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Mongolia in bind over mining

As Mongolia cowers under the brutal thrall of its worst winter in decades, questions are being asked as to whether the country should end its reliance on nomadic herders and dig deeper into its mineral reserves instead, reports MiNDFOOD.

Mongolia in bind over mining

Some 800 years ago, Mongolia’s nomadic herdsmen were surging across the steppe under the leadership of Genghis Khan and conquering China, Tibet and much of central Asia.

Today, most of their descendents are at the mercy of the hostile Mongolian weather or crammed in the capital, Ulan Bator, where they struggle to make a living even though the country sits on some of the world’s richest mineral reserves.

Mongolia has been extremely cautious about developing its huge but untapped reserves of coal, copper, gold and uranium, and it recently announced it would cancel an auction for the world’s biggest coking coal reserve at Tavan Tolgoi.

However, the government’s hand might be forced by massive fiscal debt, coupled with a crippling humanitarian problem as nomadic herders, fleeing a freezing winter that is killing their herds, overwhelm the capital.

The ruling Mongolian People’s Revolutionary Party needs cash quickly to relieve the strain on Ulan Bator and provide jobs and an education for a million struggling nomads. The cash can only come from opening up its mining sector to foreign firms.

“You have to have revenues coming from somewhere and that is going to come from mining. If you do dodgy deals, then yes you will have a problem, but I don’t think Mongolia should be holding back,” said Arshad Sayed, country manager with the World Bank.

Foreign mining firms have been discouraged from investing in Mongolia since the government began to insist on majority local ownership for big projects and slapped a windfall tax on mining profits which will not expire until next year.

Most of Mongolia’s resources remain unexplored, particularly in the South Gobi region, but copper reserves from the Oyu Tolgoi deposit alone are second only to Chile. Its inferred uranium reserves are also estimated to be the world’s second largest, behind Australia.

Yet this underground wealth provides little solace for the millions of refugees who huddle from the cold in Ulan Bator’s makeshift shanty towns, stuffing rudimentary stoves with coal and wood or anything else that burns, and casting the city in a sulphurous fog.

The recent snowstorms, known locally as the zud, are said to be even worse than the winter ten years ago, when scores of stranded nomads died along with 11 million heads of livestock.

“My sister still lives in the east as a herder and every day she wakes and finds more animals dead,” said Dambadarjaa Enebish, a 60-year-old refugee, one of thousands of nomads who fled to Ulan Bator during the harsh winter of 1999-2000.

With at least two million head of livestock already believed to have perished, conditions don’t come much tougher even by the standards of the harsh central Asian steppe. The Red Cross said it could be spring before the full extent of the damage is known.

“It is a very bad crisis,” Mongolian Prime Minister Sukhbaatariin Batbold told Reuters. “The cold we are experiencing now is a record low for the last 37 years and 90 percent of the country is covered in snow.”


Ulan Bator’s refugee problem began after the collapse of the Soviet Union, when herders facing new Russian export restrictions began to flee the harsh pastures and erect thick woolen tents known as “gers” on the hills that encircled the capital.

“During Soviet times there were large collectives that demarcated areas,” said Sayed of the World Bank.

“It was well organised, the meat could be gathered and prices were stable, but the market has now disrupted the whole chain, and it gets worse at the time when it is needed the most.”

Now, the collective farms have disappeared, herds are more dispersed and the Soviet-era supply chains have broken down, forcing herders in far-flung regions to rely on middlemen to sell their meat. When the bad weather comes, those middlemen don’t arrive, he said.

Ulan Bator’s ger districts account for about 60 percent of the city’s 1.8 million residents. A majority of the country’s 2.7 million people live in the capital.

“I’m not going back to the countryside even though the air here makes me cough, because there is no other way, but I told my sister to stay. There is nothing for her here,” said Enebish.

Many of Ulan Bator’s unemployed nomads have found a permanent home in the crowded shanty towns that surround the city. But others have not been so lucky. Thousands of orphans and vagrants descend through manholes into the capital’s crumbling Soviet-era hot-water system each winter to seek refuge from the bitter cold. They are often pelted with stones by city regulators trying to push them out of the underground labyrinth.


As Mongolia tries to forge ahead with efforts to convert its vast underground wealth into tangible gains, aid workers suggest many nomads are the victims of the laissez-faire economics that dominate the country’s solidly business-oriented parliament.

In the 1990s, herders were encouraged to apply for cheap loans to expand their herds, but few had the wherewithal or experience to sustain those herds through the brutal winters, leaving the country’s banks with a mountain of bad debt.

Furthermore, the marginal land could not sustain the expanding livestock, explained Tungalag Buyan-Ulzii of the Mongolian Red Cross.

This was especially the case when soaring cashmere prices encouraged nomads to breed more goats, which have long been the scourge of sustainable agriculture in poverty-stricken farmland throughout Africa and Central Asia as goats eat through crops and leave grassland barren.

“The government wants to encourage smaller herds but it isn’t going to impose restrictions,” she said.

Rana Flowers, UNICEF’s representative in Mongolia, said the government might need to consider more proactive measures.

“They have allowed herds to increase in an uncontrolled way, and unless they are prepared to deal with it, they will face a zud every year,” she said.

Experts say herds have increased by half in the last two decades, and Mongolia’s barely fertile land can no longer feed them. With fodder supplies already hit by a summer drought, large numbers of animals are now starving.

“Only about 20 per cent of the herders are successful. The rest are extremely poor or middle to low income and most of them aren’t making a go out of it. More than 50 percent of their herds have been lost,” said Flowers.


The government in Ulan Bator is currently in the middle of a long debate about how Mongolia should take advantage of its largely unexplored reserves.

The Mongolian economy was badly hit by the financial crisis, and the World Bank expected 2009 growth to have slowed to 2.7 per cent, down from 8.9 per cent in 2008. The impact of the harsh winter on meat prices is also expected to push inflation up to 8 percent this year, according to IMF forecasts.

Nevertheless, analysts from Renaissance Capital and Eurasia Capital both predict Mongolia will take over from Angola and Azerbaijan as the fastest growing economy in the world, albeit from a very low base, over the next decade.

The IMF is a little more conservative and says it will be the fourth fastest growing economy.

Copper-rich Oyu Tolgoi, now 66 per cent owned by Ivanhoe Mines of Canada and Australia’s Rio Tinto, is expected to require an investment of $4 billion over the next nine years, equivalent to the country’s entire GDP in 2009.

Flowers said that large-scale mining projects could create the employment and housing for many displaced nomads. But this would require a significant lifestyle change and would take a long time to develop.

“There are probably some tough decisions to be made about regrouping the population, and we might see it happening around the mining companies, with populations moving in the hope that employment will emerge,” Flowers said.

Prime Minister Batbold has admitted that the government didn’t yet have the means to deal with the winter refugees, or with the thousands arriving at the ger districts to find work.

“They can stay, but to get registration and social benefits, they need help from the authorities and that needs to be based on our capacity,” he said.

While some ex-herders said the situation was improving, with state-built schools and dormitories now dotting the provinces, there is still a gap between the aspirations of Mongolia’s leaders and the reality on the ground.

Dush Batlyankh, a 65-year-old former herder who moved to Ulan Bator with her six children after her husband and her livestock perished in the 1999-2000 zud, said city life will be tough for the herders flooding into Ulan Bator.

“It will be really hard for the new ones, especially knowing that previous herders haven’t really been able to settle here and find work,” she said.


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