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The Asian Wolf bites the hand of opportunity

Updated: 2010-09-13 14:49

Celebrating its Pavilion Day today at the Shanghai World Expo 2010, Mongolia is a country with a very bright future ahead.

Nestled between China and Russia, Mongolia is a resource-rich country on the brink of an economic transformation. Thanks to recent developments in the mining industry and foreign interest increasing at a phenomenal rate, the wolf economy is getting ready to pounce, with real GDP growth prospects expected to hit 20.8 percent within three years.

For President Elbegdorj Tsakhia and Prime Minister Sukhbaatar Batbold, whose coalition government took the reins in June 2009, the key priorities have been to ensure a safe business environment for the international community, while tackling widespread poverty.

President Tsakhia's electoral campaign pledges, to fight corruption and ensure that mineral wealth is spread more evenly among the 2.7 million largely Buddhist population are taking shape, with the country now boasting one of the fastest-growing economies in the world.

While a third of Mongolians live in the capital of Ullan Baartar, 40 percent work as livestock herders in the country's extensive plains.

It is this nomadic, centuries-old lifestyle-now under threat by urbanization and climate change-that the President wishes to provide for with education initiatives that will "enrich the millennia-old cultural, historical and intellectual heritage the Mongolia people created."

Although Mongolia has expanded political and financial ties with the U.S., Japan and the European Union, its main trading partners are neighboring Russia and China.

China represents the largest market, reaping 70 percent of Mongolian exports, and is the largest source of foreign direct investment (FDI) at 50 percent.

As a mineral-hungry nation, China will play a hugely significant role in the years to come. Trade turnover between the two countries soared by 22.5 percent between 2009 and 2010.

"Mongolia has concluded its "agreement on relations of good neighborliness and mutually trusted partnership" with China now, and reciprocal high level visits, talks and negotiations, have become regular between our two countries," said the President, who visited China earlier this year and attended the opening ceremony of the Shanghai World Expo.

"Relationships and cooperation are expanding in all areas including education, culture, humanitarian efforts and military, as well as people-to-people interactions. Trade flow between Mongolia and China has been growing steadily in the last few years and we want to increase that flow, by reducing import tariffs, opening up free border economic and trade zones, broaden transport crossings and invest in Mongolia's road and rail transportation system."

Competitive advantages

Sharing a land border of some 4,710 kilometers with Mongolia, China enjoys many advantages as a trading partner, not least the fact that its companies can operate at lower costs. Mongolia also has access to a huge market, abundant capital, and massive technical resources. As Sukhbaatar Batbold, Mongolia's Prime Minister said, both countries are keen to push bilateral cooperation to an even greater level now, and are even initiating feasibility studies for a free trade agreement (FTA):

"2009 was the 60th anniversary of diplomatic ties between Mongolia and the People's Republic of China. 2010 therefore represents the start of the next 60 years so we are in active talks to determine new ways of cooperating.

"There are opportunities to produce value-added products from Mongolian natural resources, build related infrastructure and produce end products from agricultural raw materials, one of the main industries in Mongolia.

During an official visit to the PRC in April, Prime Minister Batbold met with China's Prime Minister Wen Jiabao, who later reciprocated with a visit to Mongolia in June.

Both prime ministers agreed upon an increase in trade, with boosted cooperation in mining and agriculture. In the frame of the agreement, Mongolia will process mining and agricultural raw materials and export them to China and developing countries.

As Batbold said: "We have asked China to resolve some of our major issues: namely, to increase the number of Mongolian seaports and related transport issues, and China has expressed its support.

"Chinese firms also want to be involved in major mining projects in Mongolia, and the Chinese side will open doors on low interest loans for industrial factories, specifically agricultural product processing factories."

There are currently more than 700 Chinese enterprises operating in Mongolia, their combined investment accounting for about half of the total investment by foreign-owned firms in the country, and around 50,000 direct jobs. More recently, China's State-owned companies have become involved in oil and mining.

Mongolia's National Chamber of Commerce and Industry is actively cooperating with their Chinese counterparts to encourage the development of SMEs.

'BEER' reform

2010 also marks "the year of business enabling environment (BEER) reform" for the government, which abolished the windfall tax on copper and gold with effect from January 1st, 2011 and passed a concession law to stimulate the growth of Private Public Partnerships.

"To make the business environment more transparent, it is important to adhere to laws and regulations and support the government-defined leading sectors with financial policy and tax exemption. We will also work to increase the number of entities with corporate social responsibility, environmentally friendly technologies and support regional development" said the Prime Minister. "We attentively listen to business and try to note their criticism and comments in law and decision-making. A real example of this is the investment agreement we conclude on Oyu Tolgoi deposit." The financial sector has also been reformed, with external audits performed on all entities, including the central Bank of Mongolia.

As the Bank's Governor Lkhanaasuren Purevdorj said: "Mongolia has one of the most open economies in the region. Its liberalized financial system, favorable investment legislation and absence of capital controls would provide excellent and competitive investment opportunities."

According to the Foreign Investment and Foreign Trade Agency of Mongolia (FIFTA) Chinese FDI flows are growing in the following sectors: geology and mining, ($100.1 million); trade and catering services ($511.34 million); engineering construction, construction materials ($397.11 million); and light industry ($55.64 million).

(China Daily 09/13/2010 page19)