Afghanistan’s Chief Security Issue isn’t Physical – it’s Financial

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(Photo Credit: Zoriah, Flickr Commons)

(Photo Credit: Zoriah, Flickr Commons)

When the Taliban took over the provincial capital of Kunduz in September, it called into question whether the Afghanistan National Defense and Security Forces (ANDSF) could truly provide security to Afghanistan. Even more pressing a question is whether Afghanistan will be able to finance ANDSF and the security it provides. Since the International Security Assistance Force (ISAF) transferred operations to Afghanistan in 2014, the ANDSF has displayed the ability to expel the Taliban from whatever territory it captured. Nonetheless, it costs a lot to convince a 350,000-member force to provide security, especially as thousands of its members die in combat every year. As nations withdraw from Afghanistan, so too will they withdraw financial support. Whether Afghanistan succeeds or fails depends largely on whether it can develop a viable economy in an insecure environment before donor fatigue sets in.

In a news conference last year, General John Campbell, commander of the United States Forces, Afghanistan, gave an optimistic assessment of ANDSF, stating that wherever ANDSF exists, the Taliban cannot “hold the terrain.”[1] Much has changed in Afghanistan over the last year. The Islamic State (IS) has made inroads in to Afghanistan and the death of Taliban leader Mullah Omar led his successor to initiate attacks against ANDSF to engender support among the Taliban and consolidate power. Whereas ANDSF losses averaged approximately 4,000 deaths per year over the last two years, losses reached that figure in just the first six months of 2015.[2] General Campbell’s statement, however, remains true: despite its mounting losses, ANDSF continues to take back territory once held by the Taliban.

At the Pentagon last summer, Afghanistan’s President, Mohammad Ashraf Ghani, made a point to thank the American taxpayer – and for good reason. [3] In 2012, U.S. aid to Afghanistan surpassed $10.1 billion, and of this, $6.8 billion went to ANDSF. By 2013, annual aid dropped to $3.9 billion, with only $1.9 billion going to security.[4] U.S. Agency for International Development reporting for 2014 and 2015 is not complete, but initial figures suggest the precipitous drop in U.S. aid to Afghanistan continues, all while ANSDF’s burdens increase. Other donor nations are almost certainly suffering the same level of fatigue. If the Afghan government cannot pay members of the ANSDF a salary commensurate with their duties, desertions will increase, the quality and quantity of recruits will drop, and feudalism will grow, as will the likelihood of ANSDF members seeking other sources of revenue, including through extortion and drug trafficking. ANSDF will almost certainly lose the ability to reclaim Taliban-held territory.

Little suggests Afghanistan’s economy can compensate for the drop in international aid. In addition to losing international aid, Afghanistan’s internal tax revenues have also dropped. The loss in tax revenues and international aid has affected the Government of Afghanistan’s (GOA) ability to provide basic services. In August 2015, Finance Minister Eklil Hakimi reported a 7 billion afghani ($110.5 million) revenue shortfall.[5] Teachers often go months without pay due to government cash flow problems. This past June, teachers in Kabul went on strike to demand higher pay and improved working conditions.[6] In 2014, the GOA failed to pay scores of district governors for an entire year.[7]

Afghanistan’s trouble with security and finances make for a flailing business environment. In 2014, the World Bank released a report distinguishing Afghanistan as “the worst county in Asia for investments,” and the seventh worst country worldwide.[8] Since then, the value of the afghani has dropped 10 percent against the U.S. dollar. Today, businesses in eastern and southern Afghanistan prefer Pakistani rupees, while businesses in western Afghanistan prefer Iranian rials over afghanis.[9]

But there is a solution to the country’s financial morass. In 2013, the U.S. Geological Survey (USGS), under the auspices of the U.S. Department of Defense Task Force for Business and Stability Operations, published a report on Afghanistan’s Mineral Areas of Interest. The report concluded that Afghanistan has approximately a trillion dollars in recoverable copper, gold, silver, bauxite, iron ore, and rare earth elements, among other minerals.[10] The USGS called the extraction of Afghanistan’s mineral resources “crucial for the country’s economic growth, employment, and security development.”[11]

To date, investment in Afghanistan’s mineral resources falls far short of that required for an extraction-based economy. The China Metallurgical Group is balking on its $3 billion, 30-year deal to develop the Mes Aynak copper mine, [12] and an Indian consortium felt compelled to deny that it was doing the same on a $10.8 billion deal to mine iron ore.[13] Even if these deals materialize, they would have to generate about $10 billion in annual revenue to sustain Afghanistan’s security apparatus. What Afghanistan needs is not two billion-dollar deals but multiple, multi-billion dollar deals – a colossal undertaking.

Mining companies willing to work in Afghanistan will need not only to implement extraordinary security measures, but also to develop the infrastructure necessary to support mining operations and the miners who run them. These include schools, living quarters, hospitals, and cafeterias, as well as power generation, sewage, recreational, and telecommunications facilities. They will have to hire and train local Afghans to perform blue collar work at the mine and associated facilities.

Mining companies have invested billions of dollars in other mining operations under similar conditions. Freeport-McMoRan, for example, developed the Ertsberg and Grasberg gold and copper mines in an area of Indonesia devoid of human settlement and at an elevation high enough to support glaciation on the equator.[14] PT Freeport Indonesia is now Indonesia’s single largest taxpayer.[15]

Donor nations will need to incentivize and mitigate risks in order to entice mining companies like Freeport-McMoRan to develop Afghanistan’s natural resources. First, donor nations will have to guarantee mining companies’ investments against losses due to war or nationalization. Second, donor nations will need to solicit multi-national mining companies to participate in a consortium, thereby spreading the risk among the companies and nations that sponsor them. Third, donor nations will need to continue to support the ANSDF, at least until the GOA begins receiving mining royalties. Fourth, donor nations will need to continue to develop Afghanistan’s institutions to accommodate the extraction economy. Some believe that developing Afghanistan’s institutions is a prerequisite to mining activity, when in actuality, time is too short and the need too great to wait.

 

Footnotes:

[1] Department of Defense, “Department of Defense Press Briefing by Gen. Campbell via satellite in the Pentagon Briefing Room,” October 2, 2014, http://www.defense.gov/News/News-Transcripts/Article/606938.

[2] Goldstein, Joseph, “Afghan Security Forces Struggle Just to Maintain Stalemate,” New York Times, July 22, 2015, http://www.nytimes.com/2015/07/23/world/asia/afghan-security-forces-struggle-just-to-maintain-stalemate.html.

[3] Pellerin, Cheryl, “Afghan Leader Thanks U.S. Troops, Taxpayers for Support,” Department of Defense, http://www.defense.gov/News-Article-View/Article/604331/afghan-leader-thanks-us-troops-taxpayers-for-support.

[4] U.S. Agency for International Development, https://explorer.usaid.gov/country-detail.html#Afghanistan, accessed October 1, 2015.

[5] Pajhwok Afghan News, “7 Billion Afghanis Decline Registered in Revenue,” August 17, 2015, http://www.pajhwok.com/en/2015/08/17/7-billion-afghanis-decline-registered-revenue.

[6] Associated Press, “Afghan Teachers Strike, Schools Close Over Pay Demands,” June 7, 2015, http://www.dailymail.co.uk/wires/ap/article-3114090/Afghan-teachers-strike-schools-close-pay-demands.html.

[7] Ibrahimkhail, Shakeela, “Budget Deficit Already Causing Delays in Salary Payments,” October 28, 2014, http://www.tolonews.com/en/afghanistan/16918-budget-deficit-already-causing-delays-in-salary-payments.

[8] Ibrahimkhil, Shakeela, “World Bank Labels Afghanistan Worst Country for Investment in Asia,” October 31, 2014, http://www.tolonews.com/en/afghanistan/16941-world-bank-labels-afghanistan-worst-country-for-investment-in-asia.

[9] Afghan Spirit, “Afghani Drops 10 Percent in Two Months,” August 13, 2015, http://afghanspirit.com/afghani-drops-10-percent-in-two-months/.

[10] Choi, Charles Q., “$1 Trillion Trove of Rare Minerals Revealed Under Afghanistan,” Live Science, September 4, 2014, http://www.livescience.com/47682-rare-earth-minerals-found-under-afghanistan.html.

[11] Casey, Brittany and Chirico, Peter, “Topographic and Hydrographic GIS Datasets for the Afghan Geological Survey and U.S. Geological Survey 2013 Mineral Areas of Interest,” U.S. Geological Survey Open-File Report 2013-1124, 16 p., http://pubs.er.usgs.gov/publication/ofr20131124.

[12] O’Donnell, Lynne, “China’s MCC Turns Back on US$3b Mes Aynak Afghanistan Mine Deal,” South China Morning Post, March 20, 2014, http://scmp.com/print/news/world/article/1453375/chinas-mcc-turns-back-us3b-mes-aynak-afghanistan-mine-deal.

[13] O’Donnell, Lynne, “China’s MCC Turns Back on US$3b Mes Aynak Afghanistan Mine Deal,” South China Morning Post, March 20, 2014, http://scmp.com/print/news/world/article/1453375/chinas-mcc-turns-back-us3b-mes-aynak-afghanistan-mine-deal.

The Times of India, “India Denies Scrapping of Afghan Iron-Ore Mining Project,” May 24, 2015, http://timesofindia.indiatimes.com/world/south-asia/India-denies-scrapping-of-Afghan-iron-ore-mining-project/articleshow/47408359.cms.

[14] Wilson, Forbes, “The Conquest of Copper Mountain: A Vivid, Personal Account of the Discovery and Development of a Spectacular Outcrop of Ore in the Remote Peaks of Irian Jaya, Indonesia,” Atheneum, 243 p.

[15] Montlake, Simon, “Freeport-McMoRan in Papua,” Forbes, February 1, 2012, http://www.forbes.com/global/2012/0213/feature-indonesia-freeport-mcmoran-back-fill.html.

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David Coghlan works for the Under Secretary of Defense for Intelligence in the Office of Warfighter Support. He is a retired navy intelligence officer and former faculty member in the M.S. in Strategic Intelligence Program at the National Intelligence University, where he taught Geostrategic Intelligence Issues in South Asia and Advanced Analysis, among other courses. The views expressed in this article are those of the author and do not necessarily reflect the position of the Defense Department or the U.S. Government.

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