Blog | April 29, 2015

US strategy on Afghan extractives: time to stop ignoring the elephant in the room

The US government is engaging in some welcome introspection over its support to the mining sector in Afghanistan – but it needs to follow through with serious change if it wants to see Afghanistan’s huge mineral wealth fulfil its promise as a driver of development, and not as fuel for more conflict and corruption.

The office of the Special Inspector General for Afghanistan Reconstruction (SIGAR) has done much to highlight corruption and mismanagement in American spending there. Its latest report, released yesterday, turns its attention to efforts to support the development of Afghanistan’s natural resources carried out separately by USAID and the Task Force for Business Stability Operations (TFBSO). TFBSO, which spent $282m on 11 projects between 2009 and 2015, is not a standard development organisation, but is a task force within the US Department of Defence. Its mission was a direct reflection of the US military’s recognition that a strong economy in Afghanistan was necessary to eventually fund its own security forces and stabilize the country.

Developing Afghanistan’s natural resources is a legitimate goal, but SIGAR found a number of issues with the work done by USAID and TFBSO – and warned they could potentially jeopardise a total of $488m in spending. These included the lack of a clear strategic plan for TFBSO, the lack of coordination between TFBSO, USAID, and other agencies, the lack of sustainability of the projects after outside support winds down, and the fact that despite the many millions spent, the Ministry of Mines and Petroleum still lacks the capacity to manage medium and large tender processes itself, much less the ability to regulate these tenders throughout their lifespan.

SIGAR has done a good job in highlighting these issues, and the importance of the extractive industries to Afghanistan’s future generally. But perhaps the most important issue is one not necessarily within the scope of the SIGAR report: the underlying strategic vision behind US support to the Afghan extractive sector.

As the report makes clear, the key focus of both USAID and TFBSO has been on the ‘commercial’ aspects of mining development. That means helping develop the actual infrastructure and geological research needed for example to exploit the gas fields of northern Afghanistan. It also means developing the capacity of the Ministry of Mines, but with a particular focus on managing tender processes and otherwise securing extractive deals.

The gaping hole in this approach is the lack of any response to the challenges of conflict and corruption around mining in Afghanistan. There is little support for the regulatory role of the Ministry and for monitoring and control of contracts after they are granted, or for developing dispute resolution mechanisms to prevent conflict with local communities, or for fixing the many gaps in basic protections in the Afghan Minerals Law and regulations. The main USAID project with the Ministry of Mines has a mandate to work on legislation, but in the end American officials only tentatively raised concerns when the law was passed last summer.

US support for mining in Afghanistan has been based on a fundamentally inadequate strategy. There is nothing wrong with geological surveys or technical capacity building. But the greatest threat to the vision of prosperity built on natural resources is not the difficulty of attracting investors: it is the well-documented fact that huge amounts of mining revenue are being lost to corruption and illegal mining, that minerals like chromite, rubies and marble are a key source of funding for the Taliban and other armed groups, and that competition over the mines in places like Badakhshan has driven armed conflict. This is the proverbial elephant in the room. Trying to develop the sector without tackling those issues is not just pointless, it could easily make things worse.

To its credit, that is something that the new Afghan government understands. President Ghani, and his new Minister of Mines, Daoud Saba, have both spoken of the need to build up the framework of oversight and control of its extractive industries before embarking on new large-scale mining concessions – something that also chimes with the anti-corruption concerns expressed by Ghani’s partner in the National Unity Government, Chief Executive Dr Abdullah. The government has talked about developing small scale and artisanal mining first – a sensible approach that, if done well, could yield not just more revenue but better results at the grass-roots level where prosperity is most needed.

Whether the Afghan government will succeed with that agenda is very much an open question. There are huge vested interests in illegal mining, and a correspondingly difficult challenge ahead to strengthen oversight and accountability. But that is precisely where the support is desperately needed, and where the American government should focus the most important part of its effort. That is not a distraction from the job of boosting Afghan revenues and helping the country develop: it is an essential foundation for it.