Soul mining in Mongolia

By bne IntelliNews May 28, 2013

Terrence Edwards in Ulaanbaatar -

Tamir and Byamba are two men under the age of 30 who live two sides of the Mongolian story. Tamir is a marketing professional working for an investment bank who was spending his Wednesday evening at the posh Sky Lounge on the 17th floor of Central Tower for a networking happy hour event. Byamba spent his afternoon the next day at a water pump, just two and a half kilometres from the prestigious Central Tower, to collect water for a household that lacks plumbing and electricity. Neither is sure if Mongolia is on the right track for its future.

Though he may live on meagre means compared with Tamir, Byamba exuded only dignity as he hoisted his water container off the ground, careful not to spill water on his pressed, white collared shirt. "We still have not benefited yet from mineral resources," says Byamba. "Our life is the same as it was 10 years ago." Byamba said that he's seen change in the form of new roads and high-rise buildings, but not in his life or that of his family's.

Tamir, too, couldn't say for sure his country had the right policies, but rather that was because of the instability the government has been creating recently. "At the moment the government is acting unpredictably," says Tamir, "and that's not really good for me or the independent companies working here."

With data showing 27.4% of Mongolians were still living in poverty in 2012, voters who think like Byamba are impatient to see some benefits from the rapid economic growth of recent years from the mining boom; the World Bank predicts 13% GDP growth for 2013. But those in Tamir's camp are worry that the government might be spoiling everything; 13% growth is something western nations would die for, but for Mongolia that's 3.2 percentage points lower than earlier projections due to falling commodity prices, slowing growth from China and the passage of legislation unfavourable to foreign investors.

The latter has reared its ugly head because of rising complaints that foreign investors are pilfering Mongolians' land and natural resources, encouraging some elected officials to try to impress voters by creating new hurdles for foreign companies and proposing new taxes that mining companies say would make it impossible to operate in the country profitably.

That has set the stage for the June 26 presidential election, with the winner facing enormous expectations, challenges and difficult decisions over his (or her) term of office.

The race is on

Though many investors have become increasingly disappointed with the turn Mongolia has been taking over the past year or so, the country is still on track for the launch of commercial exports from Oyu Tolgoi, which is destined to be one of the world's largest producing copper mines. Investors are also still looking forward to the public offering of the state-owned mining unit operating Mongolia's enormous Tavan Tolgoi coking coal project. And using the funds from a $1.5bn bond offering sold last year, the country is prepared to build extensive road and rail networks that are certain to spur even more growth from the resulting boom in trade with China. "Previous presidents never dealt with billion-dollar projects before," says Otgonshar Nagi, vice president of Ulaanbaatar's Resource Investment Capital. "Mongolia is heading towards a development phase where it is seeing significant projects heading its way."

The main contest will be between the current president and favourite, Tsakhia Elbegdorj, and the opposition Mongolian People's Party's (MPP) celebrity wrestler candidate, Badmaanyambuu Bat-Erdene.

Elbegdorj is regarded as one of the founders of Mongolian democracy, someone who rallied the public to demand a new, democratic government in 1990. He is also one of Mongolia's educated elite, having worked as a journalist and political activist in his youth before entering politics, and claims Harvard University as his alma mater. He is also likely to be the candidate that investors will be cheering on.

Elbegdorj's Democratic Party, which heads the current coalition government, in April managed to steer through parliament an amendment to the controversial foreign investment law of last year, which should allow over 100 pending investment deals to now progress. The Strategic Entities Foreign Investment Law (SEFIL) was rushed through parliament in May 2012 as protests grew about the increasing foreign (read: Chinese) control over the country's vast mineral wealth. But the wide-ranging nature of the law caused investment to fall through the floor as international investors felt the law was designed to deter all foreign participation in the economy. The amendment is a step in the right direction, though many investors argue the law is still too unclear to move forward with investment.

X factor

Bat-Erdene, on the other hand, is known for his highly critical position toward foreign investment. Bat-Erdene's celebrity factor is an important element to his campaign, as wrestling is an important facet of Mongolian culture and its champions are adored nationwide. So much does the nation prize its top athletes, the government bestows relatively large monthly cash allowances to winners of national and international athletic competitions.

Bat-Erdene's most notable political feat to date was his introduction of 2009's "Law To Limit and Prohibit Mineral Exploration and Mining Operations at the Headwaters of Rivers, Protected Zones of Water Reservoirs and Forested Areas" (cheekily dubbed by Mongolia's media as "The Long Name Law"). The law's name might be convoluted, but it quickly interfered with the operations of both domestic and foreign firms such as Toronto-listed Centerra Gold. The gold miner, which also operates its Kumtor mine in Kyrgyzstan, was looking towards shutting down its current Boroo mine and replacing it with another in Mongolia, the Gatsuurt gold project, but Bat-Erdene's law has prevented it from getting permission to do so. "If this former wrestler wins, it'll be reason enough for investors to re-evaluate all their options," argues Nagi.

One other contender has stepped into the fray. Natsag Udval - who currently serves as health minister as a member of the Mongolian People's Revolutionary Party (MPRP), a junior member of the governing coalition - is particularly notable as the country's first female candidate to run for president. She is also regarded as the proxy vote for incarcerated former president Nambar Enkhbayar. In March 2012, Mongolia witnessed Enkhbayar's dramatic arrest on corruption charges, during which he was seen slinking outside a family member's apartment with his head down and barefoot.

The arrest, coming as it did before the 2012 parliamentary election, was inevitably labelled political by his supporters, who have taken up countless protests since. The most visible demonstration was during a meeting of the Community of Democracies in April, when Enkhbayar's sympathisers appeared before the delegates from around the world, who were attending in support of emerging democracies, waving signs and shouting slogans that Mongolia's democracy was a lie.

Enkhbayar still remains the MPRP leader, and has been a vocal proponent of the nationalisation of Mongolia's mines. Given the former president's continued influence and the similarities in the rhetoric of the two parties - the MPRP is made up of politicians who broke away from the MPP - it's entirely conceivable that Enkhbayar's supporters will cast their votes for Udval instead of Bat-Erdene. "Both parties share the same electorate, and there could be a part of the MPP voters who will vote for Ms Udval," says Luvsanvandan Sumati, director of the Sant Maral Foundation, which released a survey recently looking at Mongolians' political preferences.

There's little polling data available in Mongolia, so that report from the Sant Maral Foundation - released in April before Elbegdorj's opponents were announced - offers some clues as to how the election will go. The most relevant question asked was who would make the best president for Mongolia: 19.2% named Elbegdorj, while just 2.2% said Bat-Erdene. Although Bat-Erdene and Elbegdorj were not directly compared in the question (respondents were asked to fill in a name rather than choose from a list), Sumati still thinks the data gives strong indications about the electorate's intentions. "[Elbegdorj] has a much better chance than the two others," reckons Sumati. "If he doesn't make a mistake, he should win without problem."

A win in the first round would require 50% of the electorate plus one vote. In the event no candidate achieves that, a runoff vote will be scheduled.

Many Mongolians cheered as the government made the business climate more difficult for foreign investors, and some argue Mongolia is better off without them. However, Tamir, sipping a draught beer in the swanky bar, disagrees that foreign business has brought little in the way of benefits to Mongolia. "Right now there are a lot more international companies like Anglo American, Rio Tinto and PwC," he says. "They're creating jobs and improving the standards of how business is run. In those means, of course it is benefiting the Mongolian economy."

Notice: Undefined index: social in /var/www/html/application/views/scripts/index/article.phtml on line 259

Related Articles

COMMMENT: Great challenges for Eurasia call for decisive solutions

Juha Kähkönen of the IMF - The Caucasus and Central Asia (CCA) region continues to navigate a wave of external shocks – the slump in global prices of oil and other key commodities, the slowdown ... more

IMF calls for Central Asia to tighten monetary policy

Naubet Bisenov in Almaty -   Caucasus and Central Asian (CCA) countries need to tighten their monetary policy to anchor inflation expectations, but excess tightening may weaken financial ... more

Business leader-turned-technocrat ready to mine Mongolia's “treasures”

Terrence Edwards in Ulaanbaatar -   One of Mongolia's premier dealmakers has taken on the supreme task of putting the country's mining and infrastructure projects back on track after years of ... more