Mining for Economic Revolution

For more than a decade the global community has been struggling to pull Afghanistan out of turmoil and help the war-battered country stands on its own feet, but it seems the struggle is yet to yield enough tangible outcomes.

Besides, the countdown of withdrawal of foreign forces from the country has already started – a move that will challenge the country to navigate a path of achieving economic self-reliance to end much dependency on foreign aid.

However, global communities have promised to keep aid pouring in up to 2024—pledging a sizable $16 billion for 2015. The eventual end to funds may translate loosely into economic collapse of the country. In a worst-case scenario, this will be coupled with an inability to sustain a nascent Afghan army, civil war and a return to opium trade.

While the promised extra money is critical to a smooth transition, Afghanistan’s biggest challenge will be to wean itself off foreign aid and ramp up its deteriorating economy as foreign troops withdraw.

Afghans now have greater access to education and healthcare than they had a decade ago. The country now has a thriving media, improved infrastructure and functioning civil and public institutions. Achieving economic self-reliance is paramount to the nation's future.

Ironically, Afghanistan needs only to turn inward to realize its huge economic potential. The region is pregnant with massive mineral deposits – including oil, gas, gold, copper, iron, cobalt and lithium. Its lithium reserve, used for things like mobile phones and batteries, is the largest in the world with an estimated deposit worth about $1 trillion.

According to the mining technology website, ‘The unique geology of Afghanistan has gifted the country with vast mineral deposits, holding a great promise of wealth and prosperity. The country's diverse ecological foundation has resulted in more than 1,400 different types of raw materials recorded to date, including gold, copper, lithium, uranium, iron ore, cobalt, ruby, natural gas and oil.’

The mineral reserves are so vast that they could attract substantial global investments and create job opportunities prior to any mineral extraction; though as it seems it will take years to develop a functioning and profitable mining industry.

By developing this hugely rich mineral sector is a critical instrument to sustaining long-term growth, according to Waheedullah Shahrani, the former Minister of Mining, who acknowledges that, “no country can depend on international aid forever."

Acknowledging that the government revenues make up approximately half of its expenditure, Afghan officials rushed to encourage sizable investment in extractive industries to fill the gap following 2014. Experts believe mining will account for 25 percent of the GDP by 2016 and up to 50 percent a decade from now.

Previously, extracted by locals with centuries old mining culture, Afghanistan mines are now being offered to global mining industries with attractive concessions to investors, both to boost the economy and improve optimism by inculcating a sense of political stability and economic security.

Exploration of minerals has continuously contributed to the economy of many countries; however, such developments have always depended on the management of the mines in each state. Mismanagement of mines has led to failure of state building while transparent management improves sustainable development.

In addition to positive economic impact, mining industry could help end poverty through high tax income, improving administration services, employment as well as an increased demand for goods.

According to the former mines and petroleum minister the industry could generate a million job for Afghans where still tens of thousands are jobless and going to neighbouring countries and beyond in search of work.

Many critics cite security as a major obstacle toward exploiting Afghanistan's vast reserves. However, they undermine the fact that entrepreneurship suggests investment at times of turmoil to harvest at times of peace and stability. Therefore, critics’ view of the security dilemma should not derail investment plans.

A proper point of comparison is African nations who have recently come out of civil war. Global firms have successfully invested and getting good returns in African countries; in comparison Afghanistan is a better option.

The new incentives for investors announced by Finance Minister Omar Zakhilwal includes low land cost, tax exemption status and multiple entry visas valid for two and a half years aimed at promoting investment in construction, agriculture and mining. Zakhilwal hoped the policy would prevent investors leaving the country.

Many international firms including Chevron and Kilo as well as local consortiums have expressed interest in investing in Afghanistan. Kilo has its main gold operation in the democratic republic of Congo while Chevron Corporation is the second largest US oil producer.

International investors and experts in mines believe Afghanistan's mining provide a sizeable reward. ‘The best pickings come to those who come first,’ said Alexander van Hoeken, President and Chief Executive Officer of Toronto listed Kilo goldmines Ltd, ‘a pleasant surprise to me is how much interest there is.’

These experts suggest discovering Afghanistan's wealth and being part of it could be risky, yet it comes with plenty of reward. "There is low-hanging fruit there for someone who is prepared to go in early and take risks." Damien Hackett another expert, who helps to oversee the Canaccord team opined, adding, ‘I don’t know of any other project like this.’

‘Afghanistan is a treasure trove waiting to be discovered, but you have to discover it’ said James Abson, a geologist and exploration manager for Afghan Gold and Minerals Co.

Afghanistan has also worked on new laws to facilitate mining for long-term public interest. In September 2012 the Afghan parliament approved 12 policies including the national mining policy.

Policies were developed reflecting best practice in sector governance; policies that would attract investors while protecting national interests. The 2012 mineral law and hydrocarbon law were approved by the cabinet for submission to parliament in early 2013.

As mining has the potential to transform the country from an agricultural society to an industrial country in the long run, government and local and foreign investors must wisely consider ecological, agricultural management, socio-cultural impact and other underlining effects of mining to avoid long-term catastrophic impacts.

Additionally, they must take measures to operate atthe level of international standards of social responsibility, creating jobs and equal opportunity.

Health issues of the local population should be improved and no harm should be inflicted to social structures of communities as a result of mining activities.

Furthermore, Afghanistan has no history of modern mining and one of the major risks involved in this project is the risk of environmental contamination. Toxic pollutants must not be discharged into the environment to contaminate water and farming and avoid revolt of the local farming population as it has occurred in Peru and Bolivia.

To avoid such turn of events, mining concessions should be granted with participation of local communities and their traditional leaders to develop the local communities.

In his recent visit to India, President Hamid Karzai encouraged Indian and other foreign companies to invest in mining. Meanwhile Indian commerce minister Anand Sharma, whose country already invested billions of dollar in Afghanistan in aid, assured his country would consider developing Afghanistan's infrastructure, including highways, power projects, Chabahar port and energy security.

India was awarded with Hajigak iron ore mining rights and China won Aynak copper mine as well as oil extraction project in Amu river basin. Shahrani estimates Hajigak could be the largest iron-ore reserve in Asia.

Meanwhile, China National Petroleum Corp last year won an auction to develop three blocks of Amu Darya basin, a geological zone that extends into Uzbekistan and Turkmenistan.

These three blocks are estimated to hold 962 million barrels of crude oil, which the Afghan government has projected, will yield seven billion dollars in profit. According to a US Geological Survey, the Afghan Tajik basin is estimated to hold 946 million barrels of undiscovered crude oil and seven trillion cubic feet of natural gas.

Along with the fame for its rough geological composition, Afghanistan has long been known for precious stones such as lapis lazuli, emerald, ruby and more reflected in the poetry and other cultural handicrafts. The last mining boom was 2000 years ago when Zarkashan gold was mined near Kabul in the era of Alexander the Great.

Unlike the past, Afghanistan's mining ministry is now equipped with skilled personnel to call for tenders, negotiate and manage large-scale mining contracts. This capacity has the potential to transform the nascent democracy from animplementing owner to apolicymaking regulator – a huge step for opening a new chapter in building a reliable economy in the decades to come.

Responsible mining, consistent with high safety, environmental and social standards has the potential to contribute to sustained socio-economic development in the country.

For countries to benefit from its resources collaborative efforts with stakeholders including governments, civil society, communities, donor community and the investors are required. In the absences of a collaborative approach, mining companies alone will not be able to provide unlimited job, wholesale improvements in the standard of living, and eradication of poverty.

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