By Shoaib Rahim
There are no two views that Afghanistan is blessed with mineral wealth. In 2010, a survey by United States Geological Survey (USGS) estimated the total wealth of the minerals to be around 1 trillion, with $908 billion in minerals while another $200 billion in hydrocarbons. These minerals include precious and semi precious gemstones, copper, iron, lithium and other rare elements. The mineral wealth is a hope and potential source for Afghan nation to secure a sustainable economic future. This is the reason why trump administration is now eyeing the mineral wealth of the country to pay for the cost of war and support economy of the country. However, at the moment, this nothing more than an elusive quest.
There are a number of reason why it is too early and challenging to develop and extract Afghan mines. First of all, there is lack of required infrastructure which includes inter alia road, railroad, energy, technology and access to water for mining. Secondly, these mines are present in places which are mostly controlled by warlords and/ or Taliban. Even if private security army is recruited, the minerals have to be transported. Therefore, transportation from the site to border and then outside a landlocked country would remain a question mark.
The development of mines is complicated, beyond the infrastructure and security issues. It remains a challenge even in places where the security is relatively better and Taliban have explicitly stated not to threaten the process. For instance, Ainak Copper Mine project was leased by Chinese company for 30 years for approximately $3 billion. However, the project met an uncertain fate due to contractual issues with Ministry of Mines and Petroleum (MoMP). The project has a political perspective as well. Since the onset of new regime, the US and its allies invested heavily in the security and development of Afghanistan. As China has majorly abstained from such investments, its investment in extractive industry might be seen as a free- rider. The market dynamics is also an important factor. The prices of copper in the international market rose from $2000 per ton in 2003 to $8000 per ton in next ten years due to increase in demand following increased economic activity of China. The souring prices encouraged the companies to heavily invest in copper mining. In Zambia only, companies invested around $12 billion in copper mining. However, later the Chinese economic growth slowed down, while the supply remained the same, resulting in nose- dive of prices. The plunge of prices affected the commercial viability of the Ainak Copper project. But, let us not question the future of the project. As iron and copper are inevitable ingredients for industrialization, the market of the key metals would recover to balance the supply and demand equation in next few years.
In the same way, the institutional capacity of Ministry of Mines and Petroleum (MoMP) and other relevant entities still remains a bottleneck in the mining sector. The lack of qualified local technical experts and weak regulatory environment are among the foremost areas to be addressed before considering the exploitation of mineral wealth.
The policy entrepreneurs might have convinced Trump administration to use country’s mineral wealth to pay for war and reconstruction. However, the interventions of United States Agency for International Development (USAID) and Department of Defense (DoD) Task Force for Business and Stability Operations (TFBSO) to exploit the extractive industry depict a trajectory of failed projects, corruption, mismanagement and inability to achieve desired results. For example, the TFBSO spent $43 million to fund the construction and supervise the initial operation of the Compressed Natural Gas (CNG) station while, according to International Energy Association, the range of investment for a public CNG ranged between $200000 to $500000 in 2010; that in Pakistan costed approximately $306000 according to Small and Medium Enterprise Development Authority. As such, the cost for a CNG station is high even after provision is made for poor security context of Afghanistan.
The Special Inspector General for Afghanistan Reconstruction (SIGAR) started to investigate the exorbitant cost of the project. In reply to enquiry, shockingly, the DoD responded that since the project was closed few months back and the employees had departed, they did not have personnel expertise to address the questions, as revealed in October 2015 report of SIGAR. More shockingly, SIGAR found that TFBSO never conducted a feasibility study prior to committing millions of dollars for the project.
The cover page of April 2015 audit report of SIGAR read, “Afghanistan’s Mineral, Oil, and Gas Industries: Unless U.S. Agencies Act Soon to Sustain Investments Made, $488 Million in Funding is at Risk.” The statement surfaced in the backdrop of eleven initiatives of TFBSO and three USAID funded programs costing $282 and $206 million respectively aimed at development of Afghanistan’s extractive industry. The report pointed out lack of overall unified US strategy for development of extractive industries, lack of interagency coordination (between USAID and TFBSO), lack of MoMP capacity, and lack of sustainability plan to have been jointly prepared by State and the two agencies for transition of activities in Afghanistan to State or USAID. The circumstances imply how poorly DoD managed the $800 million appropriated by US Congress for the activities under TFBSO in 2009.
There is no doubt that the mineral wealth of Afghanistan can secure economic future of the country. This has been part of the debates in international conferences. As discussed in Tokyo Conference 2012, the Afghan government was expected to be earning $1 billion a year by 2017, while it only collected approximately $18 million from the mining sector last year. The government projection for $1 billion mark a year does not seem to happening before 2029. Therefore, at present, the anticipated heavy investment in the mining sector to support the war and Afghan economy would be no more than an elusive quest for wealth given the context of extractive industry in the light of recent investment and interventions of USAID and DoD.
At the moment, it would be better to maintain consistency in policies and focus more on ongoing initiatives. For instance, the Modern Silk Road strategy of Obama administration, which surfaced in 2009/10, was presented as an approach to connect Asia and Europe along the lines of ancient Silk Road. The initiative focused on regional integration and economic cooperation which would allow Afghanistan to play its due role as connector rather than cleaver of the global markets and fill its coffers with trade and transit revenue. Asian Development Bank (ADB) estimates that overall trade in the region would increase by as much as $12 billion and a growth of 80 percent if basic improvements are to be carried out in transport infrastructure connecting Central Asia to Afghanistan.
On the other hand, the agriculture sector of Afghanistan, the carpet industry, gem stones, and valuable herbs are the key sectors inter alia with great export potential. However, their export to international markets still remains a challenge due to lack of reliable, affordable and time efficient trade routes. For example, India is a potential market for the fresh fruits, vegetables and other valuable herbs. However, the sudden closure of border gates from time to time, non- tariff barriers and other restrictions by Pakistan on imports from India has terribly affected bilateral as well as trade with rest of the world. In the same way, the lack of sustainable, continued and affordable energy for industry is not allowing the food processing and manufacturing sectors to explore its true potential to substitute imports and increase exports. The needed investment and appropriate approaches for access to energy and international markets would help the private sector play its due role.
In a nut- shell, if huge investment similar to mining sector is made in construction of hydropower plants on the lines of Salma Dam (India- Afghanistan Friendship Dam) to meet the energy needs of the country as well as support irrigation, development of rail and road infrastructure, exploration of alternative trade and transit corridors, and access to international markets, the Afghan economy has all the ingredients to attain growth and sustainability.
Shoaib Ahmad Rahim is a development practitioner and analyst on national and regional political economy. Rahim holds an MSc. Degree in Development Economics from University of Sussex, England. He tweets at @ShoaibBinRahim