Afghanistan struggles to capitalize on its mineral wealth

October 21, 2015

It has been estimated that Afghanistan is home to trillions of dollars of mineral deposits of gold, copper, lead and rare earths in more than 10,000 deposits. However, political instability and decades of war have made it nearly impossible for the country to use its mineral wealth to its advantage.

Bloomberg reported that the Afghan government will earn about $30 million in 2015 from its mineral sector for the third straight year, far short of a previous projection of $1.5 billion, according to Mines and Petroleum Minister Daud Shah Saba. That’s also a quarter of what smugglers -- mostly linked to the Taliban and local warlords — earn annually selling rubies and emeralds, he said.

“Unfortunately we have failed to well manage and well control our mining sector," Saba said in an interview. “With the current fragile and messy situation, it’s really hard to say when Afghanistan should expect any profits from it."

International donors led by the U.S. are paying for about two-thirds of Afghanistan’s $7.2 billion budget this year. The country’s mineral wealth -- estimated at $1 trillion to $3 trillion -- is crucial to bridging that gap.

Saba, who joined President Ashraf Ghani’s cabinet after last year’s election, criticized his predecessor for saying Afghanistan would earn $1.5 billion in annual mining revenues by now and become financially self-sufficient in a decade.

“The revenue projections of the previous government weren’t realistic,” Saba said on Oct. 14 at his office in Kabul. “Afghanistan needs to continue receiving international funds -- otherwise the country won’t remain functional at all.”

Shortly after taking office, Ghani said he would use Afghanistan’s mineral wealth to transform the economy, and he regularly touts the country’s potential in speeches to investors. However, the two largest mining projects in the county have been mired in delays and contract disputes.

Metallurgical Corp. of China, awarded a $3 billion contract in 2007 to mine the world’s second biggest copper deposit at Mes Aynak, is disputing an obligation to build a railway and power plant, Saba said. The Chinese government-owned company also wants a lower royalty rate.

A consortium of six companies led by Steel Authority of India Ltd. has also stopped talks on mining an iron ore deposit, Saba said. Once valued at $11 billion, the project was forecast to generate $200 million in annual government revenue by 2017.

“Mining projects including Mes Aynak and Hajigak are now turning into a nightmare," Mohammad Zakaria Sawda, head of the Afghan parliament’s natural resources commission, said by phone. “Afghanistan will continue to shamefully remain the world’s biggest beggar."

Minerals are the Taliban’s second-biggest income source after narcotics, a United Nations Security Council committee wrote in a February report. The group earns cash in three ways, it said: Directly extracting resources such as marble, extorting money from mining companies and providing services like security and transportation for unlicensed mines.

“It’s very difficult to project a realistic timeline for Afghanistan’s self-sufficiency, with or without relying on the extractive industry," Ahmadzai said. “The country will still need a significant amount of support from the international community."

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