Mongolia, a vast, sparsely populated
country almost as large as Western Europe, is at once strikingly poor and
strikingly rich. Its GDP per capita falls just below that of war-torn Iraq, and
Ulan Bator has some of the worst air pollution ever recorded in a capital city.
At the same time, Mongolia sits atop some of the world’s largets mineral
reserves, worth trillions of dollars, and its economy, already one of the world’s
fastest growing, could expand by a factor of six by the end of the decade as
those reserves are developed.

As the government undertakes the long process of opening up the country’s
mineral wealth, Mongolia is nearing a familiar turning point for resource-rich
but developmentally poor countries. However, a unique and dynamic set of
environmental and cultural factors set it apart from places like the Democratic
Republic of the Congo, Nigeria, Bolivia, and Afganistan, as it works to avoid
the pitfalls of the “resource curse.”

Nearly 40 per cent of Mongolians are
herders whose livelihoods are irrevocably intertwined with their environment.
Herding has been an economic and cultural mainstay of rural life since the days
of Genghis Khan. Children as young as five race horses for miles across open
grassland in the Naadam, Mongolia’s
annual national festival. The winning jockeys are celebrated and the winning
horses idolized. Mongolia’s reverence for its nomadic roots extends all the way
to its 20-year-old constitution, which enshrines livestock as “national wealth”
to be protected by the state.

But today, the livelihoods of families reliant on grazing livestock are under
threat from a climate that is becoming increasingly harsh and unpredictable.
Mongolia is feeling the effects of climate change “perhaps more rapidly than
any other place in the world,” proclaimed the vice chairman of parliament this
year. Desertification is driving the Gobi Desert to expand by 10,000 square kilometers
every year – enough to fit the state of Delaware two times over.

Compounded by increasingly harsh winter storms, the changing climate is driving
herders to relocate to Ulan Bator and other cities in search of better
opportunities. That migration is adding to sprawling slums, cook stove-driven
air pollution, and a public health crisis that the president himself has called
a “disaster.” These changes are set to have a uniquely powerful impact on a
national identity that is interwoven with the herding tradition.

Navigating the country’s mineral wealth is not, therefore, just a matter of
avoiding the standard pitfalls – corruption, inequity, and environmental
destruction – of the resource curse; lawmakers will also have to contend with
preserving a way of life that has defined Mongolia for centuries.

Every Mongolian a Millionaire?

Estimates for Mongolia’s mineral wealth range from $1.3 trillion to $2.75
trillion in the 10 biggest mines – and those amounts reflect just
the 27 percent of
the country that geologists have mapped so far. While mining has
long been a part of the country’s economy, the past few years have seen the
industry explode as massive gold, copper, and coal deposits in the country’s
south have been opened to foreign investment.

Oyu Tolgoi, a copper and gold mine, was opened up to Canada-based Ivanhoe Mines
(and its majority shareholder, global mining
giant Rio Tinto) in 2009 following six years of negotiations with
the government, which owns a third of the mine. OT, as it is called, is
scheduled to open next year and has already drawn more than $4
billion in foreign investment in construction – just shy of Mongolia’s
entire 2009 GDP.

Tavan Tolgoi, the world’s
second largest coal deposit, is slowly being opened up to investment
as the government negotiates with Chinese, Russian, American, South Korean, and
Japanese firms for rights to the deposit’s western block. Meanwhile,
state-owned Erdenes Tavan Tolgoi is slated for an IPO next year in advance of
expanding its mining operations in the deposit’s eastern block. Populist fears
of foreign companies – especially those from China and Russia – gaining too
much control over the country’s resources have complicated negotiations; the
government has said that if an agreement is not reached by mid-2012, it will
begin developing the western block on its own.

Tavan Tolgoi and OT have led Mongolia to “the brink of an investment bonanza
that could see its economy double in size every three or four years,” according to
the Financial Times. The country’s GDP growth leapt from 6.4
percent in 2010 to 17.3 percent in 2011 in large part because of construction
at OT, and on a per capita basis, its mineral wealth is enough to
make all 2.75 million
Mongolians a millionaire.

In spite of that resource wealth, Mongolia is still very poor.
As a satellite country during the Soviet era, Mongolia received as much as a third of its GDP
from Moscow; with the USSR’s fall, education, health, and economic policies and
programming went largely underfunded,
resulting in a striking paradox that mires development today.

Education and employment offer a case in point. Even though more than 90
percent of Mongolians have attended school through the secondary
level, there is a mismatch
between the skills they learn and the skills the changing labor market demands,
resulting in a well-educated
but unemployed population where 1 in 10
are out of work. More than a
third of the country lives in extreme poverty with a daily income of
less than $0.40, and overall poverty rates have remained stagnant for decades.

Winters of White Death

Although pastoralism has been a mainstay of life in Mongolia for centuries, the
past 20 years have seen an explosion both in the number of herders and in the
size of individual herds. As former Soviet limits on herd sizes were lifted,
Soviet
factories shut down, and access to cheap Soviet goods like meat and dairy dried up,
Mongolians turned to the countryside in record numbers.

Herders took on more animals as a way to hedge against uncertainty, including
harsher, longer, and more volatile winter storms, or dzuds (literally
meaning “white death”).
From 1990 to 2010, the country’s livestock population jumped from 10
million to 40 million, ultimately outnumbering Mongolians by a
factor of more than 14.

These larger herd sizes are exacerbating environmental changes already
underway. Mongolia’s average annual temperature has risen three times faster than
the global average, and almost the entire country – 90 percent – is vulnerable
to desertification. Taken together, climate change and overgrazing have
degraded more than two-thirds of
pastureland.

The 2009-2010 winter is proof of the combined toll that climate change, growing
herd sizes, and dzuds can have on rural Mongolians. A dry spring and
summer left little surface water or grass for livestock to eat or drink by
winter, so they were more vulnerable to storms, which were the worst in
living memory. According to the UN, the winter impacted nearly
one-third of Mongolians and contributed to higher rates of malnutrition, a 35
to 40 percent increase in infant mortality rates, and double the usual maternal
mortality rates. By the end of the season, 17 percent of livestock had died off
and more than 20,000 herders had given up on rural life and moved to urban
areas instead, according to
UN estimates.

The lure of mining jobs
and basic services like schools and hospitals (few and far between
in the countryside) add to the pull that Mongolia’s few cities exert over
herders. Once in the cities, though, herders often end up
living in slums made of gers, traditional felt yurts. In Ulan
Bator, 60 percent of residents live in ger districts that are almost
completely disconnected from the city’s infrastructure and lack even the most
basic sanitation services. Slum conditions are so bad that Dave Lawrence, a
career development worker writing for
the World Bank’s East Asia and Pacific blog, wrote that “nowhere else
in the world do so many people live as if they were refugees from war or a
natural disaster.”

According to a 2009 World
Bank report, the slums – where families keep warm during sub-zero
winters with little more than coal-fired cook stoves – are a driving
force behind pollution levels that surpass even
those of China’s notoriously polluted skies. In 2010 the World
Health Organization announced that Ulan Bator had “the world’s worst air pollution”
– an unexpected distinction for the capital of one of the
world’s most sparsely populated countries (second only to
Greenland).

Pollution levels across the city reach their highest in the overcrowded,
impoverished, and coal-heated slums during winter months. Mortality rates are
an estimated 24 to 45
percent higher than what they would be if pollution levels were in
line with international air quality standards, according to
World Bank projections. Pollution levels peak during cooking times,
suggesting that those responsible for cooking and other household chores – often women
and girls – bear the brunt of indoor exposure.

A Struggle to Balance Mining and the Environment

The mining boom adds another layer to the country’s delicate environmental
balance. Mongolia is naturally susceptible to food insecurity (the proportion
of undernourished has hovered around one-quarter
of the population for the past two decades), and water access in
particular plays a large role.

One-third of Mongolia’s provinces fall “well below the international norm that
defines absolute water scarcity,” according to the UN
Development Program, and more than half of the population lives without
access to clean water. Mining is exacerbating both problems as unlicensed operations
pollute scarce above-ground supplies (which are frozen half the year), while
large-scale works divert the primary underground sources.

“My greatest fear is we won’t have water,” Mijiddorj Ayur, a 76-year-old herder
in the Gobi, told NPR
in May. “I don’t care about the gold or the copper, I’m just afraid there won’t
be water.”

Even in the northern part of the country, which has yet to see a mining boom on
the same scale as the south, water remains contentious. In September 2010, a
group of four activists armed with hunting rifles shot at foreign-owned mining
equipment stationed along the country’s longest river, which feeds
into Lake Baikal. Based on an environmental protection law banning mining
operations near headwaters, the riverside mine was illegal; however, weak
enforcement meant the law was easy to ignore.

The incident is emblematic of a problem that even the country’s mining
regulators acknowledge. “The principle of the [headwater] law is right,” Tamir
Tegshsaikhan, an official at the country’s mining regulator, told EurasiaNet after
the 2010 incident. “The government adopted the law with a view to protect the
environment, but the implementation side has many issues.”

The Only Path Out of Poverty?

Corruption, which runs rampant throughout the government, makes implementation
all the more difficult. A 2005 USAID report
showed that Mongolians saw corruption as one of the top three challenges facing
the country, following poverty and unemployment. That same report found that
“by far the most problematic characteristic of Mongolia’s corruption is that it
takes place at an elite level and involves a conflict of interests between the
state and private sectors.”

With that warning, the prospects for equitably and safely developing the mining
industry appear bleak, especially given the extreme
reliance on the industry as Mongolia’s best chance at prosperity.
The country’s standing in Transparency International’s annual corruption
perception index offers further cause for concern – since Mongolia first
entered the index in 2004, its ranking has dropped from the 85th least
corrupt country in the world to 120th in 2011, placing it
alongside the likes of Iran and Kazakhstan (worth noting is the fact that
during those years, 37 countries were added to the index).

Corruption is front and center in domestic politics this year after the former
president, Nambaryn Enkhbayar, was arrested following allegations that he misused
public funds while in office. While observers agree that Enkhbayar,
like most public officials, likely enriched himself while in power, the
case against him is seen as so politicized
and poorly handled that it has become a lightning rod for criticism
of the current government.

Because of the corruption case, Enkhbayar
was barred from running in the country’s recent parliamentary elections, which
took place on June 28. The elections were billed as the answer to two key
questions surrounding the mining industry: first, how should
the government redistribute revenues given the country’s widespread
socioeconomic troubles? And second, to what
degree should lawmakers welcome foreign investment? The Democratic
Party, which won the most votes but fell short of a majority, announced last
week that it would form a
coalition government with Enkhbayar”s Justice Coalition, which
struck a strong nationalist tone during the elections; concerns about resource
nationalism in the new government are reportedly already growing
among mining companies.

“Exploiting Everything Is Not Development”

Perhaps unexpectedly, the country’s lawmakers acknowledge the precariousness of
its current situation. Mongolia “is in a critical stage of our development,”
said Prime Minister Sukhbaatryn Batbold last October
at an Asia Society Forum. Reinforcing his concern, another senior government
official said in 2010
that “it’s a question of whether we become Nigeria or Chile.” Lawmakers take
study trips to places like Chile,
Canada, and Norway, which have managed to balance resource wealth
with socioeconomic advancement. “We don’t want to reinvent the wheel,” Batbold
said.

To that end, lawmakers have taken noteworthy strides towards ensuring the
resource boom leads to healthy development. Parliament passed anti-corruption
legislation barring lawmakers from making campaign
promises about jobs or money, and the major parties agreed to a ban on cash
handouts in advance of the recent elections. The government
established two funds
with mining revenues, one to make payments to the country’s poorest
residents and the other to subsidize prices for basic goods when markets are
volatile. And there is an active civil society: When lawmakers failed to make
payments from the Human Development Fund, for instance, massive
protests spurred them back into action.

While these measures offer hope for Mongolia’s future, whether they can be
successfully and effectively implemented remains to be seen. In advance of last
month’s elections, lawmakers found ways to
skirt the cash handout ban through a buy-back program where the
government paid Mongolians $760 each in exchange for their shares in the
state-owned mining company. This pattern will have to change if Mongolia is to
develop over the long term while avoiding the dangers of the resource curse and
protecting a fragile but nation-defining landscape.

Tsetsegee Munkhbayar, one of the
four herders involved in the 2010 shooting protest and the 2007 recipient of the Goldman
Environmental Prize, warned that in a place like Mongolia, where so
many depend on the land for their living, protecting the environment will be an
essential part of ensuring that the mining industry is able to contribute to
brighter future for his country.

“Exploiting everything,” he said, “is not development.”

by Kate Diamond

http://www.newsecuritybeat.org