Chinese Takeout

Cold economic realities dictate that China is going to be the big player in the new Afghan gold rush -- and Washington had better wake up to that fact, soon.

The prospect of cobalt in Kandahar has sparked lively debate about whether new mineral wealth -- if it pans out -- will aid or hinder U.S. policies in Afghanistan, as well as whether the country will fall prey to the so-called resource curse, as political scientist Michael Ross and others fear. But a short-term focus on Afghan-U.S. relations might be a mistake: The real winner from new natural-resource wealth beyond the Khyber Pass will be China. If the United States really cares about stabilizing Afghanistan's central government and eliminating terrorist havens, it needs to start working now to persuade Beijing that these are shared goals.

First, some background: Chinese foreign investment and aid has accelerated dramatically over the past decade, especially in Africa. In November 2009 alone, for example, China's largesse amounted to $10 billion in low-interest loans and $1 billion in commercial loans to the continent. With Beijing as cheerleader, trade has soared from $1 billion in 1992 to $106.8 billion in 2008.

In part this is due to China's willingness to do business with undemocratic, corrupt, and brutal regimes -- for example, in the Democratic Republic of the Congo (DRC), Sudan, and Zimbabwe. The DRC provides the best cautionary parallel to Afghanistan: The discovery in the late 1990s of copper, coltan, and other minerals in eastern Congo gave new life to a civil war that has now claimed upwards of 4 million lives. Flagging combatants were funded by mineral extraction, and much of those resources eventually flowed to China. The fact that violence is still simmering in eastern Congo -- and despite the costs that extraction imposes on the Congolese people -- has not been enough to deter Beijing from wooing Congo's government for access to the country's abundant resources.

So, if there's any thought that war in Afghanistan might dissuade Chinese investment there, it's best to dispense with that notion immediately.

China, which has a narrow land border with Afghanistan, already invests heavily in the war-torn Central Asian state. The state-owned China Metallurgical Group has a $3.5 billion copper mining venture in Logar province. Chinese companies ZTE and Huawei are building digital telephone switches, providing roughly 200,000 subscriber lines in Afghanistan. Even back in the war's early days in 2002 and 2003, when I worked in Afghanistan, the Chinese presence was acutely visible in Kabul, with Chinese laborers on many building sites and Chinese-run restaurants and guesthouses popping up all over the city. As Robert Kaplan has pointed out, these investments come with a gratuitous hidden subsidy from the United States -- which has defrayed the enormous costs of providing security amid war and looting.

With its massive wealth, appetite for risk, and willingness to underbid others on labor costs and human rights conditionality, China is the odds-on favorite for development of any new Afghan mineral resources. Chinese firms will control the flow of new funds, and the way those funds are distributed between the central and local governments. It's all well and good that Barack Obama's administration has recommitted to building civil projects in rural Afghanistan, but consider the relative scale of building a school to establishing a multimillion-dollar mine (not to mention the transport networks and infrastructure required to get the extracted minerals out) and it's easy to see what kind of influence the Chinese will bring to the table.

It is critical for Washington to start making the case to Chinese leaders that pure self-interest mandates they leverage this power wisely -- to promote stability, not catalyze new conflict, in Afghanistan. So far, China's investment in Logar has been in keeping with its "noninterventionist" foreign policy and was accompanied by development aid, but no overt political strings. Washington must require more from Beijing, however, to avoid upending all its hard-won gains.

The Obama administration has already asked China to contribute troops to the Afghan effort. This is a good first step, but a few hundred token soldiers will not make China a strategic partner in its Afghan campaign. It needs to persuade Beijing that the campaign is indeed China's campaign, too -- if not by touting democracy promotion and human rights, then surely economic benefit -- and that U.S. and Chinese strategies on Afghanistan converge.

This is not as hard as it sounds: As China-Africa expert Deborah Brautigam's careful work shows, China has on some occasions acted as a surprisingly responsible lender, for example using resource-backed infrastructure loans that force some gains to be reinvested in development. Although many have warned of a new Sino-colonialism, Brautigam's work suggests that perhaps China's awareness of its gargantuan and growing need for foreign export markets will make it a better "colonial" power than any European country ever was.

For China as much as the United States, the goal of a stable, central Afghan government that provides no haven for terrorists is a desirable goal. China has worried in the past about whether Afghanistan might provide a refuge for Uighur separatists. Leaving aside the ethics and wisdom of Chinese policies in the Uighur community's home region of Xinjiang, it's safe to say that Washington and Beijing share a common goal in preventing terrorism. Both countries would benefit from a stabilized government in Kabul that is able to command the loyalty and respect of provincial governments and populations. That, however, requires that Hamid Karzai's government deal with its endemic corruption problem. And though no one expects Afghanistan to turn into Norway, perhaps it can be nudged away from the DRC path and toward the model of a Saudi Arabia or a Kazakhstan.

When it comes to corruption, however, state-run Chinese firms have not seemed troubled by greasing the wheels of power brokers in Sudan, Zimbabwe, or elsewhere. Getting Beijing to understand the rot this breeds seems a hard sell for the Obama administration. If that fails, however, Chinese ears might perk up somewhat at the mention of how integral a stable central government in Kabul is to the security of Pakistan, a close ally of Beijing.

Stability in Pakistan should be an important goal for China. It is by now clear that the Taliban's campaign west of the Durand Line is inextricable from the destabilizing efforts of Islamist militants in Pakistan. If China does not want another nuclear basket case on its border, then it should care deeply about instability in Afghanistan. Currently, however, Beijing is still freeloading, relying on Washington to provide security for its limited interests. Perhaps the tantalizing prospect of $1 trillion in minerals might be enough to change the strategic equation.

Working together, China and the United States have a better chance of guiding Afghanistan to a happy outcome for all than will Washington on its own. To be sure, this is no easy task: There's plenty of evidence that aid conditionality by Western governments has not done as much good as hoped. But cold economic realities dictate that Chinese firms are likely going to be the big players in this new gold rush, and Washington had better wake up to the fact that it has a short window in which to convince Beijing to collaborate in making Kabul a better place.



From Land Mines to Copper Mines

Will Afghanistan's mineral wealth rescue the country from decades of instability and poverty? It just might -- and here's how.

Geologists have discovered vast deposits of iron, copper, gold, and other minerals in Afghanistan, according to a front-page story in Monday's New York Times. Worth an estimated $1 trillion, these resources -- if exploited -- could fundamentally transform the country.

But for better or for worse? Countries with extraordinary mineral wealth -- think of the Democratic Republic of the Congo, Bolivia, and Iraq -- often have extraordinary economic and political ailments. Afghanistan has plenty of both, but that doesn't mean the country is irrevocably doomed to fall prey to what academics have dubbed "the resource curse" -- the idea that natural riches often create more problems than they solve.

Nor should we expect changes overnight. Large mining projects can take years -- sometimes more than a decade -- to develop even under peaceful conditions. True, mineral companies today are so eager to develop new finds that they are willing to work under astonishingly difficult conditions. In the last few years, companies from around the world have been bidding for the right to exploit some of Afghanistan's more modest deposits. But many of the newly reported finds appear to be in zones that are dominated by the Taliban and have little infrastructure. Afghanistan has a long way to go before it can take advantage of its geological wealth.

Yet when it does, the government will reap a considerable revenue windfall. In Afghanistan -- and virtually all other countries in the world, except the United States -- everything beneath the soil is the legal property of the central government. Companies must buy their mining rights from the government, and the signing bonuses, royalties, and other payments can add up. The China Metallurgical Group, which won a bid in 2007 to develop a relatively modest copper mine south of Kabul, agreed to pay the Afghan government $400 million per year -- a substantial sum for a government whose annual revenues -- not counting foreign aid -- are just under $1 billion.

Unfortunately, governments that resemble Afghanistan's -- where corruption is high, and the rule of law and government performance are weak -- typically squander a large portion of these windfalls. Billions have gone missing from the treasuries of Angola, Cameroon, the Congo, Nigeria, and other African countries that have considerable mineral wealth but weak and ineffective governance. Some is lost to corruption, some to political patronage, and some to well-intentioned projects that are poorly planned, poorly built, or poorly maintained.

The Afghan government is already among the world's least effective. Since 2007, it has only managed to collect about 7 percent of GDP in revenues, one of the lowest rates in the world, according to the IMF. This also indicates how fragile its powers are over the population. It has largely survived thanks to foreign aid, which covers about 70 percent of the government's budget. Mineral revenues will fill the government's coffers and may ultimately free it from foreign aid, but what matters is how wisely this new money -- which unlike foreign aid, comes with no strings attached -- is spent.

Whether or not it helps the Afghan people, a flood of mineral revenues will almost certainly bring political benefits to Karzai -- or whoever holds office when the money starts to flow. Leaders in resource-rich developing countries stay in power a lot longer than their counterparts in resource-poor states. Mobutu Sese Seko controlled the Democratic Republic of the Congo for more than three decades, despite his country's descent into chaos; Libya's Muammar al-Qaddafi has held power for more than four, with no end in sight. Politicians with lots of cash make lots of friends. That doesn't necessarily mean they are more effective, or popular -- only more durable. In the developing world, more mineral wealth typically means less democracy.

Yet there are also reasons to be modestly optimistic. Even if it boosts corruption and entrenches the government in Kabul, Afghanistan's mineral riches could also lift the economy enough to promote peace. One reason poor countries are so prone to insurgencies is that joining a rebel army gives impoverished peasants a way to earn a living. When civilian wages rise, studies suggest, rebels become harder to recruit and violence subsides. A boom in mining should lead to a lot of new jobs for unskilled male workers -- jobs for exactly the kind of young men who might otherwise fight for the Taliban.

True, resource wealth -- especially from oil and gemstones -- can sometimes trigger violence instead of ending it. But this typically happens when oil wealth is concentrated in a region dominated by an ethnic minority that seeks independence, unlike Afghanistan, where minerals are scattered around the country; or if it comes in a form that can be easily looted and smuggled abroad, like diamonds. Afghanistan's resource base might be sufficiently diffuse -- both geographically and geologically -- to keep it from fueling further conflict. And the more jobs it creates, the less fighting there should be.

Mineral wealth does not necessarily lead to either ruin or prosperity. Some mining-based economies have thrived: Diamond-rich Botswana has been Africa's fastest-growing country for decades, and Chile -- which produces about one-third of the world's copper -- boasts one of Latin America's richest and most successful economies.

One of the keys to successful mineral development is a strong government that can negotiate a favorable agreement with mining companies and properly regulate their activities. Afghanistan's Mines Ministry has long been perceived as one of the government's most corrupt departments, but this should be no surprise. Even the United States has a mixed record of managing its resource industries -- as the BP disaster illustrates. Regulating a large mining industry is hard work under the best conditions.

At least some members of Hamid Karzai's government seem to be taking these problems seriously. In January, Finance Minister Omar Zakhilwal delayed the awarding of iron and petroleum concessions, evidently to thwart corruption. In February, the government signed on to the Extractive Industries Transparency Initiative, an international agreement that encourages companies to publish what they pay, and governments to reveal what they collect, in the mining business. It is a modest start on a treacherous -- but not impossible -- journey.

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