Mongolia’s Challenges Need Careful Consideration

Mongolia has a potentially great future ahead of it. I am sure you have all heard that before. During a series of meetings Ulaanbaatar, that i was part of recently I did a quick series of calculations in my head. Mongolia could have well over $3 trillion in the ground in coal, gold, copper, uranium, natural gas, oil, molybdenum, and more. This is a massive treasure chest for the people of Mongolia. I stress the people of Mongolia, because Mongolia is their country.

Mongolia seems to be not ready for the economic, social, political and other shocks that may be in the way if this is not done properly. Sometimes the bigger curse is finding too much wealth too quickly, rather than working for it and building a foundation and base for using it properly over a proper amount of time.

Mongolia is made up of mostly poor people who have little in their lives relative to what may be coming their way. A poor child in a ger above Ulaanbaatar likely does not even imagine the wealth that could be on her country’s way. That same poor girl breathes horrifically unhealthy air both inside and outside of the ger in the wintertime as the coal burning warms her family. She likely had to move to the city after the Dzud decimated her family’s livestock or for some other shocking reasons. She likely has minimal education and may not have much of a clue about her rights to the wealth of her country. She may also have little idea of how to use that wealth properly without some good and honest advice from those who may have seen this all before in other places. A large part of the future of Mongolia will be found in the little girls and boys who live in the gers. If they do not see this developing correctly or if there is a lot of waste and corruption, when they are older there could be trouble in the newly wealthy, but unequal Mongolia.

For Mongolia to be peaceful and prosperous a lot of institutions, ideas, leadership methods, and more need to fall into place properly.

One of the most important is a rule of law that works for the development of at the very least the majority, and at best, all of the people of Mongolia. I do not mean just a set of mining and investment laws. By this, I mean a full, comprehensive system of laws that protect the weak from the strong and the honest from the dishonest – as well as the country from avaricious outsiders who may want to exploit Mongolia without giving back. There are many examples of proper rule of law to protect the development of Mongolia from some of the worst things that could happen. There needs to be lots of thought and effort, and research put into this. Some Mongolian leaders are already in the process of looking into this. They see the problems.
Some of these leaders also see the potential problems from “Dutch Disease” that could hamper the future peace and prosperity of the country. They are looking into options to put some of the new wealth aside for future development funds, sort of a sovereign wealth fund for Mongolia. Some are also looking into ways to make sure the Mongolian currency does not appreciate too much as the wealth and investments flow in. This last one will not be easy because the Mongolian economy is not a large one at the moment and the capital inflows and incomes expected could overwhelm many of its institutions, especially its governance institutions, banks, and even its infrastructure.

There needs to be a strong focus on keeping corruption at bay. With trillions on the way, the beast of corruption is surely not distant from the situation. The financial system of the country could destabilize if too much flows in at too rapid a pace and without proper controls. The development of stock markets, hedge funds, investment houses and more need to be carefully and thoughtfully considered toward the whole development of the country and its people. The specter of potential vast inequality lurks. In addition, this would not be good for the country in the long run.

I am not recommending state control of the financial system. First off, that is far from my right, I am not a Mongolian. What I am recommending as an economist and developing countries expert of many decades is that there be proper regulations and controls put in place before financial crises hit, not after. This will not be easy, but few important things are easy. A wild west, free-market development of Mongolia may just develop into the sort of free-for-all that could bring instability in the future. Investors, both expatriate and Mongolian should be given the chances to make profits from their efforts and risk taking, but not without some stewardship of the wealth and the environment of the country being done properly. Bottom line: a free market is good if it has proper controls to protect that economy and its people from fraud, misappropriation, corruption and unbridled greed. The financial crises of the US and the EU were in part due to weaknesses in regulations and oversight, so even we have a long way to go to get this right.

Hence, all countries need a rule of law and regulations, but not a rule of law and regulations that smother wealth and development, but allow them to develop in a proper way.

That proper way really should best be decided by the best leaders of the country with some say from the people. Mongolia is a democracy after all. That democracy is rare in its region and it should be cherished and protected by its people. Massive inflows of wealth and income could distort that democracy.

The most important aspect of development of a country like Mongolia is the human development of its people. For stability and prosperity to continue after the first shocks of wealth have happened, the people have to be ready to take on the role of developing beyond mineral wealth. This would require vast increases in technical, engineering, business, and other education programs in the country. It would include having training for Mongolians of all backgrounds in how to start and run businesses. Even more important would be for Mongolians to get enough education and training to develop their own technologies and inventions – and their own technology and invention systems. Mongolia with all of its wealth should become an ideas creator in the long run, not just an idea borrower. Invention networks will be the key to very long-term prosperity, not just counting the money and buying machines and ideas from others.

Mongolia needs to develop value added to its natural resources, not just dig them out of the ground. Many industries could develop out of copper, gold, coal, and the like.

Please excuse this non-Mongolian for caring about the future of your country. I see a lot of hope, but lots of potential problems ahead. Possibly, my column in this newspaper and the comments from the readers and others on them may help the country understand its future possibilities better. It may also help me understand Mongolia and the Mongolians better as well. Maybe we could all be a bit better off from it. I hope so.

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