Pakistan's engagement with Australia: from mines to markets

Recently Australia has shown signs of engaging with Pakistan in several fields including mining. The meeting of deputy prime minister Ishaq Dar with his Aussie counterpart, followed by the July 22^nd meeting of the Australian High Commissioner Neil Hawkins with the federal Minister for Petroleum Ali Pervaiz Malik and the continued diplomatic talks between Deputy Prime Minister Ishaq Daq and Australian Special Envoy Peter Lansky stands witness to the developments. Reportedly the high commissioner of Australia proposed joint ventures of Australian mining groups and Pakistani mining companies. In addition to mining, both countries will be cooperating in advance technology, further investment and training specialists in different fields. At first glance, it might seem to be a routine diplomatic exchange, yet it carries the real potential to transform Pakistan's mining industry to that of international supply chain standards.

Pakistan sits atop an estimated 6 trillion in untapped mineral wealth, including copper, gold and even rare earth minerals crucial to building electric cars and renewable energy. Nevertheless, mining's share of national GDP is less than 3%. Years of chronic underinvestment, antique extraction techniques and bottlenecks in infrastructure have prevented the industry from driving the economy.

The global requirement for critical minerals will grow up to six times by the year 2040 caused by demand for batteries, wind machines, and other clean energy systems. Australia has played a significant role in this ecosystem as it is the largest exporter of iron ore as well as a significant exporter of lithium, rare earths and cobalt. These last minerals go hand in hand with advanced mining services that align with ESG considerations.

Pakistan's mining remains largely low-tech and labor-intensive, with little value added. This leaves the country stuck at the bottom of the value chain, exporting raw commodities as opposed to manufactured goods and missing out on the professional people and better incomes that come from a more sophisticated economy. To achieve this Pakistan will need to improve its safety and environmental performance, increase investment and develop greater expertise.

The Australian offer comes at a relatively good time for the Pakistani economy. The current account is finding its way into surplus, the balance of payments is improving; avenues for profit are re-opening but rather slowly, and this can only mean that foreign corporations are once again becoming certain of the market. The signing of the recent IMF EEF ($7 billion) and RSF deals and the World Bank's involvement in establishing Pakistan's green taxonomy and funding structural reforms complementing IMF packages gives the right signal to investors who seek predictability. This engagement with Australia could also be the gateway to Pacific Islands.

In the case of Australia, it has a strategy to diversify and make its critical mineral supply chains more resilient and less dependent on just a few sources of demand through a broader strategic pivot under its economic diplomacy strategy. This also involves closer engagement with South Asia and joint Australia-Pakistan ventures is a natural fit to the Aussie ambitions.

The materialization of such ventures should not be limited to the extraction of ores but also needs to be a tech transfer such as digital geological mapping, real-time safety records, and emissions crisis management. This would assist Pakistan to develop superior methods of mining. The schools of Australian mining engineering and sectoral vocational training were advised to forge collaborative ties with Pakistani Universities to create a new generation of geologists, trained engineers and Environmental Social Governance (ESG) auditors and professionals conversant in international best practices.

Additionally, the increase in ESG expectations would also be met through such collaborations in Pakistan. Traceable and responsibly mined minerals are a requirement of international investors and end-users rather than a voluntary initiative.

Yet optimism must be balanced with realism. Lack of clearly defined licensing protocols, uncertainties in regulatory policies, bureaucratic red tapes and conflicts in communities over resource access and control have been some of the long running governance problems facing the mining sector in Pakistan. Dependence on raw exports alone would also be a significant hurdle, as a reminder of past mistakes.

Delivering on the promise of potential will entail more than diplomatic good will, and it is here that both Islamabad and Canberra should pay closer attention beyond flows of capital. The true reward would be gained through joint ventures that foster value addition. This would assist in stabilizing fiscal incentives to establish domestic refining and processing facilities and protecting Pakistan against fluctuation in raw commodity prices.

There's need for transparent regulations including clear licensing rules, fast tracked approvals and independent oversight to build investor confidence. Joint training programs, scholarships and technical exchanges help strengthen local communities. Moreover, local communities should experience a visible gain. Local communities should not only be a part of mining projects through employment; they too should participate in decision making and monitor their own environment as well.

A successful JV between Pakistan and Australia would be about much more than importing foreign funds. It could be a blueprint on how to convert a poorly performing sector into a sustainable driver of inclusive growth. The opportunity is real as the demand of critical minerals is going to increase in the near future. Pakistan is already seeing early signs of economic recovery. The problem currently is how to match the diplomatic drive to reforms with a long-term vision.