Breaking the Resource Curse In Mongolia

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Mongolia's rich resources

These days Ulaanbaatar is looking decidedly prosperous. Traffic jams snarl up the streets, a new Louis Vuitton store is reportedly outselling the branch in Lyons, new bars and restaurants are popping up, and prices are rising. And there are a lot more foreigners than there used to be. The rising optimism is centered on Mongolia's largely untapped mineral wealth. Everyone has known that Mongolia was, literally, sitting on gold – the reserves proven, the locations known – but exploiting it is a major political issue.

Everyone wants in on the action. Speakers stated that The Mongolian Government has said it is open for business and the customers are starting to flock. But Mongolia is not a highly controlled one-party state like China, or a country producing crony capitalism and oligarchs, like Russia. Mongolia is a multi-party democracy with vibrant and sometimes hectic elections. There is a free and highly vocal press and a citizenry keen to see some rewards from their mineral wealth.
Hence the buzz phrase everyone is talking about, on TV, in the newspapers, on the shelves of the bookshops: "resource curse". This refers to the paradoxical situation of the world's resource-rich countries being among the poorest.

In the past the Government held back from opening the floodgates. The perception of giving the wealth away had led to demonstrations, sometimes violent. Still, the process has started – Canada's Ivanhoe Mines and the Anglo-Australian Rio Tinto are licensed to start work in the massive Oyu Tolgoi field of copper and gold.

Limited liability companies have been formed, with the Government holding a 34% interest. But worries persist. Is the Government experienced enough to maintain a close watch on these new entities?

But Mongolia is not China. Bad practices will be made public and demonstrations will occur. Foreign miners entering Mongolia know that workplace safety is a major concern and both the Government and the press are watching – public opinion is a factor in Mongolia. And to help ease concerns the Government is encouraging local mining companies to modernize and compete.

Several deals were put on hold recently over concerns about corruption. The foreign miners are bringing a lot of money into what is still generally a poor country, so it is interesting to note that the Government has not simply grabbed the cash, but is remaining cautious. Similarly with the environment – new laws require that mining companies put in place reclamation projects at the end of the extraction process.

There will be more licensing and more miners entering Mongolia. To help avoid the resource curse, NGOs and pressure groups are being formed to lobby for the wealth to be spent on social infrastructure – electricity, water and schools. But others worry and see elite groups of local politicians and foreign businessmen forming cartels.

There will, inevitably, be a learning curve but that with a free press, politicians who can be elected or deselected and a vibrant public debate, Mongolia could just become one country to escape the curse.

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