Developing Economies

Will Afghanistan Fall Victim To The 'Natural Resource Curse'?

Afghanistan may be sitting on nearly $1 trillion of gold, copper, lithium and other minerals, the New York Times reports.

It's an incredible sum — nearly 100 times the size of the country's gross national product — that could transform Afghanistan's economic future.

But for many countries, discovering valuable resources in the ground leads to no end of trouble for the people.

"You'd think it's like winning the lottery, but it's become associated with all these negative outcomes," Todd Moss, a senior fellow at the Center for Global Development, told me this morning.

Economists call this the "natural resource curse."

Poor countries that are rich in natural resources tend to have more violent conflicts than countries with fewer resources. Their governments are more likely to be corrupt and authoritarian. And the people often don't get any richer when the government sells the country's resources on the global market.

There's still some debate over whether this is a cause and effect relationship, but there are some cautionary tales. Nigeria, for example, has sold $300 billion of oil since 1970, and its population has grown poorer, Moss said.

Natural resource wealth can disrupt economic development in several ways, any of which could be relevant in Afghanistan.

When insurgents control natural resources, mineral wealth can fund civil wars.

A government that keeps control of the resources can use the revenue from foreign buyers to line the pockets of the well connected and suppress internal dissent.

A resource-rich country may fall victim to "dutch disease." Selling commodities to foreign buyers drives up the value of a nation's currency. That, in turn, makes it harder for other exporters — farmers, for example — to sell their goods on the global market.

One factor that reduces these risks: Some entrenched, powerful group that is not dependent on the newfound resources.

Botswana, for example, has developed its diamond inudstry while maintaining a stable government and economic growth, Moss said. The key was a group of traditional chiefs who relied on cattle farming, and who acted as a check against diamond-related corruption.

"They did not want diamonds to swamp them," Moss said. "They had power from a different source."

In Afghanistan, though, the only obvious outside economic force would be the drug trade — which doesn't augur well for political stability and widespread economic growth, according to Moss.

Still, he said, there is some hope that transparency can lessen the effects of the resource curse. The idea is to have a public accounting of the money as it comes in, then to track it as it moves through the system.

This is clearly not a panacea. But, Moss said, developing the natural resources may be the country's best shot.

"If you look at the range of economic opportunities that Afghanistan has — it's basically poppies and smuggling — you've got to hope that this is a benefit," he said. "Becasue what else can we hope they develop there?"

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