Monday, June 14, 2010

Vast mineral wealth in Afghanistan?

Afghanistan, in part because of 30-odd years of war and political instability, is one of the world's poorest and least-developed countries. All of that could change, however, with the discovery of vast, untapped, and previously unknown mineral wealth.

The New York Times reports
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 and perhaps the Afghan war itself, according to senior American government officials.

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, the United States officials believe.
The minerals represent a tremendous development opportunity for the Afghan people and a route out of poverty.

In 2009, total GDP in Afghanistan was estimated to be $23 billion, or $800 per person. Only 8 countries had lower levels of per capita GDP. And it's important to remember that the $23 billion figure is inflated by large inflows of development assistance. Afghanistan's own economic performance is much worse.

One trillion in potential resources represents an off-the-charts jump in wealth. Tapping just one percent of the deposits per year would raise the country's pre-transfer income by more than 50 percent. Building the mines and infrastructure necessary to extract and export would further add to the economy.

The changes for Afghanistan could be profound. As Benjamin Friedman has argued in The Moral Consequences of Economic Growth, sustained economic development tends bring positive social changes, including more social cohesion, more personal freedom, and more openness. If handled properly, the wealth could form the glue that finally brings this shattered country back together. The wealth could also set the stage for more sustained development.

However, that's a big "if." Exploitation of mineral wealth is hardly a surefire development strategy, especially in a country that is as weak, divided, corrupt, and poorly governed as Afghanistan. One need only consider the Democratic Republic of the Congo, which has vastly more mineral wealth but also fought a civil war and remains even poorer than Afghanistan, to see the risks. Iraq, too, has tremendous oil wealth, but that wealth has served as much as a touchpoint of conflict as a catalyst for progress. Both the benefits and costs from the extraction of natural resources tend to be divided unequally, which also is destabilizing.

Nevertheless, an opportunity has appeared that wasn't known before. With any luck, this opportunity will bring good things to Afghanistan.