Re-establishing momentum: The government must overcome political and regulatory uncertainty

For a relatively young democracy, Mongolia has taken giant steps in developing its socioeconomic and political system. The values of democracy are today very much instilled in Mongolian society, which is significant given the country’s socialist past. Economic development has also been a major achievement in recent years, as the country has seen a significant inflow of foreign direct investment (FDI), especially in the mining industry. Indeed, Mongolia had the fastest-growing economy in the world in 2011, with expansion of 17.5%.

Obstactles Ahead

However, such tremendous growth has also pointed out some challenges. The need for consistency, clarity and stability in the legal environment and to protect national interests without affecting FDI will be crucial going forward if the country is to remain a top investment destination.

The 2013 presidential elections resulted in a victory for Ts. Elbegdorj and a second term in office. Key issues in the years ahead will include crafting a smart government – enhancing the quality and efficiency of governance, the continuation of his reform agenda for the judiciary system, the fight against corruption and promoting inclusive economic growth.

Meanwhile, Mongolia’s position between Russia and China continues to shape the country’s outlook. Interactions with these two world powers have proven essential in creating a positive business and investment climate domestically. Notwithstanding, admission to the Organisation for Security and Cooperation in Europe in 2012 and the decision to assign a permanent representative to ASEAN in 2013 demonstrate that developing new partnerships with other nations is also key to the country’s global outlook.

Proud History

The land where Mongolia sits today has been inhabited for at least 40,000 years. Large, nomadic tribes started appearing in the region throughout the Iron Age, with an economy based on herding. The region’s extreme weather, with harsh winters and hot summers, established a way of life which is still very much present today throughout its vast steppes and mountains. These nomadic tribes often formed confederations, with these eventually uniting to form more powerful kingdoms, or khanates. The first of these was the Xiongnu empire, of the third century BCE, which was followed by the Turkic Göktürk and Uyghur khanates, and later the Kyrgyz and Khitan Liao dynasty.

Mongol Empire

The Mongols, as a different ethnicity, were first documented in the ninth century, with these early tribes then evolving into a distinctly Mongol kingdom – the Khamag Mongol confederacy – by the 12th century. This is the time when the world saw the arrival of Temujin, later known as Chinggis Khan. Born in 1162 and living until 1227, he was able to unite the different confederacies of the region into a large Mongolian state and conquer a sizeable portion of the known world. His immediate successors continued his endeavours, and armies of the Mongol empire covered the area from the Danube to South-east Asia, including much of China. Chinggis’s successor, Ogedei Khan, made Karakorum the Mongol capital, while Kublai Khan then later re-established Buddhism in Mongolia and moved the capital to modern-day Beijing, where he was head of the Yuan dynasty and ruler of all China.

The empire then fractured into Yuan Chinese, Golden Horde, Chagatai and Ilkhanate territories. The Ming dynasty pushed the Yuan out, while other territories of the empire fell away, mainly to a new rising power, Russia. Eventually, in the 17th century, Chinese Qing dynasty troops occupied what is now Mongolia, beginning a period characterised by rebellion and repression.

In the 20th century, with the weakening of the Qing dynasty, a large rebellion in 1911 successfully created an independent Mongolian khanate. Chinese troops, however, re-occupied the khanate in 1917, following the outbreak of revolution in Russia. Then, in 1920, the White Russian army invaded, driving the Chinese out by 1921 and restoring the Bogd Khan.

Soviet Alliance

The year 1921 also saw the start of the Mongolian People’s Party (MPP), later renamed the Mongolian People’s Revolutionary Party (MPRP), which sought to ally Mongolia to the Soviet cause. The Mongolian Revolution thus began, led by D. Sükhbaatar, fighting in cooperation with the Soviets. The MPP took power, establishing a Soviet-style state by 1924, and in 1928 forced collectivisation began. As a close Soviet ally, Mongolia suffered the purges of Stalin’s era. Mongolian troops took part in the 1939 Soviet victory over Japan at Khalkyn Gol, and in the 1945 Soviet invasion of Japanese-occupied China. In August 1945 China agreed to recognise Mongolian independence.

During the Cold War, Mongolia gained a reputation as a loyal Soviet ally, siding with Moscow in the Sino-Soviet split. It followed the Soviet Union into the turmoil of the perestroika and glasnost years, with 1989 seeing the first democratic organisations established. A mass meeting that turned into demonstration in 1990 led to the resignation of the MPRP government, with the first democratic elections then held in July 1990.

Since 1990, a total of six presidential elections and seven parliamentary ones have been held, cementing Mongolia’s democratic credentials (see overview).

Geography

Mongolia covers a total surface area of around 1.56m sq km, making it the 19th-largest landmass in the world. The landlocked country is home to a vast desert in the south, large freshwater lakes in the north-west, and dry, grassy steppes and plains throughout most of the rest of its territory. Although its borders stretch 8220 km, its only two neighbours are the superpowers Russia and China, a fact that has shaped much of its political and economic history. Ulaanbaatar, the capital, lies just in the country’s north-eastern and is home to some 1.3m Mongolians – around 46% of the country’s population, as per the 2010 census.

Climate

Mongolia’s weather varies significantly across its broad expanses, and is relatively warmer in the southern deserts than elsewhere. Due to its landlocked status, the weather is extreme continental, and Ulaanbaatar, with it high elevation and distance from the sea, is the world’s coldest capital. In January, temperatures fluctuate between an average of -32°C and -19°C in the city. Temperatures of -40°C are not uncommon during this time of year. In the summer, temperatures usually peak in July, alternating between 11°C and 22°C, and sometimes even higher. As a result, over the course of the year, Mongolia sees a temperature range of nearly 70°C. The wettest month is July, with precipitation averaging about 76 mm in the capital.

Language

Roughly 90% of the population speak Mongolian, most of them using the Khalkha Mongol dialect, which is the official language of Mongolia and belongs to the Altaic family of languages. Since 1963, the language has been written using the Cyrillic alphabet, although with the support of the government, the traditional alphabet is gradually being reintroduced.

Population

The population is currently estimated at around 2.9m people and is growing at a rate of about 1.49% per year. Given its small population and large landmass, Mongolia ranks as the least densely populated country in the world. The country is ethnically homogenous, with around 95% of the population being of Mongol origin, some 90% of whom hail from the Khalkha Mongol ethnic group and speak the Khalkha dialect of Mongolian. Other ethnic groups include the Buriat, Dorvof and Tuvad. The most significant non-Mongol ethnic population is a substantial Turkic minority, which accounts for around 5% of the population. Many of these individuals are Kazakhs and they make up the majority of the western-most province of Bayan-Ulgii.

Natural Resources

The country has a vast wealth of mineral resources – over 6000 deposits of roughly 80 minerals in total, worth an estimated $1.3trn. The main proven mineral reserves include coal (20.79bn tonnes of 2013), copper (83.55m tonnes), gold (2459.5 tonnes), silver (27,918.5 tonnes), iron ore (1.09bn tonnes), fluorspar (1.01bn tonnes), zinc (36.58m tonnes), alongside rare earths and uranium (134,000 tonnes), according to figures from the Mineral Resources Authority of Mongolia.

The mining sector is a major contributor to the local economy, accounting for 22% of GDP, 61% of industrial value-added, 94% of export value and 85% of FDI in 2012, according to figures from the National Statistics Office. Major ongoing mining projects include Tavan Tolgoi, the largest undeveloped coking and thermal-coal deposit in the world, and Oyu Tolgoi, the world’s largest undeveloped copper and gold mine, with 2013 seeing the commercialisation of the first phase of the latter project (see Mining chapter).

Economy

As of 2012 GDP was pegged at $10.3bn, with slightly more than a fifth of this coming from the mining sector. Driven by foreign direct investment in mining projects – totalling some $4.4bn in 2012 alone – GDP growth in recent years has been among the fastest in the world. Real growth ratcheted up from an average of 9.2% per year in 2006-08 to 12.1% in 2010-12, according to Bank of Mongolia, hitting a world-leading 17.5% in 2011. Mineral output will grow in coming years, reaching roughly 50% of GDP and 95% of exports by 2016, according to the World Bank, meaning the country will be increasingly vulnerable to global commodity price volatility (see Economy chapter).

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Cover of The Report: Mongolia 2014

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This article is from the Country Profile chapter of The Report: Mongolia 2014. Explore other chapters from this report.