Issues Magazine

Mining in Afghanistan

By Jeffrey Reeves

Mining in Afghanistan is often portrayed as a panacea to the fragile state’s socio-economic problems. It is, however, far from certain whether Kabul can manage the mining sector to exploit its potential benefits.

In 2010, the United States and Afghan Geographical Survey announced the joint discovery of over US$1 trillion in mineral resources spread throughout Afghanistan. For a brief moment, international news media turned away from the daily accounts of violence in Afghanistan to consider the development. An impoverished country where military analysts and development specialists believe a lack of economic opportunity contributes to ongoing conflict was suddenly “blessed” with untold riches. What were the larger implications?

Some commentators rushed to proclaim the discovery – far greater than initial estimates suggested – a game changer for Afghanistan. Gen. David H. Petraeus, commander of the United States Central Command at the time, noted the enormous potential that minerals and a mining industry would have for Afghanistan’s development. With a gross domestic product of under US$12 billion per year, it would be difficult to argue against the discovery’s significance.

Such cause for celebration might, however, be premature. The Afghan government must overcome a significant set of obstacles to capitalise on the country’s mineral wealth. These obstacles include continued instability in Afghanistan in areas of concentrated mineral wealth, the country’s underdeveloped mining sector, and what development economists call the “resource curse”. Mineral wealth in the country also has the potential to trigger competition in Afghanistan between regional and global states, a development described by Peter Hobkirk as “The Great Game”.

Minerals, Geography and Conflict
While Afghanistan is home to over 14,000 different minerals, the most significant in deposit size and economic potential are iron, copper, niobium, cobalt, gold and molybdenum. Of these, iron is the most pervasive mineral, accounting for almost half the total value of minerals discovered in Afghanistan.

The Afghan Geographical Survey has identified 22 priority mineral areas. While these sites are dispersed over Afghanistan’s entire territory, many are located in areas with continual insurgency and ongoing conflict. This increases not only the difficulty in developing the sites, but also the challenge of maintaining security around the sites once developed.

The Hezb-i-Islami militia, for example, has a major presence in Kunduz, Baghlan, Kapisa, Laghman and Kunar provinces. These five provinces are home to four priority mineral areas including major celestite, gems, lithium, iron and graphite deposits. Hezb-i-Islami has declared jihad, or religious struggle, against foreign entities in Afghanistan and has vowed to fight until it establishes an Islamic system over the country. There is little reason to believe Hezb-i-Islami will accept foreign mining activity, or any mining activity by the Karzai government, in the areas under its control.

The Haqqani network, identified by the International Security Assistance Force (ISAF) as the biggest security challenge to the North Atlantic Treaty Organization, controls a large strip of territory extending across Kabul, Wardak, Logar, Paktia, Khost, Paktika and Ghazni provinces. Five priority mineral areas sit within the geographic area, including the Aynak copper mine, which has an estimated 240 million metric tons of grade 2.3% copper. The Aynak copper mine received international attention when the Afghan government awarded the China Metallurgical Group the right to develop it in 2010 after it became apparent that the Afghan mining minister had accepted a US$30 million bribe from the company. To date, the Chinese-based mining company has invested US$4 billion in developing the site – the largest foreign direct investment-led project in Afghanistan’s history.

The immediate objective of the Haqqani Network is the withdrawal of all foreign forces from Afghanistan and the re-establishment of the Islamic Emirate of Afghanistan through the overthrow of the Karzai administration. This suggests that the group would be unwilling to allow any external entities to operate a mining project within its area of control. Even security at Aynak is less than certain and will face significant challenges when ISAF troops withdraw in 2014.

The Quetta Shura remains in control of large parts of Helmand, Kandahar and Zabul provinces, home to four priority mineral areas and Afghanistan’s main opium poppy cultivation sites. Two sites in particular sit very close to the Pakistan border, making them even more vulnerable to attack from Pakistan-based insurgents.

All this is to suggest that although latent mineral deposits in Afghanistan do have the potential to transform the impoverished state’s economy, the security of many of the proposed mining sites is poor. The Afghan government does not have sovereign control over much of the country and there is little reason to believe it will establish such control before the majority of ISAF forces withdraw in 2014. The Afghan Ministry of Mines has only 7000 mining police, just a fraction of what would be necessary to secure such expansive territories.

Afghanistan’s Mining Sector
Despite impressive claims that mining activity has taken place in Afghanistan since the third millennium BCE, when lapis lazuli was being mined in the Badakhshan province, the country’s modern mining sector is almost non-existent. Afghanistan has never had a heavy industry before and the country lacks suitable infrastructure to develop large-scale mining in the near future. Mining in the country has historically taken the form of small artisanal mining, by which individuals collect minerals by hand and use chemicals to separate them from rock and dirt debris. Most experts believe that Afghanistan will need decades to establish even the foundation of a modern mining industry.

Compounding these logistical challenges are issues related to governance and corruption within Afghanistan’s mining industry. Many international investors and international financial organisations, such as the World Bank, point to corruption, lack of transparency and extensive bureaucracy as issues that the Afghan government must successfully deal with in order to develop the fledgling mining industry. That no major mining site in Afghanistan has been developed despite both the Afghan government and the international community’s belief that mining is the country’s best chance for economic development is a major testament to inefficiency of the Ministry of Mines and Industries.

To be fair, the Afghan government is taking steps to increase transparency around and decrease corruption within the country’s mining sector. In particular, the Ministry is working with the Norway-based Extractive Industries Transparency Initiative to raise its internal processes to international best practice standards. It is, however, far too early to determine whether such initiatives reflect a genuine desire on the part of the Karzai government for meaningful reform or whether they are just window dressing aimed at pacifying western interests. If the Karzai government’s past performance is any indication, corruption will remain an endemic problem within the ministry.

The “Resource Curse”
Within development studies there is a large body of literature that argues that mineral wealth, far from being a panacea for state development, is actually a curse. This is particularly true for poor states where resources would constitute the majority percentage of economic growth. The negative effects of mineral wealth on a poor state are apparent in its overall economic development, its political stability and its security environment.

A mining boom in Afghanistan (assuming the government can overcome the sizable obstacles already outlined) would likely bring much-needed revenue to the state. So why are so many development experts concerned?

For poor states, mineral exports can cause the country’s currency to rise in value – an economic phenomenon called “Dutch disease”. This rise in the currency’s value can undermine growth in the country’s domestic industry as other products become too expensive to export (and thus too expensive to produce). While mining can contribute to short-term growth, it can also undermine long-term economic stability.

States can overcome Dutch disease with good governance aimed at sustainable development, as happens in resource-rich states such as Norway. Somewhat perversely, however, Dutch disease has the potential to undermine good governance. When government officials can use resource-generated rents to finance government expenditure, they lose the need and incentive to appeal to the populace for support. This can create a system of patronage that can undermine democracy. The result is a state run by those with the most influential familial and business connections unrestrained by checks and balances. Such an outcome is far more likely in a poor state with weak governance like Afghanistan.

Natural resources can also contribute to conflict, particularly when a state’s territorial sovereignty is not complete. This is a very big possibility for Afghanistan because it is highly unlikely that tribal/militant leaders will settle for a secondary role to the Karzai government in a geographic area over which they have effective control. Karzai will likely seek to use the newly trained Afghan security forces to enforce his claims over these areas. The result would amount to a civil war.

Great Power Competition
Afghanistan has long been a country at the centre of competition between great powers. Throughout the 19th century, the “Great Game” was played primarily between Russia and Britain, with both sides manipulating existing local tribal tensions to advance their grand strategic aims. In the 20th century, the Soviet Union found itself involved in an occupation fuelled by not-so-covert US arms supplies to its enemies. Now, at the beginning of the 21st century, the United States itself is at the centre of a “Great Game”, with a complicated web of new and old players seeking entry. Russia, China, Pakistan, Iran and India all have a vested interest in the country’s outcome as it relates to their own strategic concerns.

Afghanistan’s mineral wealth is likely to be a major conflict driver between states. Such conflict could be intense because natural resources are finite and competition between states will become zero-sum. This means that one country’s gain will directly translate into another country’s loss; there is no prize for second place.

If history is any guide, states will seek to strengthen their strategic positions in Afghanistan through partnership with whatever local political entity has control over the territory they desire. If conflict over minerals develops this way, states may find it in their best interests to have a divided Afghanistan with a weak central government. Somewhat ironically, competition for mineral resources in Afghanistan may undermine the central government that ISAF has worked so hard to support and provide a boost to insurgent groups it has worked so hard to disrupt.

A Perilous Mining Future
For Afghanistan’s mineral wealth to develop into anything other than a conflict driver will take major developments that, for the time being, seem highly unlikely. Despite claims of a central government in Afghanistan, in reality the country remains largely divided along tribal lines with insurgent groups controlling large swaths of territory. This means that even if the Karzai government managed to root out what seems like endemic corruption throughout the state, something it has shown no willingness to do over the past decade, it still maintains a very tenuous security position once ISAF troops withdraw.

What is more likely is that local tribes will develop the mining sites slowly with the help of foreign direct investment, as is the case with Chinese investment and the Aynak mine. Competition between states will force them to deal with the local political realities, thereby undermining the constructed central government for the more indigenous political systems of tribalism. This development suggests that Afghanistan’s future with mining contains more perils than benefits.