Commentary

How Afghanistan Can Manage Its Mineral Riches


Now those Afghan tribes really have something to fight over—other than poppy plants, that is. In case you haven't heard, an estimated $1 trillion in untapped natural resources (iron, copper, gold, and lithium, among others) has been discovered in impoverished Afghanistan. That may seem like a stroke of luck for a country desperately in need of one. However, the research about resource wealth in the post-World War II period suggests that it's actually a curse, unless Afghanistan can do two things. One is incorporate property rights into any new governance structures. The other is to emulate another resource-rich country, Botswana. (More about that later.)

First, the gloomy record. In case after case, the presence of natural resource wealth in a country has fostered political instability and, paradoxically, slower economic growth. Russia's revenue from oil gave Vladimir Putin the power he needed to take the country halfway back to Stalinism. Zimbabwe's farmland, platinum, gold, coal, and cotton enabled Robert Mugabe to tyrannize that land for decades. In Nigeria, the impact of $1.6 trillion in oil cash over time has been pollution and poverty, along with the black-hooded Movement for the Emancipation of the Niger River Delta (MEND), the creepy guerrilla group that patrols the delta, kidnapping and sabotaging. Diamonds buried in Sierra Leone's hills didn't exactly bring it peaceful prosperity in the 1990s, as we saw in the 2006 film Blood Diamond.

Oil wealth makes countries less friendly to entrepreneurs and less hospitable to the U.S. Groundbreaking analysis years ago by economist Jeffrey Sachs, now the director of Columbia University's Earth Institute, represented the first non-Marxist characterization of natural resources as a burden. Scholars earlier identified a narrower version of that malady, Dutch Disease. This is the phenomenon whereby sales of oil or another natural resource harden the national currency, worsening trade for other export sectors and thereby killing them off.

Some countries escape the resource dilemma. One way is where the rule of law generally, and property rights specifically, are already well established when large deposits of natural resources are discovered. The U.K. survived, and benefited, following discoveries of North Sea oil in the 1970s. Canada thrived after its discoveries of resource wealth. The cause of a nation's continued stability seems to be property rights. It matters less who owns the resources—governments, companies, or both—than that those rights are clear and respected.

Which brings us back to Botswana, which, like Afghanistan, has tribes, and was fragile when it gained independence. It's also a land rich in diamonds. Over time, and with many twists and turns, Botswana resisted permanent nationalization of its precious gem wealth. Instead it created Debswana, a profit-share agreement with the diamond company De Beers.

At the same time, the government committed to fight corruption and enforce the rule of law. Both the people of Botswana and company shareholders benefited. A nonprofit group, the Property Rights Alliance, ranks Botswana 44th in the world in property rights among nations, whereas Nigeria is 109th and Zimbabwe ranks 121st. Infant mortality in Botswana has dropped to 26 per thousand in 2008 from 118 in 1960. That compares with less dramatic drops to 62 from 97 in neighboring Zimbabwe and 96 from 157 in oil-rich Nigeria.

"Botswana's post-colonial leadership, particularly Seretse Khama and Quett Masire, and also its major economic elites, were committed to democracy, economic development, secure property rights, and fairly orthodox macroeconomic policies," says Daron Acemoglu, the economist at the Massachusetts Institute of Technology who first called attention to Botswana's achievement.

The takeaways for Afghanistan are controversial. The first is that a functioning and representative government is necessary. To skip town after overseeing the establishment of a loose federation of tribes, which is the U.S. impulse, is to guarantee that any "backbone" becomes a bone of contention instead.

Rule of law and good leadership at the outset (right now) are likewise crucial. Property rights are primary, not secondary. It matters less who owns something than that the rights of ownership are clear. Lastly, citizens must know they may claim a share of some form in the mineral wealth, currently or in the future.

Marketing such ideas is going to be next to impossible, especially after the BP (BP) disaster. Still, a positive alternative to the Botswana property rights model is hard to imagine. If Afghanistan and its neighbors made war over resources above the ground, why should resources below promise a different outcome?

Shlaes is a reporter for Bloomberg News.

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