RAW MATERIALS | 13.10.2011

German chancellor discuses investment in Mongolia

 

Angela Merkel is received with military honor in Mongolia

Germany has taken up on the Mongolian gold rush, albeit a bit late. Despite the ongoing euro crisis, the German chancellor travelled to the resource-rich country for the first time ever to discuss investment.

 

In talks with Mongolian Prime Minister Sukhbaatar Batbold, Merkel made it clear that Germany is not one of the countries that will be pumping in money, but that German investment would include technology transfer and training and education. Speaking before the parliament, the chancellor praised Mongolia for its democracy. Nonetheless, she called on the government to implement a reform of voting rights to better represent the people.

When foreign investors hear the word Mongolia, their eyes light up. The sparsely populated country seems to have an infinite supply of natural resources. Christopher Wood, investment guru at CLSA in Hong Kong, says "Mongolia is the most exciting sort of Asian boom story right now in Asia. But it is a very high-beat story. It's not for widows and orphans."

German Chancellor Angela Merkel, left, visited Vietnam before continuing on to Mongolia

Coal, copper, gold, rare earths – Mongolia has it all. In other words, it is a gold rush for investors. The country's economic growth in the first half of this year was nearly 15 percent. "That is quite a big number for any country in the world," says Dale Choi, Mongolian national and investment strategist at Frontier Securities in Ulan Bator. "We definitely have an economy which is booming. It is booming because of mining and the mining spillover into other sectors."

Shortage of jobs

But mining has just begun in Mongolia. And the country's economic growth has only benefitted the elite so far. One third of the country's population still lives far below the poverty line, according to Jürgen Wellner, who works for the aid organization World Vision in Ulan Bator. "The country has a great future ahead, but not necessarily its poor. Its economic growth rate is fantastic but I am not sure whether or not that will trickle down." He adds that while the country's GDP has grown very rapidly in recent years, poverty has not been reduced.

Fewer and fewer Mongolians rely on animal husbandry for a living

Extreme poverty is especially rampant in the suburbs of the capital Ulan Bator. Outside of the city center, where the streets are lined with drab concrete apartment blocks from the country's communist times, the city's impoverished live in yurt communities and get by on occasional off jobs. Today, half of the 2.8 Mongolian nationals live in the capital city. Many are nomads who have turned to life in the city in search of modernity and also because animal husbandry has been becoming increasingly less attractive. But there is a great shortage of jobs, according to Johannes Rey of the German Konrad Adenauer Foundation.

He believes the extreme poverty is due to the fact that the country has not invested in industry despite being a country that lives from profits from natural resources. "In other words, there is no production, no secondary industries." One possibility for the country to turn that around, Rey suggests, would be for Mongolia to not only export its natural resources but for it to use them in their own industry as well.

Poverty is rampant in the suburbs of Ulan Bator

Modernization

The government has drawn up ambitious plans to industrialize the country. Before the plans can be enacted, however, there needs to be a suitable infrastructure. As of now, 90 percent of the streets are unpaved and the railway system is very underdeveloped. But all of that is expected to change within the next few years. And Mongolia is hoping for a bit of help from its giant neighbors Russia and China and also from the US, Europe, Japan and South Korea.

Mongolia, once an isolated land of nomads, still has a far way to go before it becomes a modern, industrialized country. And how its riches in resources should be divided up among the people is still a political question waiting to be answered.

Author: Ruth Kirchner / Sarah Berning (AFP, dpa)
Editor: Grahame Lucas

 

 

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