB s Guidelines for Procurement and turned over to the MoFA after completion of the TA. IV. THE PRESIDENT'S DECISION 21. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $400,000 on a grant basis to the Government of Afghanistan for Capacity Building for Regional Cooperation, and hereby reports this action to the Board.

6 Appendix 1 DESIGN AND MONITORING FRAMEWORK Design Summary Performance Targets/Indicators Data Sources/Monitoring Mechanisms Assumptions and Risks Impact Improved economic growth and rising incomes through enhanced regional cooperation Rising per capita incomes Increased regional cooperation activities Per capita income data Poverty index Outcome Strengthened capacity for regional cooperation Capacity-building assessment plan, including institutional strengthening Regional cooperation support unit established (early 2006) Training conducted (starting early 2006) Consultant reports Report on regional cooperation support unit Feedback on training Assumption Political commitment and support to regional cooperation Outputs Capacity-building assessment plan At the policy level (i) Enhancement of policymaking capacity (ii) Regional cooperation support unit at MoFA Report on capacity-building assessment plan The Ministry of Foreign Affairs (MoFA) endorsement and commitment to implement the plan Improve and prepare government strategy on regional cooperation Set up regional cooperation support unit in MoFA Consultant's report Asian Development Bank (ADB) progress/mission reports Government's feedback Consultant's reports ADB progress and mission reports Government strategies on regional cooperation Assumptions Willingness and preparedness for capacity-building for regional cooperation. Government's willingness and higher level capacity and cooperation Risks High rate of turnover of officials (iii) Trained national officials involved in regional cooperation Develop specific training modules/programs Conduct training courses on regional project identification, and regional project implementation About 12 officials trained including from sector ministries Other training recommended by the assessment Regular reports by regional cooperation specialists to ADB Governments' feedback to ADB Reports on training modules/programs Feedback on the effectiveness of training Lack of political will to address the issues (iv) Technical working groups & Ministerial Consultative Group Establishment interministerial technical working groups in (i) electricity trade and development; (ii) water resources management; (iii) transport; (iv) tourism and (iv) trade facilitation. Consultant's reports ADB progress reports Government's willingness and higher level capacity and to cooperate

Appendix 1 7 Design Summary Performance Targets/Indicators Data Sources/Monitoring Mechanisms Assumptions and Risks Establishment of Ministerial Consultative Forum at the regional level Political will at the regional level Activities with Milestones Inputs General Activities Capacity-building assessment plan (first half of 2006) Government's strategies on regional cooperation (first half of 2006) Recruitment of a regional cooperation specialist (early 2006) Equipment: hardware, software, and peripherals (first half of 2006) At least one training course (second half of 2006) ADB will finance $400,000 equivalent, and the Government will finance $40,000 equivalent Consulting services: 8 personmonths international and 38 personmonths domestic Resource persons and experts ADB staff time

8 Appendix 2 COST ESTIMATES AND FINANCING PLAN ($'000) Foreign Local Total Item Exchange Currency Cost A. Asian Development Bank (ADB) Financing a 1. Consultants a. Remuneration and Per Diem i. International Consultants 120.0 0.0 120.0 ii. Domestic Consultants 0.0 60.0 60.0 b. International and Local Travel 12.0 0.0 12.0 c. Reports and Communications 2.0 0.0 2.0 2. Equipment b 40.0 10.0 50.0 3. Training, Seminars, and Conferences a. Facilitators 10.0 0.0 10.0 b. Training Program 65.0 0.0 65.0 c. Conference 0.0 15.0 15.0 4. Miscellaneous Administration and 0.0 10.0 10.0 Support Costs 5. Contingencies 36.0 20.0 56.0 Subtotal (A) 285.0 115.0 400.0 B. Government Financing 1. Office Accommodation and 0.0 20.0 20.0 Transport 2. Remuneration and Per Diem 0.0 20.0 20.0 of Counterpart Staff Subtotal (B) 0.0 40.0 40.0 Total 285.0 155.0 440.0 a Financed by ADB s technical assistance funding program. b Desktop computers, digital photocopiers, laser jet printers, scanners, shredders, translation equipment, and laptop computers. Source: ADB estimates..

Appendix 3 9 OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. The technical assistance (TA) will require 8 person-months of international and 38 person-months of domestic consulting services. The advisory services will enable regional cooperation by building effective interministerial coordination and staff capacity of the Ministry of Foreign Affairs (MoFA). A. Team Leader and Capacity Building Specialist (international, 6 person-months) 2. The team leader will oversee TA implementation and develop a comprehensive and strategic capacity-building assessment plan for MoFA and officials involved in regional cooperation activities. The team leader will possess an advanced degree in economics and have experience in regional cooperation. The specific responsibilities will include the following: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) Conduct diagnostic analysis, focusing on strengths, weaknesses, and principal reasons for insufficient functioning, such as lack of qualified staff, financial resources, clear mandates/vision, taking into account the need for streamlining MoFA structure. Develop a detailed institutional strengthening plan to recommend appropriate organizational structure in a time-bound manner, with the long-term goal of establishing a national secretariat dedicated to regional cooperation. The plan should recommend relevant measures in areas of (a) policy coordination; (b) organizational structure (staff, budget, mandate, etc.); (c) technology and equipment requirement; and (e) enhancement of information and communications. Supervise and guide the work of the training specialist for the training needs assessment. Prepare a comprehensive capacity-building assessment plan, including the training needs assessment. Develop a monitoring and evaluation framework with intermediate performance benchmarks to assess the implementation of the capacity building plan. Provide support for identifying and preparing new regional projects covering participating and neighboring countries. Identify barriers and constraints to effective regional cooperation and recommend steps to address/remove them. Formulate the terms of reference for the domestic regional cooperation specialists who will be engaged for regional cooperation support unit. Assist in establishing inter ministerial technical working groups in (i) electricity trade and development ; (ii) water resources management; (iii) transport;(iv) tourism and (v) trade facilitation. Help design a Ministerial Consultative Forum at the regional level. B. Training Specialist (international, 2 person-months) 3. The training specialist will have an advanced degree in economics and at least 5 years experience in training and institutional analysis. The specific duties are as follows:

10 Appendix 3 (i) (ii) (iii) (iv) (v) (vi) (vii) Analyze the training needs of MoFA officials and skill mix required. Identify target participants and beneficiaries, and formulate criteria and a process for selecting participants for the training programs. Identify incentives and other organizational factors that will likely affect staff motivation and performance. Develop training programs and topics for effective regional cooperation, such as project identification, negotiation, and case studies on successful regional initiatives and projects. Prepare a report on training needs assessment, which will be an integral part of the capacity-building assessment plan. After the training needs analysis, ensure effectiveness and efficiency of the design and training program. Develop specific training modules/programs to be used in training courses in collaboration with resource persons/trainers, and train domestic consultants as trainers. C. Regional Cooperation Specialists (5 domestic, 38 person-months) 4. The domestic consultants will be college graduates with a BA or BSc degree in a relevant field. A senior domestic consultant will be the national focal point on regional economic cooperation, coordinating with other national focal points and the resident mission. The consultants specific duties are as follows: (i) (ii) (iii) (iv) (v) (vi) (vii) Facilitate through regular, day-to-day contact and consultation, long-term working relationships with key government agencies responsible for regional economic cooperation. Ensure implementation of the regional work program in the country. Help implement a comprehensive capacity-building assessment plan. Monitor programs and activities of the Government and regional organizations on regional economic cooperation. Help develop channels of communication necessary for the routine functioning of the national secretariat, and regularly contact sector coordinators to ensure timely channels of information on regional cooperation. Help prepare regional conferences and meetings, and supporting materials such as position papers, speeches, etc. Prepare a quarterly report summarizing developments of regional activities.

Appendix 3 11 D. Trainers (international and domestic) 5. The trainers will be responsible primarily for the following: (i) (ii) (iii) Help develop training modules for training courses; Conduct training; Be the resource persons at country roundtable meetings.