• Facebook
  • Twitter
  • Subscribe
  • RSS

Afghanistan Strikes It Rich, Or Maybe Not

An intriguing report in today’s New York Times, which reports the discovery of vast mineral deposits in one of the most war-torn spots on the planet:

WASHINGTON — The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.

The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.

An internal Pentagon memo, for example, states that Afghanistan could become the “Saudi Arabia of lithium,” a key raw material in the manufacture of batteries for laptops and BlackBerrys.

The vast scale of Afghanistan’s mineral wealth was discovered by a small team of Pentagon officials and American geologists. The Afghan government and President Hamid Karzai were recently briefed, American officials said.

While it could take many years to develop a mining industry, the potential is so great that officials and executives in the industry believe it could attract heavy investment even before mines are profitable, providing the possibility of jobs that could distract from generations of war.

“There is stunning potential here,” Gen. David H. Petraeus, commander of the United States Central Command, said in an interview on Saturday. “There are a lot of ifs, of course, but I think potentially it is hugely significant.”

The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion.

“This will become the backbone of the Afghan economy,” said Jalil Jumriany, an adviser to the Afghan minister of mines.

Or, maybe not. It’s somewhat ironic that this story appeared in the Times only day after a report that U.S. intelligence had begun to shift it’s focus to rooting out corruption inside the Afghan government, and it’s corruption that is likely to be the downfall of what some are going to see as Afghanistan’s path to the future:

Instead of bringing peace, the newfound mineral wealth could lead the Taliban to battle even more fiercely to regain control of the country.

The corruption that is already rampant in the Karzai government could also be amplified by the new wealth, particularly if a handful of well-connected oligarchs, some with personal ties to the president, gain control of the resources. Just last year, Afghanistan’s minister of mines was accused by American officials of accepting a $30 million bribe to award China the rights to develop its copper mine. The minister has since been replaced.

Endless fights could erupt between the central government in Kabul and provincial and tribal leaders in mineral-rich districts. Afghanistan has a national mining law, written with the help of advisers from the World Bank, but it has never faced a serious challenge.

“No one has tested that law; no one knows how it will stand up in a fight between the central government and the provinces,” observed Paul A. Brinkley, deputy undersecretary of defense for business and leader of the Pentagon team that discovered the deposits.

At the same time, American officials fear resource-hungry China will try to dominate the development of Afghanistan’s mineral wealth, which could upset the United States, given its heavy investment in the region. After winning the bid for its Aynak copper mine in Logar Province, China clearly wants more, American officials said.

Another complication is that because Afghanistan has never had much heavy industry before, it has little or no history of environmental protection either. “The big question is, can this be developed in a responsible way, in a way that is environmentally and socially responsible?” Mr. Brinkley said. “No one knows how this will work.”

With virtually no mining industry or infrastructure in place today, it will take decades for Afghanistan to exploit its mineral wealth fully. “This is a country that has no mining culture,” said Jack Medlin, a geologist in the United States Geological Survey’s international affairs program. “They’ve had some small artisanal mines, but now there could be some very, very large mines that will require more than just a gold pan.”

The mineral deposits are scattered throughout the country, including in the southern and eastern regions along the border with Pakistan that have had some of the most intense combat in the American-led war against the Taliban insurgency.

So, instead of bringing the country together and leading to an era of  prosperity unlike anything Afghanistan has ever seen in it’s history, this discovery could serve to tear the country apart even further as factions fight over the wealth buried underneath them. Even if that doesn’t happen, however, the history of natural resources exploitation in the third world does not bode well for the Afghan people. A quick glance at any of the nations of Africa that are rich in rare metals, for example, demonstrates quite nicely that there’s no guarantee that this discovery will bring either prosperity or peace to the Afghan people.

Update: Further reason to be suspicious about this whole story.

Related Posts:

About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. grampagravy says:

    Oh boy! “The Saudi Arabia of lithium.” I’ve often thought that what the world needed was another Saudi Arabia.

    Like or Dislike: Thumb up 0 Thumb down 0

  2. Dave Schuler says:

    It may just be my inner paranoid speaking but I question the timing of this story. To my eye there doesn’t appear to be anything new in it—the information has been kicking around since around 2007. The only thing that’s new is that the Marja campaign doesn’t seem to have succeeded as well as they’d hoped, “government in a box” has flopped, the Kandahar campaign planned for this summer is starting to look far-fetched, Karzai seems to be speculating out loud about imminent life without the Americans, and it has been revealed (shockingly!) that the Pakistani military is still assisting the Afghan Taliban.

    Like or Dislike: Thumb up 0 Thumb down 0

  3. [...] Similar thoughts at Outside the Beltway: So, instead of bringing the country together and leading to an era of prosperity unlike anything [...]

    Like or Dislike: Thumb up 0 Thumb down 0

  4. john personna says:

    You know, a trillion just isn’t what it used to be.

    http://www.ritholtz.com/blog/2010/06/gses-1-trillion-dumping-ground-for-bad-bank-loans/

    Like or Dislike: Thumb up 0 Thumb down 0

  5. john personna says:

    Re. Timing of the story, I see this in context of something I just read … George Soros on markets. I never really trusted Soros that far. I know he’s made a lot of money, but he also seemed a little nuts. I also have a prejudice against people who make up words (in his case “reflextivity” rather than using perfectly good ones, like “feedback.”)

    Nonetheless, these very good paragraphs explain why news can lay on the ground and markets can just ignore it, until they are ready:

    Let me briefly recapitulate my theory for those who are not familiar with it. It can be summed up in two propositions. First, financial markets, far from accurately reflecting all the available knowledge, always provide a distorted view of reality. This is the principle of fallibility. The degree of distortion may vary from time to time. Sometimes it’s quite insignificant, at other times it is quite pronounced. When there is a significant divergence between market prices and the underlying reality I speak of far from equilibrium conditions. That is where we are now.

    Second, financial markets do not play a purely passive role; they can also affect the so called fundamentals they are supposed to reflect. These two functions that financial markets perform work in opposite directions. In the passive or cognitive function the fundamentals are supposed to determine market prices. In the active or manipulative function market prices find ways of influencing the fundamentals. When both functions operate at the same time they interfere with each other. The supposedly independent variable of one function is the dependent variable of the other so that neither function has a truly independent variable. As a result neither market prices nor the underlying reality is fully determined. Both suffer from an element of uncertainty that cannot be quantified. I call the interaction between the two functions reflexivity. Frank Knight recognized and explicated this element of unquantifiable uncertainty in a book published in 1921 but the Efficient Market Hypothesis and Rational Expectation Theory have deliberately ignored it. That is what made them so misleading.

    Reflexivity sets up a feedback loop between market valuations and the so-called fundamentals which are being valued. The feedback can be either positive or negative. Negative feedback brings market prices and the underlying reality closer together. In other words, negative feedback is self-correcting. It can go on forever and if the underlying reality remains unchanged it may eventually lead to an equilibrium in which market prices accurately reflect the fundamentals. By contrast, a positive feedback is self-reinforcing. It cannot go on forever because eventually market prices would become so far removed from reality that market participants would have to recognize them as unrealistic. When that tipping point is reached, the process becomes self-reinforcing in the opposite direction. That is how financial markets produce boom-bust phenomena or bubbles. Bubbles are not the only manifestations of reflexivity but they are the most spectacular.

    http://www.zerohedge.com/article/george-soros-we-have-just-entered-act-ii-drama-full-speech

    In answer to the split post, and the new “conspiracy” thread … .why would you expect news like this to move efficiently? That’s not the way the world _really_ works.

    Like or Dislike: Thumb up 0 Thumb down 0