sit lecture mongolia
DESCRIPTION
DevelopmentTRANSCRIPT
“Mongolia’s economic transition and its
lessons”Ch.Khashchuluun, NUM, 2015
1
How Mongolia economy changedCurrent state and prospects
Challenges and projections for future
Mongolia lies in heart of Asia, between Central Asia and Eastern Asia on east and west, Russia and China on north and south
2
3
Territory18th largest in world
1,565,000 km²
Population3 million citizen Population density 1.8 per km² 180 persons/km² in Ulaanbaatar
Political system A parliamentary democracy since 1992 2 largest parties DP and MPP other parties, also members of coalition governments
which rule the country for last 10 years
Prime Minister Ch. Saikhanbileg, (DP, won most of seats in 2012). Next elections are in 2016
Government DP-led coalition (2nd in 2012-2016 period)President Ts. Elbegdorj (DP, won in 2009 and 2013 presidential
elections. Next presidential elections in 2017)Main Religions Buddhists (90%), muslims (5%),
shamanists, catholics, protestants (5%)Average life
expentancy70 years
Literacy rate 96%
93% of population are
mongols, kazakhs 6%, other ethnic
groups. 4 million mongols live in other countries
Society:
Mongolia:• Traditionally a three sector economy:
•Agriculture (livestock, crops) overall 40 mln of livestock (NZ: 30 mln of sheep, 3.6 million of cattle)
•Mining (gold, copper)
•Light industry (textiles), food, leather
5
Transition hardships• Mongolia’s economy before the transition
• Transition: main stages the initial steps culminating in WTO accession
• Hardships of transition period: industrial collapse, poverty, public infrastructure problems
• International assistance for Mongolia: UN, IMF (structural adjustment programs), World Bank, Japan (largest donor country), US (USAID, Millenium Challenge Fund), trade agreements with EU and Japan
• Revival of economy by beginning of 2000
Just in 2003• Total GDP 0.9 billion dollars, GDP growth rate 5.5% • Annual GDP per capita 385 US dollars • Largest sectors of economy
• Trade 28.8% of GDP • Agriculture 20% of GDP • Hotels and restaurants 15.1% of GDP
• Total export 615 million dollars • Total import 800 million dollars • Total investment: 244 million dollars, total public
investment 30 million dollars • poverty rate 35%
7
Constitution 1992
1993 1996 1997 1998 2000 2001 2002 2004 2005 2006 2008 2009 2010 2012
President P.Ochirbat
N.Bagabandi N.Bagabandi N.Enkhbayar Ts.Elbegdorj
Government MPP DP MPP Coalitions
Parliament MPP 71/76 DP 50/76 MPP 72/76 no majority 37/76 MPP 45/76 DP
8
• Stable yet dynamic political system • Parliamentary republic since 1992, first in Central Asia • Consensus based decision making • Coalitions
Key factors for growth: dynamic stability of democracy
Revival and growth• Asian crisis of 1998 and weather catastrophes (zud)
• Economic growth revived since 2001
• Increasing FDI
• Opening of mining industry
• 2003 Economic growth and poverty alleviation strategy
• 2005 Millenium Development Goals
• 2008 National Development Strategy
• 2011 One of highest growing economies in the world
10
-4.5
0
4.5
9
13.5
18
2008 2009 2010 2011* 2012 2013 2014
7.8
11.512.3
17.5
6.4
-1.3
8.9
GDP growth
GDP growth ratesMongolia’s GDP is about 12 billion US dollars (in comparison Armenia 9 billion, Moldova 7 billion, Kyrgyzstan 6.5 billion dollars).
GDP per capita is 4000 dollars, higher than in Uzbekistan, Georgia, Armenia
GDP 11 billion dollars, with one of highest growth rate 17.5% (2011) GDP per capita 4000 US dollars Investment/GDP ratio in 2012, is 60.6%, one of top 5 in the world Export 4.3 billion dollars
Growth factors: openness to FDI•Mining as a primary pillar of economic growth
•30% of GDP, 80% of exports
•Multi-billion projects starting in 2009
•Just 2 projects (OT, TT) include investment large than size of country’s GDP
•Many more private investment projects
•Largest world companies coming to cooperate: Rio Tinto, Goldman Sachs, Deutsche Bank, Peabody, Xstrata, Vale, Temasek, CIC, etc
11
Mongolia’s mining potentialMongolia’s resources are large and vital to its economic growth
▪ One of the most prospective geologic regions on the planet
▪ 1,000 identified mineral deposits and 8,000 occurrences that include copper, gold, iron, coal, molybdenum, silver, zinc, lead, asbestos, flourspar, nickel, uranium and more
▪ The government has designated 15 deposits as strategically important – Minerals: Au, Fe, Cu, Mo, coal, Pb, P, U, Zn, coal and REE
– Examples: Oyu Tolgoi (Cu, Au), Tavan Tolgoi (coal), Nariin Sukhait
▪ Half are being mined, often by foreign-owned firms
▪At least $1.3 trillion in potential future revenue 12
WWW.MMRE.GOV.MN 5
Bigger deposits: Erdenet, Oyu tolgoi, Tsagaan suvarga, Boroo, Tavt, Tsagaanchuluut, Asgat, Mungun Undur, Tumur tolgoi, Tumurtei, Tumurtei Ovoo andUlaan etc. of copper-gold, copper-molybdenum, gold, silver, iron, zinc, lead, uranium deposits have beendiscovered.
METAL RESOURCES DEPOSITS AND OCCURRENCES OF MONGOLIA
Source: MRAM
WWW.MMRE.GOV.MN 23
•Resource: 5,9 mln.t•Probable resource: 14 mln.tZinc
•Resource: 324,8 thous.t•Probable resource: 620 thous.tMolybdenum
•Resource: 61,3 mln.t•Probable resource: 1,8 bln.tLead
•Probable resource: 2.3 bln.t /Al2O3/Aluminum
•Resource: 1619.9 t•Probable resource: 5125.0 tGold
•Resource: 227.4 thous.t•Probable resource: 980.3 thous.tSilver
RESOURCES OF SOME NON FERROUS METALS AND PRECIOUS METALS
Source: MRAM
ULAANBAATARErdenet Tumurtoi
Shivee Ovoo
Tavan TolgoiOyu TolgoiNariin Sukhait
Baganuur
Gurvanbulag
Tsagaan Suvarga
DornotMardai
Asgat
TumurteinOvoo
BorooBurenkhaan
Silver 6.4 mm tons
Uranium0.016 mm tons
Copper / molybdenum ore –
1.2 bn tons(1)
Iron ore 229.3 mm tons
Metallurgical coal125.5 mm tons
Coal 7.4 bn tons
Lignite coal646.2 mm tons
Lignite coal600.0 mm tons
Phosphorite 300 mm tons
Copper – 37mm tons
Gold – 1,431 tons
Copper / molybdenum ore 10.6 mm tons of
oxides; 240.1 mm tons
sulphides
Zinc 7.7 mm tons
Uranium0.029 mm tons
Uranium0.001 mm tons
Mongolia has vast and diverse under developed mineral deposits, providing the economy with significant long-term upside potential
This slide outlines the 15 strategic deposits that have been identified by the Mongolian government. The deposits cover a broad basket of minerals, ranging from coal, copper, gold,
iron ore, molybdenum, phosphorite, rare earth oxides, silver, uranium, and zinc (1) Figure represents total ore deposits at 0.51% Copper/0.012% Molybdenum content
Gold ore 0.025 mm tons
Strategic Deposits: coal, copper, uranium, iron and gold ore, silver
15
16WWW.MMRE.GOV.MN 4
ROLE OF MINING SECTOR IN THE NATIONAL ECONOMY
2002 2003 2004 2005 2006 2007 2008 2009 2010
GDP 12.6 12.6 18.8 24.4 30 29.5 22 22.1 21.8Industrial product 47.3 54.9 64.7 66.8 71.9 67.8 64.5 65.4 70.6Export 56 57.5 70.8 75.8 75.7 78.4 80.7 84.6 87.7
12.6
12.6 18
.8 24.4 30
.0
29.5
22.0
22.1
21.8
47.3 54
.9 64.7
66.8 71
.9
67.8
64.5
65.4 70
.6
56.0
57.5
70.8 75
.8
75.7
78.4
80.7 84
.6 87.7
0
10
20
30
40
50
60
70
80
90
100
Source: MRAM
17
Summary of trends• Economic growth in 2010: 6.4%
• Economic growth in 2011: 17.5%, one of highest in world
• Economic growth in 2012: 12.3 %, one of highest in the region
• Economic growth in 2013: 11.5%
• Economic growth in 2014: 7.8%
• Forecast: average growth rate of 12-14% for next decade
• GDP per capita reached 3500 USD from up from 1700 in less than 3 years, increased 10 times in 10 years
• Poverty rate is down from 39% to 27% in 3 years
• Unemployment is down to 8% from 11% in 2 years
• Doubling of exports in 2 years
• Growth aiming to reach approximately 6000US$ per capita by 2016
18
19
From agricultural economy
Economic structure
Agriculture
Mining
Industry
Trade
Transport
Real estate
Communications
Education
Finances
0 7.5 15 22.5 30
Share in GDP (%)
Agriculture50 million of livestock, including 3 million horses, 3.4 million cattle, 23 million sheep, 22 million goats
140 thousand private livestock farmer households
Mongolian nomads
• Mongolian nomads are one of main nomad civilizations in the world
Private farms• Using modern technology as
John Deere Mongolian private farms
• use about 380 thousands of hectares producing 470 thousands tons of grain, 250 thousand tons of potato, 100 thousand tons of vegetables and fully supply domestic market
• new tecnologies, 80% of tractors are modern
• Fruits, berries increasingly exported
A leading world cashmere producer
• More than 30 companies
• Exports to many world destinations
• Italian design, Japanese technology, Mongolia products
To increasingly urbanized economy (more than 60% of population lives in urban
areas)
27
Increasingly open to global trade and
investment
Foreign trade
2000.0
4750.0
7500.0
10250.0
13000.0
-1800.0
325.0
2450.0
4575.0
6700.0
2005 2006 2007 2008 2009 2010 2011
Exports Imports Trade turnover Foreign trade balance
11307.233
6108.555
4023.059
5779.000
4009.300
2977.0002241.2002241.200
2977.000
4009.300
5779.000
4023.059
6108.555
11307.233
Oyutolgoi, one of leading copper projects in the world
Source: UNCTAD FDI/TNC Database and UNCTAD report of Investment Policy Review
2001: Oyu Tolgoi discovers mineral deposit
2005: Oyu Tolgoi project receives approval
2008: Oyu Tolgoi completion of first construction phase
2010: Oyu Tolgoi construction budget of $758 million
2011: Oyu Tolgoi progression
Total FDI Non-mining FDI
0
1000
2000
3000
4000
5000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ million
30
FDI and global market• Rio Tinto as a main development and economic growth partner
• Largest packages of financing through OT project
• One of most promising areas for mining in future (oil shale, rare metals, coal, copper, gold etc)
• Trying to reach not only Chinese but also other global markets
• Various vulnerabilities some typical for developing countries such as excessive dependance on resource exports, large income disparities and shocks of world market
• Landlocknedness as one of barriers for development yet being close to huge markets
• Some are more Mongolia-specific with giant neighbors and need for third neighbor
• Learning rules of the game
Mongolia’s growth drivers
• Copper
• Coal
• Oil shale, rare earth, CBM
Long-term copper fundamentals remain strong
Electrification of large emerging markets will further support demand
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
0 10,000 20,000 30,000 40,000 50,000
UK USA ChinaJapan South Korea GermanyRussia Brazil India
GDP/Capita US$
Per capita electricity consumption (GWh/capita) 1970-2010
Source: Enerdata, Global Insight, World Bank, Wood MacKenzie
142
319
473
506
2013
2014
2015
2016
1.4Mt production loss between 2013 – 2016 due to closures
Production loss due to closures kt Cu
1.8Mt annual production will be lost due to grade declines between 2013 – 2016*
-2.6 Mt
-0.10%
-0.1 Mt-0.03%
-0.09%
-1.8 Mt
-0.05%
-1.1 Mt
2001-2004 2005-2008 2009-2012 2013-2016
While supply side faces increasing constraints
* Estimate of potential production loss from concentrate supply only
3
Дэлхийн хөгжил зэсийн эрэлтийг нэмэгдүүлдэг
One of top 10 world copper enrichment plants OT
Source: Brook Hunt.(1) Top 15 producing copper mines in 2020 include: Andina, Antamina, KGHM, Cananea, Cerro Verde, Chuquicamata, Collahuasi, El Teniente, Escondida, Grasberg, Norilsk, Los
Pelambres, Kansanshi, Morenci, Oyu Tolgoi, Radomiro Tomic.(2) Production and 10 years average cash cost from 2013 Oyu Tolgoi technical report.
2020E Copper Production (kt)
2020
E C
1 C
ash
Cos
t ($/
lb)
Top 15 producing copper mines (2020)(1)
Bubble size reflects contained copper resources (kt)
Turquoise Hill Resources/ Oyu Tolgoi(2)
Independent copper producer and publicly tradedOwned by diversified miner or private
4
Unique North America-listed pure copper and gold exposure
Oyu Tolgoi long section
10
Source: 2013 Oyu Tolgoi technical report.
Significant expansion potential and execution flexibility
9
Phase 1 Phase 2 Future phases
• Southern Oyu Deposit:9 1.0bt reserve
9 1.3bt M&I resource9 0.5bt Inferred resource
• Hugo North Deposit :9 0.5bt reserve
9 0.9bt M&I resource9 1.2bt Inferred resource
• Hugo North (Lift 2)• Hugo South Deposit:9 0.8bt Inferred resource
• Heruga Deposit:9 2.0bt Inferred resource
• Conventional open pit truck and shovel operation
• Secondary source of ore feedstock once underground operations have ramped up
• Cash flow generation from 2013
100ktpd concentrator
Potential concentrator expansions to accelerate productionSource: 2013 Oyu Tolgoi technical report.Note: Reserves and resources stated on 100% ownership basis. The mineral reserves reported above are not additive to the mineral resources.
• Underground block cave mine• Ore grade 4x higher compared to
open pit• Ramp up from 2016 to 95ktpd• FS to be completed in H1 2014
• Ongoing optimization of production schedule and expansions sequencing
• Analysis of drill data to generate exploration targets
World largest 15 deposits of copper
ОТ
Multiple development options are available
11
� All options to be evaluated to ensure optimum development pathway� Actual operating performance to be evaluated prior to committing to expansions� A decision to expand the concentrator not required before 2015
OYU TOLGOI DEVELOPMENT OPTIONS
Plant Expansion Decision Point
Mine Decision Point
Plant Expansion at Capacity
2013 2015 2020 2024 2032 2037 2040 2050 2060 2070 2090Project Year
100 ktpd / 36.5 Mtpa Capacity
~300 ktpd / 109.5 Mtpa Capacity
Hugo North Lift 2
Hugo North Lift 2 Hugo South Heruga
Hugo South Heruga
HerugaHugo South
~240 ktpd / 87.6 Mtpa Capacity
Hugo North Lift 2
160 ktpd / 58.4 Mtpa Capacity
~190 ktpd / 69.3 Mtpa Capacity
Heruga
Hugo South Heruga
Hugo North Lift 2
Hugo North Lift 1
SW Pit
Source: 2013 Oyu Tolgoi technical report.
NOW
Projections of copper output, thousands tonn, (2005-2020)
Зэс,
мян
.тн
0
250
500
750
1000
2005 2007 2009 2011 2013 2015 2020
775
205
111 7050135141122117126130126
Erdenet (existing)
Tsagaan suvarga (new) OT, from 2013
Projections: Ernst and Young, 2013
Mongolia is a top 10 world countries in coal reserves,
No 10
Mongolia, coal projections
39
About the Tavan Tolgoi mining
• Tavan Tolgoi mining is located in South Gobi aimag, 540 km south of UB and 270 km from the Chinese border
• The reserve of TT mining is 6.4 billion tons of coal of which 1.8 billion tons of coking coal and 4.6 billion tons of thermal coal
• TT deposit consists of Tsankhi, Ukhaa khudag, Bor tolgoi, Borteeg, Southwest and Eastern coalfields. Tsankhi is the main coalfield and contains most of its coking coal resources.
Source: Report on Tavan Tolgoi, NDIC, 2011
• in Tsanhi, Tavan Tolgoi Co. (local) has been operating for years and its production is about 3 million tons of coking coal and 1 million ton of thermal coal a year
• In Ukhaa hudag, Energy Resource LLC, a Mongolian mining company have been operating since 2009 and production is about 10 million tons of coking coal and 3 millions of thermal coal a year
40
41
Findings: The impact on export
Indirect impact
Direct impact
• With TT project, export will increase by ~20% mostly due to coking coal and thermal coal production of TT.
With TT
0
5
10
15
20
25
30
35
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Without TT
0
7.5
15
22.5
30
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Thermal coalMet coalCOPPER_OREGOLDOilOther miningOther export
| 42
Bulgan
Zamiin Uud
Ereen Tsav
Oyut Ovoo (2.5 Mtpa)
Ulaanbaatar
Bargilt (1.1 Mtpa)
Tayannuur (9 Mtpa)
Ereeny (1.1 Mtpa)
Beren Mining (0.1 Mtpa)
Border crossingRailway
Iron ore mine
Export destinationDomestic destinationBeneficiation plantMetallurgical plant
Iron concentrate mine
Darkhan Metallurgical Plant (Operating)
Darkhan Beneficiation (0.04 Mtpa)
8 Mtpa
9 Mtpa Burgastai
Altanbulag
ShiveekhurenGashuun Sukhait
Eruu gol (8 Mtpa)
Tumurtei (1 Mtpa)
Tolgoi (1.1 Mtpa)
Ervei Khushuu (0.5 Mtpa)
*Sainshand Industrial Park (SIP) – Iron Pelletizing Plant
Selenge (5 Mtpa)
Sainshand Iron Plant* (Planned)
Sainshand Beneficiation (4 Mtpa)
13.7Mtpa
Mongolian Iron ore industry in 2020 (Mtpa)
| 43
Rest 0.560
Iron 0.03
TT 0.1
EMC 0.05
OT 0.26
Iron ore 5% of GDP
CONTRIBUTION* TO THE MONGOLIAN ECONOMY (GDP)
DIRECT TAX PAYMENT TO GoM^ (2012 MNT
trillion)
2010 2020
Rest 89%
Iron Ore 1%
EMC 10%
*Direct and indirect impact ^Indirect impact on tax revenue is not considered
Impact on the economy and state budget revenue (2012 MNT trillion)
Rest 0.715
Iron 0.005
TT 0.08
EMC 0.03
OT 0.17
2030
MNT 11 trillion
MNT 42 trillion
MNT 68 trillion
0
150
300
450
600
EMC Iron Ore Industry
99
535
0
250
500
750
1,000
EMC Iron Ore Industry OT TT
565
998
280340
0
200
400
600
800
EMC Iron Ore Industry OT TT
415
767
86
252
www.eri.mn
3!
Oyu Tolgoi: Copper & Gold • Oyu Tolgoi alone will bring in
$5 bln in investments by 2013
• Over the next 27 years the mine will generate $51 bln
Tavan Tolgoi: Coking Coal • Estimated to operate for
200+ years • Over the next 29 years the
mine will generate $87 bln
Other mineral resources: • 15 Strategic Deposits with
estimated resources valued at over $1.2 trn
• Yet to be tapped resources include Silver, Uranium Gold, Phosphates, Iron ore and Zinc
• Only 30% of the country is prospected
Infrastructure: • Infrastructure investments to
further boost GDP • Pipeline investments needed
to build/update infrastructure through 2015: $8.4 bln
0"
5"
10"
15"
20"
25"
1989"1990"1991"1992"1993"1994"1995"1996"1997"1998"1999"2000"2001"2002"2003"2004"2005"2006"2007"2008"2009"
2010F"
2011F"
2012F"
2013F"
2014F"
2015F"
!2.3!!!3.2!!!3.9!!!5.1!!!4.2!! !5.8!!
!7.2!! !7.7!!!9.5!!
!11.0!!!12.4!!!5.3!!!7.4!! !6.9!! !7.6!! !7.2!! !7.4!! !8.1!! !9.1!!
!11.3!!!10.3!!
!12.4!!
!2.9!!!5.2!!
!11.6!!
!16.6!!
!20.9!!!22.1!! !21.6!!
!17.0!!!18.3!!
!22.1!!!24.6!!
Mongolia!2005!4!2015! Qatar!1989!41999! Kazakhstan!1992!4!2002!
GDP!in!USD!Billions!
2010 Qatar GDP = $110 bln
2010 Kazakhstan GDP = $126 bln
2025 Mongolia
GDP = $100 bln
Source: IMF
Mongolia’s GDP Growth Parallel with Qatar & Kazakhstan
Essential steps: building policy infrastructure
•
• Signing mega investment contracts: copper in 2009 with Rio Tinto
• Preparation for next mega projects in coal (Tavantolgoi) and other investment projects (copper, coal, oil shale, etc)
• Creating development financing: Development Bank of Mongolia (2010): Law, agency (bank), training, management team, raising finances (2012, allocated 2.1 billion US dollars)
• Amending fiscal system for better managing fiscal resources (Integrated Budget Law, 2011)
• Using fiscal resources for social development (Human Development Fund 2010) and poverty alleviation
• Creation of Fiscal stability legal framework (2011)
• Creation of Stability Fund (2011) and preparation for Sovereign Wealth Fund
• Creating PPP or Concessions Framework (2009) for infrastructure projects: law, agency, training
• Support for higher value in agro-industry: cashmere bonds, SME funding (direct financing, guarantee system) 2010-2013, new industrial policy (2015)
• Continuing partnership with Rio Tinto on OT Phase 2: 6 billions dollars, a largest single project investment financing packet
45
62
Total Public investment (million US dollars)
budget MDF DBM Chingis bonds
INFRASTRUCTURE
Public road network
Supply routes: railways
25
Railway project, Samsung, MCS, GOM
Transit: Eurasia East-West Corridor, North-South corridors
AH4 AH32
AH3
TT
T
T
T
T
T
T
T
T T
T
T
Terminal
Power Station No 5 0.8 GWT of energy
TT, OT power station 1 GTW of energy
Эрчим хүч, цахилгаанPower stations, total investment of 3 billion dollars
International airport of UB
2016-2017 completion time1.5-2 million passenger capacityCurrently on construction stage
Simultaneous expansion of urban infrastructure is to support the affordable housing program.
HOUSING PROJECT
5,000 household housing in the Western region
10,000 household housing in the Central region
5,000 household housing in the Eastern region
75,000 household housing in Ulaanbaatar city
5,000 household housing in the Khangai region
Project Sponsor Ministry of Construction and Urban Development of Mongolia (MCUD)
Project Description
Construction • 75,000 households in Ulaanbaatar • 25,000 households in regional centers
Project Amount $6.2 bln - Engineering/Social
Infrastructure Work $2.5 bln
- Construction $3.7 bln Technology Concrete, high-rise buildings
• In June 2010, Cabinet Resolution #36 approved The New Development Mid Term Program for 2010-2016 aimed at addressing the socio-economic and environmental concerns
• 100,000 Housing Project was approved under the Mongolian Cabinet Resolution #341, in November 2011.
• Government of Mongolia considers housing and urban infrastructure to be a high priority area.
Source: Former Ministry of Road, Transportation, Construction and Urban Development, 2010
13
• The 100,000 Housing Project aims to provide 75,000 affordable housing units for citizens living in ger areas. It is estimated that successful implementation of the project will bring down percentage of residents living in ger are from 60% to 36%, improving living conditions and reducing air pollution of Ulaanbaatar.
• In addition a mortgage program with 8% fixed rate with duration of 20 years has been approved by the Government of Mongolia in 2013, cutting interest rates almost in half.
Government of Mongolia
And entering population bonus era: highest share of young people in population
Male population Female population2020 population projection (grey zone) and 2000 population
Total population
55
High literacy rate
Real gender equality
100 universities and colleges
60 technical vocational training colleges
Hundred thousands educated overseas
Europe: Germany and UK North America: US Asia: Japan Eastern Europe: Russia, Czech Republic Australia
Cambridge education standards◆ Pilot for 30 schools and continuing ◆ If successful, all high school education will move to Cambridge standards (same as Singapore)
56
Essential government steps: building software infrastructure
• Building a network of skilled labor - vocational professional training colleges (70) – partially through cooperation with investors (2010)
• Setting up a modern labor market
• Set up a specialized Labor Ministry and affiliated research institutes (2012)
• Building better foundations for higher education in mining and engineering
• Mongolia-Germany Technology institute
• Mongolia-US Mining engineering private college project
• Mongolia-Japan technology college
• Regional and urban development: public-private cooperation, regional development index, better redistribution of tax revenue
• Using mining revenue for social development (extensive investment in education and health)
57
58
GE, Newcom project, 110 million dollars
Softbank, Newcom two additional plants in
Gobi
Policy issues
4
Figure 2. Mongolia: Overview of Macroeconomic Developments
Expansionary fiscal policy in 2012 supported growth but also put pressure on inflation and the current account. The successful international bond issuance boosted reserves.
Strong demand growth in recent years may have outstripped the growth of Mongolia’s production capacity….
…contributing to double-digit inflation in 2012. Inflation in Ulaanbaatar was 9.5 percent in October (y/y).
Expansionary fiscal policy was the main driver of the acceleration of inflation in 2012.
It also kept the current account significantly in deficit even as imports for the FDI-financed OT mine wound down.
The real effective exchange rate appreciated through June. In recent months there has been a correction.
Chinggis bond proceeds raised reserves in late-2012. Gross reserves amounted to US$2.4bn in October.
-18-16-14-12-10-8-6-4-2024681012141618
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Mineral Output Gap (in percent of mineral GDP, RHS)Non-mineral Output Gap (in percent of Non-mineral GDP, RHS)GDP (in bil Tog, LHS)Potential GDP (in bil Tog, LHS)Output gap (in percent of GDP, RHS)
Sources: Mongolian authorities; and IMF staff estimates.
Output Gap Estimates(based on HP filter)
-10
0
10
20
30
40
-10
0
10
20
30
40
Dec
-07
Mar
-08
Jun-
08Se
p-08
Dec
-08
Mar
-09
Jun-
09Se
p-09
Dec
-09
Mar
-10
Jun-
10Se
p-10
Dec
-10
Mar
-11
Jun-
11Se
p-11
Dec
-11
Mar
-12
Jun-
12Se
p-12
Dec
-12
Mar
-13
Jun-
13Se
p-13
Non-food items (contribution to headline CPI)Food items (contribution to headline CPI)Headline CPI (y/y)Non-food CPI (y/y)Food CPI (y/y)
Sources: Mongolian authorities; and IMF staff estimates.
Consumer Price Inflation (in percent, December 2007-October 2013)
-25
-20
-15
-10
-5
0
-25
-20
-15
-10
-5
0
2005 2006 2007 2008 2009 2010 2011 2012
Non-mineral (NM) on-budget balanceLarger NM deficit due to DBM spending
Sources: Mongolian authorities; and IMF staff estimates.
Non-mineral fiscal balance(in percent of non-mineral GDP)
-40
-35
-30
-25
-20
-15
-10
-5
0
5
10
-4,000
-3,500
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Transfers, netIncome, netGoods and services, netCurrent accountCurrent account (RHS, in percent of GDP)
Current Account (2003-2012)
Sources: Mongolian authorities; and IMF staff estimates.
60
70
80
90
100
110
120
130
140
150
60
70
80
90
100
110
120
130
140
150
Jan-
05
Jul-
05
Jan-
06
Jul-
06
Jan-
07
Jul-
07
Jan-
08
Jul-
08
Jan-
09
Jul-
09
Jan-
10
Jul-
10
Jan-
11
Jul-
11
Jan-
12
Jul-
12
Jan-
13
Jul-
13
REER NEER
Sources: Mongolian authorities; and IMF staff estimates.
Exchange rates of the togrog(Index, 2005=100, Jan. 2005-Oct. 2013; an increase is an appreciation)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Jan-
09Ap
r-09
Jul-
09O
ct-0
9Ja
n-10
Apr-
10Ju
l-10
Oct
-10
Jan-
11Ap
r-11
Jul-
11O
ct-1
1Ja
n-12
Apr-
12Ju
l-12
Oct
-12
Jan-
13Ap
r-13
Jul-
13O
ct-1
3
Source: Mongolian authorities.
Gross international reserves(In millions of U.S. dollars, January 2009-October 2013)
Budget deficit
FDI was a main driver of growth and financed the CA deficit for the last three years but continues to drop in 2013 and 2014.
FDI dropped to an half in 2013…
Annual FDI inflow (in percent to GDP, %)
… and continues to decline in 2014.
Monthly FDI trend (in millions of US$, 3 month moving average)
-5%
0%
5%
10%
15%
20%
0%
10%
20%
30%
40%
50%
60%
2008 2009 2010 2011 2012 2013
Net FDI Inflow inpercent to GDP (%):Left Axis
GDP Growth (%):Right Axis
5
Figure 3. Mongolia: Fiscal Developments
Expansionary fiscal policy pushed the deficit (including operations of the Development Bank of Mongolia (DBM)) to 10.9 percent of GDP in 2012.
Including DBM spending, the deficit reached 10.9 percent of GDP in 2012.
The 2012 non-mining deficit topped the 2008 record.
Spending now exceeds 57 percent of non-mineral GDP. Fiscal policy has been pro-cyclical.
The Chinggis bond and DBM bond raised public debt by US$2.1bn.
During the first 10 months of 2013, the budget has run a small deficit (MNT 144bn or 0.9 percent of GDP). But this excludes DBM spending.
-15
-10
-5
0
5
10
-15
-10
-5
0
5
10
2005 2006 2007 2008 2009 2010 2011 2012
On-budget overall balanceIncrease in deficit owing to DBM spending
Sources: Mongolian authorities; and IMF staff estimates.
Fiscal balance(in percent of GDP)
-25
-20
-15
-10
-5
0
-25
-20
-15
-10
-5
0
2005 2006 2007 2008 2009 2010 2011 2012
Non-mineral (NM) on-budget balance
Larger NM deficit due to DBM spending
Sources: Mongolian authorities; and IMF staff estimates.
Non-mineral fiscal balance(in percent of non-mineral GDP)
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
2005 2006 2007 2008 2009 2010 2011 2012
Non-mineral revenue
On-budget expenditure
DBM spending 1/
Sources: Mongolian authorities; and IMF staff estimates.1/ The Development Bank of Mongolia provided loans of US$ 190 million for non-revenue generating public investment projects such as roads ("social benefit projects") in 2012. The budget will need to repay these loans.
Non-Mineral Revenue and Expenditure(in percent of non-mineral GDP)
-10-8-6-4-202468101214
-10-8-6-4-202468
101214
2005 2006 2007 2008 2009 2010 2011 2012
Annual change of non-min. GDP gapAnnual change of CAB (inverse)
Sources: Mongolian authorities; and IMF staff estimates.2/ The cyclically adjusted fiscal balance is the overall balance net of cyclical effects. Cyclical effects are computed using country specific elasticities of aggregage revenue and expenditure series. In this case, the elasticity assumptions are 1 for revenue and 0 for spending.
Cyclically-adjusted fiscal balance (CAB) vs. Output gap(in percent of potential non-mineral GDP)
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
2005 2006 2007 2008 2009 2010 2011 2012
Nominal public debt NPV of public debt
Public debt(in percent of GDP)
Sources: Mongolian authorities; and IMF staff esimates.
-40
-20
0
20
40
60
80
100
-40
-20
0
20
40
60
80
100
Jan-
08A
pr-0
8Ju
l-08
Oct
-08
Jan-
09A
pr-0
9Ju
l-09
Oct
-09
Jan-
10A
pr-1
0Ju
l-10
Oct
-10
Jan-
11A
pr-1
1Ju
l-11
Oct
-11
Jan-
12A
pr-1
2Ju
l-12
Oct
-12
Jan-
13A
pr-1
3Ju
l-13
Oct
-13
Revenue
Expenditure
Sources: Mongolian authorities; and IMF staff estimates.
Revenues and expenditure (excl. DBM, incl. carryover)
(Twelve-month percentage change in 3mma, Jan. 2008-Oct. 2013)
Large balance of payments imbalance put pressure on currency value and international reserve.
External financing gap became significant due to large CA deficit and dropping foreign capital inflow.
As a result, currency value weakened and international reserves dropped.
Annual Balance of Payments (in millions of US$)
USA• Visits by President Bush and vice-president Biden (2005, 2011)
• Mongolia is a member of Asia-Pacific democracy Partnership
• Chaired the Commonwealth of Democracies in 2012-2014
• Joint military exercises Khaan Quest are expanding
• 1300 Mongolian students are studying in USA; 700 alumnies of US universities are working actively; including President Ts. Elbegdorj
• Mongolian military base is granted a status of NATO facility in 2014
• Transparency agreement with USA is signed at the end of 2013; expected to accelerate talks on free trade agreement; USA has such agreements only with 9 countries
• 450 million dollars of assistance from Millenium Challenge Foundation and USAID, second phase of MC is under consideration
• US companies are investing in oil shale in Mongolia, approximately 700 billion tonnes of reserves; the Oil Law is changed to accomodate investments in oil shale and coal bed methane.
• Need to join TPP, free trade agreement with USA
To bring investors back• Japan: free trade agreement (Economic Partnership
Agreement) is slated for 2014
• 2000 students are studying in Japan; in current cabinet 2 ministers have background of Japanese education
• Japan approved low cost funding for 1000 more Mongolian students in engineering to study in Japan; in addition Mongolia-Japan joint technology university is opened in Ulaanbaatar in 2014
• Japanese investment in coal-to-liquid, powerplants is sought. Total volume sought is approximately 3.5 billion US dollars. Leading Japanese banks opened their representative offices in Ulaanbaatar in 2012 and 2014
• In addition, Japan is assisting on urban development planning for Mongolia; feasibility studies for railways and Ulaanbaatar metro; currently engaged in building new Ulaanbaatar airport (Mitsubishi Heavy industries)
• Japanese experts are consulting Mongolia on mining and heavy industry, public private partnership, development financing and Samurai bonds
China• Recent visit by President Xi Jinpin
• 30 billion dollars of investment into coal-to-gas plants project is pledged, annual output of 15 billlion cubic meters per annum for export to China. That’s twice of amount of gas Russia exports to France. Working group is preparing a feasibility study for the project which 3 times larger than national GDP
• Increase bilateral trade to 15 billion US dollars from current 6 billion by 2020
• Export credits of 500 million dollars; modernization of 48 hospitals and electronic equipment for schools Electronic education projects; credits for large tractors purchases from China for agriculture; scholarships for 1000 Mongolian university students; swap agreement between central banks for 20 billion RMB or 3 billion US dollars
• 2 power plants will be built with participation of Mongolian and Chinese private companies. Plans for coal-based mega power plant with capacity of 4800 megawatt is revived for export to China (state level)
• Access to 8 Chinese sea ports; Gobi railway is being built together with Mongolian companies on border to facilitate transportation; easier access to sea using Chinese railways is promised;
• China pledges support to Mongolia’s entry into APEC; participation in the East Asia Dialogue (Japan, S. Korea, China)
Russia• Joint work on modernization of the railway to double its capacity,
to finish by 2020 (approximately 1000 km)
• No visa agreement to boost Russian tourists from end of 2014
• Supply of Mongolian agricultural products to Russia is urged. Mostly meat, possibly also vegetables. Mongolia was a leading meat exporter to Russia before 1990
• Free trade zone on Mongolia-Russia border is completed (Altanbulag free trade zone).
• Joint investment into a large silver deposit Asgat in western Mongolia
• Mongolian fuel companies pledge to purchase 1 billon US dollars of oil products from Russian companies (Saint Petersburg summit)
• Russian universities will provide more schorships to Mongolian students
• Mongolia and Russia hosted largest-scale military exercises together this year; Selenga-2014; included for first time aerial strikes, heavy tanks and 1000s of ground troops; further military assistance is promised, in particular supplies of weapons
Challenges• Environmental problems
• Social divide: urge to enrich quickly at any price, very materialistic society in a traditionally buddhist country
• Therefore, populist politics
• Rapid growth - losing the direction, searching for an appropriate social model.
• Society looking for guidance and leadership
• Gradually preparing for 2016 elections
68
Lessons• Doing both economic and political reforms at same time resulted in economic
hardships
• However, the possilibity of actually doing right choice as in 10 years both new economy and governance systems matured and stabilized
• Next 10 years became years of economic growth and political sophistication and collaboration
• In 20 years the country is reborn as a democratic, vibrant, growing and dynamic
• Strong move towards cooperation with democracies (ASEM summit, Chair of Community of Democracies)
• Next 10 years will result in more tuning-up of economy and governance, higher growth, tighter links with multinationals from developed countries (Rio Tinto, 16 international banks) as well as with East Asian giants of Japan (EPA agreement), Korea and China.
• Free trade agreement with USA and TPP are crucial to further the deveopment of Mongolia towards market economy/global market