Engaging with Mongolia’s Roller Coaster Economy (1)
Hokkaido International Exchange and Cooperation Center
Moves to develop business exchange between Mongolia and Hokkaido are gaining momentum. Business people are coming and going between the two regions, where a string of related events have also been held, leading already to the conclusion of several contracts. This article is going to be published in two consecutive issues; No. 0266 and 0267 (31/May/2017).
FY2016 was the year that economic exchange between Mongolia and Hokkaido really began to gather momentum. Thanks to a project promoting the development of economic and industrial partnership with Mongolia in Hokkaido which the Institute for International Studies and Training (IIST) organized in conjunction with the Hokkaido Bureau of Economy, Trade and Industry, government and private-sector exchange between the two regions reached an unprecedented scale and frequency. As a participant in that project over the year, here I would like to examine the Mongolian economy’s current status and prospects while also running through the project content.
1. Overview of Mongolia
Most Japanese will have heard of Mongolia, and probably associate it with nomads, grasslands, sumo and ger (felt tents). A stroll through the center of the capital Ulan Bator, however, dispels that image entirely. A developed city with a population of over a million, Ulan Bator is lined with high-rise buildings containing brand stores and fast food outlets, while the hordes of cars on its streets create constant traffic jams.
Mongolia was once a socialist country strongly influenced by the Soviet Union, but transitioned to capitalism in 1990. This initially cast the whole of Mongolian society into turmoil, and the disturbing tales that emerged included “manhole children”—thousands of children forced to live down manholes as a result of poverty. More recently, however, per capita GDP has reached almost US$4,000 (2015, World Bank), with Mongolia growing to the level of what is generally called a middle-income country. Japan once poured ODA and other assistance into Mongolia, but now the hope is that the relationship will develop particularly on the business front into one that benefits both countries.
What are the characteristics of the Mongolian economy? I would like to explore three key features.
(1) Reliance on mineral resources
The Mongolian economy is driven by underground resources. Coal, copper, and an abundance of other underground resources are extracted and exported abroad to create wealth which is then distributed among the people through consumption and tax, etc. According to materials put out by the Japan International Cooperation Agency (JICA), mining accounted for 17 percent of nominal GDP by industry in 2015 (preliminary figures). By sector, mining topped the list alongside wholesale and retail.
Currently, slumping resource exports are impacting directly on the national economy. Another key element alongside exports is the extent of trading partners’ resource needs, while profits and losses are also affected by international resource prices and currency exchange rates between Mongolia and other countries. Buffeted by factors beyond its control, Mongolia’s GDP growth rate was minus 1.3 percent year-on-year in 2009, 17.3 percent in 2011, and 2.5 percent in 2015, going up and down like a roller coaster. The Mongolian government is working to diversify industry to lock in more stable economic growth.
(2) Landlocked between China and Russia
The geographical conditions of having China to the south and Russia to the north pose a major headache for Mongolian trade. Even if Mongolia does trade with countries other than its two neighbors, any goods carried overland inevitably have to pass through either China or Russia. In both cases, in addition to the time and cost burden, it is also difficult to control export quality.
As a result, Mongolia tends to trade primarily with China and Russia. According to Japan External Trade Organization (JETRO) materials, China dominated Mongolia’s export market in 2015, absorbing 87.9 percent of the country’s exports. The mineral resource exports noted above also go mostly to China. Simply put, if China did not buy Mongolia’s coal, the Mongolian economy would stall.
The same two neighbors are also the source of more than 60 percent of Mongolia’s imports, with 33.8 percent coming from China and 29.6 percent from Russia. Clearly, Mongolia has a heavy trade dependence on its neighbors, and particularly China.
(3) Extreme over-concentration in the capital
While Mongolia is roughly four times as large as Japan in terms of territory, its population has yet to reach much more than 3.1 million. Of that, around 1.3 million, or close to half, live in Ulan Bator. Next down the list, a handful of other cities have populations of over 100,000, and most core regional cities are not even that big.
A constant stream of people are leaving behind the nomadic lifestyle and shifting from the countryside into the capital in search of work, setting up ger or building wooden huts on land they have acquired on the city’s outskirts. These ger districts continue to expand on the urban fringe, with gas, water and sewer infrastructure development unable to keep pace. When winter comes around, the tens of thousands of households living in ger and huts all light up their coal stoves, causing such severe air pollution in the city that surroundings disappear into a haze only a few meters away.
Even the capital can only offer a limited number of jobs. The gap between rich and poor is extreme, with some Ulan Bator citizens living in ger while others live in huge apartments and drive luxury cars. (To be continued in the next issue; No.0267 (31/May/2017))
(original article : Japanese)