2016年-PIIE彼得森国际经济研究所_Avoiding_the_Resource_Curse_in_Mongolia_8页_170kb

Avoiding the "Resource Curse" in Mongolia

Overview

Mongolia, a landlocked and sparsely populated country in north central Asia, is on the verge of an economic boom driven by foreign investment in its natural resources, including copper, gold, and coal. While the mining sector presents significant opportunities for growth, it also brings substantial challenges, such as environmental degradation, economic inequality, inflation, fiscal instability, corruption, and a lack of transparency. The re-election of President Tsakhiagiin Elbegdorj in 2013 offers a chance to reassess the country's progress in managing the mining boom and to identify effective policies to avoid the "resource curse."

The Resource Curse Setting

The "resource curse" refers to the phenomenon where countries rich in natural resources experience slower growth and worse governance outcomes than those without such resources. This is often due to the interaction between foreign investors and local elites, which can lead to corruption, authoritarianism, and environmental harm. However, historical examples show that resource-rich countries like Chile, Botswana, and Norway have managed to benefit economically and socially from their resources without falling into the curse.

The key factor in avoiding the resource curse is the policy framework and institutional environment in which extractive industries operate. Mongolia has shown promise in this regard, but the challenge lies in effectively managing its mineral deposits to ensure broad development while mitigating negative consequences.

The Mining Boom Comes to Mongolia

Mongolia's mining sector has experienced rapid growth since the early 2000s, with foreign direct investment (FDI) reaching $437 million in 2006 and surpassing $1 billion in 2010. Two major projects are currently at the forefront of this boom:

• Oyu Tolgoi: A copper/gold deposit in the south Gobi desert, operated by Rio Tinto (with 51% ownership by Rio Tinto and 34% by the Mongolian government). Mining operations began in 2013, and the mine is expected to reach full production by 2017-18, contributing up to 34% of the country's GDP.
• Tavan Tolgoi: A coal deposit in the south Gobi desert, with interest from major international companies such as Peabody Coal, Anglo American, and Shenhua Coal. The mine could produce up to 40 million tons of coal annually, significantly boosting Mongolia's economy.

These projects have created both opportunities and problems, including the displacement of traditional herders, environmental concerns, and infrastructure challenges.

Side Effects of the Mining Boom

The mining boom has raised concerns in several areas:

• Traditional Agriculture: Approximately 40% of the population is still engaged in herding, but mining activities have disrupted access to water and pasturelands.
• Infrastructure and Water Supply: Mongolia has a poor infrastructure rating (118 out of 142), with most roads unpaved and rail lines requiring massive investment. The government has established a state-owned development bank to finance infrastructure projects.
• Environmental Impact: There are reports of increased respiratory illnesses in nearby communities, limited capacity for environmental monitoring, and concerns about long-term ecological damage.
• Economic Inequality: Despite relatively moderate historical inequality, the mining boom could exacerbate disparities. The Human Development Fund was established in 2009 to distribute a portion of resource revenues to the population.
• Inflation and Fiscal Stability: The government has implemented the Fiscal Stability Law to control public debt and manage mineral revenues, including the creation of a stabilization fund to cushion against commodity price volatility.
• Corruption and Transparency: Mongolia has made strides in improving governance, scoring well on the Corruption Perceptions Index and joining the Extractive Industry Transparency Initiative (EITI) in 2007. However, concerns about transparency and accountability persist.

Looking Forward

Mongolia faces the challenge of using mining revenues to offset the negative impacts of the boom, such as infrastructure development, education expansion, and environmental protection. The government must also ensure that future mining agreements are stable and transparent to maintain investor confidence. The recent attempt by the government to renegotiate the Oyu Tolgoi agreement with Rio Tinto highlights the risks of arbitrary changes to contracts, which can lead to reputational damage and reduced investment.

Resource Nationalism and Contract Stability

Mongolia's legislative and public discussions about revising mining agreements reflect growing concerns about resource nationalism and the need for greater state control. However, such changes can create reputational risk for the country, as investors expect contractual stability and predictability. Arbitrary revisions can lead to legal disputes, such as those under the Bilateral Investment Treaty (BIT) with the UK, and deter future investments.

The concept of the "obsolescing bargain" describes how host governments may change the terms of mining agreements after projects begin production, which can undermine investor confidence. Contemporary investment models emphasize the importance of considering irreversibility and the value of waiting for more information, leading to higher hurdle rates for investment decisions.

Conclusion

Mongolia has made significant progress in managing its mining boom, but the path forward requires careful attention to policy frameworks, institutional capacity, and contract stability. President Elbegdorj and his new administration should continue to uphold fiscal discipline, promote transparency, and ensure that mining revenues are used effectively to support social and economic development. By learning from global best practices and maintaining stable agreements, Mongolia can avoid the pitfalls of the resource curse and achieve sustainable growth.