Mongolia Approves Mining Deal after Five-Year Delay

The Mongolian government approved a deal with Canada-based Centerra Gold Inc. to mine gold reserves in the Gatsurt Gold region, according to Reuters. The deal stipulates that Centerra hold 66% equity in the region, while the government retains 34% equity. Mongolia aims to bring in additional revenue this year after suffering a meager growth rate of around 3.0% in 2015.
Mongolia's economy seemed unstoppable at one point, growing 17.5% alone in 2011, but the Chinese slowdown and low commodity prices on the world market dealt a heavy blow to the East Asian country's economic structure. Mongolia reduced poverty and strengthened development over the years, but 2015 saw a downward trend that could continue if policymakers fail to make changes.
Officials have encouraged mineral development for years, but they face an uphill battle, as the world market is less receptive to commodities. Mongolia's economy is not only reliant on China, but also commodities as a whole, and with few other sectors yielding substantial income, Mongolia's growth rate remains at a stand-still.
Officials have been more conciliatory to the mining community to counter anemic growth, but this comes at a political cost, as environmental and conservation groups criticize Prime Minister Chimediin Saikhanbileg's recent deals over resource development. Furthermore, political opponents believe that major concessions to mining firms offer little benefit to Mongolians, while tipping an unfair advantage to major mining companies.
The prime minister beat a no-confidence vote that took place in late January in response to his administration's approval of a controversial deal allowing Rio Tinto Group to extract copper from the Oyu Tolgoi mine. Rio Tinto owns the mines for up to $6 billion, but the firm failed to properly develop the mine throughout the years due to various disputes with the government.
Lawmakers saved the prime minister's political career this time, but he has five additional months to turn things around before facing another vote over the summer, and it remains to be seen if he can change the direction of the economy in such a short period. Critics charge that the government is giving too much away to foreign companies, but Mongolia has no choice but to press forward with a strong focus on mineral development.
While gold and other minerals will bring in the necessary revenue, Mongolia's future could grow more unstable in the long-term. The World Bank notes that Mongolia needs to avoid Dutch Disease to secure long-lasting growth. Dutch Disease refers to the imbalance of relying on a certain sector (namely commodities) for high growth, much to the detriment of other sectors such as agriculture or manufacturing. Commodities have secured vast wealth and opportunities for Mongolia, but the government must diversify its economy and nurture other key areas, such as manufacturing.


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