Opinion

Be careful what you wish for

The pitfalls of prosperity

M A Niazi
By M A Niazi
121

AT PENPOINT

There seems to be an emphasis in government circles on mineral extraction, woth the holding of the Minerals Investment Forum in Islamabad the most emphatic evidence of this, while the Prime Minister in addressing potential investors mentioned minerals as an area where investment could be made.

Some of the hype has been created by Barrick Gold’s announcement that it would bring the Reko diq project into production by 2028, when the gold and copper deposits would be mined to produce about $10 billion in exports for the country, not to forget that half of this would represent revenue for the federal and provincial governments.

Reko Diq is not the first mining project in Chaghi district. Earlier, there was the Saindak project, which was operationalized by a Chinese company to exploit copper and silver. It seems, therefore, a safe bet that the general area would contain further deposits of copper and precious metals.

In a wider area, the possibility of rare-earth deposits also exists, which will be crucial in the new age of renewables and power storage. Deposits have already been identified in Afghanistan, and there is every likelihood of their presence also in geological formations which it shares with Pakistan, like the Takht-i-Sullaiman mountain range

The idea has been floated that Pakistan should offer them to the USA as a price of reducing or eliminating the tariff imposed on it. This is probably an inspiration from the idea that US President Donald Trump floated, that Ukraine should give mineral rights to US companies of its rare-earth deposits in compensation for US military aid in its conflict with Russia.

It is also worth noting that these  metals are likely to be in demand during the world’s transition to clean energy, as  more chargeable batteries and new circuits are required. Therefore, the revenue to the country is likely to go up rather than down. There is also the likelihood of further deposits being identified.

This will not only mean that the mineral wealth will continue to be productive, but Pakistan will approach closer to what might be described as the Gulf Model, where the locals did more or less nothing, as others came in and extracted the valuable mineral (oil) and made them very rich.

It is worth noting that the establishment is on-board with this, as was shown by the presence of the Chief of Army Staff at the Minerals Investment Forum., as well as the military’s involvement in the Special Investment Facilitation Council, which in turn has identified mining as one of the sectors in which it is taking a particular interest.

The Reko Diq project is indeed a godsend. But it, and any other similar projects, should not turn into an opportunity of lolling back and letting the money roll in, but should act as a spur to the nation to greater efforts.

It is also worth noting that Finance Minister Muhammad Aurangzeb has pointed to the example of Singapore’s nickel as an example of how mineral extraction could be used to pull an economy out of poverty, and place it in the ranks of the prosperous countries.

It doesn’t quite work that way, as mineral wealth does not necessarily lead to the promised land. Some of the problems have shown up in Zambia, which still depends in a major way on its copper mining industry., but which has not made the transition to a developed economy.

The first problem that Zambia, or any other country like the Gulf states, faces is that extractive industries are not labour-intensive, and thus not many jobs are created. As experienced in the Gulf, jobs are often taken by expatriates, who send their wages home, and thus the benefit to the local economy is further reduced. For growth, labour-intensive industries work, as in textile made-ups, which Pakistan already has

Apart from being capital-intensive, there is a strong chance of extractive equipment having to be imported. An example is the interest shown by the Prime Minister in the Belaz factory in Belarus during his recent visit. Belaz is one of the world’s largest makers of dump trucks and other vehicles needed around mining sites. If it sold those vehicles, the proceeds of the bonanza would at least partially end up in Belarus. It should be remembered that as the deposit is being exploited by a foreign firm, the chances are its engineers would like to source their equipment from known suppliers, who would inevitably be abroad.

Then there is the exchange rate. Obviously, the boost in exports means that the local currency would rise in value. That incidentally means that other exports suffer. That is a problem for Gulf countries, but a gradual one, a potential one. For Pakistan it would be immediate, as its existing imports are quite substantial. As jobs are lost in those sectors, they will not be replaced by ones in extraction.

Mining towns are also notoriously difficult to police. Drugs and prostitution become commoner, which bring in their wake other crimes. Cultural restraints might come into play. But the boom of

First Beirut, and now of Dubai, as places where oil wealth could buy forbidden pleasures, show that those restraints are not dependable. In a province where separatism and religious militancy, adding good old-fashioned vice might make the province impossible to police.

Separatism is not just a problem for extraction activity, but it may be fuelled by that very extraction. There is what might be called the ‘blood diamond’ phenomenon, where rebels may fund their insurgency with revenues from extracted material. Incidentally, the presence of extractive mineral wealth works in favour of separatists in several ways.

First, it gives separatists a talking-point: it explains how they would fund a new state. It also allows them to claim that people are being ripped off by the state. Second, it allows extractors an alternative: they might hope for a better deal from the separatists than the one they have already got from the legitimate government. They may therefore fund the separatists.

Another problem is that the separatists may use the natural resource to fund themselves. It was just such a use by Sierra Leonese and Liberian insurgents, who depended on revenue from diamonds sold, yielded the term ‘blood diamonds’; with another example being the use of crude oil sales by Islamic State to fund itself when it had occupied large areas of Syria and Iraq. If Baloch separatists got hold of some gold workings, this would enable them to fund themselves much more lavishly than they can at present.

This is not to say that mineral extraction should be avoided. However, there are two caveats that need to be observed while going into them. First, it should not be expected that the country, or even the province, will be transformed. Even now, the largest of the oil-rich Gulf states, Saudi Arabia, still has a population of 33 million. Balochistan has one of about 15 million.

Second. The government should be aware of the problems and keep a lid on things. The emphasis must remain on developing capital, as well as on developing labour-intensive industries at home. For example, the copper extracted would probably form the basis of an electrical engineering industry here, and of gold a jewellery industry.

The Reko Diq project is indeed a godsend. But it, and any other similar projects, should not turn into an opportunity of lolling back and letting the money roll in, but should act as a spur to the nation to greater efforts.

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121 COMMENTS

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