Mongolia

MONGOLIA

THE SHADOW
Under Chinese domination between 1691 and 1921, but then under the sway of Russia and the Soviet Union, Mongolia has only known real independence since 1990 when it broke free of communism and Moscow. This vast territory, four times the size of Germany but with a population of just 2.8 million – the world’s least densely populated country – has since had to manage a delicate balancing act, keeping good relations with its powerful neighbours without allowing its independence to again be compromised. The government has also had to grapple with being one of Asia’s most remote and least developed nations: average per capita income of around €790 (admittedly four times what it was 10 years ago) conceals considerable poverty outside Ulan Bator, the capital city.

THE SOLUTION
Mongolia pursues a “third neighbour” policy to alleviate the dominance of China and Russia. Japan is the main provider of aid and an active investor; the US has been developing a good relationship too, with George Bush’s visit to the country in 2005 the first ever by a US president. Ulan Bator gave support to the invasion of Iraq, sending some 200 combat troops to the country. It has also been active within international bodies it once shunned including ASEAN, and has benefited from membership of international financial institutions such as the European Bank of Reconstruction and Development.

THE REBRAND
Breaking free of the communism that constrained its economy had the support of many Mongolians back in 1990. With privatisation all but complete, the private sector dominates, although wealth inequalities are beginning to widen. The former communist, President Nambaryn Enkhbayar – dubbed Mongolia’s Tony Blair – welcomes FDI. Tourism is encouraged with Western visitors in particular attracted by the Buddhist temples and the beauty of the Gobi desert. Constraints include poor infrastructure, a lack of direct flights and extreme temperatures: from minus 300C in winter to 350C in summer. Mining remains the economy’s mainstay.

THE CHALLENGES
Sustaining economic growth and development without compromising Mongolian independence. GDP last year grew by just under 10%, fuelled by the mining industry (coal, gold, iron ore and copper) and record high global raw material prices. However the government is determined to prevent foreign companies taking too much control and in 2006 passed a law entitling it to assume control of 50% of any mining venture that exist as a result of government-funded prospecting. This and other measures have annoyed multinationals like BHP Billiton but also Chinese mining concerns that insist on a predictable investment environment. And good relations with China remain key – with land distances so vast, its ports are a lifeline for landlocked Mongolia’s exports.

THE FUTURE
National identity remains key for independent Mongolia, which remains wary of the fate of Inner Mongolia: this territory, within China, enjoyed economic growth of 22% in 2005 but like Tibet has seen its Buddhist identity almost totally subsumed. In 2006 Ulan Bator went out of its way to commemorate the 800th anniversary of Mongolia’s favourite son, Genghis Khan, who built the world’s largest ever empire; he has become a national hero. This strategy of redefining/strengthening national identity will continue, along with the commitment to boosting living standards and asserting Mongolia’s position within the world.

SHOULD I INVEST THERE?
The number of 4x4s on the streets of the capital suggests quite a few people are making money – particularly in mining and retail – while the World Bank’s latest Doing Business report puts Mongolia ahead of Turkey. Meanwhile financial institutions are keen to lend money to help get realistic projects off the ground. And if gold and other commodity prices continue to rise, Mongolia’s desire to keep economic distance from its two neighbours could mean significant opportunities for European and US companies. The business environment remains murky though with former Communist Party officials often behind major projects. Transparency International’s Corruption Perception Index places Mongolia 99 out of 179.