The tiny nation found $1 trillion in mineral deposits. Now, Mongolian leaders are studying the lessons of other resource-rich countries
Workers walk along the Oyu Tolgoi mine site in Khanbogd village, Mongolia / Reuters
This is the time of year when blasts of Arctic air start sweeping across Mongolia's steppe, ushering in the long, hard winter. It's when many, especially those who adhere to traditional nomadic rhythms of life, hunker down until spring. But this year, there is an unusual air of expectancy amid the deepening chill - a mood borne by the prospect of windfall profits generated by the country's mining sector.
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A nation of just over 3 million, where herding and agriculture have long been the dominant features of the economy, Mongolia is on the cusp of becoming a global financial supernova. Experts estimate that the country possesses as much as $1 trillion-worth of untapped precious metals and minerals. That works out to potentially over $333,333 per every man, woman and child in the country.
Mongolia entered 2011 with a 6.7-percent economic growth rate at a time when most national economies were struggling with ongoing global financial uncertainty. Growth this year could hit 14 percent, according to an Asian Development Bank estimate, while other international forecasters put the figure at 20 percent. Some even contend that if Mongolia's informal economy is taken into account, the growth rate could approach 40 percent.
At present, a major source of income is the vast Tevan Tolgoi coal mine. Another profit surge is expected to come from an enormous mining extraction complex in the Gobi Desert known as Oyu Tolgoi, a joint venture involving the Mongolian government, Rio Tinto Mining, a British company, and Ivanhoe Mines, based in Australia. The Oyu Tolgoi mine is estimated to have a lifespan of 50 years after it goes into operation in 2013 and is projected to churn out at least 3 percent of annual global copper production during that time frame. If all goes according to plan, it will generate $5 billion per year for half a century, according to James Passin, Manager and Co-Founder, Firebird Management, LLC, a firm that operates 10 funds that specialize in investment opportunities in the formerly Communist countries of Eurasia.
Mongolia is also the site of major gold deposits, including at Oyu Tolgoi. The country additionally possesses large reserves of uranium and coking coal, which the country hopes to exploit using new liquification technologies.
With the prospect of vast amounts of money pouring into government coffers and the Mongolian economy, government officials are feeling pressure to develop policies that ensure long-term stable growth. Prime Minister Batbold Sukhbaatar shared his vision of what his country will do with the windfall during an October 28 forum organized by the Asia Society in New York. Batbold said his government has devoted time to discerning the best practices employed by other resource-rich states.
"We don't want to reinvent the wheel," Batbold said, referring to government efforts to steer Mongolia clear of so-called "Dutch disease," a resource curse that has plagued other mining- and energy-export-oriented economies in the past. "We have studied the exceptions of Norway, Canada, also Australia," Batbold noted.
"We'd like to be a progressive government," the prime minister continued, emphasizing his country's human development fund, which is meant to provide funding to citizens for education, housing, pensions and job training. He also pointed to Mongolia's stability fund, a piggy bank for less prosperous times down the road.
Batbold said Mongolia was "at a critical stage of its development," acknowledging that inflation is already a troubling issue. He pointed out that the country is totally dependent on oil and petrol imports, a vulnerability that can cause volatility in consumer costs. The country also is set to experience a surge in disposable income. "Even though we have this important and promising income [from the mining sector], ... we need to deal with growth carefully in order to avoid [overheating] the economy," Batbold said. "This is a topic we need to focus on."
In addition, the government must wrestle with questions about environmental protection. Rapid economic development has already caused degradation to water supplies and forests. The prime minister indicated that improved enforcement of existing legal protections, combined with an effort to establish national parks that are off-limits to development, can help alleviate the problem. He added that the government, moving forward, will be paying close attention to the environmental dimension of economic development.
Investor confidence in Mongolia has rallied in recent weeks following a government commitment not to seek a renegotiation of a 2009 agreement covering the development of the Oyu Tolgoi copper mine. Prior to the early October announcement, officials in Ulaanbaatar had expressed a desire to revise the pact, apparently with an eye toward increasing the state's stake in the project. Speaking at the Asia Society event, Rio Tinto CEO Andrew Harding lauded Mongolian officials for "reaffirming the nature and sanctity of the  investment agreement."
At present, among investors there would seem to be boundless optimism about Mongolia. Passin, the fund manager, suggested that current reserve estimates of Mongolia's mineral wealth may represent just the tip of the iceberg. "We think modern exploration has just scratched the surface," he said.
This story was written and reported by an author who wishes to remain anonymous for safety reasons. This article also appears at EurasiaNet.org, an Atlantic partner site.
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