Home Contact Us  

Afghanistan - Articles

Print Bookmark Email Facebook Subscribe
#5145, 4 October 2016
Mining in Afghanistan: Scale Down to Reap More
Roshan Iyer
Research Intern, IReS, IPCS

The mining industry in Afghanistan holds the potential to completely revolutionise the country’s domestic economy. Afghanistan has around 1400 deposit sites of minerals worth between USD 1 and 3 trillion – according to the 2010 US Geological Survey, confirming previous Soviet reports which discovered that Afghanistan holds some of the largest reserves of iron, copper, cobalt, lapis lazuli and lithium. These resources provide a ready opportunity to set up an industry that can be licensed and taxed, and can provide significant revenue to the Afghan government. Today the mining industry is the most promising driver of growth and industrialisation in Afghanistan.
Despite initial enthusiasm after the announcements of the development of the Mes Aynak deposits by China in 2008 and the Hajigak deposits by India in 2011, both projects failed to take off amidst security concerns and the discovery of ancient Buddhist monuments at Mes Aynak. The episode also brought into focus the lack of transparency and corruption in government, in the mining rights allocation process and in the overall economy - factors that discourage high-value, long-term investments by foreign investors. Afghanistan’s unique situation of an economy failing to attract investment despite the vast quantity of existing opportunities requires a unique solution.
Mining in Afghanistan is a high-risk and capital-intensive industry. Kabul has repeatedly invited large government-backed consortia that promise billions of dollars purchasing the rights to mine fields while also promising to set up power plants and highway projects. Although this style of mega-projects promises to bring in the much-needed funds to a cash-starved Afghan government, the security threats in the country make investors jittery. Instead, the government should focus on attracting private mid-level investors looking to invest millions rather than billions for medium terms. Interestingly, small to mid-level sized mining operations have been undertaken in Afghanistan by the Taliban, who mined rubies and emeralds, and earned around USD 120 million in 2015.
The case of mining in Laos, for instance, shows how mid-level investments can be used to develop a mining industry where none existed. Sepon, a medium-sized copper mine was developed by an Australian company, Oxiana Limited. It produced USD 100 million worth of copper a year with an initial capital investment of USD 240 million. The mine also generated USD 15 million in taxes and created 2800 jobs. By 2008, there were roughly 127 mining companies established in Laos.
Locally-owned coal mines in Afghanistan routinely under-produce primarily because of a poor resource extraction technology and lack of safety equipment. To become profitable enterprises, these small-scale projects would actually require minimal investment. If these coal-mines were to be the first sites auctioned to foreign investors, they would profit from better technology and in turn give a fillip to Afghanistan’s mining sector.
Currently, the Afghan government does not have adequate funds to invest in mining; the smaller funds could instead be invested in its transmission lines, road networks and power plants needed to support the mining industry. Medium-scale mining projects require lower-capacity support infrastructure, lowering the burden on the Afghan government to provide for them. However, over time, as the mining sector grows in Afghanistan, market forces should bring larger-scale investment in energy, transport, construction, and other support infrastructure.
Investments from a multitude of smaller companies could generate revenue for Afghanistan’s economy. However, a strong institutional framework is needed to generate investor confidence.  For this, tax rates would have to be set and frozen through agreements between the government and investors. 
The security situation in Afghanistan needs to be addressed to bridge the confidence gap. This will have to be a two-pronged approach of providing physical security as well as a contingency plan in the event of an attack on the investment is needed. A cash-strapped government would find it unfeasible to provide direct insurance. Instead, the contingency model can allocate a percentage (in accordance with commodity prices) of each mine's output to the government. In the event of an attack, this stock can either be sold to raise quick capital (which can then be transferred to the company’s accounts) or physically returned to the mining firm to cushion the effect of any disruption on the company's sales process.
A combination of scaling down the mining projects in Afghanistan along with added government protection might also have the additional benefit of escaping the demands of protection payments by the Taliban.
When it comes to the allocation process, Afghanistan could take lessons from the privatisation of the Antamina Mine by Peru. While auctioning the mine, the government used a unique bidding process, where an option was provided to the winner of the bid. The mining consortium of Rio Algom, Noranda Inc., and Teck Corp was allowed to carry out site specific exploration for a period of two years and then had the option of investing into the site or walking away. The time factor and the ability to explore the resources before committing to the investment created sufficient confidence in the investor and the mine was successfully sold.
Scaling down in the short-run might just be the solution to building Afghanistan’s mining industry into a global giant in the long-run.

Print Bookmark Email Facebook Subscribe
IPCS Columnists
Af-Pak Diary
D Suba Chandran
Resetting Kabul-Islamabad Relations: Three Key Issues
Can Pakistan Reset its Relations with Afghanistan?
The New Afghanistan: Four Major Challenges for President Ghani
Big Picture
Prof Varun Sahni
Understanding Democracy and Diversity in J&K
When Xi Met Modi: Juxtaposing China and India
Pakistan?s Tactical Nuclear Weapons: The Inevitability of Instability

Dateline Colombo

Asanga Abeyagoonasekera.
Sri Lanka: Moving Towards a Higher Collective Outcome
The Importance of Electing the Best to our Nation's Parliament
Sri Lanka: Toward a Diaspora Re-Engagement Plan
Dateline Islamabad
Salma Malik
Pakistan's Hurt Locker: What Next?
IPCS Forecast: Pakistan in 2015
India-Pakistan Relations in 2015: Through a Looking Glass
Dhaka Discourse
Prof Delwar Hossain
IPCS Forecast: Bangladesh in 2015
18th SAARC Summit: A Perspective from Bangladesh
Bangladesh in Global Forums: Diplomacy vs. Domestic Politics
Eagle Eye
Prof Chintamani Mahapatra
India-US: Significance of the Second Modi-Obama Meet
Has President Obama Turned Lame Duck?
Modi-Obama Summit: Criticism for Criticism?s Sake?

East Asia Compass
Dr Sandip Mishra
India-Japan-US Trilateral: India?s Policy for the Indo-Pacific
China-South Korea Ties: Implications for the US Pivot to Asia
Many ?Pivots to Asia?: What Does It Mean For Regional Stability?
Himalayan Frontier
Pramod Jaiswal
Nepal?s New Constitution: Instrument towards Peace or Catalyst to Conflict?
IPCS Forecast: Nepal in 2015
Constitution-making: Will Nepal Miss its Second Deadline?

Prof Shankari Sundararaman
IPCS Forecast: Southeast Asia in 2015
Indonesia's Pacific Identity: What Jakarta Must Do in West Papua
Modi in Myanmar: From ?Look East? to ?Act East?
Sushant Sareen
IPCS Forecast: Pakistan in 2015
Islamic State: Prospects in Pakistan
Pakistan: The Futility of Internationalising Kashmir

Looking East
Wasbir Hussain
Myanmar in New Delhi's Naga Riddle
China: ?Peaceful? Display of Military Might
Naga Peace Accord: Need to Reserve Euphoria
Maritime Matters
Vijay Sakhuja
Indian Ocean: Modi on a Maritime Pilgrimage
Indian Ocean: Exploring Maritime Domain Awareness
IPCS Forecast: The Indian Ocean in 2015

Nuke Street
Amb Sheelkant Sharma
US-Russia and Global Nuclear Security: Under a Frosty Spell?
India's Nuclear Capable Cruise Missile: The Nirbhay Test
India-Australia Nuclear Agreement: Bespeaking of a New Age
Red Affairs
Bibhu Prasad
Countering Left Wing Extremism: Failures within Successes
Return of the Native: CPI-Maoist in Kerala
The Rising Civilian Costs of the State-Vs-Extremists Conflict

Regional Economy
Amita Batra
India and the APEC
IPCS Forecast: South Asian Regional Integration
South Asia: Rupee Regionalisation and Intra-regional Trade Enhancement
South Asian Dialectic
PR Chari
Resuming the Indo-Pak Dialogue: Evolving a New Focus
Defence Management in India: An Agenda for Parrikar
Pakistani Taliban and Al Qaeda in Afghanistan: Implications for Asian Security

Spotlight West Asia
Amb Ranjit Gupta
Prime Minister Modi Finally Begins His Interaction with West Asia*
A Potential Indian Role in West Asia?
US-GCC Summit: More Hype than Substance
Strategic Space
Manpreet Sethi
India-Russia Nuclear Vision Statement: See that it Delivers
Global Nuclear Disarmament: The Humanitarian Consequences Route
Nasr: Dangers of Pakistan's Short Range Ballistic Missile

The Strategist
Vice Admiral Vijay Shankar
Jihadi Aggression and Nuclear Deterrence
The Blight of Ambiguity
Falun Gong: The Fear Within

OTHER REGULAR contributors
Gurmeet Kanwal
Harun ur Rashid
N Manoharan
Wasbir Hussain
Rana Banerji
N Manoharan

Ruhee Neog
Teshu Singh
Aparupa Bhattacherjee
Roomana Hukil
Aparupa Bhattacherjee


Browse by Publications

Issue Briefs 
Special Reports 
Research Papers 
Seminar Reports 
Conference Reports 

Browse by Region/Countries

East Asia 
South Asia 
Southeast Asia 
US & South Asia 

Browse by Issues

India & the world  
Naxalite Violence 
Suicide Terrorism 
Peace & Conflict Database 
Article by same Author
India: Acting East after the End of the TPP

Demonetisation: An Exercise in Instability

Y! MyWeb
Print Bookmark Email Facebook Subscribe
Year 2017
 January  February  March  April  May  June  July  August  September  October  November  December
 2016  2015  2014  2013  2012  2011  2010  2009
 2008  2007  2006  2005  2004  2003  2002  2001
 2000  1999  1998  1997

The Institute of Peace and Conflict Studies (IPCS) is the premier South Asian think tank which conducts independent research on and provides an in depth analysis of conventional and non-conventional issues related to national and South Asian security including nuclear issues, disarmament, non-proliferation, weapons of mass destruction, the war on terrorism, counter terrorism , strategies security sector reforms, and armed conflict and peace processes in the region.

For those in South Asia and elsewhere, the IPCS website provides a comprehensive analysis of the happenings within India with a special focus on Jammu and Kashmir and Naxalite Violence. Our research promotes greater understanding of India's foreign policy especially India-China relations, India's relations with SAARC countries and South East Asia.

Through close interaction with leading strategic thinkers, former members of the Indian Administrative Service, the Foreign Service and the three wings of the Armed Forces - the Indian Army, Indian Navy, and Indian Air Force, - the academic community as well as the media, the IPCS has contributed considerably to the strategic discourse in India.

Subscribe to Newswire | Site Map
18, Link Road, Jungpura Extension, New Delhi 110014, INDIA.

Tel: 91-11-4100-1902    Email: officemail@ipcs.org

© Copyright 2017, Institute of Peace and Conflict Studies.