Heuristic Economic Assessment of the Afghanistan Construction Materials Sector—Cement and Dimension Stone Production

Summary

Over the past decade, the U.S. Government has invested more than $106 billion for physical, societal, and governmental reconstruction assistance to Afghanistan (Special Inspector General for Afghanistan Reconstruction, 2012a). This funding, along with private investment, has stimulated a growing demand for particular industrial minerals and construction materials. In support of this effort, the U.S. Geological Survey released a preliminary mineral assessment in 2007 on selected Afghan nonfuel minerals (Peters and others, 2007). More recently, the 2007 mineral assessment was updated with the inclusion of a more extensive array of Afghan nonfuel minerals (Peters and others, 2011). As a follow-up on the 2011 assessment, this report provides an analysis of the current use and prospects of the following Afghan industrial minerals required to manufacture construction materials: clays of various types, bauxite, gypsum, cement-grade limestone, aggregate (sand and gravel), and dimension stone (sandstone, quartzite, granite, slate, limestone, travertine, marble). The intention of this paper is to assess the:

• Use of Afghan industrial minerals to manufacture construction materials,
• Prospects for growth in domestic construction materials production sectors,
• Factors controlling the competitiveness of domestic production relative to foreign imports of construction materials, and
• Feasibility of using natural gas as the prime source of thermal energy and for generating electrical energy for cement production.

The discussion here is based on classical principles of supply and demand. Imbedded in these principles is an understanding that the attributes of supply and demand are highly variable. For construction materials, demand for a given product may depend on seasons of the year, location of construction sites, product delivery time, political factors, governmental regulations, cultural issues, price, and how essential a given product might be to the buyer. Moreover, failure on the supply side to mirror such attributes can be deal-breakers in a transaction.

For qualitative interpretation of the findings in this report, the value chain was used to conceptualize the relation between supply and demand. Although quantitative data on the Afghan construction materials sector have been hard to come by, the premise herein was that qualitative aspects of supply and demand are revealed by following the flow of funding through projects of varying sizes. It was found that the spectrum of attributes on the demand side of large multimillion dollar reconstruction projects is generally high dimensional, distributed over a broad line of construction materials at diverse locations, and in varying quantities. As interpreted herein, project funds dispensed at the higher hierarchical levels of a project are often concentrated on procurement of construction materials and services at the upper end of the value chain. In contrast, project funds dispensed at the lower hierarchical levels are disseminated across a multiplicity of subprojects, thus restricting project acquisitions to the lower end of the value chain. Evidence suggests that under the current conditions in Afghanistan producers of construction materials at the lower end of the value chain (adobe brick, aggregate, low-end marble products) can successfully compete in local markets and turn a profit. In contrast, producers of energy-intensive products such as cement will continue to face intense competition from imports, at least in the near-term. In the long-term, as infrastructure issues are resolved, and as business conditions in Afghanistan improve, domestic producers will have a locational advantage in establishing a solid niche in their respective home markets.

In the process of tendering properties for cement production, the pivotal issues of abundant, reliable, and cost-effective thermal and electrical energy sources for cement production have become prominent. Over the past 50 years, powdered coal and natural gas have been proven to be excellent fuels for firing kilns at cement plants, and both fuels are used as energy sources for electricity generation. After reviewing the main aspects of the coal and natural gas sectors, it is concluded here that the issues for plant design are not that of energy source feasibility but rather that of optimization of energy technologies for a given plant at a particular time and place, based on a diverse mix of energy and transport technologies.

First posted September 25, 2014