The Debate

Afghanistan’s Mineral Wealth – Fact or Fiction?

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The Debate

Afghanistan’s Mineral Wealth – Fact or Fiction?

Afghanistan’s mineral deposits hold promise, but bringing such wealth to market will be a challenge.

(The following is a guest post from Eli Sugarman of the Truman National Security Project)

On July 17, the Afghan and U.S. governments announced that Afghanistan had become the first country in the world to have seventy percent of its territory mapped using “an advanced remote sensing technique known as hyperspectral imaging.” The purpose of the imaging – overseen by the U.S. Geological Survey (“USGS”) and funded by the Defense Department Task Force on Business and Stability Operations (“Task Force”) – was to map Afghanistan’s multitude of mineral deposits. The potential value of these deposits – touted to top one trillion dollars — and their importance for Afghanistan’s economic growth have been the topic of much public debate — heralded by some but questioned by others.

Afghanistan undoubtedly contains a wealth of subsurface mineral deposits, as USGS imaging efforts further confirm. The challenge, however, is how to make their extraction commercially viable given the various risk factors present in Afghanistan. Converting the country’s lithium, copper, rare earth elements, and hydrocarbons into much-needed government revenue is a long-term and complicated effort. Electricity, roads, rail-lines, pipelines, and processing facilities are crucial to the success of Afghanistan’s mining efforts, but lacking at present. And building capacity within the Afghan Ministry of Mines to manage multibillion dollar projects is a slow process, too.

The USGS and Task Force’s efforts generate additional data to show potential investors – and should be commended — but the U.S. government (“USG”) must do more if it wants Afghanistan’s nascent mining industry to become a driver of economic growth. It must use every tool at its disposal to mitigate the risks posed to investors and incentivize investment in Afghanistan’s extractive industries.

The Overseas Private Investment Corporation (“OPIC”) – the development finance arm of the USG — could do much more in Afghanistan, if it was empowered to do so.  OPIC is structured and managed like a private corporation and is self-sustaining (meaning it relies on Congressional appropriations for administrative costs only). OPIC provides financing and insurance to international projects based upon primarily commercial calculations, not foreign policy ones. This means OPIC only rarely takes on projects in Afghanistan.

However, OPIC could help to catalyze investment in mining projects in Afghanistan if the USG and Congress give it the flexibility to take risks and make loans that would not normally be justified based upon purely commercial considerations. Afghanistan is now a major non-NATO ally and a long-term U.S. strategic partner, which more than justify a deviation from normal OPIC policy. And let’s not forget, China, Russia, and other countries do this all the time.

The downside would be the USG or Congress having to cover any unsuccessful, riskier loans OPIC makes, but that is a small price to pay especially when compared to the scale of foreign assistance expenditures in Afghanistan. And OPIC already has a foundation to build upon in Afghanistan with its Sheberghan gas project.

Afghanistan’s mineral deposits hold promise, but no one should underestimate the challenges to their successful monetization. The USG should think creatively about how to leverage its resources – such as OPIC — to mitigate risks and encourage private investment in this sector. Otherwise, Afghanistan’s mineral wealth will remain more of a fantasy than a reality.

Eli Sugarman is a security fellow at the Truman National Security Project. He blogs at Truman Doctrine, where this piece originally appeared.