International aid has supported the economy of Afghanistan for 12 years. With aid flow gradually declining, the war-torn country will now have to find its own source of revenue. The government pins its hope on the mineral wealth, worth US $1 trillion, underneath the country’s soil. But it has faltered in its first mining project. The minerals can revive the economy only if the government brings transparency into the system and puts robust regulations in place. Arnab Pratim Dutta travels to Kabul to understand the country’s latest struggle to stand on its own two feet
Treasure in troubled land
Kabul no longer resembles a city ravaged by three decades of war, civil strife and insurgency. A few minutes after leaving the airport complex as one enters the streets of Afghanistan’s capital city, any notion of the war-torn country begins to fade away. Plush yet Bohemian-styled marriage halls, perhaps inspired by the casinos of Las Vegas, glitzy shopping malls and busy markets greet the curious eyes. What happened to the bullet-ridden mud walls or the shell- punctured roofs, one might ask. The first impression of Kabul has none of that to offer.
As the city begins to introduce itself, it becomes evident that time has healed its wounds. Pul-e Khishti, Kabul’s biggest open-air market, bustles with shoppers and itinerant vendors. Kiosks selling burger and Doner kebab have popped up next to traditional Afghan eateries. Driving with office-goers would mean getting caught up in hours-long traffic snarls.
“Abhi to koi mushkil nehi hain (There is no trouble right now),” Nadim, a taxi driver, remarks in broken Urdu. Nadim is, however, scared to think about the future. Over the next few years, Afghanistan will undergo a couple of momentous transitions. The first is a security transition. Since 2001, after ousting the extremist Taliban insurgents, US forces, supported by the United Nations Security Council, have been maintaining public security and stability for the country’s democratically elected government of President Hamid Karzai. Towards the end of 2014, most foreign troops will pull out of Afghanistan, leaving the law and order and security measures to the US-trained Afghan police and army.
The second is an economic transition. Beyond 2016-17, the government could face massive economic constriction. Being one of the 10 poorest countries, Afghanistan is heavily dependent on foreign donations not just to balance the budget but also to grow the economy. The World Bank estimates that between 2002 and 2010 the country on an average received US $6 billion a year in civilian aid. This is 40 per cent of its GDP, which was $15.94 billion in 2010. Only a few other territories like Liberia, West Bank and Gaza have received more aid per capita than Afghanistan on a few occasions (see ‘Aid flow...’).
A big chunk of the aid goes into rebuilding the war-torn country. In 2011, about $252 million of foreign aid was pumped into developing Kabul. Most of the glitter that one sees in Kabul is built on an economy generated by such aid. But the days of handholding are coming to an end.
The fear is once foreign troops have exited Afghanistan funds for development projects might fall in the wrong hands or be siphoned off. After all, corruption is rampant in the country. According to the 2012 corruption perception index of Transparency International, a global civil society organisation, Afghanistan is among the 10 most corrupt countries. Such is its disrepute that at a conference in Tokyo in July 2012, about 70 countries and donor agencies agreed to make $16 billion available to Afghanistan until 2016-2017 only after the government pledged that it would ensure greater accountability and transparency. Since 80 per cent of the aid would be aligned with the National Priority Programs (NPP), the government had to promise to follow NPP “with a focus on economic growth, revenue generation, jobs and human development”.
Dwindling aid will hit the government finances the most. Most of the foreign aid does not come directly to the government but is spent through implementing partners, such as contractors or civil society organisations. Even this aid does not entirely benefit the country. Much of the aid money goes into the payment of foreigners working in the country or contractors and for outward remittance. In 2010-11, Afghanistan received $15.7 billion in foreign aid, of which the government received only 12 per cent—about $1.2 billion. This constituted 41 per cent of the government’s budget. That year, the government spent about 20 per cent of its budget, or $950 million, for public welfare.
The World Bank reports that “development progress since 2001 has been mixed… Key social indicators, including life expectancy and maternal mortality, have improved markedly (admittedly from an extremely low base), and women are participating more in the economy.” If foreign spending dries up, one of the first things that could be hit is public spending on development projects.
Afghanistan’s mines minister Wahidullah Shahrani is, however, optimistic about the country’s future. In an interview with Down To Earth, Shahrani says mining could be pivotal in turning around Afghanistan’s economy (see ‘Mining’s share...’). He expects that by 2024, monies from mining alone would account for 50 per cent of the country’s total GDP. The government insists that underneath Afghanistan’s soil lie $3 trillion worth of minerals.
The fact that Afghanistan is rich in minerals is known for about 40 years now. In the 1970s, Russian’s geological survey team for the first time prepared a mineral map of the country. But they never got on to extraction. After the fall of the Taliban, the United States Geological Survey (USGS) sent a team to survey these minerals. An old British bomber aircraft fitted with 3-D mapping capabilities made sorties over areas with mineral deposits in 2007 and prepared a detailed 3-D profile of the reserves. The 3-D profile was ready by 2009 and the following year, USGS announced that Afghanistan’s mineral wealth is worth $1trillion. The list of minerals is exhaustive and includes copper, iron ore, rare earth minerals, gold, oil and natural gas (see map ‘Chock-a-block...’).
Afghanistan now wants the extractive industry to become a substantial revenue generator. It plans 14 major mining projects by 2016 that will generate about $1.5 billion a year. More than 50 per cent of this revenue will come from four projects—copper mines at Mes-Aynak, iron ore mine at Hajigak, oil and natural gas reserves at Amu Dariya and Afghan-Tajik Basin. The Ministry of Mines hopes each of these four projects will generate $200 million or more revenue per year. If everything goes as planned, the country will earn $4 billion per year by 2030, show ministry documents.
The ball was set rolling by a Chinese consortium, Metallurgical Corporation of China (MCC). The Afghan government signed the first mine lease with this company for the Mes-Aynak copper mines in Logar province, about 35 kilometres south of Kabul. This was even before the USGS estimates were known. MCC made big promises. The contract says MCC will build a railway line between the northern and the eastern borders of Afghanistan. It promised $808 million of premium payment even before production starts. It also promised setting up a 405 MW thermal power plant along with a copper smelting unit. As an icing on the cake, company was willing to pay 19.5 per cent as royalty if the international prices of copper stayed high.
Mining would generate close to 500,000 jobs, Shahrani told Down To Earth. “For every direct employment, three others are indirectly employed,” says an official from the ministry. According to statistics released by the Afghanistan’s Ministry of Economy, close to 500,000 employment seekers go without jobs every year. Only 48 per cent of the one-million work-force gets seasonal employment.
The dazzle of revenues has left everybody pushing for mining as a panacea for an economic revival. The government has made it the mascot for the economic growth. Javed Noorani, an extractive industry researcher with non-profit Integrity Watch Afghanistan, says everybody in the country, especially due to media publicity, now thinks that a lot of cash is coming their way through mining. Everybody from politicians to warlords are trying to invest in mining directly or through their cronies. Mining can also bring economic and social benefit to the cash-starved country.
But is that the case?
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