Mongolian Foreign Minister: ‘Our future is in educating our people, not mining’

The Government of Mongolia has turned its attention to diversification of its economy in the light of falling commodity prices and China’s slowdown and is now looking for foreign investment in many sectors from renewable energy to education, according to the country’s Minister for Foreign Affairs H.E Mr. Lundeg Purevsuren.

Mongolia, only recently the fastest growing economy in the world, is forecast this year to see growth of a mere 0.1 per cent in 2016 and 0.5 per cent in 2017, according to the Asian Development Bank.

In contrast, in 2011, GDP growth reached a staggering 17.3 per cent. Mongolia is possibly the single country in the world that has been the worst affected by falling commodity prices and the slowdown in China, which has also led to decreasing foreign direct investment.

Whilst Mongolia hosts 10 per cent of the world’s known coal reserves and has significant copper deposits, FDI plunged from US$ 4.45bn in 2012 to US$ 507.6m in 2014.

Mongolia has to date been reliant on exporting minerals and 89 per cent of its total exports go to China, which is itself experiencing an economic slump.

Before a trip to Oxford University to speak to students about Mongolian foreign policy, H.E Mr. Lundeg Purevsuren gave an exclusive interview to Asia House. He said: “Our economy has to diversify. We have learnt our lessons. We were concentrating too much on the mining sector in the past. Commodity prices are dropping so we need to look at long-term sustainable economic growth. That means investing in non-mining sectors like agriculture and food.”

He pointed out there were 60 million livestock in Mongolia.

He said sectors that Mongolia could diversify into included renewable energies, cashmere, leather, food and wool.

“We need to discover global markets for all of these goods. Food will become a major commodity issue in the future. Mongolia can for example provide meat and milk to China and other markets. We have a lot of space that can be used if we can come up with irrigation systems. We would also like to invest in our downstream industries and export not just to our neighbours Russia and China, but also to third markets,” he said.

A year ago Mongolia did not have any regional or bilateral FTAS. But in October 2015 Mongolia signed a free trade agreement with Japan, officially called the Japan-Mongolia Economic Partnership Agreement, paving the way for elimination of import tariffs on most products traded between the two nations. Mr Purevsuren said it would also lead to the transfer of knowledge and technology to Mongolia from Japan, and development of supply chains in Mongolia for Japanese industry.” He said that apart from minerals, Mongolia wanted to export finished products to Japan.

“The EPA will give us access to the Japanese markets and give the Japanese access to our markets and we hope it will allow the transfer of technology and knowledge, as well as management skills. We have a well-educated workforce and Japan can produce and manufacture in Mongolia,” he said.

The main products that Mongolia currently exports to Japan are minerals and textile products and the key products Mongolia imports from Japan are cars, construction and mining machinery.

Used cars currently account for 45 percent of Japanese exports to Mongolia. Trade is still very skewed towards Japanese exports. In 2013 Japan’s exports to Mongolia were valued at US$ 288 million and Mongolia’s exports to Japan just US21 million. Yet that could be set to change if Mongolia’s mineral exports to Japan rise.

The two countries also agreed to work on infrastructure development in Mongolia, including the construction of a rail lines to the Tavan Tolgoi coal mine and Japanese involvement in the project. Tavan Tolgoi is one of the world’s largest untapped coking and thermal coal deposits, located in the Umnugovi Province in southern Mongolia.

The Mongolian Government is also working closely with Japan on the construction of a new international airport in Ulaanbaatar which has been financed by Japanese loans and benefited from Japanese technology.

“We hope that the airport will become a regional hub connecting East Asia and Central Asia and South Asia and this will also benefit cargo,” he said.

Apart from this FTA with Japan, he said Mongolia was in “quite advanced talks” about an FTA with Canada and had signed a number of agreements and treaties with the USA, whichwere the first steps to an FTA.

He said Mongolia started talks last year with the Eurasian Economic Union, which began with an MoU and they were working on cooperation. “We are expecting China to create a joint research group to study the possibility of a China-Mongolia FTA,” he added.

He added there were plans to develop an economic corridor between Mongolia, China and Russia. “We have discussed this programme for two years and now it’s ready to sign. It’s about infrastructure, transit routes, railway lines and pipelines,” he said.

The economic corridor fits in with China’s Belt and Road project. “It was negotiated as part of that project, it is the north-eastern part of the Belt and Road project,” he said.

Mongolia, which became a multi-party free market democracy in 1990, is set to hold its eighth parliamentary elections on 29 June 2016. The last elections took place in 2012 when the current ruling party, the centre-right Mongolian Democratic Party, won the most seats and formed a government in coalition with some smaller parties.

“Our goal is to get a majority in the June 29 general elections,” Mr. Purevsuren said.

“As what we have seen is that it is always hard to work in coalitions. We are confident that we will get a majority because we have developed many programmes for the public including economic programmes for herders. Nevertheless I am also confident that whichever party wins or whichever coalition is formed, the policies we have set in place will continue.”

An electoral pact between the country’s two main opposition parties, which are splitting the centre-left vote, recently collapsed.

In July Mongolia will host many different heads of state and governments at the 11th ASEM Summit being held in Ulaanbaatar.

The Summit will also be the 20th anniversary since the Asia-Europe Meeting dialogue process was inaugurated in 1996 in Bangkok.

“At this summit we are going to define our strategy for the next 20 years and look at how Europe and Asia will work together for the next two decades and where Mongolia can contribute for greater cooperation. Historically Mongolia has always contributed towards Europe-Asia structures. We built the Silk Road in the 13th century opening up free trade between Europe and Asia and therefore it has always been our tradition to bring together the two continents,” he added.

He said that Mongolia was happy with its Observer status of the Shanghai Cooperation Organisation (SCO) (an international alliance that consists of six member states and five observers from Eurasia) and “would stick with that.”

“We are happy with that status so we can watch carefully what’s going on especially since India and Pakistan are going to take up membership soon, so it’s interesting to study more,” he said.

He said following his official visit to India in April this year, a credit line of US$1 billion had been extended to Mongolia from the Indian Government.

“We will use this for infrastructure in railways and other sectors,” he said.

Why take the loans from India? “India is a regional power traditionally and we see India as our spiritual neighbours. We share Buddhism and agriculture and now we are looking at a new economic cooperation,” he explained.

The second phase of theUS$ 4.4 billion Oyu Tolgoi underground mine has begun after the Mongolian Government reached an agreement with Rio Tinto and Turquoise Hill Resources in May 2015 and a Project Financing agreement with 20 international banks and financial institutions to fund the development was signed in December 2015. It is considered one of the largest gold and copper deposits not only in Mongolia, but worldwide. The mine is expected to generate one third of Mongolia’s GDP.

“The second phase of construction has started since we have reached agreement with investors after several years of the project being stuck. There were certain mistakes on both sides and we have reached consensus on both sides. We are now happy with the agreement,” Mr Purevsuren said.

“The fact the project is going ahead is a good signal not just for the project but for the overall business environment in Mongolia,” he added. “Everywhere in the world mining is in trouble since commodity prices have gone down yet the Mongolian Government has managed to reach consensus and sort this project out which is the largest new mining project in the world.

“Critics from the first phase said that locals were not benefiting from it and so we paid attention in this second phase to that to make sure that more local businesses were invited to be part of the project and that more local people will benefit,” he continued.

Apart from foreign investment in mining, there were opportunities for foreign companies in sectors such as education, food, downstream industries and renewable energies.

“The future of Mongolia is in educating people, not mining,” he said.

But he admitted that the Mongolian market had not yet been discovered by British companies. “We have very minimal interest from Britain right now. But no one is going to invest in a country they know nothing about so one of our policies is to promote Mongolia globally and encourage more tourists to visit and then people might think about investing in Mongolia,” he said.

“Mongolia has history, Buddhist heritage and nomadic traditions plus it is an untouched land so we want to promote tourism,” he said. He said that Mongolia was putting a lot of effort into its soft power and promoting its sports, sumo wrestlers, culture, history and traditions.

He explained the attraction of investing in renewable energies.

“We have more than 300 sunny days and we could supply clean energy to the whole of Asia. We are part of the Asia Super Grid,” he continued, referring to a proposed grid in the Northeast Asian region which would allow for electricity, including power sourced from solar and wind energy, to be sent across that part of the continent.

“We have several solar projects already and we have built our first wind farm. The market is well known. In the 1990s there were several solar programmes developed for nomads. What we want now is foreign investment and technology from foreign companies.

“We could export renewable energy to countries like China. China is the biggest polluter and it needs clean energy,” he said.

Earlier in the day Mr. Lundeg Purevsuren took part in a private briefing and roundtable discussion with Asia House corporate members. Corporate members represented at the table included Rio Tinto and G3.

naomi.canton@asiahouse.co.uk

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The newly-appointed High Commissioner of India to the UK H.E. Mr Navtej Sarna will join Asia House corporate members for a private briefing on the current economic and political developments in India on 4 May. For more information click here.