Mongolia's Macroeconomic Risks

Mongolia's Macroeconomic Risks

Mongolia's Macroeconomic Risks

Attending the Mongolian Economic Forum last week was not just a welcome occasional foray into an interesting, yet relatively small and obscure Asian country, it was an insight into two main issues. Firstly, for me, it provided a snapshot back in time of a country just emerging from years of depression much as I found China in fact when I first began working in the country 25 years ago. But secondly, and more importantly, it provided the recognition that what is happening in Mongolia is going to change the way the world sources its most in-demand raw commodities. Mongolia possesses the world's largest copper reserves, the second-largest coal reserves, significant onshore oil and gas fields, the world's second-largest deposits of rare earths, massive gold and iron ore reserves, and many other hugely significant deposits of minerals ranging from uranium to tungsten and zinc. Put simply, Mongolia's minerals will provide the world with supplies of many of its most valuable raw minerals for the rest of this century. That's why the country is suddenly gaining attention, and that is why the Mongolia issue is important.

I've written over the past few days of opportunities in Mongolia, mainly in mining and related secondary industries in my article "Mongolia's Wolf Economy Comes in from the Cold" and issues over governance in this article, "Governance Key in Unlocking Mongolia's Wealth." The latter, in fact, was deemed important enough to be used as the front page cover story in Mongolia's National newspaper.

Opportunities, therefore, are huge for businesses in Mongolia, for mining companies and their supporting industries, as well as for those who will need to create a supply chain that gets both raw and processed products from some relatively inaccessible areas to the global markets. Yet the question always keeps cropping up what about the risk? A whole host of risk assessment expertise was assembled at the forum, and I can relate their opinions in this article.

Chaired by Dun & Bradstreet's country manager, the session quoted Mongolia's president: "Our country is in great danger. Precisely because we have a wealth of natural resources."

It is that perspective that comes from the nation's highest office that makes Mongolia somewhat unique. Where some nations have reaped massive bonanzas, others have become troubled. Mongolia appears to recognize that the wealth within can lead down two paths that towards a Norway, Qatar or South Africa, or socially divisive paths down which nations such as Nigeria and Venezuela have trodden. Risk element number one then treating mineral wealth as a license to print money appears to have abated as the Mongolians themselves understand the risk.

Additionally, when an economy becomes so dependent upon natural resources as a source of wealth, a specific set of risk criteria then come into play as definable issues. The main ones are:

* Fluctuations in global commodity prices

* Changes in foreign trade and political patterns

* Appreciation of the domestic currency

Concerning the currency matter, Mongolia already has one of the fastest growing currencies in the world, and this is an area of concern.

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