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$1T in Minerals Can't Fix Afghanistan

Afghanistan's administration needs to become corruption-free and implement a series of economic reforms to benefit from its $1 trillion mineral find.

NEW YORK (TheStreet) -- Vast mineral wealth may turn Afghanistan into one of the world's most lucrative mining centers, reports New York Times. Parallels can be drawn from around the world to substantiate that the possession of oil, natural gas, or other mineral deposits does not necessarily translate into economic success. Afghanistan remains unstable and suffers from corruption and insurgency. However, these mineral reserves could be significant for the country's economic growth, if fundamental reforms are put in place.

Some African countries, such as Angola, Congo, Nigeria and Sudan, have vast deposits of natural resources, such as oil, diamonds and other minerals. However, these countries still experience low per capita income and a poor quality of life. Even though Nigeria is among the top oil-producing nations in the world, the majority of its population falls under the poverty line and citizens earn less than a dollar per day. Rather, the natural resource wealth has fueled state corruption.

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On the other hand, there are countries in East Asia such as Japan, South Korea, Taiwan and Singapore, that are renowned for their exceptional economic growth and high standards of living, despite the virtual absence of natural resources. Democracy, economic policy and a diversified economy are inextricably linked and are the prerequisites to become a developed nation. Japan and South Korea graduated into advanced economies on high productivity and low corruption rates that have pushed these countries to emerge as role models of economic growth.

Political stability, a robust democracy and declining corruption in the recent years has helped Brazil, endowed with huge natural resource reserves, to produce world-class multinational companies such as

Vale

(VALE) - Get Report

and

Petroleo Brasileiro

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(PBR) - Get Report

. Rich natural resources in Australia generated such mining giants such as

BHP Billiton

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and

Rio Tinto

(RTP) - Get Report

.

Engagement of U.S. mining companies and other foreign majors will be important to extract and process the vast deposits in Afghanistan. Any populist nationalism movements, as in Venezuela, Bolivia and Mexico, will impede progress. Producer subsidies and low taxation will attract foreign investment.

Economic reform is another vital factor that will define the utilization of the natural resources. With an unstable government at the center and the continuing threat from the Taliban, we believe the reform process will drag. Corruption-free administration, transparent commodity trading, a proven distribution systems and strong fiscal and monetary policies will remain prerequisites for development of the Afghanistan's vast deposits.