Afghanistan’s Economic Potential

ECONOMYOPINION 04.02.2022
Yasir Rashid Researcher

In Afghanistan, there are crucial mineral deposits, and the estimated value of those are 3 trillion dollars.

With a 38 million population, Afghanistan is one of the prominent countries which are subject to social, political, economic, and cultural vulnerabilities due to ongoing 40-years of civil war and external attacks. However, the formation of a new government based on democracy in the 2001-2021 period gave great hope to the people of this country. The created opportunities during this period have led to success in terms of education, health, and civil rights. Nevertheless, from an economic perspective, poverty, unemployment, low economic growth, and migration of Afghans to other countries are still the main problems in this country. This situation has worsened when the Taliban came back to power in August 2021. However, despite its fragile economy, Afghanistan’s vast mineral wealth and location on the regional transit pose a great potential in the long term.

Being a country in crisis, Afghanistan’s most prominent economic capability is its mineral resources. Its mineral deposits include natural gas, oil, coal, marble, gold, copper, chromite, kerolite, barite, sulfur, lead, iron, salt, precious and semi-precious stones, lithium, and construction stones. Despite its mineral wealth, the share of this sector in the country's total gross domestic product (GDP) is only 1.56%. However, according to some resources, Afghanistan's former government had planned in 2017 that the state’s revenue from the country's mines should have reached $ 1 billion a year. If these goals were met, the share of this sector in GDP would have naturally reached about 20 percent.

The biggest hope for economic growth relies upon mineral resources. An economy dependent on mining is one of the few options for establishing a domestic economy in the country. Studies in this regard demonstrate that Afghanistan has 3 trillion dollars’ worth of mines. The most considerable resources discovered in the country consist of iron and copper. It is estimated that the number of reserves of iron and copper is enough to make Afghanistan become the major producer in the World. The conducted studies suggest the worth of Mes Aynak (Aynak Copper Mine) in Logar and Hajigak iron reserves in Bamyan will reach an average of 900 million dollars in 2031.

Despite its vast mineral wealth, Afghanistan has failed to attract enough foreign investment into this sector. There is a limited number of countries invested in Afghanistan. The top investor in this sector in Afghanistan is China. The Mes Aynak Copper mine is among the mines China has invested in. The Mes Aynak, with 40 billion dollars of estimated value, is the most extensive virgin copper resource. Considering the value of the mine, two Chinese state-owned companies, Metallurgical Corporation of China (MCC) and Jiangxi Copper Company (JCC), signed an agreement worth 2.38 billion dollars in 2007 to lease the mine for 30 years. China’s desire to invest in Afghanistan's copper mines lies in need for its rising necessity of copper. The consumption of refined copper reached 23 million tons; China became the top user of the mineral with 11.3 million tons. Data shows that China did not gain any remarkable increments, although it has been 15 years after the MCC and JCC agreement.

The Chinese have also invested in the Amu Darya, located in the northern province of Jowzjan, suspended for security concerns and local opposition. Besides China, Türkiye and UAE also invested in the natural resources sector of Afghanistan. The Turkish Petroleum International Company and UAE-based Dragon Oil invested in the northern part of the country, the Afghan-Tajik Petroleum field. But there is no detailed information on the investment.

It is noteworthy to mention that one of the most precious minerals in Afghanistan is lithium. Although there is no definite information about the quantity and value of lithium in the country, it is estimated that Afghanistan has the second-largest lithium reserve after Bolivia in South America. Most of the lithium reserves in Afghanistan are located in the southern province of Ghazni. Due to security problems and political instability, no opportunity for investment occurred. However, considering the extent of illegal mining and mining smuggling in the country, smuggling this precious mineral is not a far-fetched possibility.

Lithium is being used strategically in new technologies like electrical devices. By considering the importance of lithium in electronic industries, lithium is branded as the new oil by some experts. With the rapid growth in technology and the rising demand for electrical devices, including electric vehicles, Afghanistan, which has significant lithium reserves, has become especially important for industrial powers such as China. In this context, China tries to build strong ties with the Taliban, who reclaimed the governance in Afghanistan in August 2021. Constructing stable relations between the Taliban and China will provide strategic benefits for both parties. In the long term, Taliban dominance in Afghanistan will ease China's lithium supply chain. On the other hand, Chinese investment in the lithium mine in Afghanistan could provide employment for the country in general and create income for the Taliban in particular.

Another important economic potential of Afghanistan is its transit position in the region. Afghanistan's strategic location can make the country a transit hub between Center and South Asia, Middle East, and Chinese markets. Afghanistan, with its strategic position, is of particular importance for the transit of energy (natural gas and electricity) and the transit of goods between the countries of South and Central Asia. In energy transit, the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project and the CASA-1000 electricity transmission project are two strategic projects in which Afghanistan plays a key role in their implementation. TAPI, if implemented, will transport Turkmenistan's natural gas through Afghanistan to Pakistan and India. CASA-1000 is also set to export electricity from Kyrgyzstan and Tajikistan to Pakistan and India through Afghanistan.

There are multiple projects Afghanistan played a constructivist role in the transition of trade and goods in the region. The Lapis Lazuli Agreement, the Chabahar Port Project, and the International North-South Transit Corridor (INSTC) are being examples of those projects. Due to India-Taliban relations Afghanistan might withdraw from the Chabahar Project. But Afghanistan is the main partner of the Lapis Lazuli project, which connects the country with Europe through Turkmenistan, Azerbaijan, Georgia and Türkiye. Especially for Türkiye, the Project can strengthen Ankara’s role in the region and expand its economic ties with Asia along with its new foreign policy orientation, the New and Re-opening Asia Initiative.

From China's point of view, Afghanistan is positioned strategically to enhance Eastern, Southern, and Central Asian relations. In this context, Afghanistan has also been a vital transit position in China's Belt and Road Initiative (BRI) project. With this project, China will connect to Europe via the China-Kyrgyzstan-Uzbekistan railway through Afghanistan, Iran, the Caspian Sea, Azerbaijan, and Türkiye. China is planning to construct a Wakhan Corridor to unite its Xinjiang region with Eastern and northern Afghanistan, Northern Pakistan, and the southern part of Central Asia. Afghanistan's position as a transition hub and among long-term Chinese projects will strengthen with the establishment of the corridor. It is noteworthy that BRI is also important for Afghanistan. The project could help Afghanistan establish its historical position as an "Asian transit and trade hub", connecting South Asia with Central Asia and East Asia with West Asia.

In conclusion, the Afghan economy is affected by security problems and political issues it is in. Security problems prevent a country from benefiting its economic potential. Along with those problems, corruption led to a loss of economic opportunities and properties. Afghan economists see the solution to Afghanistan's long-term economic dilemma in reliance on the domestic economy and indigenous capacities. However, considering the current situation and in the short term, it seems unlikely that the dilemma will be resolved. Demolished infrastructure and economic opportunities due to the war in the past will lead to the continuation of the matter in the future. Nevertheless, if the Taliban government gains legitimacy in the country and is recognized by foreign countries, and its security problems are permanently resolved, the country may become the hub of many foreign investments, such as China, in various fields. Hence, the country’s untapped natural resources can create an indigenous economy, which in the long term can increase government revenues and create employment opportunities for the country's young workforce.

Afghanistan Economy, Mines, Taliban, BRI

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