The good and the bad of Mongolia's mining boom
This week the World elite is gathered in Davos, Switzerland, to dwell upon a vast theme: 'The Great Transformation: Shaping New Models'. Unsurprisingly, China, the West and the World's big players are high on the menu. But the Forum also dedicates an event to a nation some still struggle to place on a map: Mongolia.
Fair enough. The country is one of the biggest economic success story of recent times. Its vast untapped mineral resources - copper, gold, coal, silver, and many more - are strong assets in an era of peak commodity demand. It has ready access to China, the world's biggest and fastest growing market for commodities. And it is a liberalised, welcoming place for investors. Results: $3 billion (50% of Mongolia's GDP) has already been spent on the country's biggest mine, Oyu Tolgoi; the floatation of Tavan Tolgoi, next in line, will double the market capitalization of Mongolia's nascent stock exchange. Bottom line: at 14.8%, Mongolia should be the second fastest growing economy in the World this year.
And it shows. The streets of its capital, Ulaanbaatar, empty 20 years ago, are now clogged with tinted windows SUVs. A shiny new shopping mall sells luxury goods next door to the former headquarters of the former People's Revolutionary Party. And soon there could be people to buy them: with a population of just under 3m people, Mongolia could become a new Qatar or Brunei - a place where everybody gets a slice of the commodity cake because so few people are around.
But not everyone welcomes the mining windfall. Prudent economists fear that Mongolia could 'go Dutch': a reference to the dark side of resource endowment, experimented by the Netherlands in the 60s, whereby the sudden influx of wealth, pushing up exchange rate and inflation, eventually renders all industries but mining uncompetitive. Signs are a little worrying on this front: despite the Central Bank's increasing the reserve requirement ration to 9%, and interest rates to 11%, last year, inflation went on galloping at 10%.
There are clues that the government is taking note, however. The government pledges all round efforts to diversify the economy, asks for expertise to the World Bank and Western pundits, and studies the model of Qatar and the UAE with regards to managing one's plentiful cash. It is also developing new routes to new markets and digging for new minerals, in an effort to be less dependent on too few product and customers.
The environment gets less attention. The mining rush has thrown thousands of illegal miners around the country, who use toxic chemicals to search for gold. Nomadic herders (who still make up 40% of the population) complain that polluted rivers kill their sheep. They also lament the destruction of their landscape -one that, in the absence of fences and borders, they see as a public good. Oyu Tolgoi, literally the 'Turquoise Hill', is no longer one.
But maybe the biggest casualty is Mongolia's social fabric. The transition, 20 years ago, from communist control to market economy has made it difficult for some herders to keep their centuries-old traditions. Their sons, city-dwellers all their life and keen on Facebook, feel no duty to maintain them. And yet life in the city is not all cheer. The majority of migrants struggle to make a living. Most have to burn anything they can find (planks, plastic bottles, tires) to get through the bitter winter. A massive suburb of gers (nomadic tents), without electricity or running water, circles the main town.
The government has started to work on that, too. It is setting up a new Development Bank of Mongolia, pledges to redirect funds towards education and public health, and seeks further ways to redistribute cash to the broader population. These are good first steps. But shaping a new, balanced model will require more - people in Davos should dwell upon the theme.