After more than a decade of war and nation building, members of the
International Security Assistance Force (ISAF) in Afghanistan are heading for
the exits. Although what the ISAF will
leave behind is
better than what was there in 2001, Afghanistan remains
a battered land. However, the resources Afghanistan’s land holds — copper,
cobalt, iron, barite, sulfur, lead, silver, zinc, niobium, and 1.4 million
metric tons of rare earth elements (REEs) — may be a silver lining.
U.S. agencies estimate Afghanistan’s mineral deposits to be worth upwards of
$1 trillion. In fact, a classified Pentagon
memo called Afghanistan the “Saudi Arabia of lithium.”
(Although lithium is technically not a rare earth element, it serves some of the
same purposes.)
Of course, the fact that Afghanistan is rich in minerals is not necessarily
new information. The Soviets identified mineral deposits in Afghanistan during
their decade-long occupation. What is new is the volume and precision of
mineral-related information. Afghanistan has been
mapped using what is known as “broad-scale
hyper-spectral data” — highly precise technologies deployed by aircraft that, in
effect, allow U.S. military and geological experts to peer beneath Afghanistan’s
skin and paint a picture of its vast mineral wealth. According to Jim Bullion,
who heads a Pentagon task force on postwar development, these maps reveal that
Afghanistan could “become a world leader in the minerals sector.”
There’s another set of factors at work today that were not present during the
Soviet period: REEs are in high demand, the dependability of the REE supply
chain is in question, and Afghanistan’s mineral wealth may be able to help knit
the country back together after decades of war.
But simply having a rich mineral endowment doesn’t mean that Afghanistan is
poised to tap it quickly. Challenges abound.
Supply Chain Worries
The importance of REEs to the global economy cannot be overstated. They are
essential to the manufacture of a host of modern technologies, including cell
phones, televisions, hybrid engines, computer components, lasers, batteries,
fiber optics, and superconductors. Congressional
findings have called rare earth elements “critical to
national security,” and understandably so. REEs are key to the production of
tank navigation systems, missile guidance systems, fighter jet engines, missile
defense components, satellites, and military grade communications gear.
The supply of REEs and similar minerals is critical to today’s
technology-dependent economy, which is highly dependent on a reliable supply
chain. Regrettably, the main supplier of REEs, China, has proven itself
undependable.
Building a rare earth mining system from scratch in
one of the world’s most broken countries will not happen overnight.
The Chinese produce 97 percent of the world’s REEs, but have begun to
manipulate the global REE market by dramatically slowing, and in some cases
halting, export of these materials. After a maritime dispute with Japan, China
stopped supplying REEs to Japanese customers, reduced overall global exports by
72 percent in the second half of 2010,
cut export quotas for the first half of 2011 by 35
percent, and slashed REE mining permits by
41 percent in 2012, claiming its actions were a
function of efforts to fight pollution.
Although Beijing has resumed delivery of REEs, China’s actions have prompted
the United States, Japan, and Europe to explore alternative sources. The good
news is that market forces are already at work diversifying the REE supply
chain.
Australia has new REE mines coming online, and mines in Brazil, Canada,
Vietnam, and the United States could start producing REEs by 2015. Thanks to REE
finds, Mongolia’s GDP is also primed to
triple in the next 10 years.
Leverage
Afghanistan can be part of the long term solution to the REE supply problem.
However, building a rare earth mining system from scratch in one of the world’s
most broken countries will not happen overnight.
Corruption remains a challenge, stability and security exist only in pockets,
and the ingredients that encourage foreign investment — the rule of law, human
capital, and infrastructure — are in short supply. For instance,
political dysfunction is plaguing efforts to build rail
lines considered crucial to transporting Afghanistan’s mineral wealth.
Yet what Afghanistan lacks in infrastructure, it makes up for in rare earth
riches, which explains why some governments are willing to look past the many
impediments to development. Of course, those impediments are significant, and
removing them will require a commitment within Afghanistan to embrace economic
freedom, the foundations of which — personal choice, voluntary exchange, freedom
to enter and compete in markets, and property rights — have yet to fully take
root.
What Afghanistan lacks in infrastructure, it makes
up for in rare earth riches.
Aiming to build up what the
Department of Energy calls “sizable stockpiles” of
REEs, Beijing is eager to develop Afghanistan’s mineral wealth. China has won
exploration rights for copper, coal, oil, and lithium deposits across
Afghanistan, and there are
reports that Beijing won the rights to develop a copper
mine by bribing Afghan mining officials.
Make no mistake: China can play an important and constructive role in
Afghanistan. Development in Afghanistan can be aided by foreign investment, and
Beijing has the resources to make crucial investments in Afghanistan’s future.
But given China’s stranglehold on the REE market — and the West’s commitment in
blood and treasure to Afghanistan’s future — allowing China to stroll in and
harvest Afghanistan’s rare earth riches seems both unwise and unfair. Before
they withdraw, ISAF nations should use their considerable leverage not to secure
sweetheart deals for Western investors and developers, but to ensure a level
playing field for any firm willing to take a risk on developing Afghanistan’s
mineral wealth.
Curse or Blessing?
Some observers warn that if Afghanistan’s mining sector does take off, the
country could succumb to the so-called “resource curse” — the notion that
natural-resource wealth can actually hinder economic growth by diverting
investment away from other sectors and encouraging high levels of government
spending.
There are two ways to answer the resource-curse naysayers: first, on a very
practical level, the world should be so lucky if the resource curse becomes the
main concern for Afghanistan — a country that has endured and caused so much
heartache.
Second, the resource curse may be a bit overblown. A Fraser Institute
report found that early studies on the resource curse
“overlooked the role of economic institutions and the possible interaction
between natural resources and the quality of institutions. Nations with economic
institutions of higher quality are more capable of managing their resource
revenue.” To be sure, those institutions remain nascent in Afghanistan. This
underscores the importance of policy prescriptions geared toward economic
freedom.
Stephen Haber and Victor Menaldo, political scientists specializing in the
research of mineral booms,
note that “roughly twice as many countries have been
blessed by resource booms as cursed by them.” Citing poor infrastructure, a
largely illiterate population, and a weak central government hampered by
warlordism, they report that “until its late 19th century oil and mineral boom,
Mexico was not a whole lot different from Afghanistan.”
Oil and mineral discoveries did not cure all of Mexico’s ills, of course. To
this day, Mexico struggles with corruption, ranking 105th out of 176 countries
surveyed on a
global
corruption index. However, natural-resource wealth did help stabilize
Mexico’s political system and legitimize the state.
Similarly, there are too many challenges in Afghanistan to think of REEs as a
panacea. Political corruption runs high in Kabul, Afghanistan’s geographic
remoteness will always be an issue, and Afghanistan’s neighbors to the east and
west are mischievous, to put it politely. But if something akin to the Mexican
model can take root in Afghanistan, then the world can help solve Afghanistan’s
instability problem — and Afghanistan can help solve the world’s rare earth
supply problem.
Alan W. Dowd is a senior fellow with the
Fraser
Institute.
