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Sep 16, 2013

2013 World Economic Forum to be Held in Mongolia - Foreign Investment Likely Tops Issues

The 2013 World Economic Forum will be held in Ulan Bator, Mongolia on September 14th, 2013.  The annual forum’s focus this year is going to be on the “future of Mongolia’s economy.”  When representatives from the Mongolian government and the international group of invitees get together, the issue of foreign investment is likely going to be the chief concern on everybody’s mind.

Mongolia’s economy has been driven chiefly by foreign investment and mineral exports since it began its transition to a market economy in the early 1990’s.  Mongolia is rich in natural resources.   IT has one of the world’s largest coal deposits.  Besides coal, copper, tin and other ores are its chief exports.  Even though the country still struggles with high rates of corruption, and is still in the process of establishing a functional legal system it has managed to grow at very respectable rates during the last few years.

Mongolia was the world’s fastest-growing economy in 2011, growing at a rate of 17.5%.  In 2012, the per-capita income was USD 3,000, up from USD 450 just 12 years earlier.  It was famously dubbed by Renaissance Capital as the world’s “Wolf Economy,” and was expected to surge to new heights due to its large amount of natural resources and an apparent ability to balance Russian and Chinese attempts at economic hegemony.  It has successfully attracted the attention of other countries beyond its periphery, such as South Korea, Japan, Canada and the United States that can conveniently act as counters to the two Asian giants that sit menacingly to its north and south.

Mongolia’s economic data has not been perfect, however.  In the first half of 2013, foreign investment has dropped off by 40%.  A recent law passed in 2012, called the Strategic Entities Foreign Investment Law, may be the prime culprit.  The law requires state-owned foreign enterprises to obtain Mongolian government approval before being allowed to have an ownership interest in a Mongolian joint venture company of more than 33%.  The law primarily targets Chinese consortiums, which Mongolia fears have gained far too much influence in the country.

Wanting to cut off the Chinese, politically, might seem like a good idea for Mongolia.  However, economically, I think that they’ll soon learn that it’s easier-said-than-done to stave off the Chinese embrace.  Mongolia has found itself in a similar boat to other countries that must tolerate, however begrudgingly, Chinese dominance of their mineral export industries.  Come September 14th, the World Economic Forum will meet, debate these issues, and perhaps even come up with a few solutions that may end up helping Mongolia’s economic development along.  All of their idealistic discussions about Mongolia's future, however, must still take into consideration the cold reality that China and Russia are the hungriest for Mongolia's minerals - and they're right next door.

Mongolia is still a relatively new democracy and, like so many other mineral-rich countries, is today presented with an historic opportunity to effectively manage its natural resource export industry in such a way as to legitimately develop itself into a prosperous independent democracy.  Unfortunately, the lessons of history speak against Mongolia retaining either its sovereignty or economic independence from the self-interested designs of its more-powerful neighbors.  Time will tell whether or not the wolf can finally manage to outsmart both the dragon and the bear.

What do you think? Will the World Economic Forum’s visit to Mongolia be useful for the country’s development?