MONGOLIA WANTS MINING TO “MOVE OTHER THINGS FORWARD”, SAYS BATBOLD

Mongolia needs to look beyond the coal and copper mines that are driving its economic boom to find a more balanced model of growth, says Prime Minister S. Batbold. Investment in mining projects and speculation on the wealth they will create in the world’s most sparsely populated nation have made the MNT the best-performing currency since the beginning of last year. That’s putting exports such as cashmere at a disadvantage, and adding costs to newer industries such as tourism, food production and metal processing.
“It is important to have a good mining industry,” Mr. Batbold said in an interview. “But it is a tool of moving many other things forward. What we want to focus on is creating jobs in many other industries.”
Mongolia needs to avoid developing the “Dutch disease”, where the financial benefits of a resource boom lead to a hollowing out of other sectors, according to the World Bank. Sandwiched by Russia’s far east to the north and a 1.3 billion-strong, resource-hungry China to the south, the government is looking for ways to lessen its vulnerability to competition from its giant neighbors and reduce its reliance as a customer.
“Mongolia can’t compete with China on wages, but it can certainly find areas in the Chinese economy where it could have an edge,” such as in cashmere, meat, and services, said Mr. Rogier van den Brink, lead economist for Mongolia at the World Bank. “Diversifying from resources would be a solution similar to what the Dutch found to combat the resource disease.”
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Plans this year to begin mining part of Tavan Tolgoi and preparatory work for the 2012 start-up of Oyu Tolgoi may cause the economy to expand 33 percent in dollar terms, according to Eurasia Capital. That compares with a 10 percent growth in local currency terms, Eurasia said in a January 11 report.
China, Mongolia’s biggest rival in cashmere and top trading partner, is “stealing jobs” with a more stringent currency policy, Mr. N. Zoljargal, a deputy governor at the Central Bank, told a forum in Ulaanbaatar.
While the dollar value of greasy cashmere exports rose to about USD105 million from USD92 million in the first 11 months of 2010, it dropped to 3.6 percent of all exported goods in December in dollar terms, from 4.8 percent a year earlier, according to the World Bank.
Mongolia, which the government estimates has the capacity to produce 30 percent of the world’s cashmere, this year set up a marketing agency to help farmers and herders market their products abroad. This should help producers compete on quality and brand, not price, agency chief Stephen Kreppel told the forum on March 4.
Thirty-four percent of Mongolia’s 1.1 million labor force work in agriculture, primarily tending livestock that includes the goats that yield cashmere fibers. Services employ 61 percent, with industry accounting for 5 percent, according to the CIA World Handbook.
In contrast, industry provides 30 percent of gross domestic product and agriculture 21 percent. As well as raw materials and unprocessed animal products, Mongolia also sells apparel and leather goods and the government aims to support textiles, infrastructure, tourism and food production, Mr. Batbold said.
“We’d like to focus now on value-added products,” he said. Tackling poverty is one reason development in Mongolia has become more urgent, with the mining industry a way to “give better impetus to the economy”.  More than a third of Mongolians live below the poverty line, and per head income in the nation of 2.7 million is USD2,111, the International Monetary Fund said in 2010.
China accounts for 80 percent of Mongolia’s imports and buys about 85 percent of its exports, according to Mongolia’s Central Bank data. While Mongolian trade turnover surged 54 percent to USD6.2 billion last year, imports exceeded exports by USD379 million, Eurasia Capital said, citing official data.
To help mitigate the effects of the rising MNT, Mongolia’s Central Bank is in talks with China on a currency swap that would amount to “a few billion” yuan, Mr. Zoljargal said in a March 4 interview. The accord allowing trade to bypass the dollar should be ready before July, and a similar deal with Russia is likely to follow, he said. “This will help us smooth all those pressures to the local economy,” Mr. Zoljargal said.
The Central Bank last year introduced USD-MNT forward contracts to help hedge against jumps in the exchange rate and is supporting plans to set up a market for MNT-denominated government bonds as soon as this year, Mr. Zoljargal said.
The measures will help make any appreciation in the MNT “smooth” and predictable, Mr. Zoljargal said. “We don’t want to fight the trend,” he said. “Our target is more on the inflation, which we’re trying to keep at single digit.” The IMF in a February 17 report forecast the figure to reach 20 percent by the year’s end due to increased state spending.
Source: Bloomberg
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Archived Comments
marie-stella ray
2011-04-25 19:31:09
more about the plans of the National Marketing Office to help the non-mining economy shrug off the Dutch Disease - http://www.mongoliannationalmarketingoffice.org/