Mineral Revenue-Sharing as Peace Dividend: Incentivizing Stakeholders to Support Peace and Stability in Afghanistan

Journal of Political Risk, Vol. 9, No. 6, June 2021

By Priscilla A. Tacujan

Mineral Map of Afghanistan. Source: USGS

Various players have raised the prospect over the years of Afghanistan developing its mineral wealth as a means to stabilize the country, but nobody believes that it could achieve enough security to prevent attacks on infrastructure and mining operations.  However, it is possible that Afghanistan might be able to broker peace and reconciliation through a mineral revenue-sharing scheme[1] that directly distributes mining dividends and profits to the general population as well as extract concessions from the Taliban — an approach that has helped mitigate conflict in some other war-torn areas where revenue-sharing has been part of their peace accords.[2]  A trickle-down incentive structure could incentivize the Afghan people and militant groups to pursue peace and reconciliation if they become vested stakeholders and direct beneficiaries of their country’s natural resources.  While security conditions in Afghanistan’s extractive industries remain a challenge, a review of successful revenue-sharing practices in other countries suggests that a similar practice in Afghanistan may yield long-term gains.

Background: Afghan Minerals and Stakeholders

The Task Force for Business and Stability Operations (TFBSO), commissioned by the Department of Defense (DoD) to study Afghanistan’s extractive industry, has estimated that Afghanistan’s mineral and hydrocarbon deposits could be worth more than $1 trillion, with $908 billion in mineral resources and more than $200 billion in hydrocarbon deposits,[3] while the Afghan government has a more optimistic estimate, at $3 trillion.[4]  The U.S. Geological Survey has also indicated that Afghanistan may hold 60 million tons of copper, 2.2 billion tons of iron ore, 1.4 million tons of rare earth minerals such as lanthanum, cerium, and neodymium, and lodes of aluminum, gold, silver, zinc, mercury, and lithium deposits as large as those found in Bolivia, known for owning the world’s largest lithium reserves[5],[6]  Several assessments conducted by U.S. agencies and international organizations have concluded that these resources have the potential to contribute significantly to Afghanistan’s economy.

The Afghan Constitution states that the country’s mineral resources belong to the state.  According to Afghan mining laws, mining operations can occur only upon issuance of contracts by the Afghan Ministry of Mines and Petroleum (MOMP). The Afghan Government earns royalties based on contracts negotiated with and on taxes on profits from companies, as indicated in the country’s income tax law.  However, current mining operations in Afghanistan are heavily engaged in illegal practices. As of August 2017, the Afghan Central Statistics Organization (CSO) claimed that at least 50 percent of the Afghan economy is generated from illegal activities, including illegal mining operations.[7]  Mining contracts are usually handed out to companies and individuals with political connections, including members of the Afghan Parliament, their family members, their associates, and power-holders with access to armed groups and their networks, according to a study conducted by the United States Institute of Peace (USIP).[8]  Mining companies are also hindered by a lack of infrastructure for transport and delivery, a lack of security, and fluctuating market prices.  In addition, they are exploiting and developing resources that are finite and non-renewable.

For their part, the Taliban are believed to be exploiting mining sites illegally in at least 14 Afghan provinces, extorting money from licensed mining operations, and facilitating transport of illegally-extracted minerals.[9]  In the southern part of the country, the Taliban own several mining and excavation businesses. [10] According to think tank reporting, the Taliban have earned as much as $200 to $300 million from illicit mining.[11]  In recent NGO investigative reporting, Global Witness estimates that the Taliban earns $2.5 million to $10 million a year from mining talc alone.[12]  As a result, the Afghan Government is losing millions of dollars in revenues from illegal operations.

As part of any conflict resolution, experts have recommended that settlement negotiations should include economic clauses that could facilitate the transition from a conflict economic mode, including creating “a sense of a popular peace dividend.”[13] In early October 2017, the Afghan Government indicated that it would concentrate on resolving pending contracts and projects and on formalizing illegal mining.[14] If stabilized, Afghanistan’s burgeoning extractive industry at the local, artisanal, and small-scale operational level would most likely encourage private sector investment, a key pillar in the MOMP’s 2017 Road to Reform initiative.[15] 

Incentivizing the Afghan population to support peace through revenue-sharing

In recent US Institute of Peace surveys that were conducted in several Afghan provinces where local communities are engaged in illegal small-scale mining extraction, results have indicated that community distrust and ownership disputes strongly exist between national authorities and local communities.[16]  Resistance from local communities to formalized extraction has historically occurred because local communities believed that regulations did not benefit the community, especially in the provision of social services.  For instance, although Afghanistan’s mineral laws mandate that five per cent of the revenue from extraction be allocated to provincial governments for development activities, many communities have not received such benefits.[17]  Mining communities have also accused government officials of colluding with both the Taliban and the police in illegal revenue extractions.[18]

Despite these problems, Afghan mining communities prefer the Afghan Government over the Taliban in managing mining resources in the belief that the Afghan Government is better positioned to professionalize and mechanize mining and is able to develop related livelihood opportunities.[19]  They also believe that a strong government control would diminish the practice of informal taxes being levied by the Taliban on mining communities.  Mining communities have also articulated their desire for government services such as schools, clinics, roads, and other infrastructure in exchange for national government control of local mines and have expressed the need for mining revenues to be distributed fairly across communities.[20]

Revenue-sharing 

Currently, the MOMP has not identified or adopted a revenue-sharing formula to achieve its Roadmap for Reform or mitigate the negative impact of unregulated, unlicensed, and illegal mining activities.  According to the Brookings Institute, in countries where fiscal institutions are weak, transferring money directly to the people is more effective in preventing conflicts rather than channeling the money to subnational governments.[21]  Direct transfers would also make it more difficult for subnational governments in conflict areas to appropriate resources[22] and could help minimize corruption and bureaucratic inefficiencies.  If the Afghan government were to implement a formula that directly transfers resource revenue in the form of a dividend to a designated number of working-age members of an Afghan household for the next five to ten years, this would likely increase the general population’s purchasing power, in particular, and Afghan economy’s growth, in general.

Incentivizing the Taliban to support peace: transforming the war economy into a peace economy

At this stage of the war when neither the Afghan government nor the Taliban are winning, the Taliban would probably be better off if they take advantage of economic and peace incentives that can potentially legitimize their organization and transform their underground economy into a licit economy. Despite the Taliban’s steady source of income from illegal mining and the drug trade, profits from the war economy are spent towards underwriting their war operations and control over other illicit income-generating activities, including arms smuggling and mine exploitation.[23]  As it sustains conflict, a war economy disrupts markets, destroys assets, and resorts to the use of violence in redistributing resources and entitlements.[24]  It also leads to fewer tax revenues and limits the ability of states to provide basic goods and services, as well as security needed to build infrastructure projects.[25]

The Taliban are also losing popular support because of the collateral damage they inflicted upon the civilian population, with an estimated 1,000 targeted civilian killings per year by 2016.[26]  Moreover, analysts think that the majority of Afghans find the Taliban ideology to be too extreme, too closely linked to the Pashtun ethnic group, and heavily dependent on foreign allies such as Pakistan.[27],[28] In a recent survey conducted by the State Department, 77% of Afghans support the Afghan government’s peace overtures being extended to the Taliban while 63% believe that the Taliban would eventually participate in the peace talks.[29]

Revenue-sharing practices in war-torn countries

Currently, there are over 30 countries that are actively engaged in revenue- sharing practices that have successfully defused, to a certain degree, resource-fueled civil wars, with a caveat that improperly designed or implemented formulas could exacerbate violent conflict.[30],[31]

  • In 2005, Indonesia signed a peace accord with separatist rebels in Aceh that ended a 30-year conflict stemming from a lack of wealth sharing from the region’s oil and gas production and the resettlement of villages.[32] The 30-year conflict resulted in the death of between 10,000 and 30,000 people and years of failed peace negotiations, according to open-source reporting.[33]  The peace accord included disarming the rebels and renunciation of their demand for full independence in exchange for a guarantee of 70 percent of the revenues from oil and gas production for eight years and up to 50 percent thereafter.[34]
  • In 2001, the Papua New Guinea (PNG) government and the Bougainvillean leadership agreed to negotiate and signed a peace agreement to end the conflict that arose from copper extraction in the Panguna mine by Bougainville Copper Limited (BCL). Bougainville is an island province of PNG that is rich in minerals, such as copper and gold. The conflict escalated into a civil war that lasted for 10 years and resulted in the deaths of an estimated 15,000-20,000 Bougainvilleans and the displacement of 70,000 (out of a population of 180,000).[35] The peace accord included a provision that gave mining control to the Bouganvillean government and ownership rights to customary landowners where these minerals are found.[36]
  • For over four decades, oil revenue has created tensions between the Nigerian government and oil-producing areas in the Niger Delta where ethnic minorities resided. The Niger Delta is the region that produces oil but has suffered four decades of neglect and environmental degradation from oil exploration activities. To resolve the conflict, the Nigerian Federal Government in 2009 proposed an amnesty program which guaranteed militant groups freedom from prosecution and a reintegration process with monthly stipend payments in exchange for disarmament.[37],[38] Currently, oil revenue represents almost 70% of government revenue, and the federal government makes monthly revenue transfers of about 80% of total federally-collected oil and gas revenue for all state and local governments. As a result, no less than 13% of oil revenues is allocated monthly to states according to level of production, which is then shared among state and local governments, while the remainder is channeled to the federation account.[39]

Conclusion

If successfully implemented, revenue-sharing could likely contribute to the Afghan government’s efforts to integrate its war economy into the global formal economy, introduce legal and institutional reforms, extend reconciliation and reintegration opportunities to militant groups, and reinforce linkages between local communities and state institutions to enhance trust and cooperation between them. It could also contribute towards setting the conditions for a “new social contract”[40] wherein economic incentives neutralize ethnic loyalties and competing regional interests, thereby, making national unity an achievable goal.  Revenue-sharing may also present an opportunity for the U.S. government and regional powers as well as foreign companies to map out a strategy for Afghanistan that harnesses local human capital and encourages private investments in jumpstarting a conflict donor-dependent economy, assuming that security conditions, mechanisms for compliance and oversight, and good intentions are well in place.

Priscilla Tacujan is a Ph.D. graduate of Claremont Graduate School. She currently works as an analyst at the Department of Defense. She previously worked in Afghanistan as a civilian social scientist for the U.S. Army. The views expressed in this article are her own and do not reflect the position of the DoD.


[1] Rob Bailey, Jolyon Ford, Oli Brown, and Sian Bradley, Chatham House, “Investing in Stability: Can Extractive-Sector Development Help Build Peace,” 2015 [URL: https://www.chathamhouse.org/sites/default/files/field/field_document/20150619
InvestingInStabilityBaileyFordBrownBradley.pdf ].

[2] Andrew Bauer, Uyanga Gankhuyag, Sofi Halling, UN Development Programme, “Making natural resource revenue sharing work,” 10 September 2016 [URL: www.undp.org/content/undp/en/home/blog/2016/9/10/Making -natural-resource-revenue-sharing-work.htm].

[3] Office of Special Inspector General for Afghanistan, SIGAR Report 16-11 Audit Report, “Afghanistan’s Oil, Gas, and Mineral Industries: $488 million in U.S. Efforts Show Limited Progress Overall, and Challenges Prevent Further Investment and Growth,” January 2016 [URL: https://www.sigar.mil/pdf/audits/SIGAR-16-11-AR.pdf].

[4] Live Science, “$1 Trillion Trove of Rare Minerals Revealed Under Afghanistan,” 4 September 2014 [URL: https://www/livescience.com/47682-rare-earth-minerals-found-under-afghanistan.html].

[5] Ibid.

[6] Ahmad Shah Katawazai, The Diplomat, “Afghanistan’s Mineral Resources Are a Lost Opportunity and a Threat,” February 1, 2020 [URL: www.thediplomat.com/2020/02/afghanistans-mineral-resources-are-a-lost-opportunity-and-a-threat].

[7] Daily Outlook Afghanistan, “Afghanistan’s Underground Economy Thriving: CSO,” August 6, 2017 [URL: www.outlookafghanistan.net/national_detail.php?post_id=18784].

[8] William Byrd and Javed Noorani, United States Institute of Peace, “Industrial-Scale Looting of Afghanistan’s Mineral Resources,” June 2017 [URL:  https:www//usip.org/sites/default/files/2017-05/sr404-industrial-scale-looting-of-afghanistan-s-mineral-resources-pdf].

[9] Matthew Dupee, Combating Terrorism Center at West Point, Vol. 10, Issue 3“The Taliban Stones Commission and the Insurgent Windfall from Illegal Mining,” March 2017 [URL: www.cts.usma.edu/the-taliban-stones-commission-and-the-insurgent-windfall-from-illegal-mining/].

[10] Ibid.

[11] Ibid.

[12] Global Witness, “Talc: The Everyday Mineral Funding Afghan Insurgents,” May 22, 2018 {URL: https://www.globalwitness.org/en/-gb/campaigns/afghanistan/talc-everyday-mineral-funding-afghan-insurgents/].

[13] A. Larson & A. Ramsbotham, Conciliation Resources, “Incremental peace in Afghanistan,” June 2018 [URL: http://www/c-r.org/resources/accord-incremental-peace-afghanistan].

[14] Ministry of Mines and Petroleum, Islamic Republic of Afghanistan, “Mining Sector Roadmap: Reform Strategy/Extractive Industries, 2019 [URL: www.momp.gov/af/sites/default/files/2019-06/02%20-%20MoMP%Roadmap%20%%2B%20Reform%20Strategy_reduce.pdf].

[15] Ibid.

[16] Sadaf Lakhani and Julienne Corboz, United States Institute of Peace, “Illegal Extraction of Minerals as a Driver of Conflict in Afghanistan,” July 24, 2017 [URL: https://www.usip.org/publications/2017/07/illegal-extraction-minerals-driver-conflict-afghanistan].

[17] Ibid.

[18] A. Larson & A. Ramsbotham, Conciliation Resources, “Incremental peace in Afghanistan,” June 2018 [URL: http://www/c-r.org/resources/accord-incremental-peace-afghanistan].

[19] Sadaf Lakhani and Julienne Corboz, United States Institute of Peace, “Illegal Extraction of Minerals as a Driver of Conflict in Afghanistan,” July 24, 2017, [URL: https://www.usip.org/publications/2017/07/illegal-extraction-minerals-driver-conflict-afghanistan].

[20] Ibid.

[21] Harun Onder and Tito Cordella, Brookings Institute, “Cash for peace? How sharing natural resource revenues can prevent conflicts,” December 5, 2016 [URL:  https://www.brookings.edu/blog/future-development/2016/12/05/cash-for-peace-how-sharing-natural-resource-revenues-can-prevent-conflicts/].

[22] Ibid.

[23] Jonathan Goodhand, London School of Economics Research Online, “From war economy to peace economy?,” June 2003, [URL: http://eprints.lsse.ac.uk/28364/1/Goodhand_LSERO-version.pdf].

[24] Ibid.

[25] International Peace Academy, “Transforming War Economies: Challenges for Peacemaking and Peacebuilding,” December 2003 [URL: https://www.ipinst.org/wp-content/uploads/2015/06/transforming_war_economies.pdf].

[26] Antonio Giustozzi, Landinfo, “Afghanistan: Taliban’s organization and structure,”23 August 23, 2017 [URL:  https://landinfo.no/asset/3589/1/3589_1.pdf].

[27] Seth Jones, Foreign Affairs, “Why the Taliban Isn’t Winning in Afghanistan,” January 3, 2018 [URL: https://www.foreignaffairs.com/articles/afghanistan/2018-01-03/why-taliban-isnt-winning-afghanistan].

[28] Seth Jones, Center for Strategic & International Studies, “The State of the Afghan War,” January 31, 2018 [URL: https://www.csis.org/analysis/state/-afghan-war].

[29] USAID, “2019 Survey of the Afghan People Reveals Citizens are in Support of Peace Negotiations,” December 3, 2019 [URL: www.usaid.gov/afghanistan/news-information/press-releases/Dec-03-2019-Survey-of-the-Afghan-People-Reveals-Citizens-are-in-Support-of-Peace-Negotiations].

[30] Andrew Bauer, Uyanga Gankhuyag, Sofi Halling, UN Development Programme, “Making natural resource revenue sharing work,” September 10, 2016 [URL: www.undp.org/content/undp/en/home/blog/2016/9/10/Making -natural-resource-revenue-sharing-work.htm].

[31] UN Development Programme, “Natural Resource Sharing Revenue,” September 11, 2017].

[32] The Guardian, “Indonesia signs Aceh peace deal,” August 15, 2005 [URL: https://www.theguardian.com/world/2005/aug/15/indonesia.tsunami20041].

[33] Conciliation Resources, “Incremental peace in Afghanistan,” June 2018 [URL: http://www/c-r.org/resources/accord-incremental-peace-afghanistan].

[34] UN Development Programme, “Making natural resource revenue sharing work,” September 10, 2016 [URL: www.undp.org/content/undp/en/home/blog/2016/9/10/Making -natural-resource-revenue-sharing-work.htm].

[35] Australian Department of Foreign Affairs and Trade, “Bougainville Peace Process,” undated [URL: http:///.dfat.gov.au/geo/png/bougainville_peace_process.html]; “PNG: Tackling Clan Conflict, “ IRIN Humanitarian News and Analysis, 7 January 2011, [URL: http://www.irinnews.org/Report/91559/PAPUA-NEW-GUINEA-Tackling-clan-conflict].

[36] Rear Vision, “Bougainville at a crossroads: independence and the mine,” June 2, 2015 [URL: http://www.abc.net.au/radionational/programs/rearvision/bougainville-at-a-crossroads/6514544].

[37] Chris Newsom, United States Institute of Peace, “Conflict in the Niger Delta: More Than a Local Affair,” June 2011 [URL: https://www/usip.org/sites/default/files/Conflcit _Niger_Delta.pdf].

[38] Essien Akpanuko and Anietie Efi, Scientific & Academic Publishing, “Revenue Sharing Regimes and Conflict Prevention in Nigeria: Between Government and Private Sector?,” 2012 [ URL: http://article.sapub.org/10.5923.j.hrmr.20130304.04.html].

[39] UNDP, “Natural Resource Sharing Revenue.”

[40] Coalition Resources, “Incremental peace in Afghanistan,” Issue 27, June 2018 [URL: http://www/c-r.org/resources/accord-incremental-peace-afghanistan].