Tuesday, 15 June 2010

I'll take Afghanistan please - for $1 trillion

Somewhere out there SNL's Sean Connery is having a good laugh. Of all the absurd trivia, the fact that Afghanistan may have $1 trillion in vast mineral deposits and some of the world's largest lithium deposits may have been beyond the scope of even Alex Trebek. The New York Times story on these discovered "mineral riches" is its most e-mailed/blogged/viewed article two days after its publication. Afghan President Hamid Karzai's spokesperson gleefully crowed, "This will improve drastically the lives of the Afghan people, the economic status of the Afghan people and to see that positively, that will unite the Afghan people."

There is hope ladies and gentlemen! Rue the day of the Burqa for soon we will usher in the time of iron ore, copper, and lithium! Of course the media has self-divided into a veritable who's who of Pollyanas and Cassandras. The truth is that whatever the news story, these days pundits, journalists, analysts and politicians have a reflexive response ready for the 24/7 news-cycle. The naysayers have already proclaimed a new Afghan disease (see: Dutch Disease) and predicted an impending resource curse. The former is the theory that bountiful natural resources act as a disease rather than a cure. Its name is based the discovery of natural gas on the Netherlands and the deleterious effect on other economic sectors. The curse of course pertains to the volatility, corruption and instability that natural resources bring. One does not need to wander too far westward to the Middle East to see the wonderful political effects of oil (dictatorship, corruption, conflict, global intrigue and so forth). And, beyond that, while Gen. Petraeus may be giddy about lithium deposits in Afghanistan, the current global leader Bolivia is not exactly a shining example in prosperity. Surely, the Democratic Republic of Congo is an another perilous case to learn from. Other countries in Africa are similarly instructive.

Before the question is even asked about whether Afghanistan can capitalize on its allegedly new-found resource wealth,  the Pentagon announcement is short on the details to two very important questions: 1) How exactly does the amorphous $1 trillion breakdown and to which deposits; and 2) What is the cost of extraction (from end-to-end)? It is far too sinister to throw water on a seemingly positive fire, but releasing such momentous news two days after Dexter Filkins of the New York Times reported that Karzai doubts the West can defeat the Taliban is quite circumspect. That is where this story becomes extremely shaky, because aside from some new analysis of lithium deposits by the United States Geological Survey (USGS), it is not been a hidden secret that Afghanistan has had substantial mineral deposits. Here are a few sample examples from several years ago, including from the USGS:

- “Afghanistan Sitting on a Goldmine.” AFP. 21 February 2008.
- U.S. Geological Survey. “Preliminary Non-Fuel Mineral Resource Assessment of Afghanistan, 2007.” Fact Sheet. October 2007.
Afghanistan.” Mining Journal Special Publication. August 2006.

Assuredly, the hyperbole and excitement are far greater this time around. Yet, let me assure you that the awareness is not. Not only was the USGS aware of the significant potential in mineral deposits, but so were the Chinese who are extremely active in the country on this front, and the Soviets in the 1980s. In fact, I traveled to Afghanistan in 2008 to analyze the potential of large-scale economic projects as part of a Policy Analysis Exercise at the Kennedy School of Government at Harvard, and sponsored by the Embassy of Canada in Kabul, culminating in a report: "Realizing Afghanistan's Potential - Assessing the Potential of Large-scale Economic Investments."

Interviewing two dozen government, NGO, international and other officials, it became clear that there was a strong expectation that natural resources would prove to be the foundation of a future self-reliant Afghanistan. Conversely, it was also apparent that the capacity to harness these very resources was missing and furthermore, the Ministry of Mines was viewed with derision, suspicion, and skepticism even by members of the Afghan government. Despite this, the Chinese showed early commitment which I had summarized:
In November 2007, the China Metallurgical Group Corporation (MCC) won the right to bid on the Aynak Mines project, committing to invest around $3 billion in one of the world’s largest unexploited copper deposits. The area also includes other significant deposits as well.
Afghanistan also has significant iron ore deposits:
The most significant of these is the Haji Gak iron ore mine, one of the largest unexploited deposits of its kind in the world (and of a high quality). There are over 2 billion metric tons of ore at this location. This deposit could yield returns to the government and lead to job creation beyond even the levels of Aynak Mines.
Beyond lithium, copper, and iron ore, there has always been potential in the natural gas and oil fields, as well as smaller deposits of precious metals. Nevertheless all the prospective rewards not only are undermined by current security risks, but also by a lack of coordination. One of my key recommendations was the creation of a new coordination body (still lacking) that would bring together the Afghanistan Investment Support Agency, the Ministry of Mines, the Ministry of Commerce, and even the Anti-Corruption Commission to ensure competent, clean and comprehensive exploitation of natural resources. Additionally, the current structure for revenue sharing encourages centralized corruption and disempowerment of local bodies, and consequently such mega-projects could result in emboldening grievances for the Taliban to play on.

It is important not to cast aside the potential of a new industry that could provide a boon for future Afghan generations. Unbridled optimism, however, is not a substitution for the real challenges in the short-term in the battle for stability in Afghanistan. Furthermore, without a concerted effort, the wealth of future generations may well be squandered. $1 trillion is a great headline but let's make sure we capture the rest of the story honestly.

No comments:

Post a Comment