Steppe Change – Mining and Inequality in Mongolia

Here is the first article to be published as part of my freelance work for a risk management company (Victvs) that emphasised cultural intelligence (they required bloggers with international experience in parts of the world less well travelled).

In the 1980s, Reaganomics had at its heart a desire to slash personal income taxes and was mirrored across the Atlantic in the UK, with the mantra “the man in Whitehall doesn’t always know best [in how to spend taxpayers’ money].” In the USA in particular, these policies unleashed a flood of spending power that went overwhelmingly into imports creating an unprecedented balance of payments trade deficit. Nevertheless, this ethos was enshrined in the ‘Washington Consensus’ and post-communist countries were advised to follow a neo-liberal agenda.
Mongolia, emerging from the shadow of one-party dictatorship in 1990, quickly allied itself with the US as a counterweight to China after the USSR pulled its troops out of the country. The second-longest lasting communist country after the Soviet Union divested itself of a command economy along with state socialism and engaged in ‘shock therapy’ leading to a wealthy elite, a small, pressured middle-class and an impoverished majority. Combined with unusually brutal winters (zuuds) reaching -50° Celsius, killing livestock and driving devastated countryside herders into the capital city, Ulaanbaatar, the phenomenon of street children developed, living in sewers and off scraps. So common did it become and such was the theft for scrap metal also that Mongolians still out of habit leap across or walk around manhole covers, ingrained as it is that the lids will be missing (many remain absent).
As the economy improved, largely thanks to a mining boom, the occurrence of street children receded. Until recently. Indigence of those with more precarious livelihoods has risen steadily, ironically due to government largesse.
Mongolia is a major source of gold, uranium, coal and above all copper, the latter crowned by the strip mining of an entire mountain in the north near the second city of Erdenet and an even bigger complex at Oyu Tolgoi in the south. After a public outcry at the signing of contracts in the early 2000s whereby a mere 2% of revenues would revert to Mongolian coffers, the provisions relating to profits were forcibly renegotiated by the government, damaging investor confidence in the stability of jurisprudence. If anything, it is because Mongolia has made such a strong democratic transition and has not fallen victim to overt clientelistic practices as seen in other central Asian republics that caused this political U-turn, hurting its reputation as a place to do business - Mongolia needs the technology that western companies bring.
That said, it did bring a windfall to Mongolia which in 2008 became the fastest growing economy in the world at a 25% increase in year-on-year GNP (with 15% growth recorded in 2010 and 2012). The government decided to distribute this wealth in the form of handouts – 20,000 tugriks (£6.50) per month to every Mongolian citizen (a further 70,000 tugriks (£22.80) per month was allocated to all university students). As Mongolia imports (almost entirely from China) roughly 90% of all products sold on its shelves and in its marketplaces, a spending splurge fed the balance of payments trade deficit. Further, this intermingled with a booming economy and monetary slackness leading to rampant inflation. In 2006, a loaf of bread cost 300 tugriks (10 pence); by 2014, this price had increased sevenfold. As wages are not increasing at anything like the same rate for most Mongolians, despite the payouts, the poorest are bearing the brunt of such price hikes. At the same time, the tugrik, the main unit of currency, is sliding in value against the dollar, the euro and sterling, reducing purchasing power parity (it should be noted, contrary to the experience of other resource-rich developing countries).
Such tension has manifested itself in violence already in Mongolia. In 2008, with opposition politicians claiming corruption in the national parliamentary election (regarded as free and fair by international observers) won by the incumbent party, riots erupted, leading to the gutting of the ruling party’s headquarters, the deaths of five people and the army deployed on the capital’s streets. Emergency law and curfews were lifted within the week, testament to Mongolia’s steadfast commitment to democracy, but commentary inside the country and out noted the circumstances for the disturbances – borne out of anger at the rapidly rising cost of basic foodstuffs and provisions rather than political malfeasance (a trend observed in other developing countries too) – stayed unchanged in their wake. It was, after all, economic imbalance in Tunisia that sparked the Arab Spring.
Some Mongolians now regret the distribution of monthly payments and think it would have been better spent on infrastructure projects, especially to relieve the choking traffic that clogs Ulaanbaatar’s streets (the example of Beijing in alternating the use of cars with number plates ending in odd and even numbers on different days has been adopted as a temporary palliative).
Though Mongolia has largely avoided the resources curse (albeit mineral extraction forms a worryingly large portion of its economic expansion), it is being engulfed in the middle income trap, a glass ceiling that prevents take-off into a truly developed economy. And as governments of differing hues struggle to reconcile this challenge with maintaining economic growth, financial inequality is skyrocketing and posing a threat to social cohesion.