Steve LeVine writes on Foreign Policy's Oil and Glory blog that my advisory firm Gryphon Partners -- which focuses on investments in Central Asia and the Middle East -- is "upset that a client has lost an oil deal" in Afghanistan.
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Indeed we are upset, but not over the outcome -- losing deals is a normal part of doing business -- and not because the Pentagon failed to "manipulate" the tender on our behalf, as LeVine alleges. Nor do we have a problem with Chinese investment in Afghanistan as such.
We do not believe that Afghans should be required to turn over the development of minerals to the United States as a reward for ongoing U.S. sacrifices in Afghanistan. As my colleagues Alexander Benard and Eli Sugarman explain, we are upset because U.S. taxpayer money was used to set up a process that favored a state-owned Chinese firm against private Western companies. This runs against official U.S. government policy and regulations, which in fact require U.S. government entities to promote American investors' interests overseas.
I am an unashamed advocate of U.S. and Western companies building an economic presence in Afghanistan, Iraq and throughout the region. I decided to establish Gryphon Partners to encourage and facilitate more Western investment in these markets.
In light of its security challenges and weak institutional capacity, Afghanistan in particular needs all the help it can get to attract reliable, responsible foreign investors from around the world. Western companies not only inject advanced technology and business practices into the country in the short term, they generate enduring Western interest in Afghanistan beyond current security-focused government-to-government relations. Western companies have the advantage of being, on balance, less corrupt, more transparent and more attentive to local interests in areas such as employment, technological development, environmental protection and preservation of heritage sites than their Chinese counterparts.
The performance of Chinese companies is improving -- but they have a long way to go.
Developing Afghanistan's natural resource wealth is important. As foreign aid dries up, Afghanistan will become increasingly dependent on mineral and energy development contracts to finance its reconstruction efforts and sustain its security forces. Poor governance has been one of the most persistent weaknesses of the Afghan government.
Promoting efficient and sound practices in lucrative sectors that lie at the intersection of business and government -- a comparative advantage of Western firms -- could yield important gains in encouraging the rule of law and promoting broad-based economic growth. An alternate scenario is that Afghanistan -- already struggling with governance issues -- could succumb to the resource curse, with the country's underground treasures fueling further conflict and a factionalized kleptocracy.
So far, American and Western companies have fared poorly in Afghanistan. The Afghan government has awarded two major mineral development concessions to date. Chinese companies with state backing have won both. The American company Freeport McMoran Copper and Gold lost out in the competition for the Aynak Copper mine.
Afghan government officials reported intense Chinese government pressure in support of its national companies, and other investigations have documented massive malfeasance in the way the contract was awarded.
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