On October 6th, 2009, after years of arduous negotiation, the Canadian public company Ivanhoe Mines and the Government of Mongolia (GoM) signed a long awaited investment agreement laying the groundwork for a US$ 4B investment into a copper and gold mine in the Gobi Desert. This was the Oyu Tolgoi mine, and it signified the beginning of Mongolia’s precipitous thrust into the arena of foreign investment and economic development.
Subsequently, in 2011, Mongolia saw extraordinary economic growth. GDP grew 17.5% on the back of a 179% increase in foreign direct investment (FDI), and headlines such as “Booming Mongolia: Mine, all Mine” (The Economist, 21/01/12) and “Mining Fuels Mongolia’s Wolf Economy” (CNN, 20/05/11) began appearing in world press.,
However, in the second half of 2012 Mongolia’s course was altered. GDP growth dropped to 12.3% against estimates of around 15%, the fiscal deficit came in at 8.4% of GDP, inflation was in the double digits, and foreign direct investment dropped 17% from 2011. This downturn has continued well into 2013. FDI levels have dropped 43% in the first half of the year, GDP expectations continue to be revised down (the World Bank recently announced it was cutting its GDP growth projections to 12% compared to it’s original forecast of 16.2% and the IMF recently cut their prediction to 11.8% from its previous growth forecast of 14% in April 2013), and the MNT has seen a tumultuous slide reaching 1,722 MNT/USD in September – a depreciation of 25% from its beginning of year rate and it’s lowest level in at least 10 years. This is particularly worrying for a currency that has been relatively stable in the not so distant past and for a country that is so reliant on the USD for investment projects.
While a downturn is clearly evident in the numbers, there is a richer story to be found in the qualitative indicators. Talk to any Mongolian business owner and you’ll hear that there are considerably fewer customers coming into their stores or requesting their services. High-end shopping malls built on the 2011 consumer hype are deserted and empty on the weekends. There is a discernible drop in the number of expatriates inhabiting the city centre cafes and pubs. And importantly, a bleak and pessimistic sentiment permeates the Ulaanbaatar community, no small fact for a country with such enormous untapped potential.
