In June, a team of American geologists working in Afghanistan discovered a massive trove of minerals believed to be worth over $1 trillion. At the time, senior US officials heralded the discovery as an event that could, as The New York Times reported, “fundamentally alter the Afghan economy and perhaps the Afghan war itself.” With its abundant supplies of gold, iron, copper, cobalt and lithium, Afghanistan could one day become a hub for global mining, American authorities chirped.
“There is stunning potential here,” General David Petraeus told the Times shortly after the discovery. “There are a lot of ifs, of course, but I think potentially it is hugely significant.”
The operative word, of course, being “ifs.”
True, this newfound wealth of resources could transform the largely agrarian Afghan economy by placing it on an uphill trajectory toward sustainable, industrial development. Considering how capital and labor intensive the mining industry is, these raw materials could provide Afghan workers with high-wage employment, as well as an extra incentive to leave their poppy farms behind. Once Afghanistan’s large-scale mines mature in, say, 20 or 30 years time, we may very well be able to point to this discovery as an orthogonal turning point in the country’s long history of economic misfortune.
As many observers have already predicted, though, Afghanistan’s mineral opulence could just as easily send it down yet another rabbit hole of corruption, violence and internal tumult. The Wall Street Journal, for one, questions whether or not the country will be able to clear the steep geo-political hurdles that could hamper mineral production. The Economist, meanwhile, raises concerns that the country could follow the destructive trail already blazed by the similarly mineral-rich and eternally unstable Democratic Republic of Congo.
Such voices of dissent may seem like the proverbial rainy cloud to Afghanistan’s parade, but pessimists actually have both rich economic theory and recent historical precedent on their side.
Blessings and Curses
The economist Richard Auty was the first to coin the term “natural resource curse,” after he observed that many resource-rich developing nations were unable to convert their natural advantage into economic gain. In a seminal 1995 paper, Jeffrey Sachs and Andrew Warner built upon Auty’s theoretical framework by econometrically proving that well-endowed countries paradoxically tend to experience comparatively poor economic growth.
There are several explanations for this rather counterintuitive curiosity. In a politically unstable state, a sudden surge of resource wealth can often encourage deleterious rent-seeking behavior, thus begetting a vicious cycle of corruption and civil strife. Alternatively, otherwise symbiotic relationships between governments and citizens can quickly erode in the wake of a major resource discovery. Once a prized endowment has been unearthed, politicians or rules may no longer rely on taxes to fill their state coffers, since revenue from mining or oil industries can provide a reliable substitute. Without a fluid system of taxation, therefore, rulers are no longer held accountable to their citizenry, and welfare states can all-too easily fall prey to civil unrest.
And, as with any fundamentally sound theoretical literature, empirical case studies abound.
Take Nigeria, for instance, where oil abundance has yet to result in large-scale economic gains, and where political corruption continues to restrict the spread of industrial profits to a select group of connected investors. Angola’s oil-based narrative tells much the same story. And it’s not just oil abundance that can stunt economic growth. Diamonds wreaked havoc in Sierra Leone, while rebel-controlled “conflict minerals” have more than lived up to their name in the DRC.
All of which begs the question: Is Afghanistan next?
An Afghan Curse in the Works
At first glance, Afghanistan certainly seems like a prime candidate to become the world’s next curse victim. The country’s tribal and provincial leaders, after all, have spent years jostling for political power, with illicit opium revenue often fueling the engine of conflict. Now that the nation has inherited a literal gold mine of minerals, why would anyone assume that these warlords will suddenly disengage from similarly vitriolic rent-seeking behavior?
The Karzai administration, meanwhile, has yet to effectively root out the pervasive political corruption and parasitic special interests that have severely hindered Western nation-building efforts. Considering the vicious brand of cronyism that’s marred Karzai’s nascent government, skeptics have good reason to suspect that a booming mine industry may only provide political insiders with yet another bargaining chip to cover.
Political turmoil aside, Afghanistan’s economy has always been far from robust. Most of its terrain is too mountainous to be arable, while rampant illiteracy has forced most citizens to farm what little low cash crops the land can support. Shoddy infrastructure, moreover, has handicapped Afghanistan’s intra-national commerce, while global exports from its landlocked borders are virtually non-existent.
It’s also important to keep in mind that mining, unlike, say, oil drilling, is an extremely labor and capital-intensive endeavor. Extracting gold or copper from a single mine, for example, can often cost hundreds of millions—sometimes even billions—of dollars. As the country devotes more resources to developing its mining industry, then, its economy could be rendered excessively vulnerable to the kinds of external price shocks that are part and parcel to most commodity markets. And even if Afghanistan manages to construct a robust mining sector, it will still have to overcome significant geographic barriers that could make exporting its materials substantially more difficult—and even more expensive.
Help on the Way?
Fortunately for Afghans, the country’s Ministry of Mines certainly won’t be harvesting these bountiful deposits on its own. The Pentagon has already provided the ministry with a special task force to offer consultation and technical data, and President Karzai has announced that Japan will have “priority” on future contracts to mine his country’s resources. Never one to shy away from an opportunity to invest in foreign raw materials, China may also throw its hat in the ring, along with a host of other multinational corporations.
This foreign capital will almost certainly pay dividends to investors, and it may very well provide high wage employment for many Afghanis. Even with floods of foreign investment, though, minerals will still be leaving Afghanistan, and the lion’s share of mineral profits will still be filling foreign coffers.
At the end of the day, foreign investors are just that—investors. They’re not police, and they’re not watchdog organizations. Their Afghan aegis will end with the signing of a contract, and with the exchange of money. Where Afghanistan’s mining revenue goes after that, or which warlord’s hands it falls into, is anybody’s guess.
Is there hope for Afghanistan’s mining-based economy, then? Of course. One need look no further than Saudi Arabia to find an example of a strong, outward-looking economy built largely on a single commodity. But unless Afghanistan manages to wipe away the cobwebs of corruption from Karzai’s kitchen cabinet, and lay down a firm institutional foundation upon which its industry can flourish, it likely won’t be able to avoid the clutches of the curse—regardless of how many foreign investors come knocking at its door.
