Since the inception of the war in Afghanistan, the United States has lost more than 1,500 lives and spent over $400 billion — much of which devoted to reconstruction, aid, and other forms of direct support.
So when the U.S. government announced last year that Afghanistan may have over $1 trillion in mineral wealth, one might have assumed that it would work with U.S. companies, and companies from other coalition countries, to help them participate in the development of these resources.
Not so. In the most recent installment of “we pay, China plays,” the China National Petroleum Corporation (CNPC) will soon be awarded a 20-year lease on several oil fields in Northern Afghanistan. This follows the other major resource tender in Afghanistan, in 2007, in which the government of Afghanistan awarded a 30-year lease on the country’s largest copper mine to the China Metallurgical Group.
Amazingly, the process that will result in the award to CNPC has been designed and managed by a U.S. Defense Department task force, which is also footing the bill for the international lawyers and consultants who are advising the Afghan government on the tender. The task force set up the process to award the resource to the bidder offering the highest percentage of its revenues from operations to the Afghan government as a royalty — which skews the tender in favor of state-owned Chinese companies more concerned with capturing valuable resources than achieving an attractive return on their investment. The process failed to take into meaningful consideration the bidders’ respective track records on technology, the environment, and local employment, among others, all of which would have played to the strengths of Western companies.
In my firm’s recent work assisting a Western bidder with its tender and related negotiations, we repeatedly warned the task force that the inevitable outcome of their process would be a CNPC victory, but our concerns were brushed aside. We also told the task force that they needed to do more to provide political support to the Western bidder, but the U.S. government stated that it was neutral as to the outcome of the tender — an incredible position, especially given the strategic importance of hydrocarbon resources in a country where U.S. troops require thousands of gallons of jet-fuel and diesel every day to support ongoing operations. These resources will now be under the effective control of the Chinese government.
The experience in Afghanistan would be less disturbing if it weren’t emblematic of a larger problem: the United States is falling behind China in resource-rich emerging markets throughout the world — especially Africa and Central Asia. Some of the blame falls on our private sector — U.S. companies need to be more intrepid, less bureaucratic, more focused on frontier opportunities — but much of the blame falls on our government.
The U.S. government does almost nothing to promote the interests of U.S. firms in international markets. U.S. embassies have commercial departments, but these focus primarily on providing information to U.S. firms, rather than on lobbying their host government on behalf of U.S. businesses. Our Commerce Department is known to be ineffectual, and our State Department almost never brings up a particular commercial opportunity or advocates on behalf of a U.S. firm. Indeed, the U.S. government as a whole does not use the leverage it accrues from spending billions in aid and military assistance to achieve significant commercial advantage.
The Chinese are squarely on the opposite end of the spectrum. Aid is generally an explicit quid pro quo. (A representative example: In 2009, China committed to investing $7 billion in infrastructure in Guinea, in exchange for which a Chinese company was offered a strategic partnership in all of the country’s future mining projects.) Commercial opportunities are often the sole focus of the Chinese Foreign Minister’s bilateral meetings with counterparts.
Even European governments do a far better job than the United States. French President Sarkozy, for example, takes with him the CEOs of major French companies every time he travels to the Middle East, Africa, or any other region that offers commercial opportunities for the French private sector. Similarly, the U.K. Foreign Office recently listed as a top priority the promotion of the country’s commercial interests and the explicit lobbying for British businesses overseas.
The United States’ inability to compete for resources in Afghanistan — a country whose very existence is in large part dependent upon U.S. economic and military support — raises serious concerns about our broader strategy for countering China in emerging markets. Especially at a time when our economy is ailing, it is an area that merits scrutiny and action.
— Alexander Benard is managing director of Gryphon Partners, an advisory and investment firm focused on the Middle East and Central Asia. He has previously worked at the Department of Defense and the Washington Institute for Near East Policy.