A New Plan for a New Afghanistan
Image Credit: Flickr (U.S. State Department)

A New Plan for a New Afghanistan

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Afghanistan's future will not be determined by the thousands of lives tragically lost, the billions spent, or the number of international troops that will remain after 2014. The number of troops on the ground — whether foreign or Afghan — will not decide our future. We can only secure Afghanistan’s success if we first secure sustainable economic development at home.

We are confronting a unique set of economic challenges at a time when the West is confronting their own. Demographic shifts and an unsustainable debt burden will fundamentally change the calculus of aid and intervention; we must come up with our own solutions. Our success as a nation will rest largely on our capacity to create economic growth, stimulate job creation, and use financial innovation to create and sustain entrepreneurs and functioning markets as well as increase our access to global capital through our natural resources.

Much has been written about the immense wealth that lies in the ground as well as the immense difficulty of extracting it. To meet its unusual challenges, Afghanistan needs a novel plan to reverse the trend that typically befalls nations struggling through extreme poverty while possessing vast mineral wealth. The solution I propose includes the establishment of transparent and accountable trusts first, then pledging a fraction of Afghanistan's mineral wealth to those trusts, and thirdly issuing bonds backed by the trust's value to fund agricultural, water, and industrial development projects first, not last. As mining tenders are accepted, a portion of those proceeds should be earmarked to pay down the trust and service the capital

In order to move beyond failed state status, we must pay for long-term economic development first because that is what will sustain us when the mining companies are gone and resources are depleted. Only if the pace of broader sustainable development exceeds the jobs created solely to support mining operations will we have a chance of succeeding as a nation. Make no mistake, we need our mining and hydrocarbon partners around the world; but how we secure the future of Afghanistan is far more important that the short-termism that historically has driven nations to sacrifice their future on the promise of natural resource extraction. Afghanistan’s mineral wealth, while potentially immense, can only support the creation of a fraction of the number ofjobs we need, plus they require literacy, technical skill, and mobility; many of which are traits a significant portion of our population simply does not have. Securing the needs of the rural farmer, preserving their stability and supporting their capacity to feed their families are the factors most likely to determine if we will be writing about a failed state in 2018 or the bright future I see now.

The key to progress in Afghanistan is making the future returns on mining pay for current improvements in agriculture and food security, housing and education, and infrastructure. A trust program that requires making social investments today as part of the process of contracting mineral rights can ensure that Afghanistan’s mineral wealth benefits all Afghanistan, not just foreign investors and a sliver of the Afghan population.

Securing the future of Afghanistan is not just about troop counts after 2014. That calculus is a critical component but it is not the only piece. Food and economic security is directly related to the regional security of Afghanistan and will form the bedrock of state development over the coming generation. Securing capital against the mineral assets in the country in a transparent way to advance water, agricultural, industrial development will drive future job creation and lift our citizens beyond simple day-to-day survival. What our international partners have gotten so wrong in focusing first on rule of law projects is that it is very difficult to sustain those values when confronted with the real possibility of a starving family, a hopeless future, and an absentee president.

Poverty and insecurity is shockingly expensive. It is a tax on our future; it will burden my grandchildren, and will radically lower the costs extremist groups pay to fund conflict in my country. In order to confront the challenges that lie ahead, we must boldly embrace new ideas and governing methods, and understand that the highest values derive from those most basic instincts of self-preservation, feeding one’s family and a genuine hope for the future.

Ahmad Zia Massoud was the first Vice President under President Karzai in office from 2004 and 2009 and is the leader of the National Front of Afghanistan. Christian H. Cooper is a bond trader working on ways to create the structures and new financial instruments needed to transparently and responsibly advance development in Afghanistan, and in MENA at large." 

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Real Politik
May 6, 2013 at 01:38

I used manage emerging markets private equity, fixed income and commodity trading at a major global institution. Well meaning proposal, but this trust-issued bond issuance is a non-starter. Why?

- Mining investment in Afghanistan requires equity (30%+) returns, however which way you structure the capital. A 10% of 15% interest rate simply doesn't cut it given the risk profile

- Mineral reserves do not provide any type of credit enhancement as there is simply no way to enforce on security, least of all resources in the ground owned by government.

- Mining projects do not go into production for at least 3-5 years and take even longer to be cashflow positive…..there are always delays……so there is no way to service debt/interest on these bonds. It's an almost certain default.

- The state of infrastructure for A-stans minerals production is horrible. And when the infrastructure is complete, there is a high security risk on that infra, be it rail, pipelines or haulage roads. Just look at Haji Gak iron ore deposit….. forget about the fact USAID made a hash of that process, even if you were to build the infra and get it into production, you'll have weekly convoys of militia/taliban holding freight for ransom. It would be same for any other project.

If you want the slightest change of attractiving private sector:

1) Get World Bank or US partial-guarantees on bond (or PE) investments (which I don't see them providing). More than any other market globally, A-stan needs concessional money before the private sector will dive in.

2) Develop a credible infrastructure and mining development plan. Unless you've got a billion barrels of P1 oil reserves, don't expect the private sector outside of China to dive in and build your roads.

3) Socialize a successful case study first, perhaps the MCC copper investment (or others tendered by the US TFBSO). I've followed MCC and other projects on the ground (Canaccord is struggling to sell the TFBSO-administered licenses) and there simply hasn't been any good news yet.

4) Focus on micro-finance, agri, textiles, SMEs and other sectors. Capital and infra requirements are reduced. There's reduced security needs and these projects have a far greater economic impact than mines. I've managed mining sector development for a number of countries and few have figured out how to use the mining sector as an engine of growth. In almost every case I've seen, it only leads to hyperinflation, oligarches, corruption and Dutch Disease.

….. There are far better ways to address A-Stans economic ills, but you've already got a million and one advisors peddling their wares, most counsel is horribly misguided and it's only confusing the decision makers (including the US).

 

Gahznawi Ghilzai
May 5, 2013 at 06:38

How can there be economic stability, education, and development, so long as there is no security in the Afghanistan and the region? The article strangely sidesteps the most important aspect of future of Afghanistan and that is security and stability. What is the reason that Pakistan's support for Islamic extremism and terrorism is not mentioned? As long as Pakistan's support for Islamic extremism and terrorism and its double dealing with the west is not stopped, there may never be opportunity for economic development in Afghanistan and this fire of terrorism, that has devastated Afghanistan for decades, is now burning in Pakistan and will burn the whole region. 

Mustardobardo
May 2, 2013 at 19:40

The problem is not that the West focused on rule of law projects, but that, for a variety of reasons, it totally failed in implementing them. Effective government institutions are a necessary prerequisite for defeating an insurgency, troop numbers don't really matter if they are in place and for this the article is correct. However, they are also a key contributing factor towards economic development, and unless effective institutions and laws are developed Afghanistan will never be able to attract the investment, be it domestic or foreign, or incentivise the entrepreneurial activity necessary to diversify its economy. Without developments in governance and/or the rule of law you are unlikely to see the economic progress you yearn.

Kanes
May 2, 2013 at 12:41

Nothing of this will happen unless the Taliban is managed. If Chechnya can produce so many terrorists, I fear what lies ahead for post-2014 Afghanistan. If their current financiers stop funding them, they will turn to the other sect closeby. This is the dilema faced by Taliban financiers in the Middle East. Trouble in Iran and/or Pakistan means more trouble in Afghanistan.

Kanes
May 2, 2013 at 12:33

Who says the Taliban will be a bigger threat to Russia and/or China? Russia and China have a very small fertile ground for Taliban ideology. Pakistan, India and to a little extent Bangladesh will be their targets for obvious demographic and religious reasons. If the Iran problem escalate, Taliban will have a new funding source. The impact of leaving Afghanistan work-in-progress will be global, not regional. 

Ahmad Idress Angar
May 1, 2013 at 17:49

I believe that new Afghanistan will develop whit the hard works of young generation where the must Fallow the below 5 points as I believe

1. Respect humanity (human being)
2. Respect Islam and all other religion
3. Competed to Afghanistan Unite
4. Love Afghanistan as home land
5. Being an afghan not ( Pashtun, Tajek, Hazara, Uzbek and other)
So we can start a. New Afghanistan .
Any one can add points will be appreciated

Angar

naqibullah ataee
May 1, 2013 at 14:49

Thumbs up to you sir Arabzai.
Really truely said!!!
Proud of you!

Bankotsu
May 1, 2013 at 13:30

I hope U.S. doesn't withdraw troops from Afghanistan in 2014. They should continue to stay and fight the Taliban. The U.S. cannot just leave and dump the mess to Russia and China. They created the problems, they should resolve it.

Ghairatullah Arabzai
May 1, 2013 at 12:42

First of all thank you for putting some effort into crafting column. At the outset of your article you started with economic development and somewhat ended in a similar fashion (ecnomic development). You have also mentioned that economic development is the key to the future of Afghanistan. No doubt about it. You did mention a little bit about the importance of education in this article but it was overshadowed by infrastracture, agriculture and economic development aspects of this piece. The article would have been much better if education had been given as much weight not more in terms of its importance for the future of Afghanistan as economic development. We know that economic development is the life-blood of every society especially in this capitalistic world, but education I believe is even more important, particularly in Afghanistan. It is education that will ultimately change the mindest of the people in Afghanistan. It is education that will teach the people not to be brainwashed both by foreign and domestic elements. It is education that will drive economic development in the future. It is education that will be an impass towards terririsom. The list can go on and on. After all who will extract these minerals if there are not enough educated people. We have imported a lot of foreigners even for very simple tasks and we have seen thier loyalty towards thier jobs. By the way, I do not underestimate the paramount importance of the economy, but education should be given first priority or at least after economic development. If the economic mindset exists, the economy will follow!

Noeen Anwar
May 1, 2013 at 04:42

Trusts would be state controlled and guaranteed, which makes this structure quite similar to a sovereign debt issue. Debt is backed by future mining revenues, which would be realized when mining groups can operate safely, which often may require government and military support/intervention. As the author argues, capital so raised can potentially jump start social sector investments in irrigation, agriculture, education and health care. However the long term diversification of the afghan economy away from mining appear difficult, at least till sizeable returns from investments made in education and infrastructure begin to be realized. The resource based gulf economies following several decades of mining surpluses are still largely grappling with the same diversification problem with large sovereign wealth funds and wealthy individuals resorting to investing overseas.

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