※この記事は、一般財団法人海外投融資情報財団（JOI）機関誌「海外投融資」2018年9月号に掲載されたものです（www.joi.or.jp）。

新 興 国 マ ク ロ 経 済 WAT C H

A window of opportunityfor Mongolia―― 資源国モンゴルの成長機会 ――

Alain Borghijs

Senior Economist, Country Credit Department
Japan Bank for International Cooperation
石炭、銅、金などの豊富な資源埋蔵量を背景に、かつては低所得農業国であったモンゴルが直近十数年で急速な発展を遂げている。2012 年以降は中国経済の減速により財政赤字、対外債務の急増および通貨下落を招いたが、IMFなどからの支援もあり経済は持ち直しつつある。今後のさらなる成長のためには、鉱業の発展により進んだ富の偏在の解消と産業の多角化が求められる。

Chinggis Khaan
Walking on Sukhbaatar Square in Central Ulaanbaatar,
it is impossible to miss the towering statue of Chinggis
Khaan, the illustrious conqueror considered thefounder of Mongolia, sitting in front of the Government
Palace. Throughout my recent visit to Mongolia, I
was reminded of his historical importance manytimes, from the international airport in Ulaanbaatar
named after him to the many statues that adorn thecapital. It is a reminder of how much the Mongolian
people pride themselves on their heritage andindependence.

country. Wedged between Russia in the north andChina in the south, Mongolia is the second largest
landlocked country in the world with its populationof 3 million people spread evenly between thecapital Ulaanbaatar and the rest of country.
For long the country’s main source of income wasdrawn from agriculture and animal husbandry. Less
than 20 years ago, more than half of Mongolia’s
exports were agricultural products. Even today, one
third of the population works in the agriculture
sector, and Mongolia counts more than 60 million
units of livestock grazing the vast steppes, including
25 million goats, 25 million sheep, horses, cattle andcamels. Mongolia’s goats are the second largest
provider of cashmere in the world, and some of themost delicious (and exotic) lamb dishes can be tasted
in Mongolia.

Mining Opportunity

Chinggis Khaan watching over Sukhbaatar Square in Ulaanbaatar

The Mongolian empire at its peak was the largest
contiguous empire in history – stretching fromCentral Europe in the west to the Sea of Japan inthe east. Present-day Mongolia remains a vast36

2018.9While much of the country’s past has been determinedby what happened on the vast steppes, it is what lies
below the surface that has been rapidly transforming
the country since the beginning of the twentiethcentury. Mongolia is endowed with a wealth ofmineral and other natural resources that could make it
one of the richest nations in Asia. Its deposits include
among others coal, copper, gold and oil. Dozens ofmining sites have mushroomed across the country,
which altogether now contribute 20 percent of thecountry’s gross domestic product (GDP), 85 percent
of its exports, and over 30 percent of the national
budget revenue. Its mining resources – with anestimated worth between $1 trillion and $3 trillion –■ 新 興 国 マ ク ロ 経 済 WAT C H

could drive growth for decades to come and propel
Mongolia to become a high-income country.
Coal reserves in Mongolia are estimated at 160 billion
metric tons. They include both thermal coal deposits
used for power and heat generation, and coking coalused in steel production. One of the world’s largest
coal reserves is Tavan Tolgoi in the South Gobi desertin Mongolia, a mere 220 kilometers away from theborder with China, estimated at more than 7 billion
tons. Investment required to tap the full potential ofthe mine would amount to at least $5 billion – anenormous amount for a country with a GDP of $11
billion in 2017. The investment would cover a power
plant and a railroad to the border with China.
In the meanwhile, mining at another mega-projectin Mongolia – the Oyu Tolgoi copper and gold
mine – has also just barely scratched the surface.
The first phase of the project started in 2013 andinvolves an open-pit mine. Investment in the second
underground phase of the project is underway andis projected to cost about $5 billion. Production isexpected to reach full capacity in 2021, at which
point the mine could contribute up to 30 percent ofMongolia’s GDP during its anticipated lifespan ofmore than 50 years.
While Mongolia benefits from the abundant supplyof mining resources, its proximity to China, whichis the largest market for mining products is also anenormous bonus. This tremendously lowers
transportation time and cost for these resources.
In addition, the timing of mining development in
Mongolia coincides with several beneficial
developments in China. Firstly, Mongolia is adjacentto the north of China, an area that has been lagging
behind which China intends to focus on more
intensely going forward. Secondly, China has recently
decided to close down some of its own coal mines forenvironmental reasons, an opportunity for Mongolia
to replace this supply with some of its own higher
quality product.
It is crucial for Mongolia to seize this window ofopportunity. Some experts I talked to in the country
noted that China could potentially reverse its

decision to close domestic mines to boost its own
economy. More importantly, China is also in theprocess of reorienting its power supply from asystem powered by coal to one that focuses more
on renewable energy such as hydro-, wind andsolar power. While this transition is likely to take a
few decades, it illustrates that a time may comewhen coal no longer has the same value as it has
today.
A similar golden opportunity presents itself for thecopper mines in Mongolia. Copper is not only a key
component for building construction, but it is also a
crucial component for electric equipment, including
in electric and hybrid vehicles. A hybrid vehicle
requires twice as much copper, and a fully electricvehicle as much as three times the amount of copper
needed in a traditional car. China is determined tobecome a world leader in the development andmanufacturing of electric vehicles. The country aims
to sell five million electric vehicles by 2020. This
presents a tremendous opportunity for Mongolia.

A Taste Of The Booming Economy
The Mongolian population knows how muchmining is capable of boosting the economy. It
experienced its economic power about fifteen years
ago, when Mongolia started benefiting from theeconomic expansion in China. Driven by themining industry, exports rapidly expanded from afew hundred million dollars per year to several
billion dollars. The share of mining in total exports
jumped from one third to about 90 percent.
Economic growth accelerated to an average of 8
percent from 2002 to 2011, peaking at over 17
percent in 2011. GDP per capita increased morethan sixfold over the same period from less than$600 to almost $3,800. The economic expansion
also benefited the poor, with the share of people
below the national poverty line dropping from 39
percent in 2010 to 22 percent in 2014.
Unfortunately Mongolia’s economic fortune reversed
in 2012. When global growth slowed and China
started rebalancing its economy, mineral prices
dropped and investment in the mining sector in
Mongolia slowed to a trickle. Economic growth
2018.937

rapidly decelerated to 1.2 percent in 2016. The
Mongolian togrog depreciated by more than 50
percent between 2012 and 2016. The economic
slowdown also affected the government’s fiscal
balance. Finding it difficult to curtail spending in linewith reduced revenues, the expansionary fiscal policy
combined with pre-election spending culminated in abudget deficit of 17 percent of GDP in 2016. Public
debt nearly doubled from 46 percent of GDP in 2013
to 88 percent in 2016.
To address the external and fiscal situation, thegovernment reached an agreement in early 2017with the International Monetary Fund (IMF)）and acoalition of multilateral and bilateral partners on anassistance package worth $5.5 billion over threeyears. In return the government committed toreduce the fiscal deficit and undertake structuralreforms.
The agreement restored market confidence and thegovernment was able to refinance its maturingexternal debt. Aided by increasing mineral prices,
investment returned to the mining sector and growth
picked up to 5.1 percent in 2017. Increased government
revenue and reduced expenditure resulted in a
substantially narrower fiscal deficit of 1.9 percent ofGDP, while public debt declined to 85 percent of
GDP in 2017. The recovery is expected to be sustained,with growth forecast between 5 to 6 percent for thisand the following year.

A Second ChanceWith the economy stabilized in the short term andthe next major mining boost not coming online
until 2021 when the second phase of the Oyu Tolgoi
project will be ready, the country now has a unique
opportunity to ready itself and take full advantageof the next mining bonanza. The IMF program is
helping the government in preparing the country to
prevent the next mining cycle from turning intoanother dizzying roller coaster ride. Below aresome of the key issues the country is addressing.
While fixing these issues is certainly challenging,
it is not impossible, as some other resource-richcountries have demonstrated.

38

2018.9Smoothing Boom-Bust Cycles
While the eagerness to spend all available revenues isunderstandable, particularly in developing countries
that aim to reach a higher-income status, experiencehas demonstrated that it is not the best approach tosustainable development. Setting aside excess
resources in sovereign wealth funds when mineralprices are high for when the economy slows down orfor the benefit of future generations is a great help insmoothing boom-bust cycles. It prevents thegovernment from adding fuel to the fire when theeconomy is already running high, and helps to cushion
the blow when the economy slows down.
The Mongolian government has already establisheda set of funds. With the help of the development
partners, it is now strengthening the necessary
institutions and rules to ensure effective management
and use of these resources for the benefit of thepeople and the economy.

Managing The Changing Lifestyle
The transformation of the economy is also resulting
in a rapidly changing lifestyle. Many Mongolians aregiving up the traditionally nomadic lifestyle, flocking
to the capital to seek better economic fortunes. Halfof Mongolia’s three million inhabitants now live inthe capital Ulaanbaatar. This rapid influx of people isputting stress on the infrastructure of the city. Thecity continues to expand into the surrounding
mountains, with an estimated 60 percent of its residents
now living in so-called ger areas, named after thetraditional ger or tent that is typical for the nomadic
lifestyle. People living in these areas have limitedaccess to electricity, running water, sanitation andheating.
The economic expansion has also resulted inincreased car ownership in the city, causing regulartraffic jams in Ulaanbaatar during rush hour. Sitting
in traffic, I was surprised by the immense popularityof the Toyota Prius. I was told that Mongolians
love it because it is fuel-efficient and it also starts
easily in Mongolia’s arctic winters with its large
battery. This is no luxury, as Ulaanbaatar is thecoldest capital in the world, with an average annual

■ 新 興 国 マ ク ロ 経 済 WAT C H

temperature of minus 1 degrees Celsius, dropping
to minus 40 in wintertime.
To improve the housing situation and make housing
more affordable, the government offered asubsidized housing program, where Mongolian
people could obtain mortgages at a highly
subsidized rate of 5 to 8 percent, much lower than
the regular market rate of close to 20 percent. Dueto budget constraints, the program had to be scaled
down. With the help of the Asian Development
Bank, the government is now embarking on aprogram to upgrade facilities in the ger districts
and to build decent and affordable housing.

To create sufficient jobs and ensure that growth isinclusive, it is also important to reduce reliance on
the mining sector and broaden the scope of theeconomy. This is a daunting task for any resourcerich economy, but all the more so for Mongolia asa geographically isolated and landlocked country.
The government realizes that while mining canbring prosperity, it cannot be the only engine ofgrowth and employment. With assistance fromdeveloping partners, the country is undertaking
efforts to diversify its economic base. Sectors that
hold potential include agricultural products –Mongolia has some of the finest cashmere in theworld – and tourism.

Protecting The Environment
Mining can be taxing on the environment, and withthe major mines located in the Gobi desert, mining
has had to compete for scarce water resources andland use with the traditional livestock herding
sector.

The rapidly expanding city of Ulaanbaatar

Spreading The Wealth
Another challenge will be to spread the benefits
from the mining sector to the entire population.
Mining is not labor intensive, with only 4 percent of
the labor force employed in the sector. To distributethe wealth of the mining sector, the government hasdeveloped various social welfare programs covering
health care, child benefits, social pensions and afood stamp program, among others. While thesystem is considered generous by international
standards, the challenge is to maintain the program’saffordability and ensure that it targets those whoneed it most. As part of the IMF-monitored program,the government is improving the targeting of thevarious programs to achieve the right balance
between coverage and affordability.

The government’s task is to ensure that the mining
sector is well-regulated and balances its needs withother sectors of the economy, which may not havethe same bargaining power. To achieve this, thegovernment aims to take measures to better protect
water resources, rehabilitate areas that have degraded
due to mining, and improve public participation inenvironmental protection.
As I came across yet another grand statue ofChinggis Khaan on my way out of the country, I
imagined him smiling down on the Mongolian
people in anticipation of them ushering in a newera of sustained prosperity in Mongolia.
※著者略歴：Alain Borghijs is senior economist in theCountry Credit Department of the Japan Bank forInternational Cooperation. His assignment includes
conducting sovereign risk assessments in Asian and
Latin-American countries. Alain is seconded from theAsian Development Bank, where he worked for 12years, most recently in its Strategy and Policy
Department. Alain holds a PhD in Applied Economics
from the University of Antwerp, Belgium.
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