To believe today’s New York Times, the United States has just found out that Afghanistan is rich. And we’re not talking ‘Alaska or Texas rich’…we’re talking ‘Qatar or Saudi rich’. Apparently, it is simply loaded with rare and valuable minerals:
“The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy…The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world…”
Now, there is clearly something shady about the timing of this article, but, since Afghanistan’s GDP is only about $12 billion, I’d have to agree with Gen. David H. Petraeus that this find represents “stunning potential”.
Now, I hate to be a downer, but I think everybody needs to temper their exuberance about this find. Remember, the possession of natural resources far too often leads countries to economic and political turmoil, especially in the developing world. So, at the very least, this windfall suggests to me that Afghanistan will soon be facing some very serious governance challenges. After all, how can a war-torn country beset with corruption manage to use these windfall rents for the good of the Afghan people? It’s hard to imagine, as many, many other (more stable) countries have already failed in this regard.
This means that considerable thought should go into the management of these revenues. But, unfortunately, the US government seems to be putting the cart ahead of the horse:
“The Pentagon is helping Afghan officials arrange to start seeking bids on mineral rights by next fall, officials said.”
In my opinion, the fundamental question here is not how the minerals will be priced or extracted but where the eventual revenues will go and how they will be used. Without having rigorously defined and articulated answers to the latter questions, Afghanistan could easily fall prey to the “resource curse.” And this won’t do anybody any good.
In my opinion, Afghanistan should start setting up a commodity-based SWF right now. Commodity funds are being used by countries around the world to help ensure proper management of resources revenues, including stabilization, sterilization and savings. Governments from Angola, Alabama, Alaska and Azerbaijan to PNG, Timor Leste, Trinidad and Tobago and Venezuela have all set up commodity based SWFs for this purpose.
The international community would be doing the Afghan people a huge service if they “helped” the Afghan government set up a commodity SWF that sequesters the windfall resources from the budget and politicians. But, as the Nigeria case illustrates, it’s not enough just to set up a SWF; success is a function of governance. So, the new fund will need rigorously defined principles and practices governing investment decisions, asset allocations, draw-downs, and much, much more.
I acknowledge that this would be the mother of all governance challenges, but it is necessary to ensure that Afghanistan’s resource windfall contributes to the country’s stability…and not its destabilization.