To leave a legacy
Though Mongolia’s economic growth is still estimated to be in the double digits, most cannot say that they feel any positive change. This is because the backbone of Mongolia’s economic growth is an industry that is beneficial to only a few, and it’s one that is heavily reliant on technological advances rather than manpower. I am, of course, talking about the mining industry.
According to Mining Minister D.Gankhuyag, the mining industry accounts for 20 percent of the country’s gross domestic product, 40 percent of the government’s budget income, 85 percent of the country’s total investment, and more than 90 percent of exports. And yet, the mining industry provides only around 5 percent of the jobs available in the country, as of last year.
As a notoriously high-risk sector, especially in today’s difficult global economic situation with falling commodity and raw material prices, using the mining sector to leverage the country’s growth is like building a castle on sand. Although mineral resources are non-renewable, Mongolia is not lacking in that department, with enough resources to last a hundred years or so.
Although the government talks about using mining revenue to develop other sectors, important human develop sectors such as education and health are still lacking attention and development. Even before it started gaining revenue from mining, Mongolia scared off its foreign investors with tighter regulations and resource nationalist policies.
And now Mongolia finds itself in a rut as it tries to undo the controversial laws that limited foreign investment, in the hopes of bringing back what was lost – foreign investment and global attention. This was most unceremoniously shown during the Discover Mongolia International Investors conference. The conference hosted more than thousand people last, who were jam packed inside the Children’s Palace where it always takes place. But this year, only few rows at the front were filled and only around 30 or so companies exhibited who were mostly comprised of domestic companies.
To add salt on the wound, sales of the nation’s biggest export good, coal, fell by half this year, as the world economic crisis dropped commodity prices in China, Mongolia’s biggest buyer. This has resulted in the major slowdown of economic activity in Mongolia, resulting in many closed down businesses.
But Mongolia’s financial troubles don’t end just there. Currency depreciation has been an alarming concern of late. Since Mongolia imports a large portion of goods, such as clothing, food and drinks, cars, electronics and appliances, fuel, and heavy machinery, the diminishing value of the MNT is only driving inflation rates higher and higher. By the first half of this year, Mongolia had already exceeded the target inflation rate for this year with 8.3 percent by June.
To fight currency depreciation, Speaker of Parliament Z.Enkhbold, has taken a personal interest in the matter. Yesterday he instructed regulatory authorities to monitor currency exchanges that are not selling and buying USD. The Financial Regulatory Committee, operating under parliament, reported that one USD cost from 1,700-1,725 MNT this week, but was below 1,500 MNT at the end of July.
This aggressive drop in the value of the MNT is having a negative impact on businesses that rely on imported goods, and as a result, the inflation rate is rising. Almost every week, the prices of goods rise higher.
Domestic fuel importers have already made an official request, mandatory for importers who took government loans, to increase prices as they might face losses from the depreciating currency. Car salesmen, who import mainly from Japan, said their business has slowed dramatically and that although they are importing at a higher cost, they have not changed prices as hardly anyone buys cars in this economically constraining times.
As seen above, economic turmoil, careless stewardship of tax payer’s money and bad policies are most burdensome on the small and medium sized business operators who struggle to live day to day.
A third of Mongolia’s population lives under the poverty line. The average wage in the country is around 600,000 MNT (approximately 350 USD) a month. Average daily expenses are around 5 – 10 USD, so average folks can forget about savings and other luxuries.
With the grim economic outlook, the country’s authorities are scrambling to keep the public calm, and in the process, dipping their dirty fingers everywhere. In all international reports about Mongolia, political risk was rated high last year, and yet instead of trying to diminish risk by staying away from it, Mongolian business operators plead and cling to government support in a desperate attempt to save their businesses from foreign businesses taking over the domestic market.
To all these issues, no one has an answer that would provide an immediate solution. These issues took months and years to grow into one giant headache, hence the cure is to cultivate a healthy economic prescription and not just make do with a temporary pain killer option, which is the default for most governments.
I have said numerous times in my previous articles that the solution to the existing issues lies in human development and the education sector, which are long term solutions. I believe this because our predecessors and forefathers labored, fought and warred to give us the privileges we have today. An equal, if not greater, effort will be required to leave a better country and world for the next generation, than how we found it. So grind your teeth and keep working for a better tomorrow and try to have fun while you are at it.
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