Afghanistan Opens For Business With China

By Jason Simpkins

Associate Editor

Resource-hungry China has already expanded energy operations in Africa as well as its cooperation with Iran over oil. Having already established a presence in volatile regions where few others dare to tread, China Metallurgical Group Corporation, also known as MCC, is close to finalizing a deal to begin operations in Afghanistan.

In November, the state-owned MCC won its bid to develop the Aynak exploration area, the world's second largest unexplored copper deposit. The area hasn't seen any significant development since a failed attempt by the Soviet Union in the 1970s. MCC reportedly beat out eight other mining companies with an initial investment of $2.9 million.

The site could produce between 150,000 and 200,000 metric tons of copper a year, vaulting Afghanistan into the top 15 copper producing nations, with just one mine. It could also generate revenue of $1.4 billion a year according to the Kabul-based Integrity Watch Afghanistan. Analysts anticipate that after a five-year construction period, the mine could bring in annual royalties of as much as $400 million, nearly half of Afghanistan's budget last year.

Foreign investment will also bring along much-needed infrastructure that the country currently lacks. Needs include Afghanistan's first railway line, which would run from Tajikistan into Pakistan. MCC will also build a new 400-megawatt power plant that, in addition to powering the mining operation, will supply its excess power to Kabul, which currently experiences frequent blackouts.

Regardless of the potential gains, investing in Afghanistan is not without its pitfalls. Many analysts are skeptical that Afghanistan - a country with little federal regulation, poor infrastructure, few financial and public works institutions - will be able to control and manage the project or MCC's prospective influence.

"There is concern that the good progress made in selecting an investor is not being matched in building institutions and a regulatory environment," the Integrity Watch report stated. "In many instances developing countries' state apparatus have experienced difficulties in resisting pressure and lobbying from powerful industry majors, once they have awarded contracts."

A project such as this will be a strong presence in a country that struggles to collect taxes and relies heavily on international aid. Investment in the Aynak project would equal 35% of all the international development money spent on Afghanistan since 2002, the Financial Times reported. 

"This is a multinational company that is far bigger financially than Afghanistan. It's like David and Goliath, only David doesn't have any laws or regulatory framework," Lorenzo Douglas, executive director of Integrity Watch Afghanistan, told the Times.

Another unidentified source, but described as a Westerner with intimate knowledge of the country's embryonic mineral extraction regime, portrayed it as "Soviet-era structure that simply does not have the capacity to do the job."

"The risk will be that without having the lawyers and accountants in place to monitor all of this, [authorities] just won't be able to stop problems before its too late," the source said. 

Social unrest is also a consideration. Taliban presence in Afghanistan remains strong.  Insurgent attacks from the group were responsible for the deaths of more than 5,000 people in 2007.   

The drug trade is also particularly powerful in Afghanistan. Currently, the nation's chief export is opium poppy, which is used to make heroin. The amount of land under cultivation is greater than the amount used to grow cocoa in Columbia, Peru, and Bolivia combined.

According to the United Nations Office on Drugs and Crime Report, Afghanistan cultivated 193,000 hectares of opium poppy in 2007, accounting for more than 93% of the world's supply. Opium exports generated $4 billion in 2007, a figure that equates to more than half of the nation's GDP.

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