Is Dutch Disease Coming to Afghanistan?

Is Dutch Disease Coming to Afghanistan?

Left with a weak economy, the Taliban have become dependent on coal mining to sustain their coffers. This bodes ill for the country’s long-term economic future.


Afghanistan’s key economic sectors have long been bedeviled by the lack of security, widespread corruption, and weak law enforcement. Following the takeover of the Taliban in August 2021, national funds were frozen, sanctions were imposed, and development aid was halted by the international community. Nonetheless, the Taliban have found ways to sustain the country’s fragile economy, thanks to Afghanistan’s ample mineral resource deposits.

Estimated to be worth about a trillion dollars, the Taliban have already started converting these assets into hard revenue. Coal, for example, is already being extracted and exported—the earnings from such help sustain the new regime, particularly in light of the economic shortfall left by the country’s abrupt political crisis. To ensure a swift cash flow, in the second quarter of 2022, the Taliban’s finance ministry raised export duties on coal from 20 percent to 30 percent, coupled with the rise in coal rates from $90 to $200 per ton. By mid-2022, approximately $40 million was collected in customs duties on coal from the exports to neighboring Pakistan.


In an exclusive interview on a state-owned TV in 2022, Shahabuddin Dilawar, the acting minister of mines and petroleum, explained that Afghanistan has millions of tons of coal reserves in different provinces and that around 130–144 million Afs are generated every week as domestic revenue. For the cash-strapped Taliban, coal mining thus presents an essential economic lifeline. However, given the chronic dearth of capital and labor in other sectors of the Afghan economy—such as manufacturing, education, agriculture, and the public sectors—over-reliance on natural resources, particularly coal mining, could lead Afghanistan to suffer from the infamous Dutch Disease.

Afghanistan’s Economic Disparity

The Taliban’s newfound dependence on mining revenue bodes ill for Afghanistan, which is already suffering from a high unemployment rate—in the first weeks of the Taliban’s takeover alone, a total of more than 500,000 people lost their jobs.

Because of the country’s poor economic situation, workers are seeking jobs in cash-rich industries like coal mining. However, this has led to a severe understaffing problem in other essential sectors, such as agriculture and social services. Additionally, as the mining industry consumes a significant portion of capital, there may also be a lack of capital in these other sectors, leading to an overall imbalance in the economy.

Further complicating the situation is the ugly reality that only those with political clout can find work. This is because workers are frequently designated based on individual preferences, connections, and ideological compatibility with the Taliban. As a result, further national poverty and inequality seem likely, which could lead to an increase in child labor, as even the low wages earned by children working in fields like mining are deemed necessary by starving households.

None of this has dissuaded either domestic or international investors, however. Many parties are keen to invest in the country’s mining industry. For instance, Chinese and Iranian companies have shown interest, and may soon make huge investments in Afghan coal mining.

Kabul is thus left in an ugly situation: the Afghan economy is imbalanced in favor of mining, while other sectors go understaffed and underfunded. Yet reform is hard to achieve, due to the country’s delicate and volatile politics.

Fighting over the Mines and Power

Because of its sheer importance, the Taliban’s leaders have exerted monopolistic control over the mining sector. As reports note, the Afghan mining industry is now beholden to a few top Taliban leaders, and relying solely on income from mining likely exacerbates political fractures among these leaders. The resulting covert power struggles have unfortunately led to mismanagement and exploitation. In early 2023, for example, the Taliban’s Ministry of Public Works announced that it plans to offer coal mining extraction contracts to local (road) construction companies in exchange for the restoration of the Kabul-Kandahar highway.

Given that Afghanistan is already susceptible to economic and political threats—whether it be from disaffected local forces, the Islamic State of Khorasan Province, and/or the National Resistance Force—any disagreements over the equal distribution of coal mines and their revenues could not only lead to Dutch Disease but also to further instability.

Nonetheless, in the current context of Afghanistan’s volatile political and economic landscapes, the newfound reliance on natural resources is necessary for the country’s short-term economic survival, as was the case in some other countries such as Indonesia and Nigeria. In the long run, however, the Taliban regime needs to advance new policies, such as promoting economic diversification and the inclusion of Afghan private enterprises. This could make the use of natural resources more efficient by ensuring proper capital allocation and job creation in different sectors. In this way, the Taliban can avert a number of local threats and even pacify some anti-Taliban factions for national security.

Given that the country’s coal mines are among the Taliban’s few major sources of domestic revenue, these require tactical and careful management. Otherwise, the implications could be devastating. Conflicts over coal mines, for example, have already been reported between the Taliban and locals in Sar-e-Pol province. Such disputes over the control of the mines will further encourage locals to engage in the illicit trade of natural resources—a major problem for the Taliban given their dependence on the mines and coal.

The Need for Change

Given current circumstances, the Taliban sees the use of natural resources as a boost for their economy and survival. However, if they only invest in natural resources without creating other kinds of jobs, they risk instability and causing Dutch Disease, which could have disastrous consequences for their regime. To avoid this, they should inclusively encourage domestic startups to participate in the mining industry to create jobs. Rather than relying solely on exporting coal, the Taliban could use it as a raw material for other industries within Afghanistan, such as iron manufacturing, and/or use the surplus earnings from coal exports for capital allocation in other sectors. Another option would be to exchange coal exports for things that Afghanistan needs, such as agricultural equipment and technological services.

One thing is for sure, however: if the Taliban does not change its approach, the long-term consequences will be a natural resource curse, increased unemployment, and internal political turmoil.

Hamayun Khan is an independent researcher pursuing an MSc in International Business at George Washington University. He holds an MBA in Finance from IKG Punjab Technical University, India. Hamayun has published articles on Afghanistan with several think tanks, and news outlets including The Diplomat, Migration Policy Institute, Eurasia Review, South Asia Monitor, and South Asia Journal.

Nasrat Sayed is a researcher and commentator on Afghanistan. He has published articles on Afghanistan for several think tanks and news outlets, including the Migration Policy Institute, The Diplomat, International Growth Center, The Interpreter, South Asia Monitor, and TOLOnews.

The views and opinions expressed in this article are those of the authors.

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