What contributions did the Mongols make to China?
From the planned to the market economy
Mongolia initially struggled on the way from a planned to a market economy. After grants from the Soviet Union and the other COMECON countries ceased to exist and the sales and procurement markets were lost, the country's economy collapsed like a house of cards, investments fell by 70 percent, and national income fell by 20 percent between 1991 and 1993 .
The privatization of the cattle ran pretty smoothly, the privatization of the large state-owned companies made slow progress and it was not uncommon for the former "public property" to end up in the hands of the new, old rulers. Rural privatization (cooperatives, state estates, trading companies and processing plants) led to an increase in unemployment in the aimags (provinces) and Sums (counties). Settled families here (technicians, medical staff, salespeople, teachers) switched to nomadic livestock farming.
Since the early 1990s, Mongolia has pursued an economic policy that focuses on promoting the private sector and foreign investment.
Mongolia quickly became a popular partner for multilateral and bilateral economic and development cooperation. In 1991 she became a member of the World Bank, the ADB and the IMF, and in 1997 of the World Trade Organization (WTO).
In 1996, negative external factors - steppe fires, collapses in copper and cashmere prices - and internal deficits in the energy and financial sectors - interrupted the recovery phase of the Mongolian economy that had just begun. In addition, there were the extremely cold winters of 1999-2001 (Mongolian "white zuud"), which resulted in high livestock losses.
After 2002 there were increasing signs of a positive overall development.
Due to the climatic conditions with a dormancy of over six months and temperatures in winter below minus 40 degrees, arable farming is only possible in a few favorable regions.
The wide, species-rich steppes of the country have always offered favorable conditions for nomadic grazing cattle, until the middle of the 20th century the structure-defining economic sector of Mongolia. A significant manufacturing industry developed only with Soviet help from the 1930s. Until the 1960s, 60 to 70 percent of marketable goods and 80 percent of exports came from the livestock industry.
The banking and financial services sector, services and tourism as economic sectors to be taken seriously only emerged after the political and economic turnaround.
Knowledge of Mongolia's mineral wealth is not new. Coal and gold were mined as early as the 19th century, albeit on a modest scale. The dismantling is only possible under difficult conditions due to the climate, a lack of manpower and the lack of infrastructure.
Mongolia has no direct access to the sea - Tientsin, the nearest accessible port - is located 1,500 km from the capital Ulaanbaatar on Chinese territory. Railways, automobiles and airplanes are the most important means of transport for passengers and goods.
In 2008, the Grand State Assembly approved the "Development Strategy for the Years from 2008 to 2021" with a total volume of 29 billion US dollars for improvements in infrastructure, education and health care.
To implement the development strategy, Mongolia relies on foreign investments in mining, agriculture, infrastructure and transportation, construction, tourism, financial services and information and communication technology.
Is the exploitation of raw materials as an engine for development?
Thanks to the extensive reforms, the discovery of further huge mineral deposits and the possibilities of recovering them, Mongolia has become an attractive location for foreign investors and has meanwhile developed from a poor agricultural country to a country in the middle income bracket.
However, investments, which had reached a record five billion US dollars in 2011, plummeted in early 2012 as a result of lower world market prices for raw materials, the weakness of the Chinese economy - the main consumer of Mongolian raw materials - and restrictive investment legislation. Only a year later, the government and the state assembly defused these provisions.
In 2013 the Mongolian economy grew by 11.7 percent. Higher government spending and the start of production in the Oyutolgoi copper and gold mine were able to offset the sharp decline in foreign investment and coal exports to a moderate extent. Investments continued to decline in early 2014, partly because the government and Oyutolgoi investors could not agree on the financing of the second phase of the project, underground production. As the World Bank correctly assessed, foreign investment did not increase significantly in 2015 either.
Economic difficulties and tight budgetary situation
The ongoing political crisis after the government reshuffle in December 2014, after the dismissal of the MVP ministers in August 2015 and the internal DP wing battles to fill vacant ministerial and deputy ministerial posts did not necessarily contribute to the consolidation of the economy. The 2015 harvest results were also significantly worse than expected due to the drought and drought in the growing areas.
In contrast, the Ministry of Agriculture was able to report that the harvest results were definitely more gratifying in 2016. The annual requirement for grain could be covered from own production.
Nevertheless, the general economic and social situation was also very tense in 2016. The Tugrug continued to lose value against the dollar and the euro, and national debt continued to grow. There was no significant economic growth in sight and, despite all efforts, foreign direct investment remained at a low level. The reasons for this were lower demand from China and the lower world market prices for raw materials.
Criminal lawsuits against foreign investors, arrests, and refusals to leave the country have also permanently disrupted trust in the Mongolian judiciary.
The government quickly abolished these restrictions. For example, travel restrictions have been lifted for over 200 Mongolian and eleven foreign nationals.
Most of the investments went into geology and mining, the petroleum industry, trade and catering.
In the first eleven months of 2015, Mongolia's economy grew by only 2.5 percent.
In the same year the Grand State Assembly passed a law on "Supporting National Production". Among other things, it included tax breaks for producers of exportable goods.
"Program to Revitalize the Economy"
Stopping the decline of the economy and stabilizing the macroeconomy were the main tasks for the Treasury.
On November 24, 2016, the State Assembly approved the “Program to Revitalize the Economy”.
While negative growth of 1.6 percent was recorded in March 2016, economic growth increased by 5.3 percent in the first half of 2017 and reached 7.3 percent in July 2019. Then came Corona. Raw material exports to China stagnated due to the border closings, government spending increased (health, social benefits, tax cuts) and revenues fell.
In the first quarter of 2020, economic output fell to - 10.7 percent. The ADB expects economic growth of -1.2 percent for 2020.
The main risks for the Mongolian economy still lie in the dependence on copper and coal prices. The interruption of the IMF special loan payments (emergency program) would also have extremely negative consequences. The problems relating to the start of underground operations in the Oyutolgoi gold and copper mine are also still awaiting a viable solution.
According to the National Statistical Office, the inflation rate in July 2019 was 7.4 percent, down 0.1 percent compared to the previous month and plus 4.8 percent compared to the end of 2018.
In April 2020, the inflation rate rose to 6.4 percent, also as a result of the corona crisis, before falling to 3.3 percent in May. Consequence of the decline in consumption.
In November 2020 the inflation rate increased to 3.5 percent, economic growth reached minus 7.3 percent
In his opening speech at the extraordinary session of the Grand State Assembly on August 25, 2017, the then Chairman of the MVP and Chairman of the Grand State Assembly (until January 2019) M. Enkhbold painted a gloomy picture of the economic and social situation in Mongolia. The budget deficit would now have reached 1.9 trillion Tugrug. Foreign investment fell from $ 4.6 billion in 2011 to $ 35 million in June 2016.
In the report of the World Economic Forum on Global Competitiveness (GCI) 2018-2019, Mongolia ranks 99th out of 140 countries with 53 out of 100 points, and in 2017 it was 95th out of 135 countries.
IMF and Mongolia agree
The Mongolian government went to great lengths to obtain foreign financial aid. IMF delegations visited Mongolia several times to sound out opportunities for financial support in the form of large loans and to examine the implementation of the agreement between the IMF and Mongolia.
In February 2017, the IMF and Mongolia agreed in an "Extended Fund Facility" agreement on a loan commitment of 440 million US dollars for the next three years.
Overall, Mongolia can count on low-interest loans amounting to 5.5 billion US dollars from international donors such as the World Bank and the Asian Development Bank as well as from China, Japan and South Korea. Prerequisites: tax increases for cars, alcohol and cigarettes, increase in income tax, increase in the withholding tax on savings deposits, higher social security contributions, gradual increase in the retirement age, monthly child benefit payments for 40 percent of the poorest families, so far 60 percent have benefited.
The "Government Program to Overcome the Difficult Economic Situation and Stabilization" (Action Program of the Government of Mongolia 2016-2020) was adopted after discussions in the committees and in the State Assembly. It includes measures to support the unemployed in finding temporary jobs abroad and the removal of bureaucratic hurdles for companies and start-ups.
After a majority of the members of the Grand State Assembly finally approved the government's resolutions for tax increases and cuts in social benefits, the emergency aid program for Mongolia was passed.
At its meeting on May 24, 2017, the Executive Board of the IMF approved the "Extended Facility Program" for Mongolia.
The International Monetary Fund is providing $ 440 million over three years, opening up the possibility of an additional $ 3 billion from the Asian Development Bank (AEB), the World Bank, Japan and South Korea.
China had already extended the swap contract with Mongolbank for at least three years for two billion US dollars.
The interest on the 440 million may not exceed two percent.
The repayment period is ten years.
The money must be used to reduce the budget deficit, to increase the currency reserves of the Mongol Bank and to support the Mongolian commercial banks.
The first installment of $ 38.6 million was immediately deposited into the accounts of Mongolbank.
In July 2019, the World Bank confirmed another $ 100 million. Both sides expressed confidence that Mongolia could overcome its economic difficulties in the near future.
The first signs of improvement (stop of the Tugrug decline, more foreign investments, higher economic growth) can already be seen. The Asian Development Bank also certifies Mongolia's economy is on the upswing.
In the first eleven months of 2018, Mongolia recorded economic growth of 6.4 percent, the unemployment rate fell to 6.9 percent, and the inflation rate rose to 8.1 percent.
However, the ongoing government crisis has put a damper on the hesitant economic upturn.
The tugrug fluctuates against the USD, in October 2019 the Mongolbank put the official dollar rate at 2,671.60 tugrug, in December 2020 at 2,849.48.
In the World Bank report "Ease of doing Business" 2020, Mongolia ranks 81st out of 190 countries.
The Mongolian economy has been picking up speed again since 2019. While real economic growth was 6.9 percent in 2018, it reached 8.6 percent in the first quarter of 2019 and 7.3 percent in the first half of the year. However, after the slump due to the Covid-19 pandemic since the beginning of 2020, the Mongolian economy will gradually recover in 2021 at the earliest.
The IMF anticipated growth of 6.3 percent for the whole of 2019, the World Bank of 7.2 and the Mongol Bank anticipated growth of 6.9 to 7.3 percent.
The main reasons for the positive economic development were higher raw material prices and more foreign investments.
Germany Trade & Invest (GTAI) also certified Mongolia's economy to stabilize further in its economic outlook from February 2020.
According to the World Bank, the poverty rate fell from 29.6 percent in 2016 to 28.4 percent in 2018.
However, the corona crisis is making Mongolia difficult.
The government decided on an aid package for businesses and the population in March 2020, but is it enough?
In November 2020 the inflation rate was 3.5%, unemployment 7.3% and economic growth minus 7.3%.
On May 13, 2020, the Grand State Assembly approved the guidelines for Mongolia's long-term development policy with “Vision - 2050”.
The document connects the history of the Mongolian Empire, the nomadic culture and national peculiarities with modern developments and international conditions.
General national values, human development, quality of life, economy, “good governance”, environmental and nature protection, peace and security, regional development, the development of Ulaanbaatar and the satellite cities were taken into account.
The perspective plan is to be implemented in three stages: 2021-2030, 2031-2040 and 2041-2050.
One goal is to overcome the still existing dependence on the raw materials industry
This requires the development of the infrastructure, the energy sector, different forms of tourism, the promotion of small and medium-sized enterprises, knowledge transfer and application based on a creative economic policy and the further expansion of a manufacturing heavy, light and food industry.
As a result of the implementation of the plan, an increase in GDP per capita to USD 12,000 in 2030 and USD 38,000 in 2050 is expected.
Furthermore, it is planned to convert Mongolia into an industrial goods export country, into an equal competitor in the Asia-Pacific region.
One of the most important projects of the development policy of the Mongolian government for the next 30 years is the development of the infrastructure.
This includes the construction of the 414.6 km long railway line between Zuunbayan and Tavantolgoi. 100 km could be completed by November 30th, and the entire route is to be inaugurated by 2022.
In the ranking of the world's most powerful digital economies, which is published annually by the International Institute for Management Development (IMD) in Lausanne, Mongolia was ranked 62nd out of 63 countries in 2020, as in 2019.
Factors such as knowledge, technologies (broadband), preparation for the future and cyber security are included in the assessment.
When it comes to smartphone use, Mongolia ranks 6th, while cybersecurity only ranks 63rd.
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