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THE RISKS AND REWARDS IN AFGHANISTAN'S RESOURCES

Politico

June 21, 2010 -

The Risks and Rewards in Afghanistan's Resources

By Sens. Ben Cardin and Dick Lugar



Politico || June 21, 2010 || Link


The New York Times, in a front-page story last week, reported that $1 trillion worth of minerals was buried in the mountains of Afghanistan. Geologists, Afghan officials and mining companies stand ready to launch a modern-day gold rush.



Before everyone charges in, however, we need to recognize the risks and rewards inherent in these resources.



This story ran soon after major news outlets noted that the U.S. military wants to fight corruption in Afghanistan’s government as a key to winning the war.



In principle, these deposits mean resources for Afghanistan to build its economy as the “Saudi Arabia of lithium.” But expanding Afghanistan’s economy from the current $12 billion to potentially $1 trillion will be a boon only if these resources are managed properly.



Many other countries already have proved that resource revenue often leads to corruption and instability. For example, roughly 60 developing countries are rich in natural resources yet home to more than two-thirds of the world’s poorest people. Despite billions of dollars per year in oil, gas or mineral revenue, these countries rank among the worst when it comes to economic growth, authoritarian governance, poverty and political instability.



The Afghan reports should spur immediate action in Congress to ensure transparency in how U.S. and international companies tap these resources.



Transparency in the oil, gas and mining sectors has been endorsed for years by the G-8, the International Monetary Fund, the World Bank and regional development banks. It is clear to financial leaders that transparency is key to holding governments accountable for the needs of their citizens — and for greater energy security overall.



If citizens and international organizations know how much money a country is paid for oil access, it is harder for its leader to claim the government would happily build roads, schools and hospitals but cannot afford them.



Transparency will help those who want to follow the money to combat corruption, poverty and violence. In countries with rival ethnic groups, like Afghanistan, it also helps ensure that revenues are distributed equitably.

Afghanistan has made a good first step by joining the Extractive Industries Transparency Initiative, a voluntary international standard designed to promote transparency in the oil, gas and mining sectors. This group has made tremendous strides in changing the culture of secrecy that surrounds the extractive industries. But too many countries and companies remain outside this system.



It is time to create an international standard for transparency in law. Secrecy of extractive payments carries real risks for citizens — and investors.



We introduced the Energy Security Through Transparency Act to require most extractive industries — including oil, gas and mining companies — to disclose what they pay local governments for access to natural resources.



This simple step, adding information to filings already required by the Securities and Exchange Commission, could help promote civil society and combat corruption in countries both blessed and cursed with natural resources.



The extractive industries face unique material and reputational risks in the form of country-specific taxes and regulations. Challenges are compounded by the substantial capital companies need and the importance of natural resource access to the national security and strategic objectives of the United States and other major energy and mineral consumers.



Creating a reporting requirement with the SEC can capture a larger portion of the international extractive corporations than any other single mechanism — thereby setting a global standard for transparency and promoting a level playing field.



Our bill could help in following the money trail, making it harder to hide corruption and easier to bring the reforms needed to ensure that the blessing of natural resources does not turn into a curse.



Afghanistan is at a crossroads. If we want to leave Afghanistan with a viable economy and a stable government, we have to help the nation get this right.



Our bill could be the linchpin in a far larger U.S. and international effort, at all levels of government, to promote transparency and open the books in Afghanistan. The newfound resources would then lead to a new era of prosperity — and not be squandered through corruption.



Afghanistan’s future — and the success of U.S. and NATO men and women serving in Afghanistan — are at stake.



Sens. Ben Cardin (D-Md.) and Dick Lugar (R-Ind.) serve on the Senate Foreign Relations Committee.





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From left, Rep. Smith, Assistant Secretary of State Michael Posner, Chairman Cardin, and Ranking Member Hastings hear testimony on threats to media freedom at a hearing June 9, 2010