International DevelopmentWritten evidence submitted by Global Witness
1.0 Global Witness
1.1 Global Witness welcomes the opportunity to make a submission to the International Development Committee inquiry into “The Future of Afghanistan: Development Progress and Prospects after 2014”.
1.2 Global Witness is a London-based non-governmental organisation that investigates the links between natural resources, conflict and corruption. We aim to promote improved governance, transparency and accountability in the management of the natural resource sector to ensure that revenues from resources are used for peaceful and sustainable development rather than to finance or fuel conflicts, corruption and associated human rights violations.
1.3 The vast flows of capital associated with the extraction of natural resources present a huge opportunity to promote peaceful, stable and democratic states in some of the poorest regions of the world. However, the reality is that these revenues have tended to initiate and sustain conflict across the globe as well as entrenching the rule of corrupt and repressive regimes.
1.4 Global Witness has been working in Afghanistan since the announcement of potentially vast reserves of mineral wealth in 2010.(1) Our goal is to work with stakeholders to ensure that Afghanistan’s natural resource wealth is used to support development and does not become a new axis of conflict or corruption.
1.5 This submission focuses on the economic consequences of military draw-down for the country’s emerging extractives industry, and steps DFID can take to mitigate the risks of the resource curse by enhancing governance, security and wealth creation in the sector.
1.6 Instead of concentrating on developing the industry as quickly as possible to generate state revenue, it recommends DFID support is tailored to focus on due process and developing good governance in the sector. This will involve doing more to boost the oversight capacity of the government and civil society. DFID also needs to put in place a robust, shared monitoring and evaluation framework now to ensure that government rhetoric on transparency and accountability matches reality.
2.0 The Economic Consequences Of The Military Draw-down in Afghanistan
2.1 Global Witness welcomes the International Development Committee’s call for submissions on the future of Afghanistan. The country stands at an important crossroads where decisions taken now will shape its prosperity for generations to come. With regards to the upcoming military drawdown, the most immediate consequence in economic terms will be a substantial reduction in aid for the Government of the Islamic Republic of Afghanistan (GIRoA). Currently, Approximately 90% of the government’s public expenditures are funded by foreign donors.(2) A World Bank report in 2011 has stated that even assuming ambitious targets for robust growth in domestic revenue are met, there will be an “unmanageable fiscal gap.”(3)
2.2 A reduction in foreign development assistance will correlate directly to a reduction in the government’s ability to provide services, infrastructure projects, government salaries, and security. The security price tag alone is estimated to cost $4 billion a year.(4) There is a significant risk to development gains made in the past ten years if the transition is not carefully planned, and alternative and sustainable sources of funding are not secured.
2.3 Increasingly important to the uncertain future of Afghanistan is the country’s mineral sector. Afghanistan is estimated to hold up to $3 trillion worth of mineral reserves under its soil.(5) In Helmand province, where DFID is looking to spend 20% of its Afghanistan budget (approx $56.4 million),(6) the ancient volcano of Khanneshin is estimated to hold more than $89 billion worth of rare earth deposits.(7) Given the magnitude of revenues that GIRoA needs in order to fulfil its public expenditure requirements, the mining sector provides a promising source of funding for development beyond the military drawdown and the waning of foreign aid flows.
2.4 With the support of its international partners, GIRoA has started selling rights to its valuable mineral and petroleum deposits at a fast pace. Recent large concessions include the Aynak copper mine (2008), the Qara Zaghan gold mine (2011), the Amu Darya Basin oil contract (2011). A contract for the Hajigak iron ore deposit is also currently being negotiated, and is expected to generate $11 billion alone, the largest foreign investment in Afghanistan yet.(8) In the next few months, four gold and copper concessions across Badakhshan, Gazni, Sar-I-Pul, Balkh, and Herat are also up for tender.(9)
2.5 There are however, risks associated with such rapid development of the sector. The poor record of countries in Africa, Asia and Latin America in converting resource wealth into development gains, coupled with weak governance and ongoing conflict in-country, suggest that Afghanistan’s mineral plenty will not automatically lead to development gains. The graph below is taken from a World Bank global study of governance indicators and resource dependency. It shows that the higher the natural resource rents as per cent of a country’s GDP, the lower the country scores in government effectiveness.(10)
2.6 Based on its 17 years of resource governance experience, Global Witness believes there is a credible threat that the natural resource sector could become a possible source of conflict and instability in Afghanistan if not carefully managed.
3.0 Mining and Corruption
3.1 Widespread corruption continues to undermine the legitimacy of GIRoA,(11) and the extractive industries in Afghanistan have the potential to exacerbate this dynamic.
3.2 Corruption can take root along all stages of natural resource development, from the handing out of concessions to the flow of revenue. Transparent and accountable governance in the provision of natural resources, along all stages of the value chain, reduces room for corruption and helps to strengthen government legitimacy.
3.3 GIRoA and the international community are taking steps towards good natural resource governance, through for example their candidacy for the Extractives Industry Transparency Initiative (EITI). An International Advisory Council has been set up, via the Afghan Reconstruction Trust Fund, to oversee the fairness of the allocation of resource rights and contracts, and Minister Shahrani has committed in meetings to publish all new mining contracts.
3.4 While positive, these steps can be strengthened. The EITI, for example, only covers revenue transparency, so other points of mining development are left outside its purview. Furthermore, there appears to be a disconnect between government public commitments on transparency and action on the ground. The work of the Advisory Council is not yet public, so it is not possible to comment on its effectiveness. However, the Council appears reluctant to engage with civil society. Global Witness has requested to meet with the IAC to discuss their work, but have yet to receive a formal response. Public commentary on the process from civil society has, so far, been heavily criticised by the Ministry and Global Witness staff have been told by senior staff within the Ministry that the role of civil society should be limited to revenue transparency issues. All of which raises concerns over the ability to constructively engage in Ministry-civil society dialogue on points outside of the EITI process. In meetings, we have been told that all contracts—including the Aynak contract—will be published in full. However, at the time of writing this submission, only two contracts have been published in full on the Ministry’s website. Summaries of others are provided, but these lack detail on important points. The Aynak contract remains unpublished. It now appears that the Ministry is proposing to publish only summaries—not full—contracts. This represents a major step back in terms of transparency, accountability and the ability of the Afghan people to hold government and companies to account.
3.5 At the Bonn International Conference on Afghanistan, GIRoA and its donors took an important step in making sure the country’s vast potential mineral wealth translates into development by recognising the importance of transparency and accountability in the sector.(12) The plan overlooked the role that NGOs, media and parliament can play in supporting good governance in the extractive industries however. To fulfil transparency and accountability commitments, independent oversight needs to be built into the system from the outset. Civil society is a crucial part of this. Their role in monitoring companies and ensuring the government and its people are getting a good deal is critical in a country where ongoing conflict and weak government capacity makes it difficult to oversee.
4.0 Mining and Security
4.1 Mineral wealth is seen as a potential source of funding for the Afghan National Security Forces. During a speech in July 2011, Karzai promised to tap mineral riches as soon as possible to help the government feed and supply its own army.(13) These reserves are also on the radar for the Taliban, where Mullah Omar has also acknowledged the importance of Afghanistan’s ‘rich mines’ as something crucial to the country’s future development.(14)
4.2 The use of minerals to fund conflict in Afghanistan is not a new possibility. In the 1980s and 1990s, lapis lazuli, world-class emeralds, and other precious gemstones found in Northern Afghanistan became a critical source of revenue for resistance movements such as the Jamaat-i-Islami, one of the seven largest mujahidin parties that fought against the Soviet occupation.(15) Following the rise of the Taliban in the mid 1990s, the anti-Taliban militias that formed the Northern Alliance continued to engage in precious stone extraction and trafficking, allegedly earning between $60 and $200 million per year from the trade.(16) The Taliban also made attempts at mining marble in Helmand province during their time in power.
4.3 Even today, there are reports that many mines in the country are controlled by criminal syndicates, that work with affiliates of insurgent networks to smuggle illegally extracted minerals out of the country.(17)
4.4 A report from the Special Inspector General for Afghanistan Reconstruction (SIGAR) in 2011 stated that due to the inability to track how contractors are using aid money, and more informal mechanisms of money transfers and middlemen, much is of it actually ending up in the hands of insurgents.(18) Similar concerns have also recently arisen with regards to aid from DFID to Afghanistan, where a new report by the Independent Commission for Aid Impact (ICAI) has stated that “DFID’s financial systems and performance monitoring to manage its programmes are not sufficiently robust.” And that as a result, DFID’s aid expenditure is exposed to a significant risk of leakage.(19)
4.5 Global Witness believes there is a risk that revenue generated by mining will not be used to fund development, but will instead be diverted as government and insurgent forces seek alternative means of financing to fund their military campaigns and seek to access these mineral resources.
5.0 Importance of Contractual Terms
5.1 Given the speed at which concessions are being awarded, it is a crucial time for the industry in Afghanistan. The terms on which these mining deals are granted will set the parameters for how the country and mining investors will benefit financially and economically, how the environment and people will be protected, and how risks of deepening conflict and corruption will be guarded against.
5.2 Inadequate provisions in contractual agreements with private companies to extract minerals are a potential cause for instability and corruption further down the line.
5.3 Because of their location, nature and often their scale, mining operations can have significant positive or negative local economic, environmental and social effects. The costs of extraction are often borne disproportionately by those in the vicinity of the extraction process.
5.4 Ensuring that local impacts are carefully managed is vital to regional stability; most insurgents are driven to fighting by grievances that are often local in origin, and tend to fight in their local area.(20)
5.5 Human rights are a particular concern and require specific attention. Such abuses can be a major source of local grievance, potentially feeding into support for insurgency and further instability. It is important to have contractual safeguards to deter human rights violations from occurring. Appropriate grievance resolution mechanisms should help to ensure that any abuses that do occur are addressed as quickly as possible and to a satisfactory level. Grievance resolution mechanisms should be supported by a system of checks and balances to ensure that proceeds are monitored and managed by independent parties.
5.6 GIRoA must work with investors to establish clear mechanisms to mitigate negative local impacts, as well as ensure equitable participation in the national benefits generated from mining activities. If this does not happen, mining operations will foster further local discontents and indirectly fuel insurgency.
5.7 Global Witness has carried out a review of Afghanistan’s two recent minerals contracts. The soon-to-be-published review highlights gaps in the contracts in the areas of transparency; community engagement and grievance handling; environmental, social and local economy impacts; absence of human rights protections; and security. On the basis of this analysis, we remain concerned that the foundations for Afghanistan’s mining sector need significant support from the international community.
6.0 The Role of DFID’s Bilateral Programmes
6.1 Rather than concentrating on developing the industry as quickly as possible to generate state revenue, this support should focus on due process and developing good governance in the sector to guard against the risks of the resource curse.
6.2 This will involve doing more to boost the oversight capacity of the government and civil society, alongside providing support to bolster the regulatory regime.
6.3 DFID also needs to put in place a robust, shared monitoring and evaluation framework now to ensure that government rhetoric on transparency and accountability matches reality. In our experience, without specific, timebound and measurable benchmarks, such commitments can drag on for years without yielding tangible results.
6.4 A transparent and accountable system should include:
(a)
(b)
(c)
(d)
(e)
7.0 Recommendations
To enhance governance and security in the sector, and support wealth creation, ahead of the upcoming Tokyo Conference DFID should:
7.1 Hold the Ministry of Mines to its existing commitments to publish all contracts. This is also a key recommendation put forward by the Monitoring and Evaluation Committee—a joint government-donor anti-corruption initiative—ahead of the Tokyo Conference. Contract transparency would need to include full contracts (not, as at present, contract summaries), all ancillary agreements and key project documents that contain important details of arrangements.
7.2 Encourage GIRoA to publicly commit to include the following principles within contracts. This is in line with existing Ministry commitments towards a sector which follows international best practice:
(a)
(b)
(c)
(d)
7.3 DFID-funded Ministry advisors should be required to promote this approach in their work with the Ministry.
7.4 Co-ordinate with GIRoA and other donors to establish robust, shared monitoring and evaluation frameworks now to record government progress towards good governance commitments (current and future) for the sector.
7.5 Engage in discussion with GIRoA and other stakeholders to secure an agreement on the purpose for which mineral revenues will be used at the conference. DFID should encourage the reinvestment of revenues generated from the mineral sector into related industries and other parts of the economy that will create jobs.
In the longer term, DFID should:
7.6 Support GIRoA and civil society to expand the scope of the EITI to include transparency in the award of licenses and in any future revenue management/sharing arrangements.
7.7 As well as continuing support for the EITI process, DFID should target funding to build the capacity of civil society, Parliament, and the media to oversee the sector, providing support to bolster the regulatory regime.
References
(1) U.S. Identifies Vast Mineral Riches in Afghanistan—
http://www.nytimes.com/2010/06/14/world/asia/14minerals.html?_r=2—Accessed 23/03/12.
(2) Afghanistan’s Donor Dependence—United States Government Accountability Office, 20/09/11—http://www.gao.gov/new.items/d11948r.pdf—Accessed 23/03/12.
(3) Transition in Afghanistan: Looking Beyond 2014—The World Bank, 11/18/2011—
http://siteresources.worldbank.org/AFGHANISTANEXTN/Resources/305984-1297184305854/AFTransition.pdf—Accessed 23/03/12.
(4) Afghanistan faces $4 billion defence funding shortfall—The Guardian, 01/12/11—
http://www.guardian.co.uk/world/2011/dec/01/afghanistan-faces-defence-funding-shortfall—
Accessed 23/03/12.
“All the wrong messages”—The Economist, 17/03/12—http://www.economist.com/node/21550308—Accessed 23/03/12
(5) “30 percent of Afghanistan’s soil mineral resources worth three trillion USD”–31/01/11—
http://www.gmic.gov.af/english/index.php?option=com_content&view=article&id=174:30-percent-of-
afghanistans-soil-mineral-resources-worth-three-trillion-usd-&catid=38:news&Itemid=87—Accessed 23/03/12.
(6) DFID Afghanistan Operational Plan 2011-2015, April 2011—
http://www.dfid.gov.uk/Documents/publications1/op/afghanistan-2011.pdf—Accessed 23/03/12.
(7) Mineral Resource Team 2010 Activities Summary—Task Force for Business and Stability Operations, 29/01/11—http://tfbso.defense.gov/www/attachments/TFBSO_AFGHAN_MINERALS.pdf—Accessed 23/03/12,
(8) India SAIL-led consortium sees $11 billion investment in Afghanistan—Reuters, 30/10/11—http://www.reuters.com/article/2011/11/30/sail-afghanistan-idUSL4E7MU12O20111130—Accessed 23/03/12.
(9) Update on Four Mineral Tenders—Ministry of Mines, 13/04/12—
http://mom.gov.af/en/announcement/7825—Accessed 23/03/12.
(10) Enforcing the Rules—Revenue Watch Institute, 2011—
http://www.revenuewatch.org/sites/default/files/RWI_Enforcing_Rules_full.pdf—Accessed 23/03/12.
(11) Corruption in Afghanistan—UNODC, January 2010—
http://www.unodc.org/documents/afghanistan/Anti-Corruption/Corruption_in_Afghanistan_Bribery_
Reported_by_Victims_2010-Eng.pdf—Accessed 23/03/12.
(12) The International Afghanistan Conference in Bonn—05/12/11—
http://eeas.europa.eu/afghanistan/docs/2011_11_conclusions_bonn_en.pdf—Accessed 23/03/12.
(13) Long-term deal with U.S. must be on Afghan terms—Karzai—Reuters, 26/06/11—
http://uk.reuters.com/article/2011/07/26/uk-afghanistan-us-idUKTRE76P1UB20110726—Accessed 23/03/12.
(14) Mullah Omar’s Eid ul-Fitr Message—28/08/11—
http://www.flashpoint-intel.com/images/documents/pdf/0210/flashpoint_mullahomar082811.pdf—
Accessed 23/03/12.
(15) Afghanistan’s Conflict Minerals: The Crime-State-Insurgent Nexus—Matthew DuPee, 16/02/12—http://www.ctc.usma.edu/posts/afghanistans-conflict-minerals-the-crime-state-
insurgent-nexus—Accessed 23/03/12.
(16) Afghanistan’s Conflict Minerals: The Crime-State-Insurgent Nexus—Matthew DuPee, 16/02/12—http://www.ctc.usma.edu/posts/afghanistans-conflict-minerals-the-crime-state-
insurgent-nexus—Accessed 23/03/12.
(17) Afghanistan’s Conflict Minerals: The Crime-State-Insurgent Nexus—Matthew DuPee, 16/02/12—http://www.ctc.usma.edu/posts/afghanistans-conflict-minerals-the-crime-state-
insurgent-nexus—Accessed 23/03/12.
(18) Limited Interagency Coordination and Insufficient Controls over U.S. Funds in Afghanistan Hamper U.S. Efforts to Develop the Afghan Financial Sector and Safeguard U.S. Cash—Office of the Special Inspector General for Afghanistan Reconstruction, 20/06/11—
http://www.sigar.mil/pdf/audits/SIGAR%20Audit-11-13.pdf—Accessed 23/03/12.
(19) The Department for International Development: Programme Controls and Assurance in Afghanistan—Indpendent Commision for Aid Impact, March 2012—
http://icai.independent.gov.uk/wp-content/uploads/2010/11/ICAI-Afghanistan-Final-Report_P1.pdf—
Accessed 23/03/12.
(20) Presentation by Alistair Corbett of Force Reintegration Cell—ISAF HQ—on 5 March 2012 in London.
May 2012