Mongolia Brief June 9, 2014

The two engine economy – a good model

June 9 (Mongolian Economy) Mongolian Economy caught up with Kristel Van der Elst Senior Director, head of Strategic Foresight for the World Economic Forum, to get a better understanding of the scenarios and her impression of Mongolia’s economic future.

Kristel has an MBA from Yale School of Management, is a Fulbright Scholar and has worked on other World Economic Forum scenarios including Mining and Metals: Scenarios to 2025; Euro, Dollar, Yuan Uncertainties – Scenarios on the Future of the International Monetary System; the Future Role of Civil Society; and Scenarios for the Russian Federation.

You have been to Mongolia four times – what is your impression? What is changing and what is not? What is the difference between other emerging economies?

Mongolia is a country with economically great potential because of the mineral wealth obviously and how you can diversify that into different products like agriculture etcetera. There is great potential in this country. There is still a lot of work to be done, obviously, to realise that potential, but clearly there is good thinking about how to move this forward.
One very important point in Mongolia that we find very interesting is your strong commitment to democratic values; to being a democracy and having debate around issues, and that is really important, we think. It’s a bit different from certain other emerging economies. It’s a really great country.

What countries is Mongolia most comparable to?

Already you have great mineral resources like some other countries, of course like Indonesia etcetera, but you have this very strong basis to build off, which is quite great. You have a very strong democracy. You have a relatively small population, compared to some other countries if you look at the population density also, you are slightly less than three million – that’s not that many people actually. So you don’t need to grow that much to provide everyone with more wealth.

You are very dependent on, as you said, two big neighbours, both Russia and China. So you have to take that into account. The physical location: you’re landlocked. You [Mongolia] are completely landlocked and if you have to go to a port you have to go through Russia or China, you have to take that into account.
But you could easily leverage that. It’s a question of perspective. Do you see yourself as landlocked or do you see yourself at the centre of major growth? You have this very particular situation.
As you say it is perspective and how you look at things. I have been through the scenarios and have realised we’re now at the cross road of development.

So how should Mongolia move forward?

So there are three key decisions Mongolia really needs to respond to now. As it is really at a crucial moment. How do we manage the mining and potential revenues? How do we diversify and into what? And which trade and investment relations do we want to have in the future?

So I won’t go through the scenarios in detail because you can read them. Why we use scenarios is because we think the answers to these questions need to be seen in the future context and not only in today’s context. All of these decisions have very long implementation times, very long consequences – you really need to think about the future.

For the minerals development, it’s really important that Mongolia has a very stable economic environment. We’ve seen over the last years that the boom in commodity prices are becoming volatile and macroeconomic conditions have been changing slightly over the last six months, it might become more difficult for Mongolia to actually sell its minerals out of the ground and into the bank, so it’s really important.

How possible it is for the ‘China Greening’ scenario to eventuate?

It’s not a given that we can predict but it’s possible.

Which models do you think Mongolia is closer to if you look at the perspectives of Mongolia currently.

Well obviously it’s building on the mineral wealth that you have. That is the cornerstone of your economy. But it’s important to diversify. You have great potential for agriculture, you have more potential to look into some innovative areas like biotech, and the banking sector areas need to be looked at. It’s important that you have a diversified economy not only built on the mineral wealth but this is certainly your cornerstone. So this would be a good model – a two engine economy both from mineral wealth and diversification.

Year by year it seems that Mongolia’s participation in the World Economic Forum is increasing. How do you see Mongolia’s participation in the future?

I think it’s really a good thing that WEF [World Economic Forum] and Mongolia are collaborating more. It shows also that Mongolia is very interested in the forum. And that is what the WEF is about – to commonly find solutions to problems. So we know that Mongolia is very proactive to work in the international community to finding some solutions to issues. There’s been high involvement in the water resource work streams, the anti-corruption work streams, now in this economic development models.

It shows that you might be quite remote but it’s all a question of perspective. You’re very connected to the world. And we’re honoured that we can bring that to Mongolia.

What trends are being discussed at the world economic forum? What would be the topics for next year?

There are a lot of issues that are being discussed because it’s such a broad portfolio. But some of the issues being discussed are the global trade regimes and systems. We look a lot to science and technology and we believe science will transform our society in the coming ten years; the new innovations and where the economy is going; obviously it’s a world economic forum. There is quite some uncertainty the economy is likely recovering but it’s still very fragile. So we’re looking at these types of topics and of course the whole issues around geo politics is becoming more and more on the agenda.

It also came up a lot more in the global risk report that there is more risk for geo political tensions in the world. So we’re looking more and more into these areas.

We are talking a lot about sustainable development and a green economy – is this a common theme being discussed as well?

Yes because the way I talk about it here now – we call it green development, you can also call it resource management – you have the opportunity given that you still have to implement all of the infrastructure, to actually implement from the beginning the good systems that save energy, use water efficiently, and this type of green development.

In the long run, at the life cycle costs, this is a good idea to start doing now. In a lot of countries where we come from, for example, you have to kind of retrofit and this is very expensive so really working on the green development is a good idea for the future.

We even saw that in our scenarios, even if the world doesn’t go green, even if the world stays kind of brown, then it’s still a good idea for Mongolia because it makes you less reliable on your imports for energy. You can have more energy security within the country because you can create wind and solar resources here so why import oil. So you might become energetically more independent and as a country more independent and we know the value to Mongolians about being dependent. It would actually help to develop more green technologies within your infrastructure and in your industries. So any scenario that comes out, even if the world doesn’t go green, it’s a really good idea to have good resource management.

What do you think the biggest concern is for Mongolia’s future growth?

The biggest challenge I think you have is to be able to extract the wealth – its’ the cornerstone of your economy. But for that you need a very stable economic environment, for investment to come and for selling off of these minerals.

The first thing to do is to really stabilise the economy. To be able to extract the wealth, to be able to provide confidence to the international community, to provide you the funds and FDI [foreign direct investment] that you need for the country to prosper. And to think about what to do with those incomes to make sure that we have income equality so that everyone is benefiting from that. These are the major two issues I think, in the very short term.

Mongolia Brief June 9, 2014

The two engine economy – a good model

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