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Mining for Sustainable Growth in Afghanistan


September 30, 2010

The overarching objective behind the World Bank's involvement in extractive industries is to facilitate the industries' contribution to poverty alleviation and economic growth by promoting good governance and sustainable development.

The exploitation of mineral resources provides developing countries with considerable opportunities for economic development - but it also involves trade-offs with respect to the environment and the surrounding communities. Countries, communities and companies face tough questions about opportunities and risks as they develop steps to ensure responsible approaches toward mineral resource development.
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AF Econ

Mining in Afghanistan

In the midst of a cautious but growing enthusiasm about Afghanistan’s mineral riches, balance is needed between potential short term gains and the more crucial longer term vision and objectives for developing such vast resources.


Background

|| The Afghan government has also endorsed the principles of the Extractive Industries Transparency Initiative and has been designated by the Oslo-based secretariat of the EITI as a “candidate” country. Adherence to the standards of EITI will be also codified in the national legislation. || 

The long term vision in Afghanistan is developing an economically vibrant mineral sector which creates jobs, develops infrastructure, generates domestic revenue and ensures inclusive economic growth for the benefit of all Afghans. Simply put, if managed properly, mining in Afghanistan has the potential to be a driver of poverty reduction and sustained growth.

Achieving these developments will require strategic actions, and a long-term vision, to create an enabling environment for private sector investments that includes field security, good governance and transparency.

The Afghan government is conscious of the resource curse challenges and has taken important steps to address them. These steps include actions to improve the implementation of legal frameworks for effective environmental, social and fiscal regimes; the provision of training and capacity building in relevant ministries and agencies; and the overall improvement of the country’s security situation.

In this context, the World Bank Group and other partners have been supporting the Government of Afghanistan in establishing the building blocks for developing its mineral resources in an effective and transparent manner. These building blocks include broad institutional reforms, capacity building and transparency initiatives.

So far, this technical assistance work along the entire extractive industries value chain has included the establishment of good governance policies, laws, regulations and frameworks which are now in place; training of personnel and institutional restructuring which are currently under way; and the delineation of resource corridors that will help develop much needed infrastructure.

Avoiding the resource curse, however, will ultimately depend on the transparent and accountable actions of the Afghan government, its people, and the operating companies in the country.

Important challenges ahead

Although some progress has been achieved, it is evident that much work needs to be done to ensure the mining sector delivers on its potential to reduce poverty, foster sustainable economic growth, and improve the quality of life for the majority of Afghans. In that sense there are important challenges ahead:

Firstly, the development of the mining sector in Afghanistan is a process that will take a long time. Under the current circumstances, a major mine developed in the country will have some of the longest lead-times, capital requirements, and high operating costs of any global investment.

For any discovered deposit (i.e. Aynak or Hajigak), feasibility studies, issuing of permits, engineering, procurement and construction could require up to four or five years. And exploration for new deposits could require, on average, eight years to discovery.

Secondly, a major mine development will also require the development of infrastructure to support operations (water, power generation), capacity building, and the transport links to domestic and international markets (roads railways, pipelines).

And thirdly, it is crucial that the Afghan government and its development partners continue on with the preparation and implementation of a set of effective policies for revenue management, benefits sharing, and public-private partnerships for infrastructure development.

Some geographic areas, for instance, host multiple deposits and, if jointly developed, could support shared-infrastructure projects.

In this context, planning of transport for mining operations considers the concept of “resource corridors” which looks at the entire “value chain” of economic activities that could be established in mineral producing corridors. The guiding objective is to stimulate, through prudent planning of transport and other infrastructure investments, the development of several mines and spin-off activities in a particular area or corridor.

If these policies are properly developed and coordinated, the oil, gas and mining sector could indeed become an important driver for revenue generation, infrastructure development, and poverty reduction, also integrating Afghanistan with the rest of the world.

Achieving some milestones

Afghanistan is already making progress and achieving some milestones as world class deposits of Aynak (copper), Hajigak (iron ore), Sherbegon (gas) and other potential discoveries, through new exploration in the Afghan/Tajik basin, offer important opportunities for bringing much needed investment into the country. Some of these achievements include:

  • In 2006/2007, the government launched the first tender for the Aynak copper deposit. The award was granted to the MCC-Jiangxi Copper MJAM consortium. The scoring of the bids has been made public and the investment agreement has been independently reviewed and is highly favorable to the government. MJAM is currently conducting a feasibility study for developing the deposit.

  • The World Bank provided technical assistance for the tender of the Aynak copper deposit under the Technical Assistance and Feasibility Study facility and the IDA-financed US$30 million Sustainable Development of Natural Resources Project (SDNRP).On June 11, 2009, the Bank approved additional financing of US$10 million for the SDNRP.

  • In 2010, the government has initiated the tender of the Hajigak iron ore deposit, one of the largest undeveloped iron ore resources in the world. Technical assistance is being provided by the World Bank, UK’s DFID and US AID. Investors will be invited to submit tenders for the development of this deposit before the end of the year.

Potential for more jobs

Aynak and Hajigak would be, by a wide margin, the two largest investments in the history of Afghanistan. In addition to the US$2-3 billion for the mine developments, each mine would require investment in ancillary infrastructure in the order of US$2-5 billion.

A low-impact scenario, based on prevailing market conditions, projects the creation of more than 90,000 jobs, and approximately $500 million in fiscal revenues seven years hence. The contribution of the mines will also go far beyond their direct impacts on income, employment, fiscal revenues and the balance of payments as mines have spin-off effects in terms of providing contracts for numerous small businesses and services which provide the mine.

The Afghan government has also endorsed the principles of the Extractive Industries Transparency Initiative and has been designated by the Oslo-based secretariat of the EITI as a “candidate” country. Adherence to the standards of EITI will be also codified in the national legislation.

Finally, the government has made important progress on various fronts regarding the implementation of relevant regulatory reforms, accompanied with the respective capacity building, which should enable the environment for more potential investments.

Afghanistan’s Challenges and Progress

  • A Mining Law that strengthens the role of the state as “regulator” and aims to attract and retain private investment.

  • Mining regulations, under preparation, will strengthen the permit issuing process and provide for a schedule of royalties on minerals production.

  • The Ministry of Mines is procuring an international engineering firm to monitor contractual and regulatory compliance, including environmental/social standards.

  • A team of experts is advising on a new business plan that will help streamline the Ministry of Mines and make it better equipped to regulate the sector.

  • An expert team is assisting the Ministry of Mines in the establishment of a cadastre department to oversee and register issuance and maintenance of various mining titles.

  • Training and equipment is also being provided to the Department of Mines Inspection and the Afghanistan Geological Survey.

  • Afghanistan has now an environmental law with requirements on the preparation and approval of Environmental Impact Assessments and Social Impact Assessments.

  • The Ministry of Mines and the Ministry of Finance have developed a competitive taxation and fiscal package for mining sector investments.

Additional resources

Afghanistan Skills Development Project
is designed to increase the number of skilled Afghans and create a high-quality technical vocational education. Read More »

Afghanistan: Data & Statistics
A wide range of social and economic measures on Afghanistan, including links to the World Bank's most important online development databases. Read More »

Afghanistan: Analysis and Research
Compilation of all the World Bank's publications on Afghanistan. Read More »

World Bank Program in Afghanistan
Launching pad to all information on World Bank activities in Afghanistan. Read More »

Related Links

Feature by Mauricio O. Rios, Communications Officer, and Michael Stanley and Craig Andrews, Lead Mining Specialists, SEGOM


Last updated: 2010-09-30



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