Managing Afghanistan's Mineral Wealth

150 Pages·2015·4.98 MB·English

by  Rachel Caren

Managing Afghanistan’s Mineral Wealth:
Can Afghanistan’s Mineral Wealth Be Used to Rebuild the Economy?

Task Force 2015
University of Washington
Henry M. Jackson School of International Studies
Cover Photograph
Parallels. “Afghan Mineral Treasures Stay Buried, Hostages to Uncertainty.” Digital Image,
2013. Available From: http://www.npr.org/blogs/parallels/2013/05/18/184775139/Afghan-
Mineral-Treasures-Stay-Buried-Hostage-To-Uncertainty

All trademarks mentioned in this report remain the property of their owners. Their inclusion in
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trademarks owners.
Printed at the University of Washington in Seattle, Washington
Managing Afghanistan’s Mineral Wealth:
Can Afghanistan’s Mineral Wealth Be Used to Rebuild the Economy?

Faculty Advisor

Scott L. Montgomery
Affiliate Faculty, Jackson School of International Studies
University of Washington, Seattle

Evaluator

Matthew Golden
Economic Team Lead
US State Department on Afghanistan, Washington D.C.

Task Force

Thomas Caetano (Editor)
Rachel Caren (Coordinator)

Ryan Bersentes | Patricia Denga | Adam Easter | Jessica Mellinger | Devon O’Neill
Igor Sirotkin | Michael Lane Smith | Xiangjun Wan | Sara Wong | Sarah Yu

The Henry M. Jackson School of International Studies
University of Washington
Task Force Report 2015
Table of Contents

Acknowledgements ........................................................................................................................5
Introduction ....................................................................................................................................6
Executive Summary .......................................................................................................................9
Part I: Mineral Wealth ................................................................................................................10
Part II: Infrastructure .................................................................................................................17
A. Water ....................................................................................................................................17
B. Electrical Supply ..................................................................................................................35
C. Transportation ......................................................................................................................48
D. International Diplomatic Concerns ......................................................................................62
Part III: Regional Concerns ........................................................................................................73
A. Security and Stability ...........................................................................................................73
B. Ethnic Relations ...................................................................................................................87
Part IV: Governance....................................................................................................................96
A. Legal and Judicial System ....................................................................................................96
B. Mining and Extraction Governance ...................................................................................105
Part V: Economic Institutions ..................................................................................................112
A. Financial and Business Institutions ....................................................................................112
B. Human Capital and Job Training .......................................................................................121
C. Case Studies .......................................................................................................................133
Conclusion ..................................................................................................................................142
Policy Recommendations...........................................................................................................143
Acknowledgements

The authors of this Task Force Report would like to extend their gratitude and thanks to all
individuals and institutions which made this report possible. Our Task Force was given great
opportunities this quarter to ask questions of experts on this topic and individuals with insight on
Afghanistan.

We would specifically like to thank Carmela Conroy, Dr. Rohullah Amin, and Dr. Anish Goel for
speaking with our class and providing unique insights which helped to shape the following
report.

Above all, we would like to thank Scott Montgomery for his exceptional guidance and unyielding
support throughout this process. This Task Force would not have been possible without his
feedback, patience, assistance, and expertise.

5
Introduction

“A river is made drop by drop” – Afghan Proverb

From 2005 to 2009, the US Geological Afghanistan has been plagued with nearly
Survey performed a series of remote sensing four decades of instability since the Soviet
surveys in Afghanistan in an attempt to invasion of 1979. Years of war have
quantify the nation’s mineral resource disrupted the traditional lifestyle of Afghans,
potential. Their findings stand to destroyed vital infrastructure and created a
significantly transform the future of constant power struggle amongst varying
Afghanistan’s economy and development. interests groups. The national lack of
Afghanistan’s potential mineral wealth is security severely undermines any potential
valued at $908 billion. This places economic revival that the Afghan
Afghanistan amongst the top five nations in government may attempt.
the world by mineral wealth. The abundant
minerals are diverse in value and industry Although security in Afghanistan has
potential, with large deposits of iron, copper, improved since 2001, unrest, armed
and cobalt, in addition to deposits of gold, insurrection, guerilla warfare, assassinations
gemstones, and rare earth elements. of high-ranking domestic and international
public officials, car bombs, and IEDs
As one of the poorest nations in the world, continue to plague any buddying economic
Afghanistan’s newly realized mineral wealth growth in Afghanistan and will dramatically
represents a potential source of indigenous impact the potential mining industry. Based
revenue and is closely tied to the nation’s on the most recent Security and Defense
future economic prospects. At present, 60% Cooperation Agreement between the US and
of Afghanistan’s GDP is the result of Afghanistan, both countries are adopting a
foreign aid and 30% arises from poppy policy of military collaboration that
cultivation and illegal opium production. continues far into the future.
Only 10% of Afghanistan’s GDP stems from
domestic industry and economic activity. In addition to war and insecurity,
With a value of nearly $1 trillion, Afghanistan’s economy faces several other
Afghanistan’s policy makers and advisors impediments to development.
are looking ambitiously upon its mineral Approximately 85% of Afghans depend on
endowment as a basis for a sustainable agriculture for their employment and
economy. livelihoods. However, this industry is
currently inefficiently and largely
This report will call into question whether susceptible to geographic and political
Afghanistan’s mineral potential can be changes. In recent years, precipitation has
utilized to catalyze a sustainable and been scarce and the percentage of arable
legitimate economy. A combination of land is low. The lack of irrigation
factors will dictate the success of mineral infrastructure and property rights laws
extraction in achieving these goals and must continues to limit the potential expansion of
be accounted for in order to utilize mineral the domestic agriculture industry.
resources to rebuild the state and boost the
economy.
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Domestic considerations will also need to nation is landlocked and directly bordered
include Afghanistan’s many ethnic and by China, Iran, Pakistan, Tajikistan,
tribal groups. Divisions amongst ethnic Turkmenistan, and Uzbekistan. Due to its
groups and between rural and urban strategic location, Afghanistan is highly
populations create a structure of authority in susceptible to the interests and
Afghanistan that is not centralized, but socioeconomic climates of neighboring
dispersed amongst local elite and tribal nations. Many of its neighbors are pursuing
leaders. As demonstrated with Hamid greater influence in the region and will seek
Karzai’s presidency, efforts to enforce a to be economically and politically involved
centralized government produced resistance in the potential mineral industry. Therefore,
and backlash. There is considerable successful mineral extraction will depend on
animosity between rural populations and the Afghanistan’s ability to independently
central government. In order for mineral negotiate issues regarding infrastructure,
extraction to provide sustainable economic transportation, power, foreign investment,
growth, it is vital for collaboration and and security.
communication to occur among local, tribal,
and federal governments. However, since 2001, economic
development in Afghanistan has progressed.
Furthermore, Afghanistan’s high levels of Despite these hampering factors, the last
corruption continue to hinder economic decade has seen rapid, albeit fluctuating,
development. Corruption is rampant in economic growth, low rates of inflation,
nearly every dimension of governance; increased infrastructure investments,
politicians are largely appointed on the basis improved public financial management, and
of power and connections, not on gains in basic education and population
qualifications or the best interests of the inclusion within civil society. Moving
state. forward, newly-elected President Ghani has
pledged to reduce corruption, combat
Corruption further impedes economic instability and address the needs of
growth by discouraging foreign private Afghanistan’s diverse population. This
investment and capital opportunities. attitude signifies a new beginning and the
Potential investors prefer to work in opportunity to efficiently utilize
transparent environments where their Afghanistan’s mineral wealth to rebuild the
economic and physical assets are protected state.
by a reliable and just legal structure.
Afghanistan is ranked as 183rd out of 189 Maximizing the immediate potential revenue
national economies on the ease of and long-term economic value of
conducting business, largely due to Afghanistan’s mineral resources will require
inefficient and corrupt governance. As a the implementation of various factors and
result, illicit government activity will policies. Policy makers will be faced with
continue to hinder economic progress and prioritizing short-term initiatives, which
inefficiently capture gains from mineral remain cognizant of long-term objectives.
extraction. Adequate improvements to water, electric,
and transportation infrastructure will be
Afghanistan occupies a unique geographic required as short-term initiatives, while
location at the crossroads of the Middle increased capacities of governance and
East, Central Asia, and South Asia. The
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financial institutions are a necessary long-
term goal.

This report aims to identify the main
challenges faced by a potential Afghan
mining industry and provides
recommendations on steps to take in
realizing the full economic and
transformational value of Afghanistan’s
mineral wealth.

8
Executive Summary

Afghanistan has newly discovered mineral investors from moving in their operations
wealth that could boost its economy over the into Afghanistan.
next few decades by one to three trillion US
dollars. Its mineral resources have the Afghanistan has many ethnic and tribal
potential to employ thousands of new groups. Each group carries its own traditions
workers. However, this task will be and languages. Given the nation’s weak
challenging given the lack of skilled work in central government, Afghanistan’s tribal
the country. groups have traditionally been autonomous.
Moreover, ethnic groups have fought for
Water is also a challenge. Afghanistan has greater influence and power in politics.
suffered several droughts in the past few
decades that have left its people in a state of Afghanistan’s legal system is corrupt and
peril and desperation. Although Afghanistan debilitated by nepotism and preferential
has water in its mountains’ snowpack, the treatment. Furthermore, its financial system
nation lacks arable land. Building dams isn’t taken seriously by the international
would solve many of the issues pertaining to community. Recently, employees from the
water, however, a few of its surrounding Bank of Kabul robbed the bank and fled to
neighbors could be negatively affected by Pakistan without any trace. This event
Afghanistan’s decision to divert bodies of further damaged the bank’s credibility and
water that serve to irrigate its border reputation.
countries.
Afghanistan’s human capital is largely
Afghanistan lacks powerful hydroelectric unskilled and mostly tribal. Education will
power plants capable of generating high need to be redefined in Afghanistan to
quantities of electricity. The city of Kabul is include education for women. The future of
powered by a mere 600 MW of energy, Afghanistan is uncertain but if the newly
which is far below what is required to power elected president, Ashraf Ghani, delivers on
every household in its center and suburbs. his promises of a better Afghanistan, then
Although there are plans to build the country will be able to become an
hydroelectric plants, the plans often fall important global player.
short either because financing negotiations
stall or due to security concerns manage. President Ghani has pledged to reduce
corruption, combat instability and address
The absence of an effective road system the needs of Afghanistan’s diverse
hampers transportation of large cargo in population. The new president’s attitude
Afghanistan. Security is one of the most signifies a new beginning and the
debated issues in the politics of Afghanistan. opportunity to efficiently utilize
Afghanistan’s mineral wealth to rebuilt the
Assassinations, kidnappings, bombings, IED state.
explosions, intimidation and the traffic of
opium all contribute to a state of very low
security, which discourages foreign
9
Extracting a Viable Economy
Utilizing Afghanistan’s Mineral Riches as a Road to Development
Jessica Mellinger

“A wedding ceremony is easy but preparation is hard”

Introduction the first USGS study in 2007 that the global
community became aware of Afghanistan’s
The Islamic Republic of Afghanistan’s vast mineral deposits.
ancient past and economic future are vitally In 2007, the USGS reported estimates for
tied to the nation’s mineral resource undiscovered deposits of copper, mercury,
potential. Long before the arrival of Islam, rare-earth elements (REEs), sulfur,
the Badakhshan area supplied lapis lazuli to chromite, asbestos, potash, graphite, sand
the pharaohs of Egypt and the kings of and gravel3. Of the 27 total mineral
Sumer, while other areas of the country commodities identified in the report, USGS-
became known for gold, silver, copper, and AGS jointly assessed that 22 required
precious stones. Since the early 19th century, further study4 in order to accurately
Afghanistan has undergone several large- determine expected values beyond known
scale surveys of its mineral resources: by the estimates5.
British (19th and early 20th century); the
Soviets (1970s-80s); and, most recently, the Although preliminary, the 2007 report
US Geological Survey (USGS; 2005-2011). revealed Afghanistan to foster abundant
The combined information from these reports non-fuel mineral resources including
leave no doubt that the country’s mineral minerals suitable for building and industry.
wealth is at valued at nearly one trillion Following the 2007 assessment, two dozen
dollars1. While base metals, especially iron, mineralized Areas of Interest (AOIs) were
copper, and cobalt comprise the largest selected for further study. From 2009
portion in volume and value, Afghanistan has through 2011, geologists with USGS and the
a considerable diversity of other deposits, Department of Defense Task Force for
ranging from niobium and rare earth Stability Operations (TFBSO) collaborated
elements (REEs) to lithium, graphite, and with AGS to compile detailed digital data
gold. about AOI mineral deposits6. These areas
are Badakshan gold, Balkhab copper, Haji-
During the Soviet occupation, geoscientists Gak iron, Northern Aynak copper and cobalt
from Afghanistan and the Soviet Union (and chromite), Zarkashan copper and gold,
collaborated in identifying 21 metallogenic Kundalan copper and gold, Khanneshin
zones, which were subdivided into 37 ore carbonatite, and Dusar-Shaida copper and
districts containing 1,428 mineral deposits, tin. Certain characteristics, including
occurrences, and showings2. It was not until outcropped minerals, make for easy
extraction and may translate into lower
capital costs, short lead times, and short
1 Stephen G. Peters et al., “Summaries of Important Areas for
Mineral Investment and Production Opportunities of Nonfuel
Minerals in Afghanistan”; Choi, “$1 Trillion Trove of Rare 3 Stephen G. Peters, “Preliminary Assessment of Non-Fuel Mineral
Minerals Revealed Under Afghanistan.” Resources of Afghanistan, 2007.”
2 United Nations and Economic and Social Commission for Asia 4 Ibid
and the Pacific, Atlas of Mineral Resources of the ESCAP Region. 5 Abdullah et al., Mineral Resources in Afghanistan.
Vol. 11, Vol. 11,. 6 USGS, “Projects: Minerals.”
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