GRAVEYARD OF EMPIRES. TREASURE TROVE OF RESOURCES
Fears mount that the Taliban could monetize Afghanistan’s untapped resource base to fuel regime, terrorism
Ahmad Shah Katawazai no longer goes to the office, but he is still “technically” employed by Afghanistan’s Ministry of Foreign Affairs in Kabul. “With the Taliban running the city right now, all the government offices are closed,” he told the Financial Post in a Zoom call last week. “The situation is very tense and scary here.”
The United States has pulled out of Afghanistan after nearly 20 futile years, and the Taliban, a terrorist group, has quickly filled the power vacuum, taking over key cities at lightning speed.
Katawazai said he was involved in high-level discussions about the Afghan government’s next steps after the U.S. withdrawal, with ministry officials forecasting a six-month timeline to form an interim government.
But as the Taliban army marched towards the capital city of Kabul, President Ashraf Ghani’s seven-year-old government and 300,000-strong army melted away, stunning the world and even Afghans on the ground.
“I was in the Ministry of Foreign Affairs building at the time (the Taliban) entered the city,” said Katawazai, Katawazai, who has a master’s degree in global security studies from Johns Hopkins University and worked as a diplomat at the Afghanistan embassy in Washington, D.C., for nearly eight years.
“There was chaos and traffic jams and everybody was running to his or her home, and the situation got very tense.”
The next day, he saw Taliban soldiers on the streets, sparking fears about violence, fears that eventually came to pass this week.
The return of the Taliban is just the latest devastating event to rock the landlocked country and could have far-reaching economic as well as political consequences.
Fears have arisen once again that the Taliban’s previous stint as rulers — chaotic, repressive and mismanaged — will once again follow a similar script. There are also concerns in the West that the Taliban could seek to develop its lithium, rare earths and other metals with the help of China and Russia to fund its illegitimate regime.
THERE WAS CHAOS ... AND EVERYBODY RUNNING.
The war-ravaged nation, lodged between Iran, Pakistan, China and the Central Asia states of Tajikistan, Turkmenistan and Uzbekistan, has endured terrible hardship over the years. An invasion by Soviet forces in the 1970s was repelled by Afghan warlords backed by the U.S., Pakistan and other regional powers in the 1980s.
But a civil war broke out between the victorious Afghan warlords, which saw the emergence of the Taliban army taking over major parts of the country from 1996 to 2001. Their violent rule was crushed by U.S. forces in the aftermath of the 9/11 attacks by Osama bin Laden from his base in Afghanistan.
After nearly two decades of uncertainty under successive U.s.-backed elected Afghan governments, U.S. President Joe Biden’s decision to pull out American troops has given the Taliban another opening.
The country’s people’s resilience is immortalized in the romantic notion that “Afghanistan is the graveyard of empires” — thwarting the advances of British, Soviet and now American forces over the past century or so — but the attacks have come at great cost.
Despite its impoverished status, the country is resource rich, with an abundance of coal, natural gas, copper, lithium, gold, iron ore, bauxite and prized rareearth mineral reserves.
“Many of the mineral deposits are of world-class size and tenor,” a U.S. Geological Survey (USGS) stated in 2011.
An internal U.S. Department of Defense memo in 2010 reportedly described Afghanistan as “the Saudi Arabia of lithium,” meaning it could be as crucial for the global supply of the battery metal as the Arab country is for crude oil.
Rare-earth minerals are also considered a strategic resource. China produces around 85 per cent of such minerals, which are used in rechargeable batteries for electric and hybrid cars, advanced ceramics, computers and other electronics.
All told, Afghanistan’s resources could be worth US$1 trillion, according to a U.S. study, or as much as US$3 trillion, according to the Afghan Ministry of Mines and Petroleum in 2017.
But such estimates should be taken with a pinch of salt, and the likelihood of monetizing the resources remains dim given the spate of structural challenges facing the country.
“When President (Ashraf) Ghani came to power, he didn’t believe that he could exploit these resources,” said Katawazai, who called the president’s decision to flee the country earlier this month a “blunder” and an “insult” to the country’s 35 million people.
A Fulbright Scholar with a doctorate from Columbia University, Ghani taught at some of America’s elite academic institutions before stints at the World Bank and United Nations.
He also co-wrote Fixing Failed States: A Framework for Rebuilding a Fractured World. In the book, he said that natural resource riches were no cure for troubled nations, and governments should focus on institutional reforms.
“Why can’t the civil service of distressed nations be adequately funded? After all, many countries which receive aid have extensive natural resources. The answer is that these valuable commodities tend to be contracted out to extractive industries, often foreign,” he wrote.
“Contracts for the extraction of resources such as petroleum or minerals are not disclosed to the public, so the industry and their procedures remain highly opaque ... massive diversions of funds means that usable domestic revenues on the books is a fraction of its potential.”
Developing Afghanistan minerals in the rugged and remote terrains will be difficult, because of the security situation, lack of infrastructure needed to haul minerals to global markets, and rampant corruption.
Afghanistan has “abundant mineral resources, but modern technical data and information are necessary if they are to be developed successfully,” the USGS said in its 2011 report.
In a 2016 report, the USGS noted that the mineral resources could significantly contribute to the country’s economic growth if efficiently developed.
“Afghanistan might be far removed from being able to sustainably develop its mining sector, however, owing to several factors, such as deterioration of the security situation, political uncertainty, and insufficient infrastructure,” the report said.
With the Taliban at the helm, few Western investors will be eager to dip their toes in the country. One consultancy that helps clients assess business risk in troubled countries told Financial Post that it had not conducted any study on Afghanistan’s resources because its clients had “zero interest.”
That creates an opportunity for China and Russia.
Beijing will likely have few qualms about dealing with the Taliban regime, Alan Dowd, senior fellow at the Fraser Institute, said in an email.
He said many observers, including himself, once believed China could play a constructive role in Afghanistan, given that the country needed foreign investment and the Asian giant had the financial and technical resources to provide such support.
“But such a program was always considered in the context of having a government in Kabul that respected basic principles of representative governance, human rights, rule of law. That is not the case with the return of the Taliban to power,” Dowd said.
“Given China’s stranglehold on the (rare-earth elements) market — and the West’s commitment in blood and treasure to Afghanistan — allowing China to stroll in and harvest Afghanistan’s rare-earth riches seems both unwise and unfair. But the West’s options are limited.”
The Taliban, with limited resources at its disposal, may be eager to take advantage of the global electric-vehicle boom by supplying raw materials.
Afghanistan has a GDP of around US$19 billion and a GDP per capita of US$507, making it one of the world’s poorest countries, with poverty levels hitting 47 per cent, according to the Asian Development Bank.
Last November, international donors pledged around US$13 billion in grants to the country’s fledgling development and reforms. In June, the International Monetary Fund said it was preparing to transfer almost US$150 million of a Us$370-million extended credit facility. All those funds are now frozen as the Taliban rule remains unrecognized by most countries, including Canada.
“There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access SDRS (special drawing rights) or other IMF resources,” the IMF said.
It’s unlikely that the Taliban will be able to tap the country’s international reserves of US$9.8 billion in cash, gold and other instruments. Da Afghanistan Bank, the country’s central bank, has 22 tonnes of gold stored at the Federal Reserve Bank in New York, which the Biden administration has now frozen.
To be sure, China has had little success to date in Afghanistan’s mining sector despite its considerable influence and experience in building infrastructure in remote regions.
In 2007, Metallurgical Corp. of China Ltd. (MCC) won a lease to develop the flagship Mes Aynak copper project, Afghanistan’s largest copper mine, with estimated reserves of six million tonnes. But development stalled and was ultimately cancelled in 2015, because the project had been awarded “using a non-transparent process,” according to the USGS.
Katawazai said MCC and the Afghan government were negotiating new terms in recent months, but the government became distracted by more pressing issues.
Russia has also long eyed some of Afghanistan’s resources, but the Ghani government was suspicious of Moscow’s ties to the Taliban.
“I can say that right now, probably because of the relationship with the Taliban, (the Russians) might be interested in this sector,” Katawazai said. “Bear in mind that the Russians were the first who did surveys of all these mines in the 1970s when they invaded the country.”
Both China and Russia have reportedly kept their embassies open in the country.
But the Taliban’s poor record of governance also suggests that the country’s resources will remain buried in the ground for some time. They could have exploited these resources when they were in power in the 1990s, but they needed expertise, machinery and basic infrastructure, Katawazai said.
The Taliban can operate small coal mines, but they struggle to develop resources that require highly sophisticated expertise and technology.
“During the past 20 years, the Taliban and some warlords have been exploiting these resources illegally, and they have been working on small mines,” Katawazai said. “But major ones like rare earth elements and lithium will be very difficult for them to exploit.”
SUCH A PROGRAM WAS ALWAYS CONSIDERED IN THE CONTEXT OF HAVING A GOVERNMENT IN KABUL THAT RESPECTED BASIC PRINCIPLES OF REPRESENTATIVE GOVERNANCE, HUMAN RIGHTS, RULE OF LAW. THAT IS NOT THE CASE WITH THE RETURN OF THE TALIBAN. — ALAN DOWD