It has the potential of a free cash flow of 74 billion dollars in the next 37 years. This is the mind-boggling sum that has been attached to the Reko Diq mine in Pakistan, which is among the largest undeveloped copper-gold deposits in the world. To a country that is still struggling with constantly running debts and deficits, this project is being publicized as a national savior, a generational chance to cleanse the economy. But we have been here before. The Global South is scattered with countries that have huge mineral endowments and are stuck in poverty and debt. This is the stark reality in the fact that the treasure in the ground cannot be valuable without a managing institutional capacity.
The Reko Diq project is not a matter of testing Pakistan’s geology; it is a matter of testing its state. The key issue is whether Pakistan is finally able to utilize its mineral resources to act like a developmental state, a state that is a strategically constructed national industry and capacity. Or, will it succumb to a common tragedy, where resource nationalism creates a short-term cash-bonus to the elites and but does not bring actual change to its 240 million citizens?
How come that there are numerous resource-abundant nations that cannot afford to be considered wealthy? The solution to this is the distinction between extraction and development. This is the departure that is strongly exemplified through the destinies of two countries, Zambia and Indonesia. Zambia is the model of the resource curse. It has an economy that is highly reliant on copper, as 70-80 of its export revenues are based on copper. But this wealth has had a humanly disastrous effect. According to a 2019 report by the South African Institute of International Affairs, the following damages have been found in Zambia’s copper exports: 47 percent of the copper that was exported was raw copper ore, with manufactured and high-value copper wire making up a negligible 0.86 percent.
The state was unable to develop any domestic value chain. The cost to the human is even more pronounced. The report provided by the United Nations stated that in the 2003-2011 commodity boom, when the price of copper increased by a huge percentage, Zambia experienced a rise in poverty level from 49.4 to a shocking 64.4, with a poverty rate of 1.90/day.
The inequality of income increased at the same time. The gains, as the report has found, failed to trickle down due to institutional and policy gaps. Indonesia, however, did not take that way. It was determined that it is a trap to be an exporter of raw materials.
This leads to the initial one of our two fundamental notions: Resource Nationalism (RN). Resource nationalism is the claim made by a state to its resources, and this is what Pakistan claims to have realized. The Reko Diq deal that won Pakistan and Barrick Gold, a Canadian Company, 50 percent national share respectively, is hailed as a win.
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This reclamation is, however, not enough. It was a retaliatory step, the product of the desperation over an international arbitration award that had crippled Pakistan to the tune of $6 billion. Pakistan is ordered to pay after its Supreme Court nullified the original contract in 2013. The 2022 settlement merely reversed a portion of the rents. We learn that developmental resource nationalism is another beast, as witnessed in Indonesia. It is not only a rent-capture thing, but a means of industrial policy. It is by its downstreaming or hilirisasi policy that Indonesia made a strict ban on the export of raw nickel ore. This was some kind of hybrid state activism, as scholar Moch Faisal Karim calls it.
The nationalist stick with which the state coerced foreign capital, which was mostly Chinese, was the national export ban to compel it to invest in the huge long-term investments needed to establish smelters and processing facilities within Indonesia. The outcome was a beautiful industrial refurbishment. Former Indonesian President Jokowi reported that the value of the nickel industry export increased by 17 trillion Rupiah to 510 trillion Rupiah. Indonesia turned from an exporter of raw ores to a world leader in processed nickel and stainless steel. This leads us to the second and most important concept, which is the Developmental State.
Indonesia was successful due to the fact that the resource nationalism was exercised by a developmental state, which can be defined as a particular institutional complex in which there exists a collaboration between expert and consistent bureaucratic agencies and the private sector, and the effect of this partnership is national economic transformation. Importantly, according to the works of such researchers as Lena Rethel and Elizabeth Thurbon, this cannot be achieved only through policies but through a developmental attitude.
The latest developments around Reko Diq brutally illustrate Pakistan’s position in the global economic hierarchy. While Islamabad celebrates the inflow of dollars, the deals reveal a passive state merely hosting the strategic ambitions of others. The US Export-Import (Exim) Bank has pledged a massive $1.25 billion loan, a move explicitly designed to secure critical mineral supply chains for Western industries, not to industrialize Pakistan.
Simultaneously, Japan, through the Japan Bank for International Cooperation (JBIC), is mobilizing a $300 million loan to ensure a stable copper feed for its own technology sector. But the most stinging indictment comes from Indonesia: Petrosea, an Indonesian firm, has secured a $26.2 million contract to provide engineering and construction services for the mine. Indonesia used its resource wealth to build the industrial capacity it is now exporting to us. Pakistan, lacking a developmental strategy, is reduced to borrowing money from the US and Japan to pay Indonesian engineers to dig up Baluchistan’s wealth.
Here, the problem in Pakistan lies at the existential level. The deal with Reko Diq as it is planned to be nowadays, reflects the Zambian model. It is an export joint venture in the raw copper-gold concentrate. It does not have a downstreaming mechanism, no enforced transfer of technology, and no required domestic upgrading. It is a rent-sharing agreement, not to develop an industry.
More importantly, there is no institutional hardware in place to implement such a strategy, even in the event that there was one in Pakistan. The bureaucracy is not the machine of a developmental state, led by experts and insulated, but rather, as academic studies have repeatedly demonstrated, is an inefficient institution characterized by political influence and corruption. The fatal issue is the political-economic structure. Analysts of the Pakistan Institute of Development Economics (PIDE) have described Pakistan as a limited access order. This is a system in which the economic system is confined by a design to limit opportunities and flow rents to a favored group by a political system whose design ensures this kind of deliberate limitation.
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A windfall of 74 billion dollars in the healthy advancement condition is a transformational tool. It is a poison in a limited-access order, but not in a finite-access order. This soft money, as the development state theorists would describe it, eliminates the need to initiate a structural, painful, deep-seated change. It makes available to the elite the resources in which it funds its patronage system, pays its debts, and guarantees its own political survival without even taking the hard work of creating a productive, industrial, and inclusive economy.
This is where Pakistan is at cross crossroads. In the event that the model of PIDE limited access order is correct, there will be no provincial and federal elites who will claim that 25 per cent share and disappear down the same patronage networks that have reduced Balochistan to the least developed province in the nation. This will confirm the essence of the insurgency notion: that the state exists to take away but not to create.
This Zambian trajectory is not inevitable, but avoiding it demands radical policy intervention. First, Pakistan must pivot from its current rent-capture model to an industrial one, adopting an Indonesian-style downstreaming strategy. This means using its 50% state share as leverage to mandate, not just hope for, the creation of domestic smelting and refining industries to capture higher value. Second, to prevent the $74 billion windfall from feeding the elite-driven limited access order, all revenues must be firewalled.
Pakistan should establish an autonomous pilot agency, akin to a developmental sovereign wealth fund, legally insulated from the politicized bureaucracy. This agency’s sole mandate must be to reinvest these funds into two streams: national industrial upgrading and transparent, verifiable development projects in Baluchistan, ensuring the province’s 25% stake directly addresses the local grievances. A mine is just a hole in the ground; only a nation with a strategy can turn it into a foundation.
*The views expressed in this article are the authors’ own and do not represent TDI. The contributor is responsible for the originality of this piece.
Hassan Raza
Hassan Raza is a Master’s student in Political Science, specializing in International Relations, at the Indonesian International Islamic University (IIIU), Depok. He can be reached at hassan.raza@uiii.ac.id
