Harvard Business School prepares report on mining services cluster in Mongolia

A report, prepared by Dr. Michael E. Porter of the Harvard Business School in the USA and entitled “Mongolia’s Mining Services Cluster: The Microeconomics of Competitiveness”, says Mongolia is home to the world’s largest undeveloped deposits of gold, copper, coal, uranium and iron ore, and is on the verge of a mineral boom. With plans to fully begin exploiting its mineral wealth by 2013, the government hopes to triple Mongolia’s GDP (USD5.3 Billion in 2008) over the course of the next decade and transform the economy. Since transitioning to democracy and enacting economic reforms in 1992, Mongolia has attracted significant foreign investment but unemployment remains high and 35% of the population continues to live under the poverty line.

The first half of the report analyzes Mongolia’s national performance and recommends ways for it to increase prosperity and equality. Landlocked between China and Russia, Mongolia needs to address a series of unique challenges. It is one of the least densely populated countries in the world and is faced with a severe rural urban divide where 50% of the population is concentrated in the capital of Ulaanbaatar.

The primary constraints inhibiting Mongolia’s growth are a human capital base ill equipped to meet market needs and poor infrastructure. To move forward, Mongolia needs to find a way to turn its location into an advantage and establish initiatives that attract private sector investment into education and healthcare. The report recommends Mongolia invest in building transportation linkages and position itself as a stable, regional hub for accessing the growing, large markets in its two neighbors, Russia and China.

Ultimately, any attempts to increase Mongolia’s prosperity will be built on a foundation of mining and the second half of the report specifically discusses the emerging mining services cluster. High levels of sophisticated and diverse demand from mining companies who outsource a host of services are currently driving the cluster. There are now 33 firms operating in the mining services space, earning USD154 million in revenue. The demand is expected to grow dramatically as new mines come up for development.5

To fully take advantage of the anticipated mining growth, the cluster needs to increase the competitiveness of local players and overcome seasonality issues. The cluster lacks a cohesive, long-term strategy and the report recommend establishing a mining services cluster initiative that creates a forum for collaboration, establishes standards and aggregates and disseminates data. To address seasonality specifically, it recommends giving tax incentives to foreign mining companies already in Mongolia if they utilize the services of the local mining services firms abroad. Given Mongolia’s strategic location, the mining services cluster possesses potential to become the supplier of choice for the Asian region.
source: www.news.mn
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