ULAAN BATAAR, MONGOLIA — Mongolia’s rocketing GDP has hit a snag that could damage its development prospects. In 2011, Mongolia’s economy was growing at a jaw-dropping 17.5%. In 2013, its growth rate had shrunk to 11.7%, with no signs that it can recapture the staggering growth of 2011. The puttering out of Mongolia’s rocket-like growth is mainly attributed to lower global demand for mineral resources, and to tense relationships between the Mongolian government and the firms investing in its mines.
Sandwiched between the superpowers of Russia and China, Mongolia has been largely unconsidered on the international stage. Things started to look up in the years between 2004 and 2008, when high copper prices and newly tapped deposits of gold brought economic growth up to an average of almost nine percent per year, but the global financial crisis of 2008 hit Mongolia hard. Its growth rates dropped, and like the rest of the world, it had to struggle to regain its momentum.
The 2008 crisis and the recession that followed turned out to be a trial by fire for Mongolia. In 2009, it established a US$326 million Stand-By Arrangement with the IMF. That year, the Mongolian government also passed legislation that allowed development of the Oyu Tolgoi mine, long considered to be one of the richest untapped deposits of copper and gold in the world.
This legislation and a recovering global economy led to Mongolia receiving more direct foreign investment and sparked the rapid growth that had experts wondering if Mongolia was the next ‘Asian Tiger,’ an economy to follow in the footsteps of China, India, and South Korea.
In 2013, legislation to increase government oversight of mining operations sparked disagreements with many mining firms, stymied the development of Oyu Tolgoi, and discouraged foreign investment. At the same time, the global market for coal and other minerals cooled down, leaving Mongolia with a significant foreign investment deficit and a shrinking market for its biggest exports.
The end of 2014 and the beginning of 2015 has seen the beginning of a tentative rebound. In February 2015, Mongolia signed a Free Trade Agreement with Japan. This is the first FTA Mongolia has ever signed, and is hopefully the first of many.
At the same time, the Mongolian government is trying to reinforce ties with its traditional friends, China and Russia. This has proven controversial in Russia’s case, given the international outrage over Russia’s recent treatment of the Ukraine.
In addition to Eurasian powers, Mongolia is building a stronger bond with America. USAID has been active in Mongolia since 1991, and is currently working on scaling down its presence there as it transitions from an aid recipient to trade partner for America. As it phases itself out, USAID is hoping to create a “welcoming environment for domestic and international business,” and to foster “sustainable, private sector-led economic growth in support of Mongolia’s emergence as an economic and trade partner in the region.”
The future of Mongolia’s growth will rely on the delicate balancing act between trade partners in the region and the opinions of the global community. If Mongolia can maintain strong relationships with China and Russia, while building new relationships with big economies like Japan and America, it has a good chance of regaining the rapid growth of earlier years.
– Marina Middleton