A Mongolian Cautionary Tale
Challenges and opportunities faced by Mongolia in dealing with the influx of foreign entities. Mongolia is quickly becoming an “Eldorado” destination for many foreign investors.
Its mining resources, close proximity to the Chinese and Russian markets as well as its stable politics and excellent business environment makes it a favoured destination in today’s turbulent world.
This presents a unique opportunity for growth and the re-development of the country, the question is of course how to make the most of today’s situation in a way that allows for a win-win for both the foreign partners and Mongolians themselves?
For a little while, Mongolia was considered as one of the most powerful and feared nations on earth but this has since changed drastically with the Manchu rulers and then the Soviet influence over Mongolia during the course of the last century. I think that it is only fair to say that Mongolia has only very recently started emerging from centuries of foreign rule or influence and its primordial that its current independence strengthens with each new foreign investor rather than see its identity and heritage diluted.
Today’s Mongolia is a country which does not manufacture substantial amounts of finished goods and cannot sustain economic growth without significant exports of resources to neighbouring countries. Mongolia itself does not currently have the skill base, the capital nor the capacity to carry out large mining projects and built up the infrastructure the country so desperately needs to improve its ailing trade balance. Mongolia has no choice but to open up its borders to foreign investors and hope that it will manage to resist the temptation of greed, it must also tread carefully in order not to loose fickle foreign investor confidence (as it currently risks doing by cancelling the TT tender and wanting to re-negotiate the OT agreement) which would be even more disastrous to an over-exposed Mongolian economy, particularly with a global recession on the horizon.
Mongolia has either been blessed or cursed (depending on your own perspective) with an unfathomable quantity of mineral wealth, the survival of the country depends on the fair exploitation of those resources in a way that benefits the Mongolian people as much as the foreign companies who come to partake in the mining boom. To further guarantee its future independence, the Mongolian Government must invest in its transport infrastructure and concentrate on adding real value to commodities before they leave its borders in order to maintain an economically sustainable environment.
The levels of Mongolian economic growth that we are all enjoying so much today is a direct result of FDI, without it, there would be few large scale mines, practically no mining supply chain revenues and certainly none of the trappings of luxury life that are becoming so prevalent in Ulaanbaatar. FDI must be used wisely, in particular by pushing through the diversification of the economy away from a pure mining base towards added-value services, agriculture and tourism. 
While foreign investment is absolutely essential for the further development of Mongolia, it is also important to remember that foreign companies and international markets need Mongolia as much, if not more, than Mongolia needs them. Cheap Chinese manufacturing, which underpins much of the western economies, relies on affordable and quick access to the resources that Mongolia posses in such vast quantities, China itself relies on those resources to keep the momentum of domestic growth and thus avoid social unrest. Japan needs rare earths to keep its high tech industries (on which so much of the economy is based) to maintain their position as a leading Asian economy, Korea seeks land on which to grow food to feed its population. Mongolia is truly the last untapped answer to so many puzzling problems and international questions but, at the same time it is attracting a lot of envious stares from its over-populated and under-fed neighbours.
Mongolia may be a “wolf economy” but it is cornered by a much larger Russian bear and a fire-breathing Chinese dragon, an explosive situation to say the least. It is too easy for Mongolia to falter and become, either through the greed of their politicians or the demands of foreign investors, yet another resource-rich country from which much was expected but so little achieved.
The region is littered with examples of such failures, the Kazakh identity has been so diluted by decades of Russian influence and foreign corporate activity that the best examples of its cultures are to be found in Mongolia’s own Bayan-Olgii region. In Russia it is corruption and a connected elite that squander its wealth while in China, power is maintained by the few to the detriment of the many.
Mongolia is not new to diplomatic and geopolitical games of states and has so far played this delicate balancing act exceedingly well, implementing its third neighbour policy, courting world leaders and playing foreign powers against each other to obtain as good a deal as can be hoped for its mining licenses. It is important for Mongolia to remain on this path of stable social and economical progress but it is ultimately down to the people to use their voice to urge their politicians to refrain from excessive temptation. The State must always be held accountable its people and not the people to the State.
From a foreign investor’s point of view, the perspective of investing in Mongolia brings its own set of challenges. There seems to be an industry wide lack of understanding in the basic requirements of due diligence, problems in transparency and issues with accountability, those are aspects of Mongolia which are slowly improving but are still far from being adequate as many international studies so clearly demonstrate. On the other hand they do provide the opportunity for growth to those companies that manage to satisfy those requirements.
Once foreign investors have actually invested in the country, they are faced with catastrophic shortages in skilled, multi-lingual labour as well as the non-existence of reliable, actionable market intelligence. A young, well educated demographic in addition to increasing economic competitiveness will improve those aspects within the coming years but risk by themselves creating a widening gap between the “have” and “have-not’s”.
Should investors resolve the above issues, they must overcome the serious problematic of market size, of the three main investment markets currently attractive (Mining, Stock Exchange and Real Estate) none offer real liquidity nor sufficiently high ticket sizes, this deters the largest investment groups from taking a bite as they would otherwise be forced into lots of smaller investments which require intensive management and bring relatively little return on their investment.
Mongolians are understandably keen to take an active role in the globalisation of their country, to do so, they must adapt to the rulebook of the global players while retaining the unique advantages that makes them competitive. Transparency, due diligence and good market knowledge will only achieve so much, it is managing expectations and deliverables to their foreign partners while remaining dynamic in a fast changing environment that will allow them to succeed where others will eventually fail.
Positive as well as negative signs of foreign influence are to be seen everywhere around the country but no one will influence the future development path of the country more than the return of the re-parts to their birthplace. The re-pats are those young Mongolians who participated in the great brain-drain of the 90’s by going abroad to study and work but who today have realised the promising future that Mongolia holds and are returning armed with the knowledge and understanding of how global organisations function (and how to work with them) while having retained a powerful network within Mongolia and an excellent understanding of local business practices. The marriage of the two skill-sets are a powerful combination that is increasingly seen in business leaders as well as the emerging political elite, who are often one and the same.
Foreign influence, be it cultural, business, historic or otherwise, is here to stay, It is therefore important to learn from, and dare I say it, exploit, the knowledge and unique skill- set that foreign companies will bring to Mongolia in order to be able to replicate and adapt them to the Mongolian environment once the foreign expatriates have left.
Those Mongolian entities that are able to maintain a long-term vision of the development of their companies in a fair partnership with foreign institutions instead of being lured by the gains of short-term profits will not only be building the foundations of their own futures but also the foundations of a strong and independent Mongolia.
Source : M.A.D. News
Its mining resources, close proximity to the Chinese and Russian markets as well as its stable politics and excellent business environment makes it a favoured destination in today’s turbulent world.
This presents a unique opportunity for growth and the re-development of the country, the question is of course how to make the most of today’s situation in a way that allows for a win-win for both the foreign partners and Mongolians themselves?
For a little while, Mongolia was considered as one of the most powerful and feared nations on earth but this has since changed drastically with the Manchu rulers and then the Soviet influence over Mongolia during the course of the last century. I think that it is only fair to say that Mongolia has only very recently started emerging from centuries of foreign rule or influence and its primordial that its current independence strengthens with each new foreign investor rather than see its identity and heritage diluted.
Today’s Mongolia is a country which does not manufacture substantial amounts of finished goods and cannot sustain economic growth without significant exports of resources to neighbouring countries. Mongolia itself does not currently have the skill base, the capital nor the capacity to carry out large mining projects and built up the infrastructure the country so desperately needs to improve its ailing trade balance. Mongolia has no choice but to open up its borders to foreign investors and hope that it will manage to resist the temptation of greed, it must also tread carefully in order not to loose fickle foreign investor confidence (as it currently risks doing by cancelling the TT tender and wanting to re-negotiate the OT agreement) which would be even more disastrous to an over-exposed Mongolian economy, particularly with a global recession on the horizon.
Mongolia has either been blessed or cursed (depending on your own perspective) with an unfathomable quantity of mineral wealth, the survival of the country depends on the fair exploitation of those resources in a way that benefits the Mongolian people as much as the foreign companies who come to partake in the mining boom. To further guarantee its future independence, the Mongolian Government must invest in its transport infrastructure and concentrate on adding real value to commodities before they leave its borders in order to maintain an economically sustainable environment.
The levels of Mongolian economic growth that we are all enjoying so much today is a direct result of FDI, without it, there would be few large scale mines, practically no mining supply chain revenues and certainly none of the trappings of luxury life that are becoming so prevalent in Ulaanbaatar. FDI must be used wisely, in particular by pushing through the diversification of the economy away from a pure mining base towards added-value services, agriculture and tourism. 
While foreign investment is absolutely essential for the further development of Mongolia, it is also important to remember that foreign companies and international markets need Mongolia as much, if not more, than Mongolia needs them. Cheap Chinese manufacturing, which underpins much of the western economies, relies on affordable and quick access to the resources that Mongolia posses in such vast quantities, China itself relies on those resources to keep the momentum of domestic growth and thus avoid social unrest. Japan needs rare earths to keep its high tech industries (on which so much of the economy is based) to maintain their position as a leading Asian economy, Korea seeks land on which to grow food to feed its population. Mongolia is truly the last untapped answer to so many puzzling problems and international questions but, at the same time it is attracting a lot of envious stares from its over-populated and under-fed neighbours.
Mongolia may be a “wolf economy” but it is cornered by a much larger Russian bear and a fire-breathing Chinese dragon, an explosive situation to say the least. It is too easy for Mongolia to falter and become, either through the greed of their politicians or the demands of foreign investors, yet another resource-rich country from which much was expected but so little achieved.
The region is littered with examples of such failures, the Kazakh identity has been so diluted by decades of Russian influence and foreign corporate activity that the best examples of its cultures are to be found in Mongolia’s own Bayan-Olgii region. In Russia it is corruption and a connected elite that squander its wealth while in China, power is maintained by the few to the detriment of the many.
Mongolia is not new to diplomatic and geopolitical games of states and has so far played this delicate balancing act exceedingly well, implementing its third neighbour policy, courting world leaders and playing foreign powers against each other to obtain as good a deal as can be hoped for its mining licenses. It is important for Mongolia to remain on this path of stable social and economical progress but it is ultimately down to the people to use their voice to urge their politicians to refrain from excessive temptation. The State must always be held accountable its people and not the people to the State.
From a foreign investor’s point of view, the perspective of investing in Mongolia brings its own set of challenges. There seems to be an industry wide lack of understanding in the basic requirements of due diligence, problems in transparency and issues with accountability, those are aspects of Mongolia which are slowly improving but are still far from being adequate as many international studies so clearly demonstrate. On the other hand they do provide the opportunity for growth to those companies that manage to satisfy those requirements.
Once foreign investors have actually invested in the country, they are faced with catastrophic shortages in skilled, multi-lingual labour as well as the non-existence of reliable, actionable market intelligence. A young, well educated demographic in addition to increasing economic competitiveness will improve those aspects within the coming years but risk by themselves creating a widening gap between the “have” and “have-not’s”.
Should investors resolve the above issues, they must overcome the serious problematic of market size, of the three main investment markets currently attractive (Mining, Stock Exchange and Real Estate) none offer real liquidity nor sufficiently high ticket sizes, this deters the largest investment groups from taking a bite as they would otherwise be forced into lots of smaller investments which require intensive management and bring relatively little return on their investment.
Mongolians are understandably keen to take an active role in the globalisation of their country, to do so, they must adapt to the rulebook of the global players while retaining the unique advantages that makes them competitive. Transparency, due diligence and good market knowledge will only achieve so much, it is managing expectations and deliverables to their foreign partners while remaining dynamic in a fast changing environment that will allow them to succeed where others will eventually fail.
Positive as well as negative signs of foreign influence are to be seen everywhere around the country but no one will influence the future development path of the country more than the return of the re-parts to their birthplace. The re-pats are those young Mongolians who participated in the great brain-drain of the 90’s by going abroad to study and work but who today have realised the promising future that Mongolia holds and are returning armed with the knowledge and understanding of how global organisations function (and how to work with them) while having retained a powerful network within Mongolia and an excellent understanding of local business practices. The marriage of the two skill-sets are a powerful combination that is increasingly seen in business leaders as well as the emerging political elite, who are often one and the same.
Foreign influence, be it cultural, business, historic or otherwise, is here to stay, It is therefore important to learn from, and dare I say it, exploit, the knowledge and unique skill- set that foreign companies will bring to Mongolia in order to be able to replicate and adapt them to the Mongolian environment once the foreign expatriates have left.
Those Mongolian entities that are able to maintain a long-term vision of the development of their companies in a fair partnership with foreign institutions instead of being lured by the gains of short-term profits will not only be building the foundations of their own futures but also the foundations of a strong and independent Mongolia.
Source : M.A.D. News
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