Mining in Mongolia: Boom or Bust?

In the 13th century Mongolia conquered the world, now it seems like the world is lining up to conquer Mongolia. Since the collapse of the Soviet Union and by extension the communist party that held power in Mongolia, large reserves of copper, gold, and coal have been found beneath the steppe. An underdeveloped economy based on animal products such as cashmere and beef has been transformed by foreign interest and investment following these discoveries. Mongolia stands to benefit greatly from the outside interest and capital flowing in, but a dependency on the mining industry and neighbours ready to exploit it for political gains stands to hurt Mongolian interests.

Ghinggis Khan Mausoleum
Image courtesy of Fanghong, ©2008, some rights reserved.

Mongolia posted extremely high economic growth rates in the last few years as a result of the mining boom. The construction of mines and the infrastructure to support it has provided well-paying jobs to Mongolians willing to work in the mines, many of whom are otherwise relegated to the poor income offered by livestock production.

Mongolians hope that the mining boom will spur the creation of a modern economy. Much of Mongolia’s population of 3 million are still nomadic or semi-nomadic and many more live in poverty. A weak economy combined with its unique geography make Mongolia vulnerable to foreign influence, particularly neighbouring China and Russia.

Mongolia is the 2nd largest landlocked, and the most sparsely populated, country in the world, making it very dependent on Russian and Chinese interests. Indeed, China alone makes up for 89% of the country’s exports and 40% of its foreign investment while both Russia and China account for approximately 65% of imports. This state of affairs shows little sign of changing when a resource-hungry China seeks the kind of raw materials that Mongolia is producing and international sanctions on Russia have led to a renewed interest in Mongolian beef imports.

Mongolian infrastructure is also lacking due to the size of country and the low population, though quickly being updated to accommodate the mines that lay far away from the capital Ulan Bator. The city itself houses a third of the Mongolian population and is the centre for most industry and trade. China and Russia also have a hand in Mongolian infrastructure; they have recently agreed to build a high speed rail system between Moscow and Beijing that will cross through Mongolia.

Chinese interest in Mongolia isn’t strictly economic: China has also persuaded the Mongolian government to side with the Chinese view on the Dalai Llama and Taiwan. Alleged corruption in the Mongolian government has only made Mongolians more concerned about foreign influence over the fledgling democracy. Worries in the United States that foreign influence stands to hurt Mongolian democracy is not taken very seriously by the government or the people. Many still recall the negative consequences for the Mongolian economy caused by US-backed reforms in the 1990s.

It is not just Mongolia’s neighbours that are benefiting from the discovery of these resources, most of the mines are owned at least partially by foreign corporations. Major mining companies from all over the world have all poured billions into Mongolia to get a piece of the pie. British mining giant Rio Tinto bought out Canadian Ivanhoe Mines to acquire two thirds of the Oyu Tolgoi copper-gold mine, which is estimated to be one of the biggest deposits of copper and gold in the world.  Similarly Australian Viking Mines Ltd acquired the smaller Australian mining company Auminco to gain the multitude of coal mines it owned.

The subject of mining is inescapable in any discussion about Mongolia’s future. The Oyu Tolgoi gold and copper mine is estimated to account for 30% of Mongolia’s GDP once it is completed.  Many Mongolian news sites have a section devoted specifically to mining news, and the president of Mongolia recently proposed a change to governmental structure that adds a ministry specifically for mining, as the Mongolian government own shares of most mines in the country, including a third of the Oyu Tolgoi mine. The government’s focus on mining has become so myopic that it threatens to drown out the other fledgling industries in Mongolia. While these smaller businesses are nowhere near as prosperous as the mineral wealth underneath the soil, their importance to increasing employment and economic diversification is underappreciated.

Mongolians have a lot to thank the mining boom for, but these resources do not guarantee prosperity for Mongolia. Unemployment, especially among young males, is still very high despite the jobs and wealth brought in by mining. The government has been attempting to deal with budget issues for months in the face of expensive mining projects and a failing social safety net. Recently growth has slumped somewhat due to a drop in the price of copper and coal, highlighting that Mongolian dependency on mining makes its prosperity subject to the market.

The key to all this is the Mongolian government. Should the government be able to keep foreign influence and the companies that operate within its border in check, then it can use the revenue to fund infrastructure and spur growth in other sectors and diversify the Mongolian economy. It’s a difficult balancing act for any country and official corruption calls into question the Mongolian government’s capacity to keep the good of its people in mind when facing the challenges ahead.

Despite the issues caused by the discovery of these untapped resources, it is undeniable that mining has brought about a massive change in the country. Mongolia has a lot of catching up to do to truly turn into a modern economy; but the mineral wealth Mongolia has been endowed with offers an opportunity for prosperity that it must be quick to save for Mongolians.

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