Curse or blessing? Vast mineral wealth was identified in Afghanistan

The reserves include  iron, copper, cobalt, lithium and gold with the estimated worth of $1-trillion USD. But some experts doubt it is only a good news for Afghanistan.

Question:

Do you think the discovery could be a good news for the future of Afghanistan, even influence the current conflict in the country, and under what circumstances?

Answers:

Bahaudin Mujtaba, Associate Professor of Management, School of Business and Entrepreneurship, Nova Southeastern University

I think this is only a discovery to outsiders and not so much to the people of Afghanistan. To some extent, Afghans and experts who worked in Afghanistan have always known that there were a great wealth of minerals and precious stones in Afghanistan. The fact that they have put a trillion dollar price on it now is perhaps new. I do not think it can influence the current conflict in the country in any positive manner.

Unfortunately, it is the mismanagement of such wealth that can create more conflict and greed among corrupt local and international officials. Yes, I think the promotion and news if good for the future economy of Afghanistan as it can attract more entrepreneurs to the country. The extraction, sales, and proper use of the funds will be a positive influence in the economy of the country over the long-term.

The current conflicts are not necessarily just due to economic reasons, but rather for ideological reasons and partially due to lack of higher levels of education about proper governance and law enforcement.

Nake Kamrany, Professors of Economics and Director of Program in Law and Economics, University of Southern California

I am concerned that if there is any wealth generated from the discovery of rich minerals, the proceeds will go into the pockets of foreign corporations and corrupt government officials of the Afghan government.  I do no expect the average person in Afghanistan to benefit. This phenomenon in the literature of economic development is referred to the the Dutch disease.  What is it?  Just as I explained, the “grubby group”, i.e., the foreign contractors and the elite members of the government including war lords, drug lords, violators of human rights  will take all with nothing tricking down to the poor.

I hate to be so negative, but that is the most likely outcome that I can see.  As you know, over the last nine years the donors countries allege that billions of dollars have been given to Afghanistan for economic reconstruction but there are no signs of how those funds were expended.

Rani Mullen, Assistant Professor of Government, College of William and Mary

The mineral riches of Afghanistan are in many ways an old story.  British geologists a hundred years ago identified some of these mineral deposits and as the NYT front page article mentions the Soviets further identified rich mineral deposits in Afghanistan.  Interestingly, the article does not mention the uranium deposits in Afghanistan (which were already identified by the British and exploited by the Soviets, see for example: http://www.gl.iit.edu/govdocs/afghanistan/Industry.html), nor does it highlight the rich gas and potentially rich petroleum deposits.  So, while the story is only now hitting the front page of western newspapers Afghanistan’s mineral riches are well known, especially to the neighboring countries.  Trying to establish a political foothold in Afghanistan in order to later be able to access these deposits when the infrastructure is in place (many deposits are in areas that do not have proper roads or electricity, let alone the security situation) is a large part of the “new Great Game” currently playing out in Afghanistan.  The Indians are helping finance the building of Chabahar port in Iran and the Iranians are building railroad tracks from the port along the border and into Herat in Afghanistan.  At the same time the Chinese are helping finance Gwadar port in Pakistan and building connector roads and likely railroads into the area in Afghanistan where the Chinese recently got the contract to develop the Aynak copper mine. The commercial potential of Afghanistan is therefore well known to the neighboring countries and is a large, yet little analyzed aspect of political relations between Afghanistan and its neighbors. All this as a longer way of answering your question. In short, this news does not change current politics in Afghanistan, though I hope it will lead to greater interest in economic investments in Afghanistan.

Jeremiah Pam, Guest Scholar, United States Institute of Peace

My answer to your question is in two parts. In the long term, significant mineral resources could be good news for Afghanistan, although the world is full of cautionary examples of countries where valuable natural resources have either failed to benefit the citizens (e.g., Iraq under Saddam Hussein) or even intensified internal conflict (e.g. D.R. Congo). When the commentaries on this news have talked about the possibility that Afghanistan could be another Chile, one has to take it with a pretty big grain of salt given how long and winding Chile’s road to effective governance and democratic rule such that its citizens could realize a broad-based benefit from its resources has been and where Afghanistan is now.

In the near and medium term, to my mind the prospect of greater wealth mostly underscores a point I’ve been making long before this news — the necessity for Afghanistan to strengthen its institutional capacity to allocate and spend its revenues effectively.

While much of the commentary on the recent news has focused on the need for Afghanistan to strengthen its legal regime for dealing with the international companies that could extract the minerals or improve the road, port and other infrastructure necessary to get minerals to international markets, my point is more mundane — but I think all the more important.

If one of our countries made a major new discovery of resources, once these started to be monetized (sold), the first place it would be reflected would be in our country’s budgets. Perhaps the new resource wealth would fund a tax decrease or a new social or infrastructure initiative or something else. Once in the budget it would be spent towards the agreed objective, hopefully producing noticeable results in that sector.

In Afghanistan’s case, substantial strides have been made in its central government public finance and budget institutions, but it has not had the opportunity to get used to spending real money because most of the much larger amounts of international support have been spent outside the Afghan budget and institutions. There has also been very little fiscal decentralization, so there is almost no experience at the subnational level with effectively allocating or spending money.

So my view is that this news and the prospect that Afghanistan might someday have substantially greater revenues to spend further justifies giving a much higher priority to helping Afghanistan develop stronger public financial management and budget institutions, particularly at the subnational level. I discussed this issue at some length in some testimony I gave to a U.S. Congress subcommittee last summer, which you can find here: http://www.usip.org/files/resources/Testimony%20to%20House%20Subcommittee%20on%20National%20Security%20(14%20Jul%2009).pdf

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