Editor in Chief: Moh. Reza Huwaida Monday, December 5th, 2022

The Prospect of Afghanistan’s Mining Sector


The Prospect of Afghanistan’s Mining Sector

Devastated by decades of wars and conflicts, Afghanistan needs sources of revenues for reconstruction and long-term development. However, the country is in dire need of cash and struggling to receive the required funding in form of aid from the international community for maintaining its day-to-day activities and financing its army and police forces. Developing long-term sources of revenue generation is key for the country's survival. Luckily, the country has an abundance of natural minerals and is the source of some of the best minerals and precious stones. It is believed Afghanistan's untapped natural underground resources can transform and salvage the country's economy in the long run.

Development of the sector will help pro-poor economic growth by creating jobs in rural areas which have largely missed out the recent over a decade of economic boom in major cities. However, due to numerous factors, Afghanistan is far from being able to sustainably develop its mining sector to generate sufficient revenue for the country that suffices its ordinary and development budgets. One of the biggest projects in Afghanistan's mining sector is the development and extraction of Ainak's Copper mine in Logar province. Daud Shah Saba, the Minister of Mines and Petroleum, told lawmakers in the Wolesi Jirga that there has been no acceptable progress in the project's preliminary works started almost seven years ago. He labeled the progress achieved so far in the project as 'zero', saying it is not in interests of Afghanistan and he would not approve the project under previous terms. According to the minister, the Chinese contractor firm, MCC, has informed the government of Afghanistan that given the feasibility study of the project, many of the initial commitments of the company are not feasible.

Before, with the feasibility and initial activities of project going on, the Chinese firm had also suggested that it was going to renegotiate many of the project's terms and conditions including the deliverables such as developing power plants and road and train networks. The Copper mining in Logar province is assumed to generate between $300m to $400m in annual revenue for the government of Afghanistan. The lagging of activities of the Ainak Copper project is in fact 'the tip of the iceberg', suggesting extensive and large-scale challenges in Afghanistan's mining sector and the Afghan government's management of the sector. It is an example of failures in the government's attempts and its capability to sustainably develop the country's mines and help improving Afghanistan's economy. It was envisioned by the United States, who has been the main financial donor to Afghanistan after the fall of the Taliban in 2001, Afghanistan would be able to develop its mines in the upcoming decade to the capacity to become the country's main source of funding. However, given the prolonged war and insecurity, the objective of developing domestic sources of incomes such as the mining sector as an alternative to the international aid is in jeopardy.

The constraints and challenges to Afghanistan's efforts to develop its nascent mining sector range from capacity and management to corruption, security and infrastructural services. However, security is the biggest threat for the Afghan government's efforts to develop the country's mining sector. The Chinese contractor of the Ainak Copper project had previously attributed its unwillingness to stick to the previous terms of the agreement to the security situation affecting the project. Proving security for the project already puts a massive burden to the Afghan government. With the insurgency continuing to target development and reconstruction projects across the country, around $30 million are allocated annually for making the project secure.

However, there are other enormous challenges and constraints that are hampering the country's efforts to extract the underground resources. The mining activities are energy intensive, especially if more sophisticated machineries are used by the extractor firms. Due to lack of infrastructural services such energy, reliable linking networks and transportation constraints, Afghanistan has not been able to develop its extracting capabilities and resources. Taking the Ainak Copper mining as an example, the contractor firm had been obliged to develop electricity plants and build roads and railways but it quickly emerged that it is failing to deliver it based on the initial terms of the agreement. On one hand, Afghanistan lacks efficient and reliable infrastructures such as energy sources and transportation networks, and on the other hand, the persisting adverse security climate is preventing investments for developing sustainable infrastructures.

Promotion of the private sector role in the businesses related to mining sector is key for creating job opportunities. There are still illegal mining across the country. And for many of the minerals and underground materials, and the mining and minerals trade remains largely informal, resulting in substantial losses to government revenue, employment opportunity and foreign exchange earnings. The costs for the private sector for mining and trading of mineral materials are high, resulting in reduced profits and low levels of investments from investors. On the other hand, export procedures and transportation are complicated and expensive. For having sustainable growth, the government of Afghanistan needs to promote formal businesses around the mining sector. One of the key constraints is lack of clear legal framework for development and formalization of Afghanistan's mining sector. The underground mineral resources are public assets belonging to the people of Afghanistan, and there should be robust laws and regulations to ensure that decisions on extraction of the resources will be transparent.

The absence of strong legal frameworks for extracting the minerals, along with other challenges and limitations, helps illegal and unsafe trading, reduces growth and undermines the government's efforts to develop sources of revenues. Therefore, the government needs to quickly overcome constraints in areas of laws and legal frameworks for the sector. Corruption is another major obstacle to development of Afghanistan's mining sector. Some mining areas are under the control of armed groups, powerful local strongmen and corrupt officials, who raise large sums of money in benefits from the informal mining sector. The government will need to address the illegal aspect of the mining sector if it is to efficiently lead the development of the country's natural resources.

Abdul Ahad Bahrami is the permanent writer of the Daily Outlook Afghanistan. He can be reached at ahad.bahrami@gmail.com

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