KABUL (Reuters) ? The Afghan government, struggling to rebuild one of the world's poorest countries, believes it holds a trump card in its estimated $3 trillion in natural resources. But minerals in the ground are very different to cash in the bank.
Assessment, extraction, processing, transportation and sales will take a lot of investment, and a long time -- bad news for a country that says it expects a $5 billion annual security bill after a pullout of foreign troops is completed in 2014.
Even if production does crank up fast enough to pay the army and police salaries without foreign assistance, mining income is unlikely to assuage the economic woes of a country riven by insurgency with broken infrastructure, dismal education levels and unemployment believed to run as high as 40 percent.
"Mining is seen as a silver bullet, not only by the Afghan government but also by the international community," said Thomas Ruttig, co-founder of the Kabul-based Afghan Analysts' Network.
"It is very welcome that Afghanistan has mining on the horizon... (but) extraction of mineral wealth does not necessarily produce an improvement of life for the local population. Very often, mining under a weak state which cannot control it is a recipe for more conflict."
Afghan officials claim its deposits -- including copper and iron ore, oil and gas, niobium, cobalt, gold, molybdenum, silver and lithium -- could generate $3.5 billion a year.
Mineral wealth is attractive in a year when prices of metals like gold and copper have hit record highs. But there are many bridges to be crossed before the country can capitalize on its riches.
Much information now available on the country's deposits dates from the Soviet era, and geologists say more evaluation is necessary before their potential can accurately be assessed.
"Until (it) is ascertained that the mineralisation exists, it is only a potential resource which may or may not be there," said Hassan Alief, an Afghan-American geologist who has worked extensively in Afghanistan.
WESTERN MINERS CAUTIOUS
After decades of conflict, Afghanistan lacks vital infrastructure and has little hope of changing that fast. The United Nations said this year that violence across Afghanistan is at its worst since the Taliban regime was toppled 10 years ago.
"The smallest projects cost in the hundreds of millions of dollars, and the larger projects cost in the billions," said Richard Lachcik, a mining lawyer with Macleod Dixon in Toronto.
"People just aren't going to invest that level of capital in a country like Afghanistan. It's just not stable enough."
Western mining firms are predictably reluctant to invest, analysts say.
"I'd be most surprised if a company like Rio Tinto, Anglo American or BHP Billiton went into such a risky area, and there are plenty of other places for the juniors to operate," said Neil Buxton, an analyst at metals consultancy GFMS.
However, companies from resource-hungry China -- the world's biggest consumer of copper and iron ore -- and India have wasted no time moving into Afghanistan.
A consortium led by the Metallurgical Corp of China won the country's first big mining contract to develop the Aynak copper deposits in 2008, and Indian firms are currently bidding billions of dollars to develop the Hajigak iron ore concession.
But despite sizeable payments to governments, their self-sufficient operating methods in other countries often bring very limited benefits to the wider local economy. There are fears Afghanistan may also see few trickle-down effects.
BENEFITS FOR ALL
Bidders for the Aynak project were expected to show a commitment to Afghan social development as part of the tender process. While details of the MCC contract are unforthcoming, analysts say it has so far generated few jobs for Afghans.
"MCC and all the (bidding) companies said they would be hiring Afghans locally and had a timetable for when Afghans would be in technical and management positions," says James Yeager, an adviser to the Afghan Ministry of Mines during the Aynak tender process.
"Take a look at what MCC have since done. They brought in their own people, they buy their own goods from China and have them shipped in. The large capital investments by MCC are not benefitting the Afghan people like they should."
Neither MCC nor the Ministry of Mines responded to questions on current and planned employment of Afghans at Aynak.
Managing its mineral resources is particularly critical for Afghanistan, given how narrow the country's economic base is after decades of conflict.
Other mineral-rich countries like Nigeria have shown that, poorly managed, such resources can bring in billions of dollars while making little impact on the poverty levels of most of the population.
Sayed Massoud, an economist at Kabul University, warns that mistakes made now in monetizing the mineral wealth could cost the country dearly in future, when it tries to balance its budget.
"There are only two sources which can provide this budget. One is the finance ministry (from taxes), another is mines.
"Today, with Afghanistan full of corruption and insecurity, we can earn hundreds of millions of dollars from these mines. But if we (develop) them in the next few years, through partnerships, we will earn billions of dollars."
(Reporting by Jan Harvey; Editing by Raju Gopalakrishnan)
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