Will Afghanistan’s mineral wealth bring the nation's rebirth?


Overnight, Afghanistan has gone from being a political pariah to one of the most significant, and potentially richest, countries on the globe. But can the rocky, war-torn desert - known mostly for harboring terrorists and exporting opium - be reborn as a major commodities exporter?


U.S. geologists have found some $1 trillion of untapped mineral deposits in Afghanistan, The New York Times reported Sunday. Afghanistan's mineral wealth includes large caches of iron, copper, gold and lithium that could turn the country into one of the most important mining centers in the world.


Think of Australia, Canada, and Latin America. That is the league into which these geographical revelations have thrust Afghanistan.


"There is stunning potential here," General David Petraeus, commander of the United States Central Command, told The Times. "There are a lot of ifs, of course, but I think potentially it is hugely significant."


Those "ifs" include ongoing warfare, a lack of infrastructure, and more than a little political corruption. But the upside for the country is enormous.


While U.S. officials estimate the potential value of Afghanistan's mineral wealth at $1 trillion, President Hamid Karzai said last month during a visit to Washington that his country's deposits could be worth three times as much.


So why did it take so long for this information to surface?


Soviet mining experts originally discovered the potential of Afghanistan's mineral wealth in the 1980s. However, the data that was collected was cast aside when the Soviet Union abandoned the country in 1989. A small group of Afghani scientists kept the charts secret for the next 20 years as the country was engulfed by civil war and eventually taken over by the Taliban. Those charts were returned to the Afghan Geological Survey in Kabul after the United States invaded, and were subsequently discovered by American geologists.


The United States Geological Survey (USGS) began aerial surveys of the noted regions in 2006 and 2007. And in 2009, a Pentagon task force that had helped nurture business opportunities in Iraq was transferred to Afghanistan, where it finally assessed the potential economic impact of the discoveries.


Waheed Omar, a spokesman for Karzai, said at a news conference yesterday (Monday) that the USGS was "contracted by the Afghan government to do a survey, so this is basically an Afghan government initiative."


"I think it's very, very big news for the people of Afghanistan and that we hope will bring the Afghan people together for a cause that will benefit everyone," he said. "This is an economic interest that will benefit all Afghans and will benefit Afghanistan in the long run."


Re-Imagining Afghanistan

The significance of the geological find cannot be overstated. Afghanistan is one of the world's poorest and least developed nations. Its gross domestic product is just $12 billion and as much as one-third of that comes from the growth and distribution of illegal drugs - particularly opium and its two derivatives, morphine and heroin. In fact, Afghanistan is the world's largest producer of opium and heroin, according to the United Nations Office of Drugs and Crime.


About 40% of the country's population lives below the poverty line, and some 70% of the population lives on $2 a day. Having suffered through decades of long and costly military conflicts, virtually no infrastructure exists to support an economic revitalization process.


Even now, as the U.S. campaign wears thin, military clashes continue to erupt along the border the country shares with Pakistan. There are serious doubts about whether or not Karzai's government, which itself has been blotted by scandal and corruption, will remain relevant after the United States withdrawal.


Some critics have even suggested that now that the full extent of Afghanistan's mineral wealth is known, the Taliban will fight even harder to regain control of the country.


"I highly doubt it will be able to either properly manage these resources or use the riches to build a more peaceful and prosperous Afghanistan for all Afghans," Janan Mosazai, a political analyst, told AFP. "We have living examples of other countries where natural riches have actually turned into a curse for peace and prosperity for people," he said, citing Nigeria's endemic poverty and conflict despite vast oil exports.


Of course, there's also reason to remain optimistic. While it will take many years for Afghanistan to develop a mining industry, the vastness of Afghanistan's mineral reserves could attract substantial investments well before mines become profitable.


Take, for example, resource-hungry China's recent foray into the country.


In 2007, China Metallurgical Group agreed to invest $3 billion in Afghanistan's Aynak copper mine, which by some estimates holds the world's largest undeveloped reserves of its kind. As part of the deal China agreed to provide an onsite copper smelter, a $500 million electric station that will power the project and augment Kabul's electricity supply, a coal mine to fuel the power station, a ground water system, and roads, homes, hospitals and schools for the miners and their families. China is also working on a rail line that will stretch from Afghanistan's northern border with Uzbekistan to its southern border with Pakistan.


That investment is the largest in the Afghanistan's history, and it's being guarded by the U.S. military, which was already established in the region to prevent Taliban soldiers from infiltrating the country's capital.


China, which has trillions of dollars available for investment and a huge appetite for commodities to fuel its economic growth, has not shied away from the more troubled regions of the planet.


China National Petroleum Corp. (CNPC) won bids to take part in the development of Iraq's Rumaila and Halfaya oil fields. China has also been active in various hot spots throughout the continent of Africa.


"If they (Chinese leaders) don't feed their immense industrial complex, their populace could become disruptive," a Western official, who asked not to be further identified so he could speak freely, told McClatchy Newspapers. "We expect to see more such competitions" over Afghanistan's huge untapped reserves of natural resources.


Indeed, with the prices for many commodities on the rise, investment in Afghanistan could come much more quickly than the country's critics anticipate.


The Pentagon has already set about helping Afghanistan set up a system to develop its resources. International accounting firms that have expertise in mining contracts have been hired to consult with the Afghan Ministry of Mines, and technical data is being prepared to turn over to multinational mining companies and other potential foreign investors. U.S. officials are assisting the Afghan government in seeking bids on mineral rights by next fall, officials told The Times.


"All the ingredients are there to build a modern society," said the USGS' Stephen Peters. "If we can create jobs for the people, give them salaries, they will be satisfied with their lives."


Source: http://moneymorning.com/2010/06/15/afghanistan-mineral-wealth/