Mongolia reached a settlement over an arbitration award requiring the government to pay $100 million to Canada-based Khan Resources, according to Reuters. Under the terms, Mongolia will pay $70 million by May 15, 2016, including another term barring the government from trying to have the award agreement revoked in France, and Khan will cease legal action against Mongolia in seizing commercial assets to fulfill payment.
Mongolia’s economy has suffered due to lower commodity prices and high-profile mining disputes. The East Asian country is a producer of such commodities as gold, copper, and uranium.
Mongolia is a rising emerging market, but its primary drawback is an overreliance on the commodity sector. In addition, Mongolia is dependent on mining output, and production volumes have failed to yield a stable return in recent years, contributing to economic stagnation.
Currently, leaders are placed in a precarious position as they attempt to boost output in an economy that excels solely in commodities. Mongolia’s problems are further compounded by its dependence on China, a country going through its own financial and economic tailspin. Mongolia is a small economy, and the business community once held vast interest in the country, but failed to live up to expectations, notesInternational Business Times.
The primary factor that could save the economy, however, is the mending of fences between the government and the investment community, and the Khan settlement is a step in the right direction.
Mongolia has been successful in reducing poverty, but living standards could decline if leaders cannot find a way to solve long-term issues that plague the economy. A retired Mongolian diplomat believes reforms in the country’s tax and legal systems would provide relief, but it will take some time before such measures take effect.
Mongolia entered an explosive growth rate in 2011, but later suffered from a 91% plummet in FDI, and the economy has failed to achieve the booming growth seen from five years ago. Inclement weather is another factor causing the downturn, as destabilized crop production prevents expansion, but the good news is that agriculture, including cashmere production, could prove to be a means of diversifying the economy.
The decline in agriculture affects many Mongolians who subsist from the agricultural sector, but all citizens are at risk in some form or another as officials attempt to attract more investors to revitalize the economy. With that, Prime Minister Chimediin Saikhanbileg has taken considerable heat from critics for taking a conciliatory approach to mining companies, and some Mongolians fear that mining activities could further degrade the nation’s natural habitat and disturb precious archeological sites.
Political opposition voices are of concern as well, and nationalist candidates who are outspoken against foreign mining practices may gain some traction when Mongolians vote in June.