Next Afghan president will face a battle for control of nation’s mineral wealth

Whoever Afghans elect to lead them must wrest control of nation's mineral wealth from warlords

PUBLISHED : Friday, 04 April, 2014, 10:18pm
UPDATED : Saturday, 05 April, 2014, 1:46am

Millions of Afghans are expected to queue at makeshift polling booths today, defying Taliban threats to kill them, to elect their next president. It will be an unprecedented democratic leadership transition for the troubled country.

The man who takes the mantle from President Hamid Karzai will be charged with overseeing Afghanistan's transition from more than a decade of Western military occupation to full sovereignty. The election unfolds as foreign combat troops that have propped up the government since throwing out the Taliban in 2001 are due to withdraw on December 31.

The next president - who might not be known for months if there's a run-off - will be expected to wean the country off its dependence on international aid and make it economically independent. Some experts believe that the next government will struggle to control the country's substantial resource assets as it manoeuvres around political patronage and corruption at many levels.

As with the former Soviet Union and the Democratic Republic of Congo, homegrown strongmen and oligarchs are attempting to seize control of the Afghan state's few legitimate sources of revenue. They are grabbing and monopolising business, industry and trade opportunities in what some experts term the economy's criminal capture.

By abusing political and military power to accumulate personal wealth, Afghan strongmen are probably concentrating economic activity into a few hands. The result, experts say, is to further erode public faith in government, stifle entrepreneurship and spur a continued brain and cash drain, leaving those lacking connections with no foothold in their country's future.

"There is a shadow state within the state that is capturing the economy, the military power, political power and the social base," says Javed Noorani, researcher with Integrity Watch Afghanistan in Kabul, a non-profit research and advocacy group. "There is no will to stamp out corruption. We are moving in transition from one conflict, a military conflict, to a resources conflict. We will be Congo."

Afghanistan's mining sector "will be a crucial battlefield for the future shape of the Afghan state", says Stephen Carter, Afghanistan campaign leader with Global Witness, a mining industry standards advocacy organisation in London.

Watch:Three big names go down to the wire in Afghan election

Victory for one presidential candidate, former World Bank official Ashraf Ghani, could be a poisoned chalice. By his own definition Afghanistan is a failed state, slowly overrun, Congo-style, by warlords backed by private militia, protected by political patronage as they plunder the country's mineral wealth.

"The rules of the game in failing states … are poor governance and rampant corruption," Ghani, the country's former finance minister and a cultural anthropologist, wrote in his 2009 book Fixing Failing States. In failed states, he and co-author Clare Lockhart say, ordinary people have no stake in their country's past, present or future. What little they do have can be stolen at any time.

There is a shadow state within the state that is capturing the economy

Ghani's running mate, Abdul Rashid Dostum, fits the warlord description. He deploys a personal militia, owns a television station and is accused of human rights violations, notably against Taliban prisoners in 2001. Ghani chose Dostum - a former army general in the 1980s war against the Soviets who later became a leader of the anti-Taliban Northern Alliance - to help deliver up to a million votes from the Uzbek and Tajik populations in a country where ethnicity can sway voters.

Afghanistan has around US$3 trillion in natural resources, a third of it in minerals, including copper, iron ore, gold, silver and a range of minor metals and rare earths, as well as gems. It also has an estimated US$2 trillion worth of hydrocarbons, and is producing oil and gas in the north. The petrochemicals sector is considered well audited and regulated by the government, backed by international advisers. Mining has been more troubled.

It was clear that Afghanistan's mineral wealth was up for grabs five years ago when the United States accused then mining minister, Mohammad Ibrahim Adel, of taking a US$30 million kickback, paid into a Dubai bank account, for awarding a US$3 billion copper contract to China's state-controlled MCC consortium. Adel denied the accusation, but soon lost his job.

The MCC deal gave the Chinese company a 30-year lease on one of the largest copper mines in the world - 5.5 million tonnes at Mes Aynak near Kabul. The Afghan government had hoped that it would start paying royalties at least two years ago and began factoring the income into development projects. The MCC pact was followed by a US$10 billion deal with an Indian consortium to mine iron ore at Hajigak. It looked as if Afghanistan's mining dreams were coming true.

Now it appears that neither contract will yield either metal or money for some time. As China's economy has slowed and the copper price has fallen, MCC is no longer interested in funnelling huge sums into the Afghan mine. Officials are renegotiating terms, delaying the construction of refineries and a railway.

Since the US-led invasion in 2001, Afghanistan has received hundreds of billions of dollars to support military and development efforts. Yet in 2011, the CIA put per capita GDP at US$1,000, and the country ranked 172 out of 187 on the UN's Human Development Index, which measures life expectancy, education and income. Afghanistan shares honours with North Korea and Somalia as most corrupt states, according to Transparency International's annual list.

Afghan and international experts say warlords and local strongmen are tightening their grip on the mining sector, smuggling minerals and gems to Pakistan, Iran and China. At the same time these power players are becoming more entwined with organised crime in neighbouring states.

Carter, with Global Witness, estimates that with at least 1,400 illegal mines, there are probably hundreds of millions of dollars of revenue being lost to the government every year - and a significant portion of that is paid to illegal armed groups.

Integrity Watch Afghanistan's Noorani says that in recent years hundreds of millions of dollars worth of minerals have crossed Afghanistan's borders, controlled by strongmen with personal militias. They have bypassed customs, depriving the state of revenue. He estimates that three million tonnes of coal a year is lost this way, mostly to Pakistan and China, with Kabul capturing about 15 per cent of that revenue. "The rest is going to somebody else's pocket," he said, speaking in his Kabul office.

Noorani says that the revenue could reach US$800 million. Of 17 mining companies, he calculates that their 310 contracts generate revenue of more than US$300 million each year. None of the companies paid more than 6 per cent of the value of their production revenue to the state, while some didn't pay at all, he says.

A mining sector largely controlled by organised crime "may compete with the opium industry in a few years", he says. Opium is a US$3 billion-a-year industry that supplies nearly all the world's heroin supply and is controlled by gangs, some connected to Afghan politicians and the Taliban .

Noorani says his greatest fear is that, as with opium, "revenue generated from our mining sector will be used for bomb making, to fund terrorism, that it will be used for the arms race in the region. You'll see military generals from our neighbourhood coming here and investing in extracting. This is not my imagination. Their footprints are here. This will explode if it is not brought under control."

Integrity Watch Afghanistan says that chromite mines near the Pakistan border are run by local leaders of a government militia. The mineral is essential in making stainless steel, chrome plating and alloying. In Pakistan, chromite fetches up to US$400 a tonne.

The group found that the paramilitary force known as the Afghan Local Police, set up by the Interior Ministry in 2010 to defend against the Taliban in remote areas, controlled chromite production and trade in Kunar, its members "operating with impunity and accountable to no one".

As Afghans cast their votes, many doubt that the government can loosen the oligarchy's grip on the country's revenue sources. Noorani says he hopes that international pressure will compel the new government to end corruption. "It's a necessity that the foreigners stay here and deal with it. Otherwise Afghanistan is not only a failed state, this will explode," he says.

Global Witness has asked embassies and multilateral organisations in Kabul, "to push the idea that governance issues are security issues", Carter says.

"If you are missing out on hundreds of millions of dollars of revenue from the mining sector because the governance is rubbish, then how are you going to fund the army?" he says. "There isn't an alternative source of money once the international military and aid money is gone."