One company's high-profile dispute with the Mongolian government and the coincidental death of its chairman has stoked paranoia among the business community, and comes at a time when hostility toward foreign investors from fringe politicians and nationalists is already making government efforts to attract investors that much harder.
And investment is what the country desperately needs. Since a mining boom went bust, the resource-rich country now risks suffering a balance of payments crisis,
according to the International Monetary Fund – something that can only be averted by a large injection of foreign investment. “The foreigners provide the capital that the country lacks itself,” says Dale Choi, head of Independent Mongolian Metals & Mining Research.
But despite the crucial assistance that foreign investors can provide in exploiting the country’s mineral wealth, there is a chasm of distrust between investors and locals. “The idea is that foreigners are here to take advantage of us,” Choi says.
This distrust hasn’t been helped by the eerily timed death of Khan Resources' chairman and respected Canadian businessman Jim Doak, which has brought the conspiracy theorists out the woodwork in Ulaanbaatar. Doak was found dead in his hotel room on April 24, a day after negotiations fell apart over
$100mn awarded to Khan by a tribunal in Paris over a licensing dispute.
An autopsy revealed that Doak had died of natural causes related to Type 1 Diabetes, but the growing tension between the Mongolian public and foreign business has set imaginations running wild.
Doak's death came around the same time of reports, confirmed by the South Korean embassy, that one of its citizens who had taken control of a gold mine in Mongolia had been kidnapped and tortured by a gang of thugs. The female victim assailants alleged that the assailants had been sent by her disgruntled predecessor, who was fired after the company learnt she was hiding a private stock of gold pilfered from the mine.
Adding to investors’ siege mentality are radical right-wing groups’ attempts to impose a nationalist agenda. That includes the Nazi-turned-environmentalist group Bosoo Khukh Mongol (Stand Up Blue Mongolia), which made headlines in China after Mongolian President Tsakhia Elbegdorj had to
apologize for an incident in which members of the group humiliated some Chinese tourists.
In Mongolia, the swastika is revered as an important Buddhist symbol of peace, but by tilting its axis atop a red background, it sends an entirely different message. Members are still often seen decked out in Nazi paraphernalia, but they have undergone an image makeover to become a radical environmental group.
According to the head of pollster Sant Maral Foundation, Luvsanvandan Sumati, such groups have so far failed to cross over into the mainstream. Attempts to put candidates in parliament have flopped. “They get low numbers,” says Sumati, noting that they could not even break the 5% threshold in elections.
But that hasn't kept them out of the political arena, as they've become a common figure in protests against the mining industry. Bosoo Khukh Mongol in September 2013 was involved in one demonstration-turned-fiasco while protesting a proposed changed to Mongolia's environmental laws for mining. Live rounds were shot from rifles from another group protesting outside the parliament. A grenade was dropped in the excitement, and police found bombs planted at a nearby government office building and tower where many foreign businesses are headquartered. It was mostly for show, however, as the grenade was inactive and none of the bombs were set to explode, according to reports from the time.
Mongolia's next elections are still more than 18 months away, but investors are already prepared for a lull in business activity — especially mining deals that involve the state — as politicians start campaigning.
Analysts say Mongolia has until the annual summer festival called Naadam, when the parliament adjourns for recess, to resolve disputes with investors concerning two of its largest mining projects, the Oyu Tolgoi copper mine and the Tavan Tolgoi coking coal mine.
Slowing growth in China, the main consumer of Mongolia's copper and coal, and soft global commodities markets have caused economic growth in the country to stall. The World Bank is predicting just 4.4% GDP growth this year for Mongolia compared with 7.8% in 2014; at the peak of the country’s mining boom in 2011, GDP growth reached a world-beating 17.5%.
The lack of foreign investment is also putting pressure on government finances, while life becomes ever more difficult for citizens unable to find employment and facing rising inflation.
Prime Minister Chimed Saikhanbileg entered office last November to help steer the economy back to health. To help achieve that aim, he invited all but three independent candidates into his grand coalition government for what would likely be politically unpopular deals with foreign miners to reinvigorate the economy. But that has left a vacuum for dissenting voices, which is being filled by populists and nationalists. “What's happened is that in the creation of grand coalition there's no room for an opposition party,” points out Sant Maral's Sumati.
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poll published in April by Sant Maral shows that two of the country's three most popular politicians are also the loudest critics of Rio Tinto, the government’s partner in the Oyu Tolgoi copper mine. They have expressed scepticism that Rio’s mining activities will deliver any benefit to the country, although the $5.4bn expansion project that the global mining giant wants to build for the mine would also help pull the country out of its economic funk. Gantumur Uyanga, Mongolia's third most popular politician, according to the poll,
wrote about the mine: “Better scare it off than being exploited.”
Sant Maral's Sumati reckons their moment in the spotlight will be short lived. But that's only because more conventional politicians are soon likely to be pandering to voters as well. Independent Metals' Choi admits he too expects as much. “The issues of resource nationalism and populism have been brought to the centre,” he says.
