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UNITED STATES INSTITUTE OF PEACE

© USIP 2012 • All rights reserved.

“Mining must be seen in 

the context of the one-third 

century of protracted conflict 

in Afghanistan, the rise of a 

“war economy” and use of 

smaller and easily exploitable 

resources to fund fighting, as 

well as the resources themselves giving rise to violent 

conflicts for control over them

. . . Understanding and 

mitigating adverse political economy and conflict 

implications of resource 

exploitation will be important for achieving positive 

outcomes in the future. ”

December 17, 2012

Political Economy And Conflict 

Dimensions Of Afghanistan’s Mineral 

Resources: A Preliminary Exploration

Summary

•	 Afghanistan hassizable underground mineral resources, which have potential positive economic impacts but also possible downsides—the so-called“resource curse”often involving

negative macroeconomic, developmental, fiscal, governance, political and conflict effects.

•	 The success of the broader political transition in coming years as well asregional geopolitical

factors will have a major influence on prospectsfor Afghanistan’s underground resources.

•	 For“mega-resources”such asthe Aynak copper and Hajigak iron deposits, the Afghan government has conducted credible tendering to ensure that contracts with foreign companies are

on favorable termsfor Afghanistan.

•	 Good-practice approachesfor mega-resourcesshould continue and be furtherstrengthened,

but there will probably be further delaysin exploitation, and realization of potential will take

much time.

•	 Exploitation of other largish and medium-sized resources may involve joint ventures with

politically-connected Afghan firms and deals with localstrongmen, orsometimes criminal

networks with linkagesto corrupt officials and insurgents. Spreading patronage can reduce

short-run conflict risks, but there are risks of corruption, and conflicts could arise over time.

•	 For these resources, prioritiesinclude transparent contracting and clarity about ownership of

companies;setting basic financial parametersfor different resources(e.g. royalty rates) to reduce the risk of overly favorable arrangementsfor extracting entities; and addressing criminal

elements and associated corruption.

•	 Forsmaller, concentrated, high-value resources(notably gemstones), informal exploitation

using crude techniquesistypically combined with illicit export trade, and localstrongmen are

involved, which can mean periods ofstability but also conflicts when bargains are reopened

or new actors get involved.

•	 The way forward for these resourcesincludes gradually improving and regularizing the framework;setting low royalty ratesto encourage formalization of existing activitiesrather than

leasing resourcesto outsiders; technical assistance to promote more effective extraction; and

encouraging processing and value addition within Afghanistan.

•	 Finally, further analytical work isrequired to better understand the political economy and

conflict ramifications of mining in Afghanistan.

William Byrd

E-mail: wbyrd@usip.org

PEACEBRIEF137
© USIP 2012 • All rights reserved.

Political Economy and Conflict Dimensions of Afghanistan’s Mineral 

Resources: A Preliminary Exploration page 2 • PB 137 • December 17, 2012

Mining, currently a localized, largely informal, and mostly small-scale sector in Afghanistan, is

widely seen as a potential leading economic growth driver and source of government revenues.

Afghanistan is well-endowed with underground mineral resources, but not much systematic

exploitation using modern technology has occurred, and exploration remainsin itsinfancy.

Linkagesto other economic activities and substantial employment generation also are envisioned,

with development of“resource corridors”exploiting multi-use infrastructure and regional transport

and trading opportunities. The potential positive impacts on Afghanistan’s economy, jobs, budget

and on regional development have been assessed by the World Bank and others.1

Set against these potential benefitsisthe so-called“resource curse”often associated with

underground mineralsin countrieslacking strong institutions and effective rule of law. Adverse

macroeconomic (“Dutch Disease”), developmental (loss of comparative advantage in othersectors,

environmental damage), fiscal (expenditure distortions, disincentivesto mobilize other revenues),

governance (risk of grand corruption, diversion of revenues, lack of accountability), political

(undermining ofsocial contract with and political accountability to the population), and conflict

(grievances of have-nots, fighting overspoils) effects have been noted, to varying degreesin

different countries.

Mining must be seen in the context of the one-third century of protracted conflict in Afghanistan, the rise of a“war economy”and use ofsmaller and easily exploitable resourcesto fund

fighting, as well asthe resourcesthemselves giving rise to violent conflictsfor control over them.

Moreover, there are some common patterns of political economy and conflict implications with

other natural resources(e.g. timbersmuggling), illicit narcotics, and large off-budget aid and

military contracts. 

This paper discusses different categories of resources, and then putsforward some basic

recommendationsto help guide policy. The paper represents only a preliminary foray into this very

important area.

A Differentiated Sector

Mega-resources. Identified very large,“world-class”resource depositsin Afghanistan include

most notably copper at Aynak and iron at Hajigak, for which major mining contracts have been

signed with foreign companiesthrough credible tendering processes.2 A number of factorstaken

together will probably further delay realization of the potential of mega-resources, although some

sources of delay are unavoidable or in the interest of Afghanistan’s own development and governance objectives: 

•	 These resources are concentrated and large, so it is in the interest and within the capabilities of the Afghan government to directly control them; this control is unlikely to be threatened by local forces or insurgents, but security problems may dampen foreign interest and

delay exploitation.

•	 Modern technologies and large financial investments are required; foreign companies

inevitably will be in the lead, entailing lengthy tendering and contracting exercises to

determine arrangements.

•	 Regional countries are interested in these resources, both to invest in their exploitation

(China in Aynak and India in Hajigak) and also as part of regional geopolitical competition

involving countries like Pakistan and Iran.

•	 Exporting the products will require large investments in transport infrastructure and passage through neighboring countries.
© USIP 2012 • All rights reserved.

Political Economy and Conflict Dimensions of Afghanistan’s Mineral 

Resources: A Preliminary Exploration page 3 • PB 137 • December 17, 2012

•	 The government is rightly focused on transparency and accountability for these resources;

this inevitably will result in delays, with however benefits for good governance and

development.

•	 There are policy debates over approaches to exploiting these resources, whose sorting out

may take time, as demonstrated by the recent discussion in the Afghan Cabinet about revisions to the Mining Law.

•	 Exploitation has substantial environmental and social impacts, requiring attention and time

to mitigate them;3 failure to consult with concerned communities, or perceived abuses by

mine security forces, could result in discontent, a degree of unrest, and further delays in

realizing resource potential.4

A range of largish and medium-sized resources attractive for exploitation. Examplesinclude northern oil basins, gold reserves, coal, chromite and others. These resources can be exploited relatively

quickly with farsmaller investmentsthan required for the mega-resources, and some of them such

as chromite are already being mined and exported illicitly by criminal networks with connections

to both corrupt government officials and insurgent elements.5

Expanded exploitation sometimes involves joint ventures of foreign firms/investors with politically connected Afghan partners, as well as informal deals with local strongmen.6 Both carry risks

of corruption, patronage and associated losses of state revenue. Foreign military interests may

be advocates for some mining activities.7 However, given that there are significant“spoils”to

spread around, pragmatic approaches and deal-making may reduce the likelihood of conflict in

the short run.

Conflict easily could arise, however, particularly where criminal networks and insurgent

elements are involved as in the case of chromite. Expansion of exploitation may mean more

resource rents to fight over, a wider circle of strongmen becoming interested, and/or central

political interests becoming more involved—all of which could be destabilizing. More generally,

lack of a coherent overarching national political framework means that arrangements may be

seen as short term and fragile, leading to bargains being re-opened and possible instability

and violence.

Ongoing informal exploitation of small, locally-concentrated, high-value resources. These resources

(most notably gemstones) are currently being exploited using artisanal and crude small-scale

techniques. Productstypically are exported illicitly, and processing usually occursin other countries. In some cases(e.g. lapislazuli, emeralds) they provided funding for resistance against the

Soviet occupation and subsequently during the 1990s civil war,8 while in other cases(e.g. rubies at

Jegdalek) they may currently provide funding for local anti-government groups.9

Localstrongmen tend to control extraction of these resources, and patronage, corruption and

conflict dynamics are driven at the local level. Such patterns are likely to continue given that it is

unrealistic for the Afghan government to take direct control. Local control can result in periods of

stability, but the jockeying of different interests, new actors coming on the scene, or other changes

can lead to instability and conflict. Situations are often fluid and volatile reflecting“political

marketplace”dynamics.10 The central government may try to become involved by supporting local

proxies, which however can be destabilizing and precipitate conflict.11 

Government effortsto shift the export trade in these resourcesfrom informal/illicit to formal/

licit channels may inadvertently create vulnerabilitiesto corruption, with part of taxes and customs

duties getting siphoned away by corrupt officials. This appearsto have happened in the case of

lapislazuli, although the situation may have improved more recently.
© USIP 2012 • All rights reserved.

Political Economy and Conflict Dimensions of Afghanistan’s Mineral 

Resources: A Preliminary Exploration page 4 • PB 137 • December 17, 2012

Policy Implications

In this complex, variegated political economy context for natural resource extraction in Afghanistan,specific approaches need to be differentiated across different types and sizes of resources,

and different parts of the country. More generally, understanding and mitigating adverse political

economy and conflict implications of resource exploitation will be important for achieving positive

outcomesin the future. The success of the broader political transition in coming years will greatly

influence prospectsin thissector. The same istrue of geopolitical factors: adversarial competition

between regional countries playing out in Afghanistan could further delay development of megaresources, and create continuing obstacles and distortionsforsmaller resources.

Good-practice approachesfor mega-resourcesshould continue and be furtherstrengthened,

ranging from transparent, competitive tendering processesto robust oversight of revenue flows,

their capture in the budget, mitigation of environmental impacts, and appropriate responsesto localstakeholders and social impacts. These processes cannot be rushed, and it must be recognized

that realization of the potential from mega-resourcesinevitably will take much time. Systematic

exploration is a priority. 

Exploitation of lucrative medium-sized resources can move ahead quickly, asis already occurring, but transparency of contracting and clarity about ownership of companiesisimportant.

The recent publication of numerous mining contracts by the Ministry of Minesis a positive

development in thisregard. Setting basic financial parametersfor different resources(e.g. royalty

rates) may help reduce the risk of individualized, overly favorable arrangementsfor extracting

entities. Where criminal networks are involved (e.g. in chromite smuggling),strong enforcement

measures against illicit trade (coordinated across borders) and against associated corruption will

be necessary.

The way forward forsmall but highly concentrated and valuable resources(e.g. gemstones) is

to recognize local realities and gradually improve and regularize the framework for extraction. This

callsfor regularizing existing activitiesrather than leasing out resourcesto outsiders or foreign

entities(which could lead to conflict),setting low royalty ratesto encourage formalization and

technical assistance to promote more efficient extraction. Corruption in the export trade must be

addressed while shifting it from illicit to licit channels. Rather than focusing only on controlling and

taxing the existing trade, the governmentshould encourage processing and value addition for

gemstones within Afghanistan.12 

Finally, further analytical work isrequired to better understand the political economy and

conflict ramifications of underground mineral resource exploitation in Afghanistan, both more

generally and in the context of particular resources.

Notes

1.	 Gary McMahon and Brandon Tracy, The Afghanistan Mining Sector as a Driver of Sustainable 

Growth: Benefits and Opportunities for Large-Scale Mining (World Bank, 22 February 2011); World

Bank, Afghanistan in Transition: Looking Beyond 2014 (May 2012), Chapter 2.

2.	 Global Witness and Integrity Watch Afghanistan (IWA) have assessed these contracts.

3.	 Aynak, where there are also important cultural/historical heritage issues, and Hajigak are

extensively discussed in IWA reports.

4.	 The U.S. Institute of Peace is partnering with IWA to support effortsto strengthen community

monitoring of major minesin Afghanistan
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Political Economy and Conflict Dimensions of Afghanistan’s Mineral 

Resources: A Preliminary Exploration page 5 • PB 137 • December 17, 2012

About This Brief

William Byrd is a development 

economist and has worked on 

Afghanistan in various capacities over the past decade and 

longer. During 2002–2006, he was 

stationed in Kabul, Afghanistan, 

where he served as the World 

Bank’s country manager for 

Afghanistan and then as economic 

adviser. He is currently a visiting 

senior expert at the U.S. Institute 

of Peace. This paper reflects some 

initial thinking on the mining sector, in the context of his broader 

interest in the political economy 

and conflict implications of sizable 

financial flows in Afghanistan, 

also including those generated by 

illicit narcotics and aid. The views 

expressed in this brief do not 

necessarily represent the views of 

the U.S. Institute of Peace, which 

does not take policy positions.

5.	 On chromite see, among others, Matthew Dupee,“Afghanistan’s Conflict Minerals: The CrimeState-Insurgent Nexus”(CTC Sentinel, 16 February 2012).

6.	 For example, the Amu Darya oil basin, its contracting to a joint venture and disputes with a

local power-holder are discussed in various newsreports, among them Reuters (11 June 2012), The 

Telegraph (20 June 2012), and the New York Times (24 June 2012).

7.	 US military advocacy for the Qara Zaghan gold mining contract is discussed in“J.P. Morgan’s

Hunt for Afghan Gold”(CNN Money, 11 May 2011).

8.	 On lapislazulisee Renard Sexton, Natural Resources and Conflict in Afghanistan (Afghanistan

Watch, July 2012), Case Study 5; on emeraldssee“Emeralds of Afghanistan”(New York Times, 12

March 2009) and“Rocksfrom a hard place”(Financial Times, 21 January 2011).

9.	 “Afghanistan’sfabulousruby mines plundered by thieves”, BBC News Asia, 25 May 2012.

10.	 For a discussion of the“political marketplace”in Africa,see Alex De Waal,“Mission Without End?

Peacekeeping in the African Political Marketplace”International Affairs 85(1): 99-113 (2009).

11.	 Lapisis a good example;see Sexton, op cit.

12.	 See Assessment of Afghanistan Gemstone Industry, Sibley International (June 2007).