Fair distribution of natural resources

We are living in a historic era, where Mongolia is striving to develop its economy by extracting natural resources. Natural resources are created by nature itself, not humans. Therefore, every Mongolian should benefit equally from the income generated by the natural resources in our land. However, the investors, who despite facing enormous risks (spending a fortune to explore and extract natural resources, process them and deliver the products to the market), are the first recipients of the profits generated, and the revenue is allocated in proportion to the ownership percentage of each investor. The citizens get their share afterwards through the public budget.

It does not necessarily mean that every single person shall receive perfectly equal benefits from natural resource revenue. Nevertheless, if the distribution of natural resources is not completely unequal and the gap between the received benefits by different parties is not increased, but actually reduced over time, it would be regarded as fair.

In order to ensure fair distribution of natural resource revenue, the four following steps should be taken.

  1. 1.     Investment in infrastructure and social services

It is time to assess the availability of infrastructure, including electric power lines, water supply, roads and transportation services in each aimag and region, and research comparisons to their respective population. The same thing goes for Ulaanbaatar and all of its districts and the suburbs. Let us now look into what impact the lack of infrastructure has on the cost of business.

For example, building bitumen roads will save time, reduce operational costs and improve labor productivity. The completion of the hard surface road connecting Tuv aimag with Dundgobi aimag is the start of a historical chapter in the development of the southern region of Mongolia.

On the other hand, the railroad that goes from Tavan Tolgoi to the Chinese border is being constructed with broad gauges, which is going to increase the cost of export and decrease our earnings, as China employs narrow gauge railway at the border.

Public budget spending in social services, including public administration, infrastructure, health and education, needs to be calculated in proportion to GDP. Furthermore, public budget expenditure per capita has to be estimated as well. These calculations will help us understand how efficient projects such as building apartment blocks, which is intended to reduce poverty and fulfill one of the basic necessities of human life, prove to be. Then, the expenditure analysis has to be compared with that of other similar economies in the world.

In order to establish the efficiency of basic investments in human capital (e.g. public programs concerning food, health, education and prevention of contagious diseases), a wide range of “per capita” data needs to be collected. We also need documented data and statistics that show the overall level of work ethic, business skills, professional capacity, education, salary and income by each aimag and soum.

There is also a need to push the government to provide the public with reports of national debt and debt underwritings, regardless of its inclusion in the public budget. All infrastructure projects are incorporated into the public budget. Therefore, the government must calculate the amount of national debt not only for this current year, but also the year our country is required to clear its most long-term debts.  

  1. 2.     Capacity building in public governance 

Mongolia is originally a country that chose the rule of law over the rule of political parties. However, in the past, everyone  – depending on their social status, wealth and connections – was treated differently by the law. Fortunately, the winds of change have been blowing since last year. Today, the citizens of Mongolia expect their recently re-elected President to continue the change and ensure that the law is applied to everyone in a fair way, regardless of what political party affiliations one might have.

A merit-based system has to be introduced in our public sector so that public servants (“government workers”, as we call them) will be promoted and hired on the basis of their intelligence and skill rather than their political connections.

Mongolian citizens are demanding every single government institution to operate in a way where there are clear policies with consistent rules and regulations, and a business environment that is easy to understand.

It has been a year since the Democratic Party won the general elections by pointing out that the government had no longer been able to operate in a fair, proper way, and had failed to work for the sake of its people with Mongolian politics being mixed up with the business sector. The parliament then passed the Conflict of Interest law and made amendments to the anti-corruption and criminal laws. As Kh.Temuujin, the Minister of Justice, proposed, we must start holding those who accepted bribery accountable for their unlawful actions and leave those who gave bribes to them go unpunished. The current law sets out that both the giver and the receiver are punishable for bribery. Therefore, it is difficult to acquire secret information about corruption and discover who bribed whom.

In order to ensure transparent public governance that reports to the public, we need citizen involvement and supervision. President Ts.Elbegdorj accurately described it, saying, “The distribution of natural resources without citizen involvement ends up turning into theft.” 

  1. 3.     Increasing the competitiveness of the private sector

Competitive capacity shall be increased only when the private sector of Mongolia becomes advanced enough that some companies start selling their products in the worldwide market.

Instead of aiming for expansion by focusing on a certain sector or industry, our companies are operating in many sectors at once. On one hand, it shows that our domestic market offers a vast range of business opportunities that allow one company to work in different sectors. On the other hand, it indicates that our companies do not possess the capacity to enter big international markets. Also, there is not enough competition in our economic sectors to push companies to achieve more. When it comes to competition, no company can be on par with a company that is owned by the minister who leads the government branch that regulates the industry those companies operate in.

The biggest factor contributing to increased business cost is the interest rates of bank loans. The rates are never lower than 20 percent a year. A more advanced capital market is the most plausible way to reduce interest rates. Developing the capital market will allow entities with a surplus of money to have a choice when placing their capital in the capital market. Although the infrastructure essential to trading within the capital market is already formed, the biggest investors (the pension and insurance funds), are reluctant to take part in it. The public budget owed the pension fund about two billion MNT in 2011. Even though the authorities are fully aware of the situation, they still have not cleared this debt and act like they know nothing about it.

Owners of small and medium enterprises have always had a hard time in business due to the enormous pressure from value added tax, which takes away ten percent of their income. Nevertheless, the government is preparing a new package of laws that impose greater tax rates on companies that are already having difficulties with their operational cost and loan payments.

What happened to the proposal that was going to provide subsidies to small and medium businesses that create jobs, and employ older women and disabled people?

  1. Establishment of a sovereign wealth fund

Establishment of a sovereign wealth fund has helped many countries ensure fair distribution of resource revenue. Mongolia needs to do the same, and support the proposals that have been discussed to establish such a fund.

Mongolia can have a sovereign wealth fund that is intended for both saving and stabilization purposes. One half of the fund could be dedicated to enhancing the development of economic sectors (especially infrastructure and the social sector) with the exception of the mining sector, while the other half could be used for stabilizing the budget revenue and preventing it from being influenced by the potential price fluctuations of the natural resources we export on the international market.

The four steps mentioned above will help Mongolia to have a fair distribution of natural resources, and ensure that anyone who works hard will receive their deserved benefits and improve their livelihood. All in all, the ultimate purpose of economic development is improving the livelihood of every citizen.


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Posted by on Jul 22 2013. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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