Trump administration moves forward with Afghanistan mining plan, despite risks
By ELIAS GROLL | Foreign Policy | Published: August 29, 2017
The United States has already spent almost half a billion dollars on Afghanistan's mining industry with little to show, but the Trump administration still appears determined to move forward with plans to tap the country's buried wealth.
Describing the country's mineral deposits as potentially transformative for a country its size, Commerce Secretary Wilbur Ross told Foreign Policy that he has delivered a plan to President Donald Trump to get the Afghan economy back on its feet. "The whole idea of it is to try to figure out how to make Afghanistan a self-sufficient country that can provide jobs for its people and its own budget," Ross said in an interview.
Trump, who last week announced that he would be sending more troops to Afghanistan, believes the country's estimated $1 trillion in mineral resources can be used to repay the United States for what it has spent there. "As the prime minister of Afghanistan has promised, we are going to participate in economic development to help defray the cost of this war to us," Trump said in an Aug. 21 speech at Fort Myer in Virginia.
In fact, Afghanistan doesn't have a prime minister, but that wasn't even the most concerning issue for veteran Afghanistan watchers.
Over the course of nearly 16 years of war, the United States has poured some half a billion dollars into the country's mining industry with little to show for it. And the reasons for the previous projects' failures - corruption, lack of infrastructure, the incompetence of the Afghan government, and a piecemeal American development strategy - all remain.
That doesn't faze the commerce secretary or his boss in the White House, who was sold on the mining idea after meetings with Afghan President Ashraf Ghani and the CEO of an American metals company.
Ross, a former venture capitalist who amassed a fortune buying up companies on the brink of bankruptcy, acknowledges that the idea to develop Afghanistan's mining industry is fraught with risk. "I used to be in the mining business - in iron ore and coal - and it's not an easy activity," Ross told FP. "You can burn through a lot of money with not a lot to show for it."
As part of the National Security Council's review of Afghan policy, Ross said the Commerce Department examined the possibility of building up Afghanistan's mining industry. And while the industry has huge potential, in Ross's view, major questions remain.
At the top of Ross's mind: "How much of what is where?" The U.S. Geological Survey carried out a series of aerial surveys of Afghanistan in 2006 and 2007 that serve as the basis for the $1 trillion estimate of the value of Afghan deposits, which include copper, iron, and rare-earth elements, and Ross said he now wants more detailed information about what exactly lies beneath Afghan soil.
"There are myriad questions that have to be answered for the project to come to fruition," Ross added.
Indeed, experts point to a slew of reasons as to why Washington's hopes for a vibrant mining industry will never come to pass, including a deteriorating security environment and rampant corruption.
But the White House sees few alternatives to boosting the Afghan economy. "If there are other industries, they're a distant second," said a senior administration official, speaking on condition of anonymity.
Today, Afghanistan's export economy remains dominated by poppy production for the manufacture of opium, and with government forces controlling less than 60 percent of the country, the United Nations estimates that the total area under poppy production has increased by 10 percent compared with the previous year. But according to the most optimistic estimates, the mining industry could one day displace Afghanistan's poppy production.
The Soviets first documented Afghanistan's abundant reserves of iron and copper, and the country boasts a wealth of other resources: gold, silver, talc, chromite, emeralds and rubies, marble, granite, and a variety of rare-earth elements critical to the production of modern electronics. In the north, the country also has promising oil and gas reserves.
American policymakers have eyed Afghanistan's mineral wealth for at least a decade as a potential path to prosperity for a country beset by poverty and civil war. And after U.S. geological surveys in 2006 and 2007 revealed the full scale of deposits first documented by Soviet geologists, the Defense Department and the U.S. Agency for International Development (USAID) began pouring money into the Afghan mining sector, with the goal of providing the government with a reliable source of revenue and growing the economy.
According to the Special Inspector General for Afghanistan Reconstruction, the United States has spent $488 million since 2009 to build up the Afghan mining industry and to help the government in Kabul regulate its mines and issue contracts. Those investments have yielded no major productive mining projects, and the inspector general criticized that development effort in a pair of reports as poorly conceived, hampered by the incompetence of the Afghan government, and lacking a long-term strategy.
"Roughly $500 million is a pretty substantial investment of foreign assistance resources," said Laurel Miller, the former acting special representative for Afghanistan and Pakistan at the U.S. State Department. Despite that investment, she said, Afghanistan continues to lack the physical infrastructure, such as roads and proper rail lines, to support large-scale mining.
At the same time, the mining industry remains "riddled with corruption," Miller said.
What mining does occur in Afghanistan is mostly carried out on a small to medium scale, according to William Byrd, an economist at the U.S. Institute of Peace. Much of this mining is illicit and robs the Afghan government of critical revenue.
"It tends to empower power brokers, politically connected people, and in some places insurgents," Byrd, the former country manager for Afghanistan at the World Bank, told FP.
This mining amounts to what Byrd described as the "industrial-scale looting of Afghanistan's mineral resources." In a paper published in June with the independent Afghan researcher Javed Noorani, Byrd estimates that hundreds of millions of dollars in minerals are being mined every year - exact figures are hard to come by in Afghanistan - but the government receives paltry revenue from that work, collecting just $16 million in revenue last year.
Byrd's research includes numerous reports of members of Afghanistan's parliament operating illegal mines. One member of parliament allegedly running a chromite mine is reported to have created his own police unit and is tolerating the local Taliban in order to "create the impression that the project area is insecure so that he can continue to extract freely," Byrd wrote in the June paper.
Even if the United States were able to develop the mining industry, it's unclear if it would really provide the windfall expected. Since 2010, when the Defense Department's Task Force for Business and Stability Operations estimated that Afghanistan's mineral deposits could be worth more than $1 trillion, commodity prices, such as copper and iron, have dropped precipitously.
The Chinese, who Trump reportedly worried were cornering Afghanistan's mining market, have had their own setbacks. When the China Metallurgical Group Corp., a state-controlled conglomerate, won the bidding for the Mes Aynak mine in 2007, Beijing promised that its investment in Afghanistan would include not only a mine at the site of what may be one of the world's largest copper deposits but also a power plant, roads, and a railway. Beijing never delivered on its promises, and 10 years later, no copper has been mined at Mes Aynak.
"The bottom line on Aynak is that it is such an opportunity and it's such a shame for it to sit there unexploited," Byrd said.
At best, an expanded Afghan mining industry overseen by a functioning Ministry of Mines and Petroleum could deliver within five years revenues of about $400 million to $500 million a year, according to Byrd, who quickly described that estimate as optimistic. Afghanistan currently pays about 10 percent of its annual security costs, some $430 million, with international donors covering the rest of tab.
In government circles in Kabul, Trump's mining ambitions haven't sparked much conversation. Western powers passing through Afghanistan have long dreamed of opening up its mines, to little effect. One Kabul-based diplomat said the government was mostly just pleased that Trump decided against pulling out American forces and was breathing a "sigh of relief that Afghanistan won't be abandoned."
A typical mining project has a lead time of about 10 to 12 years from when a deposit is identified to when it comes to production, said Michael Heydari, an economist who served as the chief of party from 2013 to 2014 of a USAID project focused on building the Afghan mining industry. Developing Afghanistan's massive reserves would require large capital investments that no major mining company is willing to make in a country wracked by civil war, he said.
Those investments may eventually be made, Heydari said, but they are unlikely to take place in his lifetime. "If there is such a thing," he said, "come back in 50 years."