Tuesday, March 8, 2011

Mongolia wants to avoid resources 'Dutch Disease'

According to Prime Minister Sukhbaatar Batbold, Mongolia needs to look beyond the coal and copper mines that are driving its economic boom to find a more balanced model of growth. “It is important to have a good mining industry,” Batbold said in an interview with Bloomberg at a forum in Mongolia’s capital Ulan Bator. “But it is a tool of moving many other things forward. What we want to focus on is creating jobs in many other industries.”

With more than a third of Mongolians living below the poverty line, and per head income in the nation of 2.7 million at $2,111, tthe government wants to focus on value-added products. "Tackling poverty is one reason development in Mongolia has become more urgent, with the mining industry a way to “give better impetus to the economy,” Batbold said.

According to the World Bank, Mongolia needs to avoid developing “Dutch disease,” where the financial benefits of a resource boom lead to a hollowing out of other sectors. “Mongolia can’t compete with China on wages, but it can certainly find areas in the Chinese economy where it could have an edge,” such as in cashmere, meat, and services, said Rogier van den Brink, lead economist for Mongolia at the World Bank. “Diversifying from resources would be a solution similar to what the Dutch found to combat the resource disease.”

In Mongolia, Vale SA, the world’s largest iron ore supplier, and Xstrata plc, the number one thermal coal exporter, are leading six groups bidding for a 1 billion ton concession at the Tavan Tolgoi coal project. Rio Tinto, the world’s number two mining company, is developing the Oyu Tolgoi copper and gold deposit, which it expects will account for 30 percent of Mongolia’s gross domestic product when completed.

The country also holds oil, potash, iron ore, uranium and rare earth minerals.

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