Construction is finishing at Oyu Tolgoi. The copper and gold mine, Mongolia’s largest financial endeavor, is surrounded by a barren landscape, but the influx of miners has been adding life to the surroundings. In less than ten years time, Oyu Tolgoi is predicted to constitute more than a third of Mongolia’s GDP. However, as mining gains momentum, sociopolitical threats loom. In a developing country of less than three million people, US$1.3 trillion in mining potential could have quite an impact.
Centuries after the fall of Genghis Khan’s extensive empire and, more recently, after the demise of the Soviet Union, the People’s Republic of Mongolia underwent major political, economical, and social changes. Two decades after holding its first democratic election, its political climate today is stable, though corruption is widespread, and since 2008, civil unrest has become a major concern. The transition to a free market economy was not smooth either: economic shocks are frequent and inflation is out of control.
To navigate its economic transition, Mongolia has had to find a viable source of economic growth. Its historically nomadic population is not agriculturally self-sufficient and as a result, the nation could not turn to the agricultural sector to fuel its nascent economy. Industrial production has always been stymied by competition with the Chinese. In search of an economic boon, the country turned to natural resources.
In 2001, Oyu Tolgoi (in Mongolian, Turquoise Hill) was discovered. The scope of underground deposits of copper and gold attracted many foreign investors, such as mining corporations Rio Tinto and Ivanhoe Mines. Oyu Tolgoi’s expected output amounts to 40 billion pounds of copper and 25 million ounces of gold. In negotiating the mining deal, the Mongolian government demanded a 51 percent stake in Oyu Tolgoi, but was later forced to accept a meager 34 percent under intense economic threats from the Bush Administration. In the coming years, similar conflicts between the Mongolian authorities and foreign entities are expected and may prove to be especially troublesome to the government given that companies such as Rio Tinto have annual revenues nearly ten times as high as Mongolia’s GDP.
Of all the Mongolian mines being developed, the most promising is Tavaan Tolgoi, the world’s largest untapped coal deposit of which the Mongolian government has managed to retain a 51 percent controlling stake. Annual production of coal in Tavaan Tolgoi is expected to increase to 15 million metric tons.
As international investors explore Mongolia’s wealth of natural resources, the nation of Genghis Khan is slowly turning into “Minegolia.” The nation of nomad herders is experiencing a rural exodus. Not only has the climate been particularly harsh these last few years, resulting in loss of crop and livestock, but there is also a shortage of water. The already scarce resources in the landlocked, desert country are being drained for use in Oyu Tolgoi and similar projects. These developments have not gone unnoticed by the government, which has attempted to preserve the national identity by marketing cultural goods and customs such as meat, cashmere, and practices such as the Nadaam festival, which has become a tourist magnet. Mongolia’s culture is being promoted and adapted for global markets. In addition to these culturally linked exports, the government has explored new ventures, such as the US$10 billion Sainshand Industrial Complex Project, which could become Mongolia’s first step toward developing a competitive technology industry.
While the government can be praised for such actions, some reproach it for its corruption. According to Transparency International, Mongolia ranks at a dismal 120th place globally on the corruption perception index. When one combines a boost in natural resources with a corrupt political system, dire consequences can ensue. Similar cases have seen ruling classes amass incredible wealth through bribery and corruption (Nigeria in the 1970s, for example). Mongolia’s ruling class has already seen bribery scandals increase both in frequency and scope. Recently Nambaryn Enkhbayara, a former president, was jailed for corruption, having received more than US$6 million in bribes. The ruling class, alongside certain domestic and foreign opportunists, has the potential to turn into a group of oligarchs, the new Khans of Mongolia.
As one part of the population profits from the Mongolian mining boom, another part suffers. Mongolia’s GINI coefficient, the main measure for income inequality, is anticipated to rise in the next few years, despite the government’s attempts at distributing the wealth derived from the country’s natural resources. Mongolia’s government has pledged to give every Mongolian born before March 31st, 2011 around US$1000 annually, but a stable middle class is unlikely to arise. Mongolia’s government seems torn between its populist policies and its deeply-rooted corruption. The resulting confusion prevents efficient responses to urgent problems, notably on environmental and health issues. As mining is gaining momentum by the day, environmental concerns are rising. Ulan Bator, Mongolia’s capital, is the world’s second most polluted city. A combination of constant coal burning in informal settlements and peculiar natural surrounding creates serious health risks for Mongolians. Outside Ulan Bator, the burgeoning mining industry has people working in deplorable conditions.
Mongolia’s mining boom is a double-edged sword: while vast wealth is for the taking, many changes have to be made to the Mongolian political system if this wealth is to benefit the entire country. Negative social, cultural, environmental, and economic consequences will be inevitable but may be containable. The question remains whether the motherland of Genghis Khan will rise to conquer the problems that it faces.