A THOUGHT-PROVOKING SCENARIO
The World Economic Forum Strategic Dialogue on the Future of Mongolia was held in Ulaanbaatar on September 14-15. The opening remarks of this meeting were given by Ts.Elbegdorj, President of Mongolia, and Klaus Schwab, Executive Chairman of the World Economic Forum.
The dialogue was attended by representatives of business and international organizations from various countries, senior officials of the Mongolian government and leaders from the private sector and civil society. Three different scenarios for the future of Mongolia were explained and discussed thoroughly. These scenarios vary in the level of effort needed for Mongolia to extract and sell its mineral resources, and on how successful its economic diversification would turn out to be. Each scenario suggests where Mongolia could be by the year of 2040.
Economic expert B.Lagshmi came up with the brightest outlook into the future and explained a scenario in which Mongolia succeeds in both diversifying its economy and exporting mineral resources without barriers. Baabar, on the other hand, argued for a scenario that suggests Mongolia would face difficulties in selling its mineral resources despite carrying out successful economic diversification. It was followed by a scenario put forward by me, that Mongolia would struggle in both economic diversification and sales of mineral resources. The two-day discussion focused on these three scenarios of future.
In the course of the dialogue, the least promising scenario produced the most worrying thoughts and questions. As the entire meeting, with the exception of the opening and closing ceremonies, did not allow media coverage, I would like to share some of the discussions on the unpromising scenario I proposed.
The unpromising scenario
Let us assume that Mongolia will have underachieved in diversifying its economy and failed to remove obstacles in selling its coal and copper by the year 2040. What will happen then?
This scenario suggests that geopolitical conflicts will have slowed down economic growth in the region and reduced the demand for mineral resources. Furthermore, mineral resources might turn out to be a political tool. Also, due to fiercer competition in mining investment among other countries, Mongolia’s mineral resources could lose its competitive edge and be turned down by investors.
With such fierce competition in mining investment, buyers might prefer purchasing raw materials and processing them in their own plants. It could have devastating effects on resource-based economies like Mongolia, and our aspirations to process mineral resources and produce value-added products might go up in smoke.
If our resource-based economy encounters such difficulties, it will be more costly for Mongolia to acquire foreign loans and raise capital from international markets. Consequently, it will slow down the process of economic diversification, as it will be more challenging to attract capital resources and skilled professionals from abroad.
Obviously, the proposed scenarios do not have to come true. However, such predictions attempting to anticipate the future in various ways will help us to identify potential challenges and opportunities correctly and formulate policy to achieve sustainable economic development.
What does it tell us?
A foreign businessman who has been living in Mongolia for many years also agreed that the scenario I put forward for discussion was plausible. He explained his response by drawing on the example of when China closed its border with Mongolia for three days due to “technical reasons” in protest against the Dalai Lama’s visit to Mongolia. He also added that Russia has reminded Mongolia of its fuel dependency by increasing taxes on exports time and time again.
This scenario shows us many things to fix, such as removing the dependencies mentioned above. For instance, when building the Sainshand Industrial Park, we have to attempt to acquire a warranty letter for every factory so that there will be guaranteed buyers of its products. Furthermore, it will also be better if we manage to have the buyers make investments and establish an agreement that grants favorable conditions for the investors, such as allowing them to purchase a certain proportion of total products at market price.
By reminding us that the government must not acquire huge foreign loans, spend them to build some plant and then have the taxpayers carry the debt burden, regardless of the profitability of the plant, this scenario asks Mongolians to reflect on the objectives we have set. In this fashion, our government is paying back its foreign debts with the money collected from taxpayers.
What if our total exports become fully dependent on the market to the south and China can stop buying from us anytime they want? Why should Mongolia keep falling into huge foreign debt and lock our capital inside the country by not being able to sell our products despite having built the necessary infrastructure? In order to avoid a deadlock economy like Nigeria, we need to hand over every industrial project to the private sector, develop health, safety and environmental standards and fully implement them. Also, it might be a good idea to offer Chinese companies half of total output of products under the condition that they are required to make all necessary investments first.
Likewise, if we manage to obtain investment from China to build the Tavan Tolgoi power plant, roads and railway with the condition of paying them back with our products, there will be less risk and our government will not have to suffer from increased debt pressure.
What is the broader outlook?
The unpromising scenario mentioned above prompts us to do our best in researching and finding our place in other fields of international division of labor without focusing solely on mining.
We could remove the 85 millimeter difference in railway gauges that belong to our neighbors, two of the world’s biggest countries, by building ports deep in the heart of our territory where trains can be loaded and unloaded in a very short amount of time.
This way, Mongolia can be the connecting point of two different railway gauges and the route could be used for transporting coal and other natural resources from Russia to China, and subsequently to India, with lower cost and faster delivery. If we successfully provide this service, Asia-Europe trade turnover will be accelerated with reduced costs.
A short, cheap route for air transport from Southeast Asia to North America crosses our territory, which means we could also establish an air transport hub here in Mongolia.
Furthermore, Mongolia could bring in necessary people from abroad and work together with them to provide health services and higher education offered in the United States and European countries, where Chinese and Russian citizens travel to get treated and to study.
We need to think about other opportunities rather than focusing only on extracting our natural resources. The scenarios discussed in the strategic dialogue on the future of Mongolia will aid us in formulating our development strategy and setting our vision for the future. The final dialogue on the scenarios will take place during the World Economic Forum Annual Meeting in Davos, Switzerland, by the beginning of 2014. In the meantime, let us hope that Mongolia will have time to achieve good results in bringing back the foreign investment that has been flowing out of the country.
Translated by B.AMAR
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