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Inspector General’s Report Finds Efforts to Develop Afghanistan’s Mining Sector Have Failed, Notwithstanding Adoption of International Standard Laws and Regulations

“Status of U.S. Efforts to Develop Extractive Tenders: $125 Million Spent Resulting in No Active Contracts.” This is the title of the July 2018 report Special Inspector General for Afghanistan Reconstruction (SIGAR) that requires no effort on the part of readers to ascertain the report’s conclusion.

According to the SIGAR, U.S. Government programs operated by the Defense Department’s now defunct Task Force for Business and Stability Operations (TFBSO) and USAID to assist Afghanistan’s Ministry of Mines and Petroleum (MOMP) “to develop and award extractive tenders that would provide a significant increase in revenues to the Afghan government” failed to achieve the stated goal. “Not a single extractive tender that TFBSO or USAID supported resulted in a contract that is currently active.”

U.S. Government estimates value Afghanistan’s “untapped extractive reserves” at $1 trillion with the potential to generate over “$2 billion in annual revenues for the Afghan government.” Predictably, the SIGAR’s report will be disappointing to U.S. officials and for Afghanistan.

Corruption, Weak Policy and Legislative Frameworks Blamed for Lack of Development of Industry Around Estimated $1 Trillion Extractives Reserves

The SIGAR attributed the disappointing results to a number of factors, including, unsurprisingly, corruption. According to the MOMP’s September 2017 Roadmap for Reform, “the major impediments to developing the Afghan extractives sector included: weak policy and legislative frameworks, low managerial and technical capacity at MOMP, an inadequate information-management system for geological data, lack of a strategy to link extractives to the broader economy, corruption, insufficient infrastructure, illegal mining, and insecurity.”

The MOMP’s list of impediments to developing Afghanistan’s extractives sector, particularly mining, is notable in a number of ways, particularly with respect to: (1) weak policy and legislative frameworks, (2) lack of strategy to link extractives to the broader economy and (3) corruption.” While these structural weaknesses are not unique to Afghanistan or natural resource-rich countries (including those with untapped reserves), they are noteworthy because, in the past 4-10 years, Afghanistan instituted new minerals, mining, hydrocarbons and other extractives sector laws and regulations.

With U.S. government funding and technical assistance, and with drafting by international legal and mining industry professionals, Afghanistan’s laws were designed to not only facilitate the development of the country’s mining and other extractives industries, but also build in transparency, accountability and sustainability, among other governance outcomes in accordance with international standards.

The SIGAR’s report (among other sources), indicate that notwithstanding the adoption of international legal standards, corruption and opacity, among other challenges, remain impediments to the development of Afghanistan’s extractives sector. Understandably, the failure to achieve desired results led to the scaling back by USAID of its MIDAS program (Mining Investment and Development for Afghanistan Sustainability). “When MIDAS stopped making tangible progress in tender development,” said the agency, “USAID took action to safeguard taxpayer dollars and reduced the scope of the project.”

In principle, the drafters of these laws and regulations had the benefit other resource rich countries’ past experience and took steps to avoid or remedy known risks and capitalize on successful models. But, could a localized approach to Afghanistan’s mining and other extractives laws enhance their potential effectiveness and longer-term durability?

Recommendation: A Localized Approach to Mining/Extractives Law and Regulation

Thinking beyond the parameters of standard “international development” and industry playbooks, the lack of progress in developing Afghanistan’s mining sector should induce interested government, industry and nongovernmental actors to consider if and how laws, policies and technical assistance can be formulated and implemented in ways that might enhance their effectiveness in practice, rather than just on paper.

Afghanistan, as is well known, is a Muslim majority nation in which Islamic law (as locally interpreted and implemented formally and informally) plays a significant role. Islamic law (Shari’ah) provides rules and precedents applicable not only to family matters and ritual worship, but also to business transactions, public governance, market regulation, and limitations on government dominion over private property.

In these areas, and others, Islamic law and historical practices provide rules and precedents applicable to the regulation, administration and conduct of business, including mining and other extractives businesses. These laws and precedents are just as robust, and more so in some cases, as relevant international and foreign laws and standards.

For example, pursuant to Islamic law and historical precedents, the following rules and practices apply.

  • Bribery and Corruption in Contracting. The validity of contracts induced by means of bribery or other corruption are subject to legal challenge and, depending on their facts and circumstances, can be voided or otherwise found legally defective (with allowance for cure). To state what is implicit, Islamic law mandates good faith, fair dealing and the absence of corrupt or other distorting conduct in the formulation and performance of contracts (and business more generally).
  • Market Regulation, Oversight and Enforcement. The need for and conduct of market regulation is recognized in Islamic law, and there are historical precedents of robust market regulation designed to ensure market efficiency and combat fraud, corruption and material unfairness in the markets. Islamic market regulation is not limited to any particular time, place or type of business activity or sector. Islamic rules, principles and precedents for market regulation, oversight and enforcement are relevant to market conduct today, whether in Afghanistan or in other nations that choose to incorporate or wholly adopt Shari’ah-based frameworks for market regulation. (Islamic market regulation is discussed briefly by the author here, in an article on insolvency regimes for Islamic banks (see section on Shari’ah-Based Market Regulation: Hisba)).
  • Anti-Corruption in Government. In addition to Islamic rules and principles proscribing corrupt and other distorting conduct in the markets, Islamic historical practice provides clear examples of anti-corruption practices in government, most notably by Omar ibn al-Khattab (ra), the second of the Rightly Guided Caliphs, who, among other practices, required new government appointees, as a condition of their appointment, to disclose the amounts and sources of their wealth (i.e., to make financial disclosures) and subsequently monitored increases in government officials’ wealth during their official tenures to detect illicit gains and take action where official corruption was found.
  • Private Property Rights, Limitations on Government Takings. Early Islamic law recognized private property as a legal status and right. Accordingly, early Islamic law also limited the power of government (the sovereign) to expropriate private property, except for public purposes and with swift compensation at fair market value. In other words, an Islamic legal doctrine of eminent domain and limitations on government takings, took concrete form and was authoritative in the early days of Islam. The Islamic doctrine of eminent domain has been reaffirmed in contemporary times, including by authoritative international Islamic legal bodies.

In further developing (or modifying) Afghanistan’s legal framework for the mining industry and for other extractives sub-sectors, participants in such efforts should be aware that concepts of validly formed contracts (free from corruption, bad faith and unfair dealing, etc.), transparent and effective market regulation, anti-corruption in government, and private property rights and corresponding limits on government power are not “foreign” to Afghanistan. Rather, these and other relevant legal principles are native to Afghanistan as a Muslim-majority country in which Islamic law plays a prominent role in the private and public domains.

Incorporating Islamic laws and historical precedents in legal frameworks, policy and public messaging has the potential to bolster their credibility and local appreciation for their relevance and value. As, if not more important, incorporating– or, at a minimum, recognizing the Islamic legal and historical bases or common ground–for relevant extractives industries or other legal frameworks could very well enhance, in the eyes of the Afghan public, the legitimacy and value of extractives industry development efforts and objectives.

Of course, adherence to the laws– whether they are imported standards or “best practices” or expressly or implicitly Shari’ah-based, compatible or inspired–will always be required for their long-term effectiveness, by government and private parties alike. That being the case, it worth testing in earnest whether developing legal frameworks that are consistent with local religious and other laws, customs and aspirations (professed and practiced) would advance the cause of sustainably developing Afghanistan’s mining and other extractives industries.


For More Information

To learn more about the thinking behind this post or MassPoint’s related services, contact the author, Hdeel Abdelhady, at habdelhady@masspointpllc.com. For more Islamic law-related publications, click here. To view all of MassPoint’s posted publications, visit the publications page and blog.


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Post Author: MassPoint PLLC

MassPoint PLLC is a boutique law and strategy firm that works with diverse clients to meet legal, strategy, and risk management needs in a globalized, complex world.