Mining fuels Mongolia's 'wolf economy'

CNN News, By Jaime FlorCruz, May 20, 2011

Tapping Mongolia's natural resources

STORY HIGHLIGHTS

• Three times size of France, with only 2.5 million people, Mongolia has vast natural resources
• Mining mania is sweeping the country
• GDP last year rose more than seven percent, buoyed largely by mining boom
• Western economist says mining wealth needs to go toward education, infrastructure

Editor's note: "Jaime's China" is a weekly column about Chinese society and politics. Jaime FlorCruz has lived and worked in China since 1971. He studied Chinese history at Peking University (1977-81) and served as TIME Magazine's Beijing correspondent and bureau chief (1982-2000).

Beijing, China (CNN) -- Mongolia has always conjured a mix of exotic appeal and isolation. Sandwiched between Russia and China, the remote nation has for decades endured severe economic stagnation and political repression.

That seems to be changing. Some 20 years after dismantling the country's Stalinist system and bringing about greater political freedom, Mongolia is now "the wolf on the move," as they say in the capital city of Ulan Bator. Like the much-vaunted Asian Tigers of the 1980s -- Singapore, Taiwan and South Korea -- the Republic of Mongolia is now branding itself as the "wolf economy." Its strategy: leverage Mongolia's vast natural resources to boost socioeconomic growth.

With only 2.5 million people, Mongolia sits in an area three times the size of France. Its sprawling, mostly desolate territory boasts of massive deposits of copper, coal, iron, gold, uranium, zinc and other natural resources. Experts say it probably has oil and rare earth elements, too.

"Under any scenario, even if and when commodity prices fall substantially from their current levels, Mongolia's per capita GDP is heading for advance economy levels in the coming 20 years," says a Western economist who has lived and worked in Mongolia for two decades. He has asked not to be named because of concerns it could jeopardize his work relationships in China and Mongolia.

Mining mania is sweeping the country. Mining companies from various countries are lining up to do business and sign lucrative deals.

Mongolia hopes to raise US$25 billion in investment over the next five years, government officials tell CNN.

GDP last year rose more than seven percent, buoyed largely by the mining boom. Government officials forecast sustained faster growth over the next five years -- unless the "the wolf on the move" falters and trips.

RELATED TOPICS

• Mongolia
• China

Economists warn of what some call "resource curse." As a young democracy, observers say, Mongolia remains susceptible to corruption, mismanagement and myopic policies. "There's a sort of mining mania but also a mining phobia, even hatred," President Tsakhia Elbegdorj tells CNN's Stan Grant. "What will happen?"

The government now needs to ensure that the mining wealth trickles down to the needy. "Investment in education, health care, infrastructure and other long-term determinants of productivity have not been adequate," the Western economist said. "All those sectors are difficult for Mongolia, with its large land mass, sparse population, nomadic traditions and harsh climate."

Daily life remains harsh for the poor who live outside the capital. Most live off government handouts of less than $20 a month. "Life is very difficult. We can't do anything," said animal herder Chaoga, who lives with her husband and three children in a fur tent, known locally as ger. "If we go to the city, we can't afford to buy anything."

What the country needs, Mongolia-watchers say, is a long-term vision. "To date there has been more of a tendency to squabble over division of today's revenues than to focus on medium- and long-term goals," the Western economist said. "One example which is critically important is the national crisis with alcoholism. Simply transferring more money to people without ridding the society of the scourge of alcoholism will have horrific results."

Challenges also loom outside Mongolia's borders. "I usually describe my country as a little pony between two big elephants," said Elbegdorj, referring to Russia and China.

As a landlocked nation bordering China, Mongolia grapples with its larger neighbor's growing influence in the region. It has deftly fended off Beijing's political pressure on sensitive issues. For example, it has periodically invited the Dalai Lama to visit -- Tibetan Buddhism is a traditional religion there -- at the risk of provoking the ire of Beijing.

Still, Mongolia remains hard-pressed to avoid over-dependence on China, its major trade partner and main market of its mineral resources. "Maintaining good relations with China will always be important," says the Western economist. "But there are many counterweights available, and the Mongolians are skilled at utilizing them." Mongolia is actively building its economic ties with Russia, Japan, the US, Canada, Turkey and other countries.

Mongolia's top leaders say they are determined to learn from the failings of other resource-rich countries and make their resources a blessing, not a curse.

The government is working on laws to tighten mining regulations, avert over-exploitation and plug corruption.

Leaders say they are aware the stakes are high -- and that corrupt tyrants do not last in power. "If we put the money in our own pockets, we will end up badly," Elbegdorj said. "We know that."