The colour of money. Black is missing. https://t.co/aZoP8Wq0B0
— Soumya Sarkar (@ssarkarhyd) November 8, 2019
For years, isolationism guided Uzbekistan’s interactions with the wider world. Now, however, reforms stemming from a political succession in Central Asia’s most populous country are reverberating far beyond Tashkent. As part of its political evolution, Uzbekistan has strengthened cooperation within Central Asia while also becoming an increasingly attractive partner for Russia, China, and the United States as they engage in a strategic competition for influence and investment in the region. The opening presents significant opportunities for Uzbekistan to expand its economic and security outreach to its neighborhood, yet the changes also pose risks, as the competition among these larger powers could pull the country in directions it doesn’t want to go.
Breaking With the Past
Uzbekistan’s only transfer of power occurred in 2016, when septuagenarian President Islam Karimov, who had maintained an iron grip over the country since the late Soviet era, died. Karimov was succeeded by his longtime prime minister, Shavkat Mirziyoyev, who initially stayed the course in terms of policy, but more than three years after the strongman’s death, the new president is taking Uzbekistan in a new direction.
Mirziyoyev’s first major act was to liberalize the country’s foreign currency conversion peg. Under Karimov, the government in Tashkent maintained heavy restrictions on the conversion of Uzbek som into dollars; few people apart from the politically well-connected could convert money, producing a high discrepancy between the official conversion rate (4,000 som to the dollar) and the black market rate (8,000). In September 2017, however, Miziyoyev lifted the fetters, effectively merging the rates. While that increased inflation in the short term, it significantly improved the business environment and extended convertibility to average citizens, leading to substantial economic gains.
Next, Mirziyoyev liberalized the country’s visa process in an effort to attract more tourists and foreign investment. Uzbekistan granted the citizens of nearly 100 nations visa-free access and implemented a streamlined an e-visa process that eased arrivals for others, including from the United States. That led to a doubling of tourism revenues (which constitute more than 3.4 percent of gross domestic product) from roughly $500 million in 2016 to over $1.1 billion in 2018 and raised investment as a percentage of GDP to 38 percent, a double-digit increase from previous years.
These domestic reforms paralleled Uzbekistan’s efforts to improve its relations with its neighbors. Under Karimov, Uzbekistan navigated an especially fraught relationship with other Central Asian states, particularly Kyrgyzstan and Tajikistan, with which it shares the strategic yet contested Fergana Valley region. Disputes over border demarcation and water resources produced regular confrontations among the three, contributing to major political instability and periodically leading to violent protests and ethnic clashes. Mirziyoyev has made efforts to better demarcate the countries’ intricate borders, reducing the number of disputes that marked the Karimov era, while also collaborating on water sharing. This, in turn, has led to a significant increase in inter-regional trade turnover, which rose more than 27 percent in the first five months of 2019 compared to 2018.
But perhaps the most substantial shift under Mirziyoyev is the end to Uzbekistan’s isolationism when it comes to the major external powers in the region. Unlike Kazakhstan and Kyrgyzstan, Uzbekistan under Karimov chose not to join Russia’s alliance network through blocs like the Collective Security Treaty Organization and the Eurasian Economic Union (Tashkent was, however, briefly a member of the former before pulling out) and chose to keep Moscow and Beijing at an arm’s length, fearing their overbearing political influence. Moreover, in 2005, Uzbekistan kicked the United States out of an air base in Karshi that the U.S. military had been using for logistical operations in Afghanistan after Washington criticized Tashkent over human rights abuses in that year’s Andijan massacre.
All these measures preserved the country’s neutrality, but they also inflicted a substantial cost, as Uzbekistan missed out on foreign investment and economic growth even though it enjoys, by regional standards, a relatively diversified resource base with supplies of oil, natural gas, minerals, and cotton and other agricultural products. Mirziyoyev sought to rectify the issue by pursuing economic reforms and signing a number of trade and investment deals with Russia, China and, to a lesser extent, Western countries benefitting the energy, transport, telecommunications, banking and other sectors. The president also indicated a willingness to pursue greater security cooperation with his larger neighbors, resuming joint military exercises with Russia for the first time in more than a decade and cooperating on counterterrorism operations with Moscow and Beijing.
The Cost of Opening Up
Given Uzbekistan’s size, resources and strategic location, its recent transformation has had an impact not only within the country but across the wider region. Nevertheless, the reform efforts have not come without obstacles or unintended consequences. Initially, the greatest pushback to Mirziyoyev’s reforms came from the country’s pervasive National Security Service (SNB), which wielded significant power under Karimov. The SNB and its leader, Rustam Inoyatov, was far more conservative and resistant to reforms, delaying the economic and visa liberalization efforts. Mirziyoyev, however, persevered, gradually removing obstacles in the SNB before finally dismissing Inoyatov at the beginning of 2018, clearing the way to push his reforms through. Unsurprisingly, however, bureaucratic inertia persists, and elements within the security services continue to oppose Mirziyoyev’s initiatives.
Another challenge that Uzbekistan faces in implementing economic reform and attracting large-scale foreign investment is structural. Given that the country’s centralized economy has proceeded for decades with few changes, the privatization process has been exceedingly slow; in fact, more than 85 percent of companies in the country remain state-owned, as the government retains a controlling stake in all sectors it deems strategic. Considering enduring challenges over the rule of law and mid- and lower-tier civil servants’ lack of familiarity about how to implement reforms, it will likely take years before Uzbekistan can attract significant foreign — especially Western — investment. This will give Russia and China and their large state-owned enterprises an advantage in reaping the benefits of Uzbekistan’s opening and gaining greater access to its resources, although Tashkent does not want to exclude other investment partners, especially from the United States and Europe.
As Uzbekistan opens up, competition between Moscow and Beijing over its alignment is likely to increase, making it a source of friction and potential confrontation between Russia and China down the line.
On the foreign policy side, the same opening that has attracted greater involvement from Russia and China could also foster greater competition between them as they both strive to increase their influence in Uzbekistan. Russia, in particular, has reinvigorated its efforts to pull Uzbekistan into its orbit via the Eurasian Economic Union; Tashkent has said it is studying the prospect, but it is nevertheless likely to resist for fear of losing its maneuverability and undermining cooperation with other powers, such as China — especially given Uzbekistan’s participation in the Belt and Road Initiative. Ideally for Uzbekistan, Tashkent could improve economic and security ties with all major external powers while preserving its autonomy and eschewing membership in foreign-led blocs as part of a multivector foreign policy. But as Uzbekistan opens up, competition between Moscow and Beijing over its alignment is likely to increase, making it a source of friction and potential confrontation between Russia and China down the line. That, naturally, could foment political instability, put investments at risk and disrupt — or even reverse — Uzbekistan’s outreach and emergence from isolation.
In the end, the reform process has produced both significant opportunities and looming challenges for Uzbekistan. As Mirziyoyev’s government initiates further changes — from banking and tax reform to further travel and currency liberalization — the proposals will test how much the country is truly willing to come in from the cold, just as the competition over Tashkent’s alignment and orientation will only intensify among the great powers.
In January 1992, during his tour of southern China, Deng Xiaoping stated that just as ‘there is oil in (the) Middle East, China has rare earth’. Today, the stark reality of that statement is evident as technology becomes increasingly reliant upon those resources. Consequently, that becomes a geopolitical issue; while China remains the world’s manufacturing hub, it also has the power to manipulate and ultimately weaponise, both economically and militarily, the supply of rare earths.
China also controls around 80 per cent of global rare earth elements processing. Chinese facilities produce rare earths, trace quantities of which are used around the world in items such as smartphones, electronic appliances, electric vehicles and in military applications, such as missile guidance systems. Thus, just as with its other geopolitical contests, China’s ability to acquire and control these resources becomes vital to its quest for geopolitical hegemony.
Beijing’s control of the global REE supply is an Achilles heel for other states, especially the US amid its ongoing trade war with China. Apart from a brief diplomatic spat between China and Japan in 2010, involving the detention of Chinese fishermen, which led to China reducing its REE exports to Japan, the US and the European Union by around 40 per cent, there are scant examples of the weaponisation of these commodities. Nonetheless, China could choose to use its resources as a bargaining chip with other countries. Those countries, in turn, are thereby forced to diversify their rare earth supplies by sourcing them from countries other than China. The recent visit by US Commerce Secretary Wilbur Ross to Australia for discussions on creating a joint strategy between the two countries on rare earth and critical minerals, serves to underline the importance of REE to global market stability.
This paper will explore how China has strategised its monopoly on rare earth commodities and the impact of that action at the geopolitical level. Second, it will examine how countries such as Australia and the US may navigate around that monopolisation, which will also have implications at the political level. It will also examine, lastly, what impact the discovery of significant REE deposits outside China will have on the global rare earth market.
Rare earth elements are strategic, non-renewable resources that comprise fifteen elements in the periodic table, and range from heavy to light REEs. The heavy REEs include europium, lutetium and yttrium, while light REEs include lanthanum, cerium, praseodymium, neodymium and samarium. Despite the name, REE deposits are widely available; what makes these elements “rare” is that, in general, they are often found within a compound, which makes their extraction often expensive and toxic. It is the reason why China has been left to process these elements; dealing with the consequences of chemical waste can be too costly for developed countries that have stricter environmental regimens. Further, not all of these elements are equally available; in general, the larger the atomic number, the less abundant those elements are. Thus, cerium is the most widely available, while lutetium is the least abundant.
According to information from Geoscience Australia, there are approximately 120,000 kilotons (kt) of REEs globally that exist in oxide form. Of that amount, about 44,000 kt or 38 per cent of the world total, is found in China; Brazil and Vietnam rank second-equal, each with 22,000 kt (19 per cent). Australia, on the other hand, possesses about 3,660 kt or three per cent of the global total, but is ranked second in production with 19 kt, while China produces 120 kt per year. The most abundant rare earth deposit in the world is located in Bayan Obo, in the Chinese region of Inner Mongolia, which accounts for around half of the total global REE production.
Although China employs a “no-strings attached” foreign policy to advance its strategic interests, Beijing does have ulterior geopolitical motives that, nevertheless, combine to benefit it in the long run. For instance, China looks towards Afghanistan to secure the estimated US$1 trillion in REE deposits in Helmand province. That figure equates to about 1.4 million metric tons of REE. That motivates Beijing to negotiate Kabul’s involvement in its Belt and Road Initiative (BRI) project, especially now that the US appears to have decided to withdraw from the area.
A similar case can be seen in Brazil, which possesses the largest known deposits of niobium, along with significant amounts of tantalum and dysprosium. Brazil found itself unable to resist Beijing’s economic lure. Although niobium and tantalum are not counted as REEs, their use and rarity are arguably on par with true REEs. Niobium is mainly used to harden steel, with applications in aero-technologies and missiles, which makes it a strategic metal, according to the US Government. As Beijing controls the majority of steel production, five of its companies, Bao Steel, CITIC, Anshan Iron & Steel, Shougang Corp. and Taiyuan Iron & Steel acquired 15 per cent of Brazil’s niobium producing mill, CBMM, worth US$1.95 billion in 2011. This means that, while Brazilian President Jair Bolsonaro wishes to reduce his country’s dependence on China as a source of income, particularly when it comes to ore exports, Beijing will be sure to include Brazil’s strategic resources in the agreement.
The monopolisation of REEs by China becomes most visible in its possible use in a trade war with the US. In May this year, President Xi Jinping visited a rare earths processing facility, JL Mag Rare-Earth in the city of Ganzhou, where he remarked that China must prepare itself for a “long march”, referring to the 1934-36 strategic retreat of the Communist Red Army from the opposing Kuomintang troops. On one hand, the symbology of the visit was designed to reflect and galvanise a spirit of unity amid hardships. The practical intent of the visit, on the other hand, was to convey a veiled threat to Washington over its reliance on Chinese REEs. Furthermore, as the extraction process for REEs differs from site to site, Beijing has also increased its grip on REEs by increasing the number of patent registrations for processing them. Between 1950 and October 2019, China registered 25,911 patents, versus 9,810 registered by the US, 13,920 by Japan and 7,280 by the European Union.
The application of REEs in civilian and military uses could also alter the geopolitical landscape. As long as China remains the hub of global manufacturing, it dominance poses a challenge to other countries that might stand against Beijing. Also, as with other potential scenarios, should a US-China conflict occur, the US and its allies would be hard-pressed to secure the supply of REEs for their missiles, particularly those for the Predator UAV systems, as well as laser-targeting and combat systems. The US increased its imports of rare earths from China to US$160 million in 2018, a rise of 17 per cent over the previous year, for the construction of its F-35 fighter aircraft alone, as each requires 415 kg of rare earths over the course of its production. In comparison, the Virginia-class submarine requires four tonnes, while each Arleigh Burke-class destroyer requires 2.3 tonnes of REE alloys. The US, despite having a rare earth mine in Mountain Pass, California, exports the majority of its 4,000 tons of RRE to China to be processed. That growing dependence compelled the Pentagon to adopt the Defence Productions Act III to strengthen the security of domestic production of rare earth metals.
Aside from military use, REEs are crucial for civilian use in rechargeable batteries, magnets used in electric motors and generators, and computer components. With increased application, the criticality of the resource has been exacerbated by its monopolisation by China, which amounts to a weaponising of the resource sector. In 2018, Beijing was accused of dumping products that undermine the security of US-based rare earth metal productions. In doing so, China undoubtedly lowered the price of materials, thereby undercutting producers in other countries and driving them out of business.
For example, Molycorp Inc. acquired the Mountain Pass mine in California in 2005 from Chevron. It then re-opened the mine in 2011 and produced 19,000 metric tons of rare earths per year, particularly cerium and lanthanum. Trouble soon began when the cost to produce one kilogram of REE reached US$20, while the market price for REEs at the time was at US$7. At the same time, China was ordered by the World Trade Organisation to lift its 2010 embargo on REE trade, leaving it free to flood the market with cerium – the cheapest and most abundant REE, which also happened to be the most-produced REE at the Mountain Pass mine.
In short, along with the monopoly and abundance of REEs, China has relied upon its ability to cause a surge in availability to put its rivals out of business with its low costs and overall cheap production. Besides, California’s stringent environmental laws rule out competing with China.
Weaponisation of REEs
It is important to note, however, that despite the temptation for Beijing to impose a ban similar to that of 2010, there are two reasons why it is not feasible for it to do so. First, using REEs as a means to pressure the US would only highlight China’s own reliance on the global production chain. That would undoubtedly put a dent in Chairman Xi Jinping’s US$300 billion “Made in China 2025” initiative, whereby the majority of the world’s high-end electronics – all of which require REEs – would be produced in China. That would include electric vehicles, which require high-end neodymium and samarium magnets.
If Beijing decides to limit the export of REEs, the US could impose similar limitations on its exports of those REEs that China requires, for instance, neodymium-praseodymium oxide, while simultaneously limiting the export of semiconductors, which are critical to China. Countries other than China can also innovate and recycle these vital materials. Japanese car companies such as Toyota and Honda, have developed innovations that do not require REEs to build permanent magnets in their electric vehicles. Hitachi has found a method to recycle used REEs, use more widely available rare earths in its alloys, or avoid them altogether. South Korean conglomerate Samsung and US Apple, on the other hand, have chosen a more direct approach of recovering rare earths from their products while simultaneously reducing electronic waste. There is also a substitute for the REEs that can be used in case of shortages which includes further research to synthesise products using standard metal alloys and the development of paramagnets.
Beijing has cracked down on illegal mining, production smuggling and the reuse of REEs. The Chinese Government started this clampdown in 2009, arguing that it drives down the price of rare earths. Any further restrictions will undoubtedly incentivise individuals outside the state’s six mining companies to take advantage of the higher market price of the REEs and lower domestic cost. Also, the quantity of REEs needed to manufacture various products are not the same. Smartphones, computers and display screens require fewer materials than more sophisticated military equipment. Consequently, REEs can be sourced from other countries, such as Australia and Japan, which means the impact on importing countries may not be as large as anticipated.
The second reason why China will not succeed in its REE trade restrictions, and perhaps the most crucial, is the development of REE processing facilities in countries as diverse as Malaysia and the US. After the 2010 embargo, countries that were dependent on Chinese REEs started to diversify their sources of the elements. The problem, as noted earlier, is not about supply, as they are widely available; the issue is a matter of processing the materials without incurring significant environmental damages. While China has been successful in this matter, the Japanese-backed, Australian company Lynas Corp., the largest supplier of REEs outside China, has received growing attention for both its Mt. Weld mine and Kuantan processing facility. The Pentagon, in particular has been in talks with the Australian Government to establish processing facilities that ‘would take care of our DoD needs, [and] a variety of other international needs as well’, according to Ellen Lord, the Undersecretary for the US Department of Defence.
A similar tone was conveyed by the US Secretary of Commerce, Wilbur Ross, during his visit to Canberra to meet Resources Minister, Matt Canavan. During that meeting, both parties stipulated that the US and Australia need to break the stranglehold of Chinese dominance in the REE market by continuing to develop capabilities outside China. Consequently, Lynas Corp. has also started talks with the US-based mining processor, Blue Line Corp., to form a joint venture that aims to fill the gap in the US supply chain. A possible new processing centre in the US will be opened in Texas to increase domestic production. The US has also started to develop its capabilities at the Mountain Pass mine under the new ownership of Las Vegas-based MP Materials.
A Changing REE Landscape
In 2018, Japan discovered REE deposits on Ogasawara Island that have the potential to supply REE commodities for the next 780 years. The 400-square kilometre seabed contains an estimated 16 million metric tonnes of rare earth oxides. There are two perceived problems with this discovery. First, is the extraction, as the ores are located six kilometres below the surface and, second, it does not solve the problem related to the processing of the materials, which will have to be processed in Chinese-controlled facilities unless Western environmental laws are changed to accommodate their processing.
Similarly, North Korea has also discovered rare earth reserves worth between US$6-10 trillion, perhaps the largest in the world. China has been looking to exploit such reserves but has been unable to do so effectively due to the crippling sanctions in place against Pyongyang. Nonetheless, China has infrastructure projects near its border with North Korea to give it easier access to the resources. South Korea, on the other hand, sees the discovery of REEs as a potential bargaining tool for reunification with its northern neighbour.
Overall, as long as China remains the world’s production hub for REEs, Beijing will continue to assert its economic power by essentially weaponising its REE production. There are ways, however, as seen with Japan’s initiatives, to counteract such moves. Primarily, the two critical initiatives required are innovation and more processing facilities. For the immediate future, despite the environmental degradations, opening more processing facilities will enable countries other than China to secure their REE supplies. In the longer term, using fewer of those materials, or replacing the use of rare earths in electronic products, will slowly reduce the importance of these commodities and, in doing so, reduce the strategic REEs advantage currently enjoyed by China.
And that rush is a direct result of Trump’s pressure on the Afghan government to open up the country to foreign corporations.
By Antony Loewenstein
The Afghan war is the addiction that Washington can’t quit. The longest war in US history, it’s a conflict that has generally fallen out of Western media coverage, despite surging violence against civilians (though The New York Times is a rare outlet that documents it weekly). An average of 57 Afghan soldiers and police are killed every day, according to a leaked assessment by Afghan officials in 2018. Data from the US Air Force confirmed that the country was bombed more in 2018 by the Trump administration than at any time since the October 2001 US invasion—and Afghan civilians are dying at record rates.
Despite the increased US bombing—or perhaps because of it—the Taliban have strengthened their grip across the nation. The Kabul government tenuously controls barely more than 50 percent of Afghanistan’s districts, according to the US Special Inspector General for Afghan Reconstruction (SIGAR).
And despite the intense fighting, peace talks between the United States and the Taliban reached a new level of seriousness in early 2019, with the announcement that the broad outlines of a peace settlement had been reached; key elements include the removal of all US troops and guarantees by the Taliban that they will not tolerate international terrorist groups like Al Qaeda. Many Afghan women remain concerned, however, that their voices have been excluded from the process.
The US special envoy to Afghanistan, Zalmay Khalilzad, said late last year that he was “cautiously optimistic” a peace deal would be struck by April 2019, when the country’s presidential election was initially scheduled (it’s been delayed until July because of disarray after the October 2018 parliamentary vote).
While the war continues to rage in nearly every corner of Afghanistan, one issue barely investigated is the rush to mine valuable Afghan resources. I’ve been reporting on this subject since 2012, visiting Afghanistan twice for research, and the situation has never been so dire; massive contracts are being signed with little transparency or concern about the negative consequences for civilians. With $1–3 trillion of resources estimated to be under the ground, from rare-earth minerals to lithium and copper, the rush is on. It’s crucially relevant to current developments that Khalilzad, a neoconservative who served in senior roles in the George W. Bush administration, also worked with his son during the Obama years to exploit and profit from Afghan oil (though most of their plans failed). Khalilzad has done consulting work for oil companies, including Unocal in the 1990s, that were keen to develop a pipeline through Afghanistan during the period of Taliban rule.
The minerals rush is a direct result of the Trump administration’s active pressure on Afghan President Ashraf Ghani to open up his country to foreign mining corporations. A surging civil war and chronic government corruption, among other ills, have apparently not dampened Washington’s desire to generate revenues from the never-ending conflict. President Trump views it as perhaps the only reason to keep US forces in Afghanistan. He has argued that such investment could help the US economy, secure jobs, and challenge China’s dominance in the global rare-earth market.
This is one of many reversals by Trump. During the 2016 presidential campaign, he was frequently skeptical about US military interventions. But after taking office, he increased the number of US troops in Afghanistan to around 14,000. Recently, though, he surprised even his own advisers by announcing a troop drawdown of around 7,000.
There’s been no discussion in the peace talks of the country’s prized natural resources and who would exploit them if the war ends. A senior Afghan government source in Kabul tells me that he believes any peace agreement is unlikely to force all US assets to leave because Washington won’t tolerate the country’s being controlled by Iran, Pakistan, China or Russia.
When Ghani met Trump in September 2017, he agreed to a “compact” that included a number of Afghan commitments, such as the signing of mining contracts that would give beneficial treatment to US companies. The White House statement after the event explained the rationale: “Such initiatives would help American companies develop materials critical to national security while growing Afghanistan’s economy and creating new jobs in both countries, therefore defraying some of the costs of United States assistance as Afghans become more self-reliant.”
Both Presidents George W. Bush and Barack Obama pushed mining on a country that wasn’t equipped to manage it; now the Trump administration has accelerated efforts to exploit Afghanistan’s natural resources. The Commerce Department and the United States Geological Survey visited Kabul in late 2017 to assess the viability of large-scale mining. They viewed the resources map archive, originally developed by Soviet geologists during their occupation in the late 1970s and ’80s, to understand the diversity and amount of minerals. According to The Daily Beast, the USGS signed an agreement with the Afghan government in early 2019 to assist in the development of the mining sector, proving that Washington has plans to remain in the country for a long time.
Sources in Kabul and Europe confirm that there are real prospects of increased violence if more mining contracts are signed in areas controlled by the Taliban or other insurgent groups like ISIS, which has gained ground recently in some provinces. The Ghani government is moving ahead regardless, without having consulted locals in targeted areas.
Blackwater founder Erik Prince is in the mix. He visited Kabul twice last year (I obtained evidence that the Afghan security company arranging his visits said he was coming as “Trump’s adviser”) and met senior Afghan government ministers to discuss a number of potential mining contracts in gold, gas, and lithium. Prince’s company, Frontier Services Group, has opened an office in the heart of Kabul. When the global broadcaster TRT World asked Prince recently about my revelations regarding his plans, he didn’t refute any of them. (Early this year, Prince announced that he was launching a $500 million fund to invest in minerals used in electric-car batteries, including cobalt and lithium from Africa and Asia.)
Although Prince has touted his scheme to privatize the Afghan war, an idea currently rejected by Trump, his goals are far more extensive. That’s why he’s supporting Ghani’s political opponents: The Afghan president is a vocal critic of Prince (though some of his advisers back the Blackwater founder). The Afghan government released a statement in October that read, in part, “Under no circumstances will the Afghan government and people allow the counterterrorism fight to become a private, for-profit business.” In the murky world of Afghan politics, where political opponents are routinely targeted, Prince views such alliances as financially sound.
The presence of a scandal-plagued mercenary and investor like Prince would be bad enough, but the situation is much graver than that. The Nation has obtained a series of documents written by a senior source in the Afghan bureaucracy with years of experience in the country’s mining sector and close ties to President Ghani. The files, which have never been publicly released, reveal the dangers of increased minerals exploitation and warn the president that corruption is now rampant in the industry.
The documents were sent to a close associate of Ghani, and the source tells me that Ghani regularly used his talking points in meetings after seeing them. The documents paint a picture of potential and actual corruption within the Afghan Ministry of Mines and Petroleum (MoMP), which is led by Nargis Nehan. One of them, written soon after Trump was elected, explains that the Afghan “political elite is seeking rent from the potential of the extractive industries through development of new networks which include shadow actors and characters who oppose the emergence of a strong state in Afghanistan. Among the actors who are doing a lot of damage [are] active and former diplomats turning into lobby[ists] for junior mining companies.”
The file lists former Afghan ambassadors to the United States and Canada, along with the former Afghan consul general in Ottawa, pointing out that “diplomats are turning into businessmen in [their] quest to join the political elite group.” Making matters worse, it continues, “cash-drained and fatigued [foreign] donors have occupied important space to push and engineer decisions on the [mining] sector without reading [i.e., understanding] the chaos [it would create].”
The United States Agency for International Development (USAID) hosted a large meeting in Kabul in February 2018 to “support greater participation in the mining sector.” US Ambassador to Afghanistan John Bass said that “developing Afghanistan’s mining sector provides great potential for employment and economic growth.” USAID refused to release a guest list for the event.
Another document sent to Ghani raises many concerns about Minister Nehan and the ways in which her department allocates mining contracts. It alleges that favored companies are given exclusive access to win contracts, especially in the talc sector (talc is a valuable mineral for Western markets; the United States and European Union are the world’s biggest customers, and use it to make everything from paints to plastics). The document claims that Core Drillers and Natural Stone, two Afghan companies with strong US connections, won contracts even though there was evidence that some of the participants had been involved in the illegal extraction of talc for decades. The NGO Global Witness released a report last May that outlined how talc was fueling the insurgency, including the Taliban and ISIS, in Nangarhar province.
An Afghan mining source recently visited the Afghanistan-Pakistan border under cover and witnessed hundreds of trucks carrying illegally obtained coal, talc, and lapis into Pakistan. He told me that coal transport was controlled by Iran-backed Afghan warlords—the same warlords who have formed Afghan Shiite militias that fight in Syria on the side of the Assad regime.
The talc is traded and sold by mafia groups tied to Pakistani dealers, but the product is ultimately destined for Europe and the United States. The lapis trade is controlled by Afghan warlords, with members of Parliament and figures close to President Ghani complicit in this massive robbery worth billions of dollars every year.
Another document seen by Ghani further suggests that Afghan members of Parliament have been operating mines for years without paying any taxes. The writer of the document claimed to have intimate knowledge that mining companies were bribing senior ministers. The document further detailed that evidence showed how Afghan mining corporations paid US dollars to MoMP officials to ensure that contracts would be approved.
The corruption doesn’t end there: A 2017 report from the United States Institute of Peace pointed out that Afghan politicians routinely avoid paying taxes or royalties on their illegally run mines. This January, Afghanistan was suspended from the Extractive Industries Transparency Initiative, a global mechanism for good governance in the oil, gas, and mineral sectors, because of consistent failures in fully implementing its recommendations.
Another file sent to Ghani lists close to 50 mine sites around the country, operating both legally and illegally, the vast majority of them labeled “insecure” and prone to insurgent attacks or instability arising from corruption and poverty.
According to a 2015 report by the Afghanistan Natural Resources Oversight Network, there are more than 2,000 sites run by smugglers or insurgents without licenses or oversight.
In another document written by the Afghan mining expert, Ghani was informed about the role of Adam Smith International (ASI), a British-based free-market consultancy that’s one of the UK’s biggest foreign-aid contractors. The company, which has been in Afghanistan since 2002, assists in the development of the mining sector. In a damning 2017 report by British parliamentarians, ASI was accused of ethical breaches; as a result, the UK government cut its £268 million budget (though the company was once again able to bid on contracts from early 2018, after the British government’s International Development Committee found most of the claims false while noting that ASI “acted improperly”). Focused on privatization instead of state-backed infrastructure, ASI helped draft Afghanistan’s flawed 2014 Minerals Law, which left the sector open to corruption.
I asked Afghan Mining Minister Nehan a number of questions about her management of the department and about accusations of favoritism and corruption. She told me that she had a seven-year plan to modernize the mining sector, which included minimizing “illegal mining activities” and improving “contract and revenue management.” She denied any wrongdoing, accused her critics of being “not well supported by verified information and documents,” and praised her department for pushing through contracts that had been stalled for years.
“In a country going through decades of conflict, there are critics and lack of confidence due to weak governance,” Nehan said. “But as the acting Minister of Mines and Petroleum, all my decisions have followed due process and I am ready to be held accountable.”
Nehan’s vision for the Afghan mining sector is a “responsible, equitable, and balanced development of Afghanistan’s extractive sector in order to ensure the benefits of the natural resources serve the interests of Afghan people for generations to come.” Despite the violence and corruption, she opposed stopping mining activities, because then the “natural resources of Afghanistan will remain the second revenue source for the insurgents.”
She said that Afghanistan had to be “self-reliant by 2024” (this refers to a 2011 agreement in which the international community pledged to contribute substantial assistance until that year) and therefore “development of the sector is a high priority since it not only generates revenue but also creates thousands of direct and indirect jobs…and reduces the income of illegal miners [e.g., insurgents] while adding to state revenue.”
It wasn’t until September 2018 that the Ghani government announced major new mining contracts, after years of delay. One was granted to the Afghan-registered Silk Road Mining & Development company, which signed a deal to exploit copper in western Herat province. The company’s CEO, Asia-based Christopher Logan, tweeted that “after 7 years and considerable work from Gov’t of Afghanistan and Silk Road Mining, we signed the 1st large scale mineral development contract in the country. Our Shaida copper project will become the cornerstone of a new professional, sustainable mining sector in Afghanistan.”
Silk Road Mining will have to manage security around the mine in an area beset with increasing violence. In the past, this has often meant paying insurgents not to target the company’s employees and hiring private security companies to quash any civilian opposition. It was generally a recipe for increased violence.
Stephen Carter, the Global Witness Afghanistan campaign leader, told me that his organization had raised concerns about the Shaida copper project and spoken to both the Afghan government and Silk Road. Carter said that there weren’t any obvious “red flags” in the contract, and the firm presented a moderately plausible claim that it knew how to bring in the “right expertise” to successfully manage it.
This was the second major copper contract awarded to a private company, after the troubled Mes Aynak site in Logar province—which has seen heavy insurgent activity—was granted to a Chinese firm in 2007. I visited the area in 2015 and found civilians cowering in fear, with barely any services or support from either the Kabul government or the Chinese company. Many of the local men were on the verge of joining the insurgency in frustration.
The worrying history of the large lapis mine in northeastern Badakhshan province should serve as a warning. Opened in 2014 with high hopes of bringing in much-needed revenue for the government, within 21 days it was taken over by a militia supported by factions in the Afghan political elite. The Taliban and militia shared the profits from the mine.
The biggest mining contracts signed by the Ghani government occurred recently after intense pressure from the Trump administration (and not long after troubling amendments were made to Afghanistan’s Minerals Law that included lessening anti-corruption measures and ignoring the rights of local communities). A Kabul-based mining source, who wrote the documents seen by the Afghan president, told me that Ghani had read the files he’d written and pledged not to sign any contracts because of their inconsistencies and other problems. But that recently changed, because “what he [Ghani] perceived to be the broader goals to stabilize Afghanistan”—pleasing Trump and needing US troops to fight a raging insurgency—forced his hand. The mining source said that the US and UK embassies, along with the World Bank, had pressured Ghani and Mining Minister Nehan.
Two contracts were signed in October for copper and gold exploration in the north of the country. The Badakhshan and Balkhab district mining contracts sparked immediate opposition from civil-society groups in Afghanistan and around the world. Global Witness, Mining Watch Afghanistan, and Afghanistan’s Environmental & Natural Resources Monitoring Network released a public letter to Ghani in late November that explained why he should reverse his decision:
Our major concern is that the contracts appear to be in clear breach of Article 16.5 of the 2014 Minerals law, which bars former Ministers from obtaining a contract for 5 years after leaving office. Mr. Sadat Naderi, who until June 2018 was minister for Urban Development, has a 51% stake in the Balkhab contract, and a 25% stake in the Badakhshan contract…. we understand that the government’s most recent and complete legal advice also took this view—raising the question of why this was not acted on.
Javed Noorani, who has been a Kabul-based researcher on the mining sector for over a decade and is a member of the Monitoring Network, told me that President Ghani is under pressure to sign new mining contracts, which “will be a recipe for mismanagement of the sector and will worsen the situation.”
Noorani said that Afghanistan was in a very fragile condition and should not be pressured by Trump to further exploit its resources. “If I were the [Afghan] president, I would give myself the time to create political consensus and develop a vision for the sector,” he said. “The president is put under pressure to sign more contracts. Those who want the government to sign more contracts know that it has not been in a position to manage the already-signed ones.”
“Among the three major parties, the state, insurgents, and warlords,” he added, “the government has collected the least amount of rent from the sector. I would contract mines once I have a sound legal base and well-coordinated institutions to manage the contracts better so that they are peace-productive rather than conflict-productive.”
Washington has pursued mining options in Afghanistan since the era of President George W. Bush, but success has been elusive. A 2016 report by SIGAR, the US special inspector general, found that Washington had spent $488 million to kick-start the sector, with no positive outcomes. Corruption, instability, violence, and poor or nonexistent planning all contributed to the failures.
USAID and the Defense Department supported the plans, but achieved next to nothing. A $43 million gas station, which supplied compressed natural gas and should have cost $500,000, was viewed as one of the few successes—despite the fact that most cars in Afghanistan run on diesel or petrol.
Carter of Global Witness told me that his organization had concerns about any pressure the Trump administration might exert on Kabul to expedite mining contracts and award US companies, though he had seen no “blatant, inappropriate pressure.” Carter said that the mining sector could help with Afghanistan’s economic development if the country’s governance issues were seriously addressed. In the current political climate, this is highly unlikely.
The Soviet Union was quick to see the potential of Afghan resources soon after that country’s 1979 invasion. Analyses from the early 1980s suggested that Moscow occupied Afghanistan in part to gain valuable minerals. Journalist Edward Girardet, writing in 1982 for The Christian Science Monitor, argued that “the Soviet Union’s exploitation of Afghanistan’s natural resources has amounted to nothing less than economic pillage.” He estimated that it “contributes heavily toward subsidizing its estimated $3-$4 million a day military occupation costs.”
The Soviets focused on copper, natural gas, oil, and uranium, but US-supported insurgents routinely interrupted the work of extracting them. The Afghans themselves, wrote Girardet, “have to make do with coal and charcoal. By the end of 1980, reportedly not a single cubic meter of gas was being used in Afghanistan itself.”
History could be repeating itself. To discuss mining options, Trump or his senior aides have met with Michael Silver, the head of American Elements, a chemicals and rare-earth minerals company, along with Stephen Feinberg, whose private-equity fund, Cerberus Capital Management, owns the large military contractor DynCorp, which has been involved in Afghanistan for years. DynCorp has countless scandals to its name, including widespread allegations that the company’s employees hired young “dancing boys” in Afghanistan and ran a sex-slavery operation in Bosnia in 1999.
It seems unlikely that the Taliban or other insurgent groups will take control of the whole country, at least anytime soon; international military forces will probably protect Kabul from that outcome. Even so, it’s hard to imagine a peace agreement leaving Afghanistan in the hands of forces determined to protect the best interests of the Afghan people. Exploitation of the country’s resources seems destined to further inflame an already unstable climate. The Trump administration likely knows this but doesn’t care, so long as American companies are making a profit.
Clarification: We have amended the passage discussing the British organization Adam Smith International to note that it is a consultancy rather than a think tank, and that it was cleared of most of the charges leveled against it in a 2017 UK parliamentary report. Another paragraph discussing additional allegations against ASI was removed.