Mongolia’s Economic Miracle, Revisited
We’ve covered Mongolia’s remarkable economic rise before, but some extraordinary new figures justify a fresh look. In the European Bank for Reconstruction and Development’s 18 October Regional Economic Prospects report on post-Communist Europe, Central Asia and Turkey, Mongolia is one of the only countries whose 2012 GDP growth forecast isn’t downgraded; moreover, its forecast leads the 31-country sample at 12 percent. Even more impressive, in late September Mongolia’s deputy finance minister announced that per capita GDP would double to $5,000 by the end of 2012. That’s right – Mongolians should enjoy a two-fold increase in living standards in just over a year.
Back in the 1990s, Mongolia’s economy was growing at about 2 percent a year. What’s behind this ascent? A mining boom. Mineral rich Mongolia boasts one of the world’s largest copper-gold deposits and the largest undeveloped coking coal deposit. The economy has been riding high on these resources in recent years thanks to rising commodity prices – for copper, especially – and mining-related foreign investment. The good news is that much of Mongolia’s buried treasure is years away from production. The ride is far from over, and the International Monetary Fund forecasts 15.6 percent GDP growth in 2016.
But, ever a skeptic, I have several questions for all you Mongolia watchers out there:
How is this new wealth distributed? Sure, per capita GDP is soaring; one new mining job reportedly creates four new positions in the broader labor market (unemployment is a sustained 3 percent); and Mongolia’s nouveau riche can swipe their diamond-inlaid credit cards at the new Louis Vuitton and Ermenegildo Zegna stores popping up in the capital Ulan Bator (having hit resource-rich Kazakhstan in 2008, I’m guessing these cards aren’t far off in Mongolia). But Mongolians aren’t necessarily sharing the wealth. Is the economic boom creating a broad income gap that could carry serious social consequences?
Revenue is rising: government spending is reportedly up 50 percent from 2010, but a budget surplus is projected this year. How is this money being spent? I’ve read that the government is prudently investing in education and other areas to boost Mongolia’s long-term competitiveness. But having covered the region for years, I’m skeptical that, if even true, this will last. After all, Russian leaders pretty much squandered the chance to invest huge surpluses from expensive oil into diversifying the economy away from fossil fuels. Mongolia needs to diversify as well. The mining wealth won’t last forever. And, in any case, over-reliance on mineral production and exports exposes Mongolia to downturns in its largest customers, China especially.
How is the business climate? Mongolia needs to continue attracting foreign investment in mining and other industries to grow, help develop local capacities (most of the U.S. and British executives who moved to Prague in the 1990s to establish their firms’ Czech operations, for instance, were eventually replaced by Czechs), and build a diversified 21st century economy. Mongolia ranks a respectable 73 out of 183 economies in the World Bank’s Doing Business 2011 report, ahead of Italy, Greece and Croatia and bounds in front of Russia. Interestingly, though, the country trails many of its investment-hungry Central Asian neighbors, and I’ve read that bureaucracy is a problem.
Thoughts? Insights?
Back in the 1990s, Mongolia’s economy was growing at about 2 percent a year. What’s behind this ascent? A mining boom. Mineral rich Mongolia boasts one of the world’s largest copper-gold deposits and the largest undeveloped coking coal deposit. The economy has been riding high on these resources in recent years thanks to rising commodity prices – for copper, especially – and mining-related foreign investment. The good news is that much of Mongolia’s buried treasure is years away from production. The ride is far from over, and the International Monetary Fund forecasts 15.6 percent GDP growth in 2016.
But, ever a skeptic, I have several questions for all you Mongolia watchers out there:
How is this new wealth distributed? Sure, per capita GDP is soaring; one new mining job reportedly creates four new positions in the broader labor market (unemployment is a sustained 3 percent); and Mongolia’s nouveau riche can swipe their diamond-inlaid credit cards at the new Louis Vuitton and Ermenegildo Zegna stores popping up in the capital Ulan Bator (having hit resource-rich Kazakhstan in 2008, I’m guessing these cards aren’t far off in Mongolia). But Mongolians aren’t necessarily sharing the wealth. Is the economic boom creating a broad income gap that could carry serious social consequences?
Revenue is rising: government spending is reportedly up 50 percent from 2010, but a budget surplus is projected this year. How is this money being spent? I’ve read that the government is prudently investing in education and other areas to boost Mongolia’s long-term competitiveness. But having covered the region for years, I’m skeptical that, if even true, this will last. After all, Russian leaders pretty much squandered the chance to invest huge surpluses from expensive oil into diversifying the economy away from fossil fuels. Mongolia needs to diversify as well. The mining wealth won’t last forever. And, in any case, over-reliance on mineral production and exports exposes Mongolia to downturns in its largest customers, China especially.
How is the business climate? Mongolia needs to continue attracting foreign investment in mining and other industries to grow, help develop local capacities (most of the U.S. and British executives who moved to Prague in the 1990s to establish their firms’ Czech operations, for instance, were eventually replaced by Czechs), and build a diversified 21st century economy. Mongolia ranks a respectable 73 out of 183 economies in the World Bank’s Doing Business 2011 report, ahead of Italy, Greece and Croatia and bounds in front of Russia. Interestingly, though, the country trails many of its investment-hungry Central Asian neighbors, and I’ve read that bureaucracy is a problem.
Thoughts? Insights?
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