A proposition for a new railway between China and Mongolia has been accepted and will be completed within a year. This economic venture will be made possible by Erdenes Tavan Tolgoi transporting company. Its plan is to reduce the costs of transporting coal to China which would then increase the amount of coal being shipped to China overall. Due to the high demand of energy in rapidly developing China, the country needs large amounts of coal from the surrounding countries due to the relatively cheap transaction costs. The venture itself will be majorly owned (51%) by three Mongolian train companies and minorly owned by Chinese companies (49%). It will be able to transport 24-27 million tons of coal to China every year, and the costs of shipping will be reduced from 7-8 USD to only 2USD per ton of coal. This large reduction in costs will help the Mongolia companies make more money and help their businesses thrive. This undertaking is not extremely expensive and will help build both Mongolia's infrastructure as well as China's. The railway will connect to a port city in China which will also allow the shipment of other goods besides coal if need be. This move by the two developing countries will help both of them in the long run, expanding China's supply of goods due to decreased input costs and expanding Mongolia's demand due to increased demand of coal.
This article begins by announcing that Rio Tinto, an Australian based mining company, is opening a new facility in the Gobi Desert of Mongolia. It explains that, while nomadic herders often have reservations about the mining boom, companies like Rio Tinto pick them up as laborers, giving them offers they can’t refuse. The nomads are given ample benefits, guaranteed lifetime employment, free schooling for their children, and working hours that don’t interfere with the herding season, all for their cooperation and acceptance of the mines. While most are happy for the second job, the article asserts that they come at the cost of traditional culture and lifestyle. I’m not sure what I think about this phenomenon. It’s a shame that cultural values are being undermined, but to an extent, I think it may be inevitable. Progress has a nasty tendency to reach all corners of the world, it seems. I think the best we can hope for is that the new employment truly will raise the Mongolian standard of living, while culture can still be preserved to an acceptable level.
This article from the BBC follows a day in the life for Sukhbaatar, a nomadic herder turned gold-miner in the Mongolian Steppe. He explains that, during a recent severely cold winter known as a Zud, his livestock, like many others, were killed, and he was forced to turn to mining to make a living. Rich Goldfields in the Mongolian Basin are now being exploited at record rates, sending Mongolia’s Economy soaring, the fastest in the world by this article’s estimate, and yet, Sukhbaatar reflects that he isn’t seeing any of growth. While business is booming, wealth disparity is also reaching record highs, with a full 40% of the Mongolian population now in poverty while a few magnates soak up all the wealth. The article continues on, explaining that working conditions for the miners are dank and difficult. Little regulation exists in Mongolia, and workers are forced to go long hours with inferior materials for little pay. It’s disheartening to see that all this economic growth isn’t being enjoyed by all Mongolian citizen, but I think it’s important to put things in perspective. 120 years ago, while we were industrializing, we also had great disparity and little regulation. I’m hopeful that it’s just a matter of time before legislation is passed in Mongolia helping the problem.
Mongolia Economic Brief April 9, 2014 (Tax Reform)
Andre Hessini's insight:
Over the past couple decades, one of Mongolia’s primary economic goals was in regards to tax reform. Prior to 1992, the country’s government did not have an official taxation system, which posed a massive problem for the unstable government. Without a steady income from various taxes (such as the standard income tax) the Mongolian government was unable to support investment in domestic corporations and businesses, which devastated the economy. However, a very basic taxation system was set up by the Mongolian government in 1992. This tax system was highly immature in comparison to other countries across the globe and the government faced many problems in implementing this new phase of tax reform. Since their was no taxation prior to this year, the new reform was faced with much opposition from the citizens of a largely agricultural nation. However, despite the shaky start to this attempt at tax reform (and even creation for that matter), Mongolia’s government was able to establish more effective tax reform programs in the early 2000’s. These effective tax reforms began with taxing the few prominent industrial corporations that Mongolia had at the time such as the Erdenet Mining Corporation, the APU, and the Mongolia Telecom. Once the government implemented these large corporations into their tax reform program they were able to branch out to smaller, private corporations and businesses. The implementation of this first phase really started to take place from 2006 to 2012, in which the government strove to ease tax pressures and provide tax exemptions. The ultimate goal of this specific tax reform was to encourage foreign investment in the emerging Mongolian corporations. This first attempt at reform was a fairly large success, with both tax revenue and foreign investment increasing throughout that six-year period. The second phase of this tax reform is set to be launched from later in 2014 to 2017. This second phase is designed to encourage investment (especially in the business and mining industries) and to increase overall employment. In my opinion, I thought that this article was a fairly interesting read. I found it fascinating how the Mongolian government managed to operate up until 1992 without a set taxation system. It is clear that the first phase of tax reform greatly improved investment in Mongolian corporations and it also appears that the second series of reform is likely to further this economic progress.
Recently released market study: Mongolia Mining Report Q2 2014 ClickPress (press release) We believe Mongolia will experience one of the fastest economic growth rates in the world over the next decade, a development that will have huge social and...
Andre Hessini's insight:
Recently released market study: Mongolia Mining Report Q2 2014
This is a fairly objective article that discusses how Mongolia could be on the cusp of a major economic boom as a result of its’ mining industry. This mining boom can be primarily attributed to the beginning of production at the Oyu Tolgoi (OT) mine located in the South Gobi Desert. This specific site is labeled a copper and gold mine but the area also contains large deposits of molybdenum, silver, and a few other valuable natural resources. This massive mining project is undoubtedly the largest economic undertaking in Mongolia’s history and is projected to dramatically transform the nation’s economy by the time it becomes fully operational in 2019. (So massive in fact that it will account for roughly one-third of the nation’s overall economy.) The editors of the article also predicted that the massive economic boom that will surely follow this national mining project will cause vast mineral wealth but at the same time cause certain political problems. Being an extremely nomadic economy prior to this point, the Mongolian government has never truly facilitated foreign investment. However, with this dramatic increase in mineral wealth, Mongolia’s economy will change from its’ original rural state to a much more urban and industrialized economy. Since this is the case, it is imperative that the Mongolian government establishes laws that aid foreign investors and provide incentive for investing in their newly-developed mining corporations through the OT project. According to the article, the Mongolian government will eventually be forced to uproot itself from its’ populist platforms and change Mongolia into more of a free market economy. In this regard I definitely have to agree with the editors of this article. The only way Mongolia will be able to develop their new industrialized economy will be through foreign investment. However, there are some concerns I have with Mongolia’s undertaking of the OT project. This is undoubtedly a smart move by the government but at the same time I think they should exercise caution. As stated in the article, the OT project will account for roughly one-third of Mongolia’s overall economy by its’ commencement in 2019. This is obviously a massive component in their economy and the government is going to have to be able to utilize it without becoming too dependent on the mining sector. One of the problems with this economic setup is if there is a crash in the mining industry, then the overall economy takes a huge blow and will take a very long time to recover. However, as long as the government can learn to find this balance in utilization, then the Mongolian economy will surely prosper as a result of the OT project.
This interview gives insight into how the overall economy of Mongolia is doing by the standards of the Financial Minister Ch.Ulaan. According to the financial minister, the predominant reason that the public is concerned with the economy is the multiple budget revenue interruptions such as large-scale enterprises that have yet to be stabilized. Another problem is that the value of the Tugrug has depreciated relative to the US dollar. Ch.Ulaan suggests that the imported goods from other countries should be decreased, especially because the end product goods are often those that are created in the nation. By reducing Mongolia's trade deficit, he hopes to have the Tugrug appreciate relative to the US dollar over time. Inflation is also a large contributing factor to the depreciation of the Tugrug, but even after their parliament passed a bill to keep inflation to under two digits, it has not gone down from two digit numbers. He suggested that contractionary fiscal/monetary policies should be used to keep inflation down, but as a developing country, Mongolia wants to grow quickly. Overall, Mongolia is developing, but it needs follow the business cycle in order to sustain growth instead of booming and busting. With Ch.Ulaan's advice, Mongolia could be ready for an overhaul in its policies and eventual growth of its entire economy.
This article explains that, while Mongolia enjoys an ample amount of tourism in the summer months, all that revenue dries up in winter, with an 85 to 90% drop in visits from foreigners. Currently, tourism rakes in less than 6% of the Mongolian economy, and government officials are determined to change that. They’ve made it a top priority to increase Winter month tourism, and they’ve begun by planting a few winter themed festivals, as well as marketing Mongolian Winter Sports to thrill seekers abroad. Some claim that Mongolia gets a bad reputation for it cold winters, while they really aren’t as bad as people often assume. I’m happy to see the government trying to diversify its economy. It’s never good to become too reliant on one thing, and I think this is especially true when it comes to mining, given how most of the ‘ghost towns’ we see around America today are the direct result of mining ventures run cold.
Mongolia Economic Brief April 15, 2014 (OT: Educated People Are Mongolia’s Asset)
Andre Hessini's insight:
This article primarily discusses the development of Mongolia’s Youth Development Program and how it is working today the improve the future economic state of the country. This program was originally developed in the early 2000’s to help improve the education of Mongolia’s future. The goal of this non-profit organization is to provide developmental opportunities for Mongolia’s youth, therefore establishing a strong foundation for the country’s economy in the future. What the organization does is implement school-supported after-school activities in institution across the country but primarily centralized around Ulaanbaatar. These programs work with students mostly from the ages of 12 to 18 in the Ulaanbaatar school district. In these programs the students are involved in a variety of activities and immersions that teach them about economic progress and sustainable development. It is the view of the Mongolian government that this is the stage in a students life where it is crucial that they are educated on these subjects. So when the time comes to serve the country in the economic workforce, they are significantly more prepared for what they are setting out to do. The MYDSC (Mongolian Youth Development Services Center) also focuses on supporting certain communities outside the the Ulaanbaatar district; these communities being largely mining organizations which are becoming a very influential part of Mongolia’s economy. As the final step of Mongolia’s Youth Development program. all 18 year-olds who have been involved in the program are encouraged to participate in a sort of testing out of the program. After completing these extensive tests, the top students are selected and awarded for their efforts, often in the form of college scholarships from the Mongolian government. From the period of December 2013 to March 2014, 155 advanced students were given these prestigious scholarships. It is the hope of the Mongolian government that these bright young minds take what has been given to them through the Youth Development Program and apply it to the betterment of the economy in the future. I personally think that the premise of the article was very interesting. I’m not entirely sure how effective this program with be on a national economic perspective since it is currently focused (for the most part) on the school districts around Ulaanbaatar. However, harnessing the brightest minds of these school districts and giving them economic advantages that they didn’t previously have is not a bad idea in and of itself.Perhaps this youth development program could benefit the productivity of Mongolia’s economy in the future.
This article is completely objective, only spelling out the information on the issue clearly using facts and figures. Mongolia and other Asian countries are going to receive monetary aid in the form of loans to further develop their economies. Approximately 6.5 billion dollars worth of aid will be distributed to 12 countries. The money is coming from the European Union to attempt to achieve the Millennium Development Goals (MDG) which address, "climate change, promote energy efficiency, facilitate business and trade through better market access and support regional integration". These goals are designed to help the Asian communities due to their large amount of people (800,000,000) that are living on less than $1.25 a day. The money has yet to be specified for the exact activities it will sponsor, but with the investment, an economic, as well scientific, boom is hoped to occur. With better education and modernization of medicinal practices, this funding would help raise Mongolia's (as well as the other countries) real GDP, causing their poverty level to go down. This is only if the money is given carefully to responsible companies so that the money can best help the overall economy and not create an even larger economic gap between the poverty-stricken and the very rich. This proposal will be a good spur to the economies of the Asian nations that are struggling in the wake of Japan and China's dominance, allowing the smaller countries to develop into emerging economies.
Mongolia's economy is soaring, but at what cost? Washington Post My interpreter, a heavy metal singer named Uugii, was letting his tiny son's black locks grow long, in anticipation of a lavish hair-cutting ceremony on the boy's third birthday.
Mongolia’s economy is soaring, but at what cost? The article begins by explaining that, historically, Mongolians have been nomadic sheep herders, horse riding over the Central Asian Steppe. Even in recent times, many industrial advancements have gone largely unnoticed by the once continent spanning nation. But in 2011, Mongolia enjoyed a 17.3% growth rate in GDP, and economists expect that, in coming years, that number will only get larger. As a result, rural living Mongolians are flocking to its capital city, Ulaanbaatar, in droves. The number of cars in the city has tripled in one decade. The article explains that, despite Mongolia’s rapid urbanization, its nomadic feel remains. Streets are unnamed, and a fondness for history is larger than ever, with a new surge in reverence for Genghis Khan apparent in newly constructed statues cropping up in town. The economic growth can be attributed mostly to mining, the popularity of which has soared in Mongolia. Metals are a major resource, as well as coal. Despite its rapid growth, the article asserts that many Mongolians are unhappy with the change. Income inequality is on the rise, as some claim the Country’s resources are being used to benefit just an elite few. Others are unhappy with the way culture is changing, claiming that Mongolia is losing its independent ways and is becoming reliant on foreign, particularly Chinese, demand for wealth. I found the article very informative, and enjoyed its use of personal anecdotes detailing the lives of specific Mongolians in order to illustrate points about Mongolia’s economy.
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