How realistic is it to change Afghanistan into a regional transit Hub?!

Monday, 11 September 2017 02:49 Written by  Mohammad Asem Shafiqi Read 133 times

The strategic geographic location of Afghanistan sometimes referred as “in the heart of Asia” is the cause of many miseries. Afghanistan is strategically located in South and Central Asia, sharing border with Iran on the west, Turkmenistan, Uzbekistan and Tajikistan on the north, an isolated small border with China on the northeast and the disputed Durand line on east and south with Pakistan. Historically Afghanistan has been the passage to get into Indian subcontinent. Afghanistan was an important part of ancient Silk Road which connected Far East to Middle East and Europe. 

 

The current presence of United States of America in Afghanistan, the invasion of Soviet Union, attempts of British Empire and all failed historical attempts to take control of this strategic landmass had its cause directly or indirectly related with the geographic location of Afghanistan. 

The vision of changing the misery brought by strategic location of Afghanistan into opulence through turning Afghanistan into a regional economic and transit hub. How realistic is it, or is just a dream? 

Inauguration of big projects with our neighboring countries sparkles hope among Afghans. Analysts would praise the project and speak of employment creation, revenues generation by transit of goods, economic development and improved life standard for Afghans. Of course, on the other hand some economists would argue the problems in implementation of these projects. The one that are very obvious and every person with basic knowledge of situation in Afghanistan can imagine. But how realistic is it to do so? Let’s take an example of a very hopeful project from recent past:

Aynak Copper Mine

Aynak is a site around 40 km southeast of Kabul, in Logar province. The site contains one of the world’s largest copper deposit. A prospective reserve of 690 million tons of copper ores. With 1.65 percent copper content. These ores were expected to produce approximately 11.33 million tons of copper, which is more than one third of the total copper reserve in China which stands to be around 30 million tons. But since its discovery by Soviet geologists in 1979 the copper mine has stayed undeveloped.

In a press conference on 14th of Nov, 2006, the Afghanistan Minister of Mines, Eng Mohammad Ibrahim Adel, announced the result of evaluation of Expression of Interest in Aynak Copper Deposit by international mining companies and the following nine companies were selected for the next round: 

• Bahar Consortium of Australia 

• Hindalco Industries Ltd. Of India 

• Hunter Dickinson, Inc. of Canada

• Kazakhmys Corporation LLC of Kazakhstan 

• China Metallurgical Group Corporation of China

• Phelps Dodge Corporation of the USA

• Strikeforce LTd (Soyuz-Metal-Resource) of Russia 

• Tyazhpromexport of Russia 

• Zijin Mining Group Company Limited of China

From the above nine companies, five were the finalists and went to bidding. According to Ministry of Mines of Afghanistan, the results were as following: 

  

Source: Islamic Republic of Afghanistan, Ministry of Mines

The comparison of bids show the best among five finalists was MCC of China. With the highest investment, maximum royalty percentage, highest energy production, highest bonus to the government and a very important element of infrastructure (railway investment) the only other company to offer railways investment was Kazakhmys corporation of Kazakhstan which in some criteria was similar to MCC of China, but in some other, very low such as bonus to government where MCC bid on 808 million USD and Kazakhmys Corporation bid only 2 million USD. 

On 19th of September 2007, the Inter-Ministerial Committee of Afghanistan accepted proposal of preferred bidder: China Metallurgical Group Corporation. 

China Metallurgical Group Corporation and Jangxi Copper Corporation won the contract and would operate as a joint venture and got a 30 years lease of Aynak mine. This was the biggest direct investment in a project in history of Afghanistan. According to World Bank; in a low-impact scenario, based on prevailing market conditions, once the operations in Aynak reach projected capacity of 250,000 tons per year of copper. It could create 4,500 direct, 7,600 indirect and 62,500 induced jobs and approximately $250 million in annual revenues. 

It has been almost ten years since the contract was given to MCC, but the mine is far from operational due to problems from both parties. According to MCC; Insecurity, land mines from Soviet occupation and lack of phosphates deposits for smelting process are among many reasons. On the other hand, the government is unable to provide security in the area. Emergence of Mes Aynak archeological site, an ancient Buddhist complex is also one of the main causes of delay. Logar is listed among top insecure provinces in Afghanistan and a Taliban stronghold. 

Chinese companies are world famous for being risk-tolerant. They are patiently waiting for the right time to resume work, they have already part of the bonus amount to Government of Afghanistan and are committed to develop Aynak mine. The ministry of mines is pushing MCC to do so soon. The ministry announced in 2012 that cancelation of the contract is an option on the table. But it seems very unlikely to happen. The government will not get such a bid from any other country in the world. 

To Afghans, economists and experts, Aynak mine seems as a failed project. The promises of employment, revenues and infrastructure development never fulfilled. But with current buzz of One Belt One Road (OBOR) initiative of China; which Afghanistan is a member too, and increasing interest and investment of China in south and central Asia, It is very likely that China will resume work on Aynak and it could be linked to OBOR by development of the rail road and most probably linking it to China-Pakistan Economic Corridor (CPEC) or to the Central Asian, West Asia Corridor, the main question still is: What about the other mega projects Afghanistan recently joined? 

Realistic Approach 

Without any doubt, Afghanistan is endowed with wealth of natural resources. If properly exploited and the country is connected via railroad to other regions; best chance is now to get connected to at least one corridor of OBOR, in best scenario to two. It’ll be a game changer for the economy of Afghanistan. But it has been proved by many countries such as Venezuela that natural resources do not mean economic prosperity. To be able to turn the natural resources into source of revenue and take advantage of many missed economic and international trade opportunities, Afghanistan urgently needs routes to regional and international markets. To make it happen, the government would need to take an effective approach to workout with our neighbors. Praising projects such as TAPI, CASA 1000, Aynak Copper Mine, Hajigak iron mine and many others would fail if we don’t have well established routes to international markets. And that is possible by integration into OBOR.

Thus, changing Afghanistan into an Economic Hub is realistic. But it will be a very challenging endeavor. Taking bigger stake in One Belt One Road “new silk road” of China would be the starting point.