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Mongolia Briefing
T
hemain focus ofwhat is going
to be a decade of massive
change for the Mongolian
economy is going to be
mining. In fact, the massive
reserves that the nation possesses are such
that there is talk of a “mining mania” and
serious concern about how this young
nation can cope with the implications this
natural bonanza will bring.
At this year’s Mongolia Economic Forum,
the focus was on governance and how to
manage this transition. That the transition
is going to come as a jolt is understating
it. Even now, Mongolia’s largest export
sector is agriculture – mainly cashmere
wool and animal by-products. Mainly
sourced – still rather archaically from
the nomadic herders – this industry
supports hundreds of thousands of
Mongolians scattered across all corners
of a country the size of Western Europe.
Yet a strengthening currency and Chinese
competitiveness is squeezing even this
most basic of industries. This comes as
bad news for the Mongolian nomads who
still make up 50 percent of this ancient,
yet fiercely proud country.
Yet despite the mining industry being
an apparent savior, the global mining
multinationals and Mongolia have not
always seen eye-to-eye. Mongolians
revere their land, and polluting it runs
against strong local Buddhist and
shamanistic beliefs that can die hard
here. The Ulaan Baatar government, for
example, turned down a lucrative proposal
to develop a premium Japanese-funded
golf course just outside the city when
they found out that chemical fertilizers
were needed to cultivate the grass. It’s
hard to imagine that stoicism in China,
where even pristine land can be treated
as a convenient dumping ground for
toxic waste. Plans for a casino too, to
attract Chinese gamblers, were eventually
aborted after it was deemed to be contrary
to Mongolian Buddhist principles.
Certain mining operators, meanwhile,
have also taken advantage of the country
in the past. In a notorious case that shut
down foreign investment in mining here
for close to a decade, one well-known
operator negotiated a 100 percent profit
tax breaks for five years in order to
allow them to recoup the investment on
the equipment needed for extraction.
What was supposed to be a project with
a 20-year life span and 15 years of tax
revenues for the government was then
cleaned out in 4 years and 10 months.
The Mongolians, quite understandably,
felt they had been raped.
However, Mongolia itself does not possess
the technology, skills or manpower to
mine its own resources. While a careful
rapprochement of sorts has been made
with some operators, Mongolia has
been treading slowly, eager to learn
from past mistakes and to take time of
their understanding of the implications
of exploiting their natural resources.
That hasn’t stopped some impressive
reserves being put into operation, and
Mongolia has learned a lot from these
initial ventures. But, in what may come
as a shock to the international mining
community, the Mongolian President,
Tsakhiagiin Elbegdorj, has indicated that
mining in the country would be under
Mongolian standards, and that the entire
mining industry would need to change
much of its current operational practices
in order to be in the country. Specifically,
he stated that amendments to the Minerals
Law in Mongolia will be changed to
better regulate the industry and to define
the principles of responsible mining. For
an industry often used to getting its own
way, it is somewhat ironic that it has taken
the nomads of Mongolia to stand up,
and with their massive reserves, dictate
terms. The outcome will be interesting
to observe, and you can bet there will
be some squealing from the mining
community as concerns the inevitable
Mo n g o l i a ’ s Wo l f Ec o n omy
Comes in from the Cold
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