September 10, 2012

A Rocky Road to Reaping the Benefits of Afghanistan’s Mineral Wealth

The New York Times reported on Sunday that Afghanistan’s mineral wealth could be contributing to instability in some parts of the country, particularly areas beyond Kabul’s control.

Just two years ago, Afghanistan’s mineral wealth – estimated to be worth potentially a trillion dollars –promised hope to a torpid economy plagued by generations of war. “The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world,” The New York Times reported in June 2010.

But the wealth has inspired darker dreams as well,” The New York Times reported yesterday. “Officials and industry experts say the potential resource boom seems increasingly imperiled by corruption, violence and intrigue, and has put the Afghan government’s vulnerabilities on display.”  

According to the report, “Powerful regional warlords and militant leaders are jockeying to widen their turf to include areas with mineral wealth, and the Taliban have begun to make murderous incursions into territory where development is planned.”

Meanwhile, Kabul appears to be mired in its own challenges with managing the country’s resource wealth. Reports say that there are ongoing disputes within the government over contracts to Afghans with ties to the Karzai family, including accusations that the government is steering lucrative deals to companies with ties to the Karzai family to develop the countries oil and natural gas reserves.

Furthermore, resource smuggling could be helping fund Afghan insurgents. “Some officials are worried about a swath of small mines — for gemstones, marble, chromite and other resources — that are out of the state’s control and might be fueling the insurgency,” The New York Times added. “A recent Defense Department analysis said criminal mining syndicates were smuggling chromite over the border, paying protection money to the Pakistani Taliban and the Haqqani insurgent network.”

The Afghan government has many challenges to overcome before it can realize the benefits of its resource wealth. Security is going to be a driving concern, with a need for the government to create stable enough conditions to make domestic and international companies comfortable enough to make the investments necessary to develop the country’s mineral wealth. This is a particularly daunting task for the government with a looming NATO drawdown in 2014 that could stall foreign direct investment if security conditions deteriorate, and worse, threaten domestic industries that could be attacked by regional rivals and a resurgent Taliban.

Of course, if developed sustainably, Afghanistan’s mineral wealth could pay dividends for the country. “The World Bank estimates that if things go very well, mining and agriculture together could raise annual growth rates by 3 to 4 percentage points between now and 2025,” according to The New York Times.

Photo: Band-e-Amir Region of Afghanistan. Courtesy of USAID.