Everyone has globalization moments—those surreal intersections of foreign influences and familiar rhythms. This one involves Pink Floyd and Mongolia.
Last Friday, Air China 902 was packed with more white faces than you would typically see on flights from Ulaanbaatar to Beijing. It was carrying many of the 200 international financiers attending a EuroMoney conference on investing in Mongolia.
As they shuffled aboard, Pink Floyd’s Money was playing overhead. It was impossible to miss the irony of a diatribe against capitalism serving as a soundtrack of sorts to the gold rush dynamic in one of Asia’s most impoverished nations. Thanks to underground riches such as copper and gold, Mongolia is on the cusp of a huge influx of money.
That is where the trouble begins. It is not hard to find Mongolia’s poverty. As more of the nation’s 2.7 million people cluster around cities such as Ulaanbaatar, many in this traditionally nomadic country can’t find jobs. More than half of those in Ulaanbaatar live in yurts or other types of temporary housing.
Mongolia’s future is about to be dug out of the ground. Its nascent mining boom is the quickest route to prosperity. Some analysts say it will boost gross domestic product by more than 30% within a few years. The official estimate for growth in 2008 is almost 9%.
You would think observers of a place where average incomes are less than $200 (Rs9,180) a month would be rather enthused about all this. In the case of economists such as Tserenpuntsag Batbold, who works in New York for the UN secretariat’s financing for development office, you would be mistaken.
As a Mongolian, Batbold understands his nation is holding a winning lottery ticket. His concern is the strong correlation between poverty and countries with natural resources such as gold, oil or diamonds. Resource wealth tends to breed corruption and tunnel vision among leaders. “There is no question about the potential for Mongolia, and I’m quite optimistic,” Batbold says. “But we need to make sure we do better than other nations have done with their riches.”
Adds Graeme Hancock, the World Bank’s senior Mongolia mining specialist: “The question is how Mongolia avoids being overwhelmed by its resources—how the people derive value from them.”
Investors complain the government is dragging its feet on revised laws dictating how mining proceeds will be divided. Companies Rio Tinto Group and Ivanhoe Mines Ltd, which invested more than four years seeking approval for a $3 billion project to develop Mongolia’s Oyu Tolgoi deposits of gold and copper, are left wondering what gives.
An argument can be made that Mongolia needs to act faster to allow miners to do their thing. There is a better one for Mongolia to take its time to make sure it gets these decisions right.
From Nigeria to Indonesia to Sierra Leone, history has too many examples of governments mishandling resources. Politicians and the well-connected get wealthy, while the needs of broader populations are ignored. Contracts are handed out with little transparency, ensuring profits are concentrated among the elite. The sudden appearance of vast resources gives governments less incentive to create other viable industries. Why bother to nurture manufacturing, agriculture or textile industries that would employ much of the population when the real money is in minerals and energy?
“Mongolia is at such a vital crossroads today,” says Chuluundorj Khashchuluun, director of economics at the National University of Mongolia. “We will look back in 10 years and be wealthier because of decisions made today, or wondering how things went very wrong.”
Political will is the key variable. One of Batbold’s concerns is “institutional weakness” in a democracy as young as Mongolia’s. At the early stages of any resources boom, it is necessary to have independent lawmakers, regulators and courts making sure the people benefit. Here, Mongolia has a way to go.
“It’s important to see whether the government is ready to enforce what it needs to,” says Bert van der Toorn, Singapore-based managing director at ING Wholesale Banking.
Mongolia has a number of comparative advantages. For example, 30% of its people are younger than 15. Proximity to fast-growing China is another. The catch is that the government has to do the right things, striking a careful balance between maximizing its take of resources and not spooking foreign investors. It also must spread the benefits of the coming surge in GDP growth to those who need it most.
There is reason to think Mongolia will get it right, and its financial community is a case in point. Officials have been travelling the globe soaking up intelligence from stock- and bond-market experts. They are gaining insights and using them to make Mongolia’s stock market international.
Similar fact-finding efforts are afoot on the mining front. With so many examples of what not to do, officials may be able to steer away from the so-called oil curse.
That way, it won’t only be foreigners who, as Pink Floyd sang 35 years ago, “grab that cash in both hands and make a stash”. Mongolians will, too.
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