Tuesday, April 28, 2015

Afghanistan’s Precarious Future


         Afghanistan’s Precarious Future


                        Thomas Storch

The horrific attack in Jalalabad on Saturday by a group claiming affiliation with the Islamic State was another reminder that security risks in Afghanistan continue to metastasize and threaten the stability of the Afghan government. The coming drawdown of US forces—to be reduced to fewer than 1,000 by January 2017—will not only exacerbate this vulnerability but also reveal a sticky problem: Afghanistan cannot pay for its own government, including its army and police forces, and has no viable path to self-sufficiency.
According to Special Inspector General for Afghan Reconstruction John Sopko, “It appears we’ve created a government that the Afghans simply cannot afford.”

Early planning envisioned an Afghan economy that would be robust enough to pay for the cost of security by the time US forces withdrew, but today the economy is much weaker and the security forces needed much larger than previously imagined. Preliminary estimates suggested Afghanistan had natural resources worth from $908 billion to $3 trillion and that revenues from their extraction would become “the backbone of the Afghan economy.” The creation of a new Silk Road trade hub was also considered to offer great economic opportunities. “There is stunning potential here,” said General David Petraeus in 2010.

In recent years, however, the Afghan economy has sputtered and projections for future growth are bleak. Given Afghanistan’s history and starting point, its postwar economic growth plans were aggressive; even in very good circumstances, the development of major resources projects and trade infrastructure would have been very difficult. It is now clear that only a  sliver of the revenues anticipated by optimistic government analysts will materialize in the foreseeable future.

Afghanistan’s major resource prospects are high-cost, high-risk projects in a country with deteriorating security, minimal infrastructure, difficult terrain, and few skilled workers. With tepid global growth and the slowing pace of Chinese commodity consumption driving significantly lower commodity prices, major Afghan mining projects are not economically viable in the current environment.

The largest projects were troubled from the outset.

In 2007, China Metallurgical Group (MCC), a Chinese state-owned enterprise, bid dramatically above competitive market rates to win the contract for the Mes Aynak copper mine. The $3 billion agreement included a commitment to build a major rail line and power plant in addition to other supporting infrastructure. To date, MCC, supported by the Chinese government, has made almost no material progress on the project. It has withdrawn its Chinese workers from Afghanistan and is pressing to renegotiate the contract—aiming to halve the royalty rate payable to the Afghan government and backing away from its infrastructure commitments.

The outlook for the Hajigak iron ore project is equally dreary. Recent comments from the leader of the licensed consortium, Steel Authority of India Limited (SAIL), suggest that the $10.8 billion investment is on hold indefinitely. Public market investors see the Hajigak project as essentially worthless, as evidenced by the paltry $3.5 million market capitalization of Kilo Goldmines, a Canada-based publicly listed company that owns a 20 percent interest.

Afghanistan’s plans to become a profitable regional trading hub, limited by security concerns and complicated geopolitics, are also impracticable under current circumstances.

 Indian officials have recently backed away from plans originally developed in 2003 to build a trade route through Afghanistan to the Iranian port of Chabahar.

 Chinese efforts to build a network from China through Afghanistan to the new China-operated port of Gwadar, in Pakistan, are in the early stages of development and will be hugely challenging.

This leaves the US with two bad options:

It can continue to prop up the Afghan government with billions of dollars of foreign aid for an unknown number of years or decrease funding and risk—according to a CNA Independent Assessment of the Afghan National Security Forces—a collapse of the government and civil war.

After spending $686 billion for Afghanistan and related counterterrorism operations, an estimated four to seven billion dollars per year may seem like a reasonable ongoing cost for the US to prevent Afghanistan from slipping into civil war.

As US forces leave Afghanistan, however, it will be increasingly difficult to maintain congressional support for this funding, particularly in an environment of sequestration in Washington, rampant corruption in Kabul, and the  perceived risk of throwing good money after bad.

While there are legitimate reasons for US taxpayers to be reticent to continue funding the Afghan government and security forces, US leaders need to be clear and honest about what the likely consequences of withdrawing funding will be.

To understand them, they need look no further than Afghanistan after the Soviet withdrawal. The Soviet-supported government and security forces did not crumble upon the full withdrawal of Soviet forces in 1989. Only after the fall of the Soviet Union, when external financial and military aid abruptly stopped in early 1992, did the army and police truly fall apart. The Afghan government collapsed shortly thereafter.

Thomas Storch is the co-founder of the Zosima Group and a member of the Foreign Policy Initiative Leadership Network. The views expressed are his own. Affiliations are provided for identification purposes, and do not suggest institutional endorsement.
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