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Friday, October 14, 2011

India's Afghanistan Ties Driven by China, not Pakistan

BY KARI LIPSCHUTZ | 13 OCT 2011

The strategic partnership agreement signed by Afghan President Hamid Karzai and Indian Prime Minister Manmohan Singh in New Delhi last week made front-page news across the region and beyond. The attention it attracted is hardly surprising: The agreement, the first of its kind for Afghanistan, includes the provision of training for Afghanistan's military and police, the establishment of social and cultural exchanges, and measures to enhance economic ties.

It also comes in the context of increasing tensions between Afghanistan and Pakistan. A day prior to the announcement, Karzai harshly criticized Islamabad for not supporting ongoing peace and stability operations in Afghanistan, accusing Pakistan's leaders of playing a "double game" when it came to the Taliban. Relations have been especially fraught since the killing in September of former Afghan President Burhanuddin Rabbani -- who headed Afghanistan's peace process -- allegedly by a group with close ties to Pakistani intelligence.

The timing of Karzai's criticisms and his signing of a landmark deal with Islamabad's historic rival led analysts and politicians to cast the growing relationship between India and Afghanistan as a snub to Pakistan. However, it would be short-sighted to categorize India and Afghanistan's recent closeness as intended solely to isolate Pakistan, as New Delhi's interest in the relationship may well have little to do with its cool feelings toward Islamabad.

From an Indian perspective, there are obvious security and diplomatic motivations that could propel a strategic relationship with Afghanistan. But a more realistic motivation is India's growing desire to become competitive in the race to secure natural resources. Over the past few months, what was at first ad hoc interest from various Indian mining companies to work in Afghanistan has grown into a cohesive, concerted effort. With encouragement from New Delhi, an Indian consortium placed a bid last month for the massive Hajigak iron ore mine in Afghanistan's Bamiyan province. The Indian bid is considered to be a top contender to receive the license. It also represents one of the first real commitments of foreign direct investment (FDI) in Afghanistan's extractive industries from a country other than China.

India has also shown an interest in increasing local capacity in the extractive industries in Afghanistan, a sign that Indian policymakers are not expecting their engagement to end with this one iron ore project, but rather have a longer-term commitment in mind. Specifically, India's School of Mines is providing ongoing training in the areas of sustainable natural-resource management and highly specialized mining technology to Afghan engineers. There are plans to expand this project in collaboration with Afghanistan's Ministry of Mines to develop a comprehensive Afghan institute of mining.

The commitments of time, money and institutional resources are a clear indicator that India wants a foothold in Afghanistan. While much of this effort is driven by a desire to bolster India's natural-resource-exploitation profile abroad, there is also an element of geostrategy at play. India's "hot peace" with Pakistan certainly drives New Delhi's security calculations in Afghanistan, but it is not a good reason to invest hundreds of millions of dollars there. China's strong presence in Afghanistan, however, is.

China is currently the largest investor in Afghanistan's extractive industries sector, having just secured another contract to drill oil in the north. The success of the oil deal in the Amu Darya basin, an area which extends into neighboring Turkmenistan and Uzbekistan, can be attributed to China's now-textbook bidding procedure: Flood the host country with cash. The drilling agreement between the Chinese state-owned oil company, CNPC, and the Afghan government will see the Chinese company pay out a massive 15 percent royalty fee on oil and a 30 percent corporate tax. China first turned its attention to Afghanistan in 2007 when China Metallurgical Group won the concession to exploit the Aynak copper mine with a bid of just less than $3 billion.

But what India cannot match in cash flow, it makes up for with its genuine interest in regional stability. China has avoided direct involvement in South Asia's regional politics and security environment, relying on international security forces to protect its investments. In an uncertain time for regional relations, Afghanistan will likely find it reassuring to enter into a partnership with a country such as India that has a vested interest in improving the regional security landscape.

China continues to demonstrate that it is less risk-averse than other investors, but its recent dealings with longtime ally Pakistan underscore the fact that Beijing has its limits -- as well as a strategic approach to its regional investment. Even as it signed on to invest further in Afghanistan, China simultaneously pulled out of a $19 billion coal mining deal in Pakistan, saying the conditions in the country were too unstable. What would have been Pakistan's largest tranche of FDI was canceled in favor of a more aggressive FDI agenda in Afghanistan. The move further validates India's decision to get closer to Afghanistan economically and highlights Pakistan's regional irrelevance in the race to secure natural resources.

From an economic perspective, India's move to develop the bilateral relationship with Afghanistan is smart business. From a geopolitical vantage point, it is also a wise play in its rivalry with China. But the crucial question is whether India can tolerate the considerable risk, financial and otherwise, involved in building a relationship with a politically uncertain Afghanistan. Ironically, the success of India's natural resource relationship with Afghanistan will ultimately come down to the stability of Pakistan, the crucial link between Afghanistan and India needed to transport raw materials efficiently from mine to refinery.

Kari Lipschutz is currently pursuing a doctoral degree at the School of Oriental and African Studies in London. Her research focuses on the correlation between natural resource management regimes and conflict. Her master's dissertation at SOAS explored Afghanistan's recent mineral law and policy reform process. She can be reached at Kari.Lipschutz AT gmail.com.

Photo: Indian Prime Minister Manmohan Singh and Afghan President Hamid Karzai, Kabul, Afghanistan, May 12, 2011 (photo from the website of the prime minister of India).

World Politics Review

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