From mineral riches, to a sustainable future
15 Jul 2016
After years of rapid, resource-led growth, Mongolia has slowed down – presenting an opportunity to grow in new ways.
With the eyes of the world on Mongolia as a result of the ASEM Summit and a newly elected Parliament and Government, the country’s development story deserves a closer look.
Following the democratic transition in 1990, Mongolia has made significant strides, with a free market economy and a democracy that within a quarter of a century has become a role model in the region. The country has successfully rolled-out the Millennium Development Goals and lifted half a million Mongolians out of poverty. It has succeeded where many other countries have failed, namely in decisively reducing infant and maternal mortality. Mongolia has also entered the category of high Human Development countries for the first time last year.
The land-locked country has vast deposits of mineral wealth. Following the conclusion of a $ 4.4 billion financing agreement with 20 international lenders last December, the second phase of exploration of the Oyu Tolgoi mine in the Gobi desert - one of the world’s largest copper-gold mines and owned to one third by the Mongolian government and the remainder by Rio Tinto - is going forward. This will boost the economy and create jobs, with a largely Mongolian workforce, which is expected to peak at 3,000 people. Oyu Tolgoi alone is set to account for 30 percent of the country’s GDP in future and to help recover investment across multiple sectors, from construction to services.
Unlike during the years when Mongolia was experiencing double-digit growth fueled by the global commodities boom and with raw resource prices currently at a multi-year low, the economy is however expected to grow at a mere 0.1 percent this year and 0.5 percent next year according to the Asian Development Bank. This is a reminder that economic diversification is vital. Reliance on mining only will not be sufficient to increase the economic base and generate sufficient employment. While mining represents 20 percent of Mongolia’s GDP and state revenues today, it accounts for only 4 percent of jobs, according to the Economic and Social Commission for Asia and the Pacific (UNESCAP). In contrast, agriculture creates 28 percent of jobs, while contributing 14 percent of GDP.
As the least densely populated country in the world with about one third of the population engaged in traditional nomadic livestock herding, expanding rural livelihoods in particular is critical. Stronger commitments and dedicated investments are needed to raise the nation’s agricultural processing standards in order to boost dairy and meat exports.
Mongolia is an early adopter of the new global Sustainable Development Goals (SDGs) to end poverty, combat inequality and protect the planet. Parliament approved Mongolia’s Sustainable Development Vision 2030 (SDV) translating the global goals into Mongolian context. The key to achieving the objectives articulated in Mongolia’s SDV and the SDGs will be to ensure that the country can transform the growth potential from its vast mineral wealth into inclusive and environmentally sustainable development.
Mainstreaming environmental resilience into economic activities can help to bring a more holistic approach to development. To support greater investments in natural capital, UNDP will work with the Ministries of Environment, Green Development and Tourism and Finance in developing tools to estimate the economic and developmental value of ecosystem functions. This will guide compensatory payments by both the public and private sector for biodiversity offsets that can help mitigate the negative effects of mining.
Sustainable practices are the responsibility of all stakeholders, from government to corporations, to herders. As one of the world’s most vulnerable countries to climate change, boosting productivity of traditional nomadic livestock husbandry to mitigate over-grazing is equally crucial. Better preserving the land and water resources, including through sound environmental governance, is key to help ensure lasting livelihoods for herders.
For Mongolians, the impact of slowing economic growth has been real. Mongolia’s poverty rate dropped by almost a third in just two years during the boom, from 38.7 percent in 2010, to 27.4 percent in 2012. This is compared to a reduction of roughly a fifth during the slowdown between 2012 and 2014, standing at 21.6 percent as of 2014.
Disparities are emerging between urban, semi-urban and rural populations. The poverty rate is lowest in Ulaanbaatar with 16.9 percent and increases as remoteness increases with an average rate of 27.9 percent in rural districts. In Ulaanbaatar, which houses about half the country’s population, close to 60 percent of people and an increasing share of the poor live in the ger district on the outskirts of the city, without access to running water and the city’s central heating system. Increasing soil, water and air pollution are the consequence exposing populations in the capital city and especially in the ger district to health hazards. Achieving the MDG targets for clean water and sanitation remains an uphill battle. As of the 2013 population census, only 27.3 percent of the country’s population has ‘improved’ sanitation facilities and only 68.1 percent have ‘improved’ drinking water sources.
Despite these remaining challenges, Mongolia’s SDV goals and the SDGs can be met. With the youngest population in Northeast Asia, Mongolians aged 15-34 years old are the largest demographic group, accounting for more than a third of all citizens and providing a productive base for growth and domestic consumption. They are also increasingly well educated, with university and college enrollments jumping three-fold between 2000 and 2010. However, it is vital that education system is better aligned with employer needs, so this highly-educated base of young people can become a demographic dividend for the future. According to UNDP’s 2016 National Human Development report, young Mongolians today have a higher rate of unemployment, at about 17 percent for those aged 20-24 years old looking for jobs, compared to an average of 7.9 percent nationally.
In June, the Government of Mongolia and the UN signed the UN Development Assistance Framework (UNDAF) for 2017-2021, to guide UN support in the country over the next five years and support Mongolia in translating its SDV into action. Fourteen UN agencies will work together to roll out $79 million in joint initiatives that will encourage programmes and policies to tackle poverty, boost jobs, and protect Mongolia’s natural resources and environment.
However, private sector contributions are also essential, through public-private partnerships, technology and capital. The UN estimates that two-thirds of the funds needed to meet SDGs globally must come from corporations. Consequently, encouraging FDI through stable and conducive policy environments is critical.
Mongolia’s potential is great – it has the natural and human resources needed to develop rapidly in the years to come. What is needed is the right public policy mix and prioritising government as well as private sector investments behind the SDGs to make development inclusive, equitable and sustainable so that all Mongolians can benefit from the nation’s progress. The UN stands ready to support Mongolia in this journey.