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Mongolian Economy Essay

Mongolia has repeatedly insisted that it wants to open its doors for business to all countries with a genuine interest in participating in the country’s sustainable growth. How much of this policy is lip service though and how fair is the bidding process for prospective foreign investors? Mongolia’s long awaited initial public offering (IPO) for its lucrative coal mine in Tavan Tolgoi will have to wait at least until 2013 according to recent remarks by government officials. The repeated delay of one of Mongolia’s signature markets is sending mixed signals to foreign investors and has the potential to erode investor confidence in the resource-rich Central Asian country.

Tavan Tolgoi represents one of Mongolia’s most important chips to foreign investors as the company controls an area that is believed to contain the world’s largest undeveloped coking-coal deposit. The mine is situated in Mongolia’s southern Gobi desert which has made it an appealing location for Chinese investors. In July 2011, China’s Shenhua Group was awarded a 40% stake in the mine. The remaining investment contracts were awarded to a Russian-Mongolian consortium (36%) and American mining company Peabody (24%). It was believed that this trilateral group would jointly develop the mine, but government officials in Ulan Bator demurred on their decision after Japanese and South Korean companies began protesting that the bidding process had been unfair.

The uncertainty has created a five-chair shuffle in which East Asia’s largest power brokers are competing to have a lasting economic footprint in Mongolia. Mongolian President Tsakhia Elbegdorj has cautioned that the contract for developing the mine is not a done deal after rejecting a previous decision to hand the majority of the mining rights to the Chinese-backed consortium. Elbegdorj insisted that it is “essential that it (developing the mine) is in line with policies and in line with our national security. We have two big neighbors and we need investment. I think the door is still open in the negotiations with big national investors.”

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The underperforming price of coal in the financial markets is pushing the IPO deeper into 2013 as investors wait for an opportune time to establish a market presence. The Tavan Tolgoi IPO, which is expected to be offered at U.S. $3 billion, has also been pushed back due to legal constraints involved in listing Tavan in three international markets – London, Hong Kong and Ulan Bator. Reports of the delayed IPO come amid frustrations with Hong Kong’s increasingly complicated legal frameworks and restrictions. Mongolian officials are working to amend their legal securities framework to allow the IPO to list on all three markets.

Mongolia enters 2013 as one of the  world’s fastest growing economies, with forecasters predicting GDP growth of 18-20 percent. Driven by a boom in mining revenues, the impact of this growth is clearly visible in Mongolia’s capital city, Ulaanbaatar, where expensive office high rises, modern apartment buildings, and luxury stores are now common sights. While the capital’s elite and wealthy are enjoying the benefits of this boom, more than half of the city’s 1.2 million still live without access to even basic public services in the “ger” areas that are spread around the city.

“Ger” literally means home in Mongolian and refers to the round, felt tents that have been part of the traditional Mongolian nomadic lifestyle for centuries. Over the last two decades, since the fall of the Soviet Union and the end of the socialist regime in Mongolia, a steady stream of migrants have left harsh conditions in the countryside to seek better access to jobs, services, and education in the cities. Ulaanbaatar has, by far, absorbed the largest numbers of these migrants and with little affordable housing available, most of the newcomers ultimately settle in the ger areas.

In 1989, 26.8 percent of Mongolia’s population lived in Ulaanbaatar; by 2006 that number had risen to 38.1 percent; and by the 2010 census, 45 percent of Mongolia’s population lived in the capital. Looking forward, population growth in the capital city is expected to continue at the same pace.

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While the majority of ger area residents are poor, living standards vary, with some residents earning a decent income but still unable to afford the high prices of new apartments elsewhere in the city. According to Mongolian property law, Mongolian nationals are allowed to claim unused land and obtain ownership over land they live on. In that respect, the ger areas are therefore different from illegal slum settlements in other parts of the world.

Living conditions in the ger areas are harsh, especially during winters. [Watch a field video about winter in Mongolia.] Basic infrastructure such as paved roads, water and sewage systems, electricity, and central heating are lacking. A central feature of the ger is the stove, which is used not only for cooking but also as the primary source of heating. During winter, residents use large amounts of coal as well as other materials, including trash, to fuel the stove, resulting in a black layer of pollution that covers the city. While air pollution levels in winter are the highest of any capital city in the world, coal is unlikely to be replaced as a source of heating due to its relatively low cost. According to the World Bank, unemployment among ger residents is around 62 percent compared to 21 percent in apartment areas.

Dealing with the ramifications of such large settlements in unplanned locations and effectively delivering services to all the city’s residents, particularly in Mongolia’s extreme weather conditions, has been, and will remain, a massive challenge. This is exacerbated by the low density settlement patterns in the ger districts which means any service connections need to be spread over greater distances. These factors significantly increase the cost of delivering essential urban services such as water, electricity, waste management, and transportation. Development organizations have been providing technical and financial assistance for the improvement of basic infrastructure and services in the ger areas for years, resulting in important improvements. But the vast size of the areas makes it difficult to have a decisive impact, especially without good planning and coordinated responses from different city agencies.

Under Ulaanbaatar’s new leadership, changes for the ger areas may come faster than expected. Appointed by the prime minister in August 2012, the new city mayor, Erdene Bat-Uul, has made a clear commitment to the redevelopment of the ger areas. Adjustments to Ulaanbaatar’s City Master Plan are already being made with plans extending until 2030, and the mayor has developed an action plan for the next three years as well. The plans aim to improve  the distribution of services such as water, sewage, and electricity to existing ger areas, and involve the local residents themselves in the process. Mayor Bat-Uul has also introduced changes to the city’s administrative structure, most notably creating a development agency and housing unit. The mayor’s office is currently working with international development banks and other agencies on multi-million dollar urban planning and infrastructure projects for the ger areas.

In December, The Asia Foundation launched a partnership, supported by the Australian Agency for International Development (AusAID), with the mayor’s office to establish 10 ger units called the Ger Area Units, to serve as a bridge between the mayor’s office and the ger residents. The units have been designed to be catalysts for change in the ger areas they are assigned to, working with service delivery agencies to extend basic services based on the needs and expectations of local residents, and supporting the mayor’s redevelopment plans through advocacy and engagement with local communities. They will also work closely to support ger area residents to raise their concerns and needs directly to the mayor’s office, while also assisting communities to organize themselves to plan and implement community-driven activities to improve living conditions. To start this partnership effort, the Foundation organized a series of workshops with the senior leadership of the Ulaanbaatar municipal government as well as with the heads of the ger area units to help identify the key priorities, functions, and responsibilities of the units.

With a front-line position in the city’s efforts to improve life in the ger areas, the Ger Area Units will be crucial to the mayor’s vision for the city. Essentially part of the city administration, they will need to effectively establish themselves as allies and partners to both the residents of the ger district and the mayor’s efforts. How Mongolia manages its rapid and unplanned urbanization will be vital in determining the success of Mongolia in spreading the benefits of its rapid growth to all its citizens.

Ariunaa Norovsambuu and Tirza Theunissen are program coordinator and program and operations manager, respectively, for The Asia Foundation in Mongolia, and Mark Koenig is the Foundation’s assistant director for Governance and Law. They can be reached at [email protected], [email protected], and [email protected]. The views and opinions expressed here are those of the individual authors and not those of The Asia Foundation.

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