A giant dump truck travels under blue sky towards an open pit mine in Mongolia’s South Gobi Desert. It may look like an average dump truck, but it is actually one of 28 enormous Komatsu trucks, powered by 3,000-horsepower engines and capable of moving up to 300 tonnes of ore per load at the Oyu Tolgoi copper and gold mine in Mongolia’s southern region.
Last summer, the mine in Khanbogd celebrated its fifth anniversary since commercial copper concentrate shipments began. Oyu Tolgoi is a massive combined open pit and underground mine project that is equivalent in size to the borough of Manhattan. It is a huge joint venture that is 34-per-cent owned by the state of Mongolia and 66-per-cent owned by Turquoise Hill, a Canadian company, which, in turn, is 51-per-cent controlled by Rio Tinto, an Anglo-Australian multinational corporation. Thanks to this world-class mining project, Mongolia’s economy has grown dramatically over the past decade.
Indeed, in 2011, Mongolia reached the highest economic growth record in its history — an impressive 17.5 per cent. Eight years later, in 2019, the economy is still projected to grow by 6.7 per cent. Mongolia’s star should continue to rise as it has several advantages, including a strategic location, educated workforce and an abundance of natural resources.
One of the largest landlocked countries in the world, Mongolia is situated between China and Russia. It is about the size of Western Europe, with just 3.1 million inhabitants and has one of the lowest population densities in the world. Westerners might harbour a romantic image of Mongolia as a land of nomads — and nomadic life does exist in Mongolia, but almost half the population lives in the capital city Ulaanbaatar. Most of this vast country is covered by grassy steppe, desert and mountain ranges. It has a highly homogeneous population; 96 per cent are ethnic Mongolians and the remaining 4 per cent are mostly Kazakhs. Due to its strategic location, Mongolia can offer access to the Northeast Asian market.
Since successfully completing structural reforms and privatization efforts beginning in the early 1990s, Mongolia has developed an outward-looking economy that has shown steady growth. “How are we managing [the rapid growth]?” asked Mongolian Foreign Minister Tsogtbaatar Damdin in an interview last October. “It’s very difficult because it tends to create over-expectations that can be very distracting. It can have a negative impact. Managing such expectations is extremely difficult. We are learning by doing.”
The minister noted that there are no manuals or handbooks to guide one through such momentous growth. Even friendly countries that are helping Mongolia to strengthen its democracy and its market economy don’t know how to manage such rapid change.
“We had a recession after the period of rapid growth, and lessons were learned about the boom and bust cycle,” the minister said. “We are learning that we need to save, have stable and transparent governance, a high level of discipline and consistent policies aimed at preserving direct foreign investment. Money is a very sensitive thing, it comes and then with just a few mistakes, it leaves.”
Within a year and a half of the recession, Mongolia regained its status as the second fastest growing economy in the North East Asian region.
“This is not a small thing for us because we are in a neighbourhood with Japan, China, South Korea — all are locomotives of the global economy,” he said. “Our success is indicative that this economy can perform. Macro-economic discipline, accountability, predictable policies and commitment to co-operate with the international community permits us to secure better market access for our exports and the goodwill of investors.”
Mining is the primary economic sector of this mineral-rich country and contributes to 88.6 per cent of total exports, notably copper, gold and coal. Mongolia traded with 155 countries in 2018 and exported goods to more than 70 countries. Mongolia’s foreign trade reached close to US$13 billion in 2018, with exports equivalent to $7 billion. During the first quarter of 2019, Mongolia’s total foreign trade reached $3.06 billion, an increase of $444.5 million or 17 per cent compared to the same period in 2018, while exports surpassed imports by $485.9 million. Mongolia’s export growth was mainly due to an increase of mineral exports, precious and semi-precious stones and textile goods.
Herding and agriculture have remained the cornerstones of an ancient way of life. One of the last countries in the world with a large nomadic population, Mongolia has a livestock population of 70 million. Agriculture still employs the largest share of the labour force at 30 per cent to 40 per cent. In 2018, Mongolia exported 54,900 tonnes of meat products. A proposed national program of intensive animal husbandry for 2019 to 2023 aims to boost the export of livestock and dairy products significantly, by as much as 30 per cent.
International connectivity is vital for the economic growth of this landlocked country. Building the Mongolia-Russia-China Economic Corridor, to develop multimodal transportation and improving regional infrastructure, is key. As one of the main corridors of China’s Belt and Road initiative, the Economic Corridor project will modernize railroads and highways. The proposed road starts at the port of Tianjin, China, and heads northwest, entering Mongolia at Erlianhaote in the southeast and then connecting to the Trans-Siberian Express at Ulan Ude, Russia. In 2020, the Oyu Tolgoi mine will build a 300-megawatt power plant next to the Tavan Tolgoi coal mine. The government is also considering a Russian-Chinese oil and gas pipeline through Mongolia.
“The Third Neighbour Policy” is a foreign-relations policy to build relationships with countries other than its closest geographical neighbours, Russia and China. Dialogue and agreements with Japan, the United States, the European Union, India, South Africa, and Turkey among others, are developing into strategic partnerships. All these countries have a valuable role in bringing high-tech and management expertise to Mongolia’s financial capital.
Mongolia, whose cashmere wool is known for its quality, produces almost 50 per cent of the world’s raw cashmere. The cashmere fibres are especially long and fine and are obtained from the neck of the Cashmere goats (Capra hircus laniger). There are several world-famous Mongolian cashmere brands — Gobi Mongolian Cashmere and Goyo Cashmere. But much is exported raw. In 2017, out of 9,400 tonnes of raw cashmere produced, 8,300 tonnes were exported directly to neighbouring China without adding any value. The textile industry is now looking for investors to produce a final product and export high-end finished cashmere products to the global market.
Cashmere has cachet for Mongolia, but the Oyu Tolgoi (OT) mine is still the prime driver of its newfound success. Batsukh Galsan, chairman of the mine’s board of directors and, at one time, the first resident ambassador of Mongolia to Canada, talked about the origin of the project, its prominence in Mongolia’s economy and the relationship with Canada. Indeed, there are 122 Canadian companies involved in the Oyu Tolgoi mine — doing everything from mining to construction.
“In October 2001, Robert Friedland, founder and executive chairman of [Vancouver-based] Ivanhoe Mines, told me that he was going to drill at Oyu Tolgoi and [would] find a significant ore body that will put Mongolia on the mining map of the world. Now, after 15 years, Oyu Tolgoi has become the largest Western-invested mining project in the country, both open pit and underground, and has contributed to Mongolia maintaining its economic independence.”
Galsan said Mongolia’s relationship with Canada has become “more significant” than with any other foreign country. He said he wanted Mongolia and Canada to talk about how Mongolia can make investment more attractive for Canadian companies, not only for mining and exploration, but also agriculture, livestock and education, among others. Mongolians are not only looking for capital, but intangibles such as skills and expertise. The Oyu Tolgoi project is physical, but it involves expertise in engineering, mining, safety and operations, industrial knowledge and the capability to create and manage large, complex projects.
“At Oyu Tolgoi, we have a culture of safety, which is a non-tangible contribution, but it is so important,” he said. “We have excellent professional experts to train Mongolians, to share this knowledge. Through Rio Tinto, we are bringing world-class professional engineers and managers to work with Mongolians to teach and train and we grow from this long term. Many Canadians are in that expert community. This is an indirect benefit in addition to the direct investment. I want this to happen not only at Oyu Tolgoi, but at many similar sites.”
Galsan said Canadians should consider Mongolia because it sits beside some large markets. China needs more mineral and agricultural products. Transportation costs — shipping from Vancouver or Saskatchewan — are expensive, but producing mineral and agricultural exports in Mongolia is cheap. “Bring your expertise and production values in mining and livestock here and ship from Mongolia to China,” he said. “This is something Canadians can consider.”
Oyu Tolgoi is on course to realize its potential to become the world’s third largest source of copper by 2027, producing more than 500,000 tonnes a year. The success of the Oyu Tolgoi mining project will mean a lot for the future economic development and prosperity of Mongolia. By continuing its mining exploration, Mongolia could increase its GDP and economic security. The land of nomads and promise looks with optimism to the future.
Ülle Baum is Diplomat’s staff photographer and a contributing writer.
