CENTRAL ASIA: A ROCKY ROAD TO RICHES
Only a third of the country – which is three times the size of France – has been mapped in detail, but more than 6,000 deposits of commercial value have been identified. “There are centuries of specific exploration still to be done in Mongolia,” says T. Munkhbat, one of the geologists who discovered Oyu Tolgoi.
Executives from Rio Tinto, the Anglo-Australian miner that has already invested billions in Oyu Tolgoi, wax lyrical about the quality and quantity of the copper deposits there, which will come on stream in a few months. Chinese smelters have already lined up to sign long-term contracts.
How Mongolia exploits and spends the proceeds of those mineral deposits is the subject of fierce political debate. Today, 80 per cent of Mongolians are expected to take part in parliamentary elections that have become a regular feature of the country since it cut ties with the Soviet Union two decades ago. The country is at the start of a mining boom and its citizens want to elect a government that will maximise profits for the country and ensure that revenues improve the lives of the majority, not only enrich a few.
Mongolia’s resources could conceivably transform the country of 2.8m people into a very wealthy nation, the Qatar of Central Asia. Even before the biggest coal and copper mines have come on stream, the country has become one of the fastest-expanding economies in the world, with growth last year approaching 20 per cent.
A lot is at stake in the elections that pit the governing Mongolian People’s party, which has been in power for most of the past 60 years, against the Democratic party, its coalition partner until January. The next four-year parliament will establish mining policies at a crucial time in Mongolia’s development and decide how the tens of billions of dollars that are likely to flood into the country will be distributed. What they decide will affect some of the world’s biggest mining companies, such as Rio Tinto, Peabody and Shenhua. Mongolia could end up supplying much of the coal to keep China running and the copper to help build its vastly expanding cities.
Just as important for most Mongolians is how their elected leaders cope with the money set to flow in. Politicians speak convincingly of the need to avoid the fate of some resource-rich countries that have fallen prey to the “resources curse”, which can spawn corruption, inflation and other social and economic ills.
How Mongolia exploits and spends the proceeds of those mineral deposits is the subject of fierce political debate. Today, 80 per cent of Mongolians are expected to take part in parliamentary elections that have become a regular feature of the country since it cut ties with the Soviet Union two decades ago. The country is at the start of a mining boom and its citizens want to elect a government that will maximise profits for the country and ensure that revenues improve the lives of the majority, not only enrich a few.
Mongolia’s resources could conceivably transform the country of 2.8m people into a very wealthy nation, the Qatar of Central Asia. Even before the biggest coal and copper mines have come on stream, the country has become one of the fastest-expanding economies in the world, with growth last year approaching 20 per cent.
A lot is at stake in the elections that pit the governing Mongolian People’s party, which has been in power for most of the past 60 years, against the Democratic party, its coalition partner until January. The next four-year parliament will establish mining policies at a crucial time in Mongolia’s development and decide how the tens of billions of dollars that are likely to flood into the country will be distributed. What they decide will affect some of the world’s biggest mining companies, such as Rio Tinto, Peabody and Shenhua. Mongolia could end up supplying much of the coal to keep China running and the copper to help build its vastly expanding cities.
Just as important for most Mongolians is how their elected leaders cope with the money set to flow in. Politicians speak convincingly of the need to avoid the fate of some resource-rich countries that have fallen prey to the “resources curse”, which can spawn corruption, inflation and other social and economic ills.
Mongolia is a democratic experiment, founded 20 years ago on the premise that democracy and classic liberalism would help the country weather these challenges. Whether or not it succeeds is a matter of wider interest. “Mongolia is practically the only functioning democracy from the Pacific Coast all the way to eastern Europe,” says Mark Minton, former US ambassador . “It has been a great story of success but all of that is jeopardised if the political framework fails.”
Today Mongolia is still a lower-middle income country, with average per capita gross domestic product of just $3,000, slightly more than half of that of China. Optimists say that if Mongolia can get it right, its resources make every citizen a millionaire. But if politicians get the regulatory framework wrong, mining companies will not invest. And if officials cannot keep their hands off the mining proceeds, Mongolia’s democracy itself – prized by Washington in a region of autocratic states – could be threatened.
Minerals have sparked breakneck growth in towns such as Dalanzadgad, capital of the province that includes the vast Oyu Tolgoi mine as well as Tavan Tolgoi, one of the world’s biggest undeveloped coking-coal deposits. Erdenes Tavan Tolgoi, a state-owed group that owns the coking-coal mine is set to list next spring in London, Ulan Bator and Hong Kong, in what would be Mongolia’s biggest initial public offering ever, although the listing has been delayed several times.
Yet here at the heart of the mining boom Mongolians are divided in their attitudes towards an industry that has fuelled economic growth but left many feeling hard-done by.
“Mining has had a disastrous impact,” says Munkhkurel, a 38-year-old former leather trader manning a campaign ger-tent for the opposition Mongolian People’s Revolutionary party on the square. “It has brought a lot of environmental and land degradation, issues with drinking water, road issues, and had a bad social impact.” The boom has also crowded out non-mining industries and contributed to currency appreciation.
The freedom to express such complaints, is, say many observers, the country’s best hope for avoiding the pitfalls ahead. “In a sense we are very lucky,” says D. Zorigt, mining minister. “The mining boom is happening after 20 years of our journey to a democratic and open society.” Countries that have done it the other way round – developing their resources before their political system – have often had a tough time, he says. “The biggest issue with a minerals boom is corruption, and corruption is only dealt with through openness and transparency.”
The battle with corruption has been long, and Mongolians are divided on whether the country is succeeding. Over the past three years, the global commodities supercycle drove foreign mining investment, presenting a bigger test for governance. Last year, foreign direct investment accounted for nearly two-thirds of gross domestic product.
“These investments are derailing our political system,” laments L. Sumati, a prominent pollster. “We had less trouble tackling our problems when we had less money.” His surveys show that Mongolians are optimistic about the future, but have recently lost faith in their political leaders. Partly in an effort to combat that, the government has started to lavish money on its people before it has even earnt it. This year, about $1.2bn will be paid out to citizens as part of a share buyback programme for the Tavan Tolgoi coking coal mine – even though the mine is not yet fully developed.
A key governance test has been the corruption charges that were brought last month against Mongolia’s former president Nambaryn Enkhbayar, the country’s most powerful politician for a decade, who later set up the breakaway MPRP. Mr Enkhbayar rejects the charges, saying they are politically motivated. “The majority of the people have understood this is not a real case. The real corrupt people are in power,” he says.
President Tsakhia Elbegdorj denies the trial is politically motivated, saying the judicial system acts independently. “Corruption is a scourge to an open society,” he says, adding that Mr Enkhbayar’s is just one of several corruption investigations. “If you don’t have the political will to face corruption, then we will all fail together.”
Support for Mr Enkhbayar has surged and opinions polls put his party third, partly thanks to his more nationalistic stance towards foreign miners. While analysts expect trenchant campaign rhetoric of all parties to subside, most agree that the next parliament could adopt a more nationalistic approach. Amendments to the mining law, which awaits the new parliament, have to be finalised. No new mining licenses will be issued until the amendments are passed.
Meanwhile, a recent foreign investment law hurriedly passed after a Chinese company tried to buy a majority stake in a Gobi Desert coal mine, means that foreign companies in strategic industries, including mining and banking, need parliamentary approval for large majority investments. Seeking political approval for big investments means corruption, says one western diplomat wearily, rubbing his fingers together to denote bank notes.
“The emphasis here to me is not whether the law is good or bad,” says Cameron McCrae, Rio Tinto’s country manager in Mongolia. “The danger is if the law is poorly crafted, investors are going to be scared about putting their money into the country in the first place.”
Growing nationalism stemming from frustration at the uneven development process will make it hard for any government to be seen as soft on foreign mining companies. Mr Elbegdorj says Mongolia used to be an ugly bride for foreign investors, but now that it is beautiful – with a stable democracy and massive proven mineral deposits – it needs to be more demanding about its dowry.
Some mining companies say they are disturbed by what they see as a change of tone. “If nationalistic Mongolians think that making it hard for foreign investors is good for the country, then they will shoot themselves in the foot,” says one mining executive. Mongolia, he adds, has neither the capital nor the expertise to develop its vast resources on its own.
One senior banker involved in the mining sector is more blunt: “Mongolia has great resources, but those minerals have already been in the ground a long time – millions of years – and they will stay there for a long time unless the country gets the policies right for foreign investors.”
Part of this is a game of bluff and counter-bluff as Mongolian officials square off with foreign miners to hammer out a regulatory framework. But even Mr Elbegdorj concedes that the new foreign investment law is imperfect. He has promised to consult foreign investors about possible amendments – a commitment that depends on the make-up of the new legislature.
Many Mongolians worry that all this fighting over the potential spoils is leaving them with little to show for their supposed wealth. Unemployment and poverty rates are high. As herders crowd into the capital – driven from the steppes by harsh winters known as dzuds and pulled in by the prospect of money or better schools for their children – many struggle to find work. Newcomers claim land on Ulan Bator’s outskirts by pitching their round ger-tents, a process that has created giant ger-districts lacking drinking water and heating. In winter, ger-dwellers burn anything they can find, including tyres, filling the town with acrid smoke.
S. Oyun, a candidate for the Civil Will Green party, one of the opposition parties, says the transformation of Mongolia’s mineral wealth into sustainable development is not going to come naturally. “We have to work very hard. It is not just the big reforms, but the hard work on the details.”
She quotes Genghis Khan, who is said to have mused upon the difficulties of governing nearly a thousand years ago. “It is easy to conquer the world on a horse”, the creator of history’s biggest contiguous empire is supposed to have said. Much more difficult, he added, was “to get down from the horse and rule the country”.
By Leslie Hook and David Pilling
Today Mongolia is still a lower-middle income country, with average per capita gross domestic product of just $3,000, slightly more than half of that of China. Optimists say that if Mongolia can get it right, its resources make every citizen a millionaire. But if politicians get the regulatory framework wrong, mining companies will not invest. And if officials cannot keep their hands off the mining proceeds, Mongolia’s democracy itself – prized by Washington in a region of autocratic states – could be threatened.
Minerals have sparked breakneck growth in towns such as Dalanzadgad, capital of the province that includes the vast Oyu Tolgoi mine as well as Tavan Tolgoi, one of the world’s biggest undeveloped coking-coal deposits. Erdenes Tavan Tolgoi, a state-owed group that owns the coking-coal mine is set to list next spring in London, Ulan Bator and Hong Kong, in what would be Mongolia’s biggest initial public offering ever, although the listing has been delayed several times.
Yet here at the heart of the mining boom Mongolians are divided in their attitudes towards an industry that has fuelled economic growth but left many feeling hard-done by.
“Mining has had a disastrous impact,” says Munkhkurel, a 38-year-old former leather trader manning a campaign ger-tent for the opposition Mongolian People’s Revolutionary party on the square. “It has brought a lot of environmental and land degradation, issues with drinking water, road issues, and had a bad social impact.” The boom has also crowded out non-mining industries and contributed to currency appreciation.
The freedom to express such complaints, is, say many observers, the country’s best hope for avoiding the pitfalls ahead. “In a sense we are very lucky,” says D. Zorigt, mining minister. “The mining boom is happening after 20 years of our journey to a democratic and open society.” Countries that have done it the other way round – developing their resources before their political system – have often had a tough time, he says. “The biggest issue with a minerals boom is corruption, and corruption is only dealt with through openness and transparency.”
The battle with corruption has been long, and Mongolians are divided on whether the country is succeeding. Over the past three years, the global commodities supercycle drove foreign mining investment, presenting a bigger test for governance. Last year, foreign direct investment accounted for nearly two-thirds of gross domestic product.
“These investments are derailing our political system,” laments L. Sumati, a prominent pollster. “We had less trouble tackling our problems when we had less money.” His surveys show that Mongolians are optimistic about the future, but have recently lost faith in their political leaders. Partly in an effort to combat that, the government has started to lavish money on its people before it has even earnt it. This year, about $1.2bn will be paid out to citizens as part of a share buyback programme for the Tavan Tolgoi coking coal mine – even though the mine is not yet fully developed.
A key governance test has been the corruption charges that were brought last month against Mongolia’s former president Nambaryn Enkhbayar, the country’s most powerful politician for a decade, who later set up the breakaway MPRP. Mr Enkhbayar rejects the charges, saying they are politically motivated. “The majority of the people have understood this is not a real case. The real corrupt people are in power,” he says.
President Tsakhia Elbegdorj denies the trial is politically motivated, saying the judicial system acts independently. “Corruption is a scourge to an open society,” he says, adding that Mr Enkhbayar’s is just one of several corruption investigations. “If you don’t have the political will to face corruption, then we will all fail together.”
Support for Mr Enkhbayar has surged and opinions polls put his party third, partly thanks to his more nationalistic stance towards foreign miners. While analysts expect trenchant campaign rhetoric of all parties to subside, most agree that the next parliament could adopt a more nationalistic approach. Amendments to the mining law, which awaits the new parliament, have to be finalised. No new mining licenses will be issued until the amendments are passed.
Meanwhile, a recent foreign investment law hurriedly passed after a Chinese company tried to buy a majority stake in a Gobi Desert coal mine, means that foreign companies in strategic industries, including mining and banking, need parliamentary approval for large majority investments. Seeking political approval for big investments means corruption, says one western diplomat wearily, rubbing his fingers together to denote bank notes.
“The emphasis here to me is not whether the law is good or bad,” says Cameron McCrae, Rio Tinto’s country manager in Mongolia. “The danger is if the law is poorly crafted, investors are going to be scared about putting their money into the country in the first place.”
Growing nationalism stemming from frustration at the uneven development process will make it hard for any government to be seen as soft on foreign mining companies. Mr Elbegdorj says Mongolia used to be an ugly bride for foreign investors, but now that it is beautiful – with a stable democracy and massive proven mineral deposits – it needs to be more demanding about its dowry.
Some mining companies say they are disturbed by what they see as a change of tone. “If nationalistic Mongolians think that making it hard for foreign investors is good for the country, then they will shoot themselves in the foot,” says one mining executive. Mongolia, he adds, has neither the capital nor the expertise to develop its vast resources on its own.
One senior banker involved in the mining sector is more blunt: “Mongolia has great resources, but those minerals have already been in the ground a long time – millions of years – and they will stay there for a long time unless the country gets the policies right for foreign investors.”
Part of this is a game of bluff and counter-bluff as Mongolian officials square off with foreign miners to hammer out a regulatory framework. But even Mr Elbegdorj concedes that the new foreign investment law is imperfect. He has promised to consult foreign investors about possible amendments – a commitment that depends on the make-up of the new legislature.
Many Mongolians worry that all this fighting over the potential spoils is leaving them with little to show for their supposed wealth. Unemployment and poverty rates are high. As herders crowd into the capital – driven from the steppes by harsh winters known as dzuds and pulled in by the prospect of money or better schools for their children – many struggle to find work. Newcomers claim land on Ulan Bator’s outskirts by pitching their round ger-tents, a process that has created giant ger-districts lacking drinking water and heating. In winter, ger-dwellers burn anything they can find, including tyres, filling the town with acrid smoke.
S. Oyun, a candidate for the Civil Will Green party, one of the opposition parties, says the transformation of Mongolia’s mineral wealth into sustainable development is not going to come naturally. “We have to work very hard. It is not just the big reforms, but the hard work on the details.”
She quotes Genghis Khan, who is said to have mused upon the difficulties of governing nearly a thousand years ago. “It is easy to conquer the world on a horse”, the creator of history’s biggest contiguous empire is supposed to have said. Much more difficult, he added, was “to get down from the horse and rule the country”.
By Leslie Hook and David Pilling
Comments
Post a Comment