Can Afghanistan economy thrive without poppy?

Why does the Afghanistan economy matter to the world?

Let's do the math. President Hamid Karzai, backed by NATO commanders, says the country needs 400,000 Afghan soldiers and police to defend itself. That would cost about $10 billion annually.

Afghanistan's current budget: $1.1 billion. And $400 million of that comes from foreign donors.

To close that gap, Afghanistan cannot rely on the current dynamo of its economy – poppy. While it accounts for nearly 30 percent of the country's gross domestic product, and 90 percent of the world's heroine, it's unlikely to ever be legalized and, therefore, taxed. On Wednesday, the government launched a massive poppy eradication program, starting in the south.

What can be done to build up the remaining 70 percent of the economy?

Magic bullets

Policymakers zero in on two areas to grow Afghanistan's $11.4 billion economy: agriculture and mining. Farming has big potential by virtue of its huge workforce, and mining holds the prospect of untapped value in the billions of dollars. Both, however, will take years to develop and improved security to encourage investment.

Mining is currently a $52 million a year industry – less than 1 percent of the economy. But a few big-name projects highlight its potential. In a deal with the Chinese in 2007, the Aynak copper mine will bring in $1 billion of annual revenue for Kabul. And bids were due Feb. 15 to exploit Hajigak, a massive iron ore deposit.

"That's estimated to bring in up to $3 billion a year in government revenues for centuries," says Craig Steffensen, Afghanistan country director for the Asian Development Bank. "I think the mining sector is this magic bullet that everyone is looking for to sustain things without [foreign donors] having to cover costs until kingdom come."

Of course, magic bullets are rare. Western investors have hesitated to enter Afghanistan because of an uncertain regulatory environment, corruption, lack of transparency, and lack of security, says James Yeager, an American geologist who advised the Afghan Ministry of Mines.

Mining: the Chilean model

Still, he points to Chile as what's possible for Afghanistan. Thirty years ago it had a fledgling mining industry, he says. "They changed their laws to make mining very favorable. They cleaned up their corruption act. Today they are the world's leading producer of copper."

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