Metal Price Collapse And China Exodus Push Mongolia To A Risky Economic Brink
Once upon a time Mongolia was happening. Mining firms from Australia, China, Russia and North America were digging up the vast country for the likes of gold and copper. People had jobs and money to spend. Then in 2014 foreign investment began to fall along with a global decline in commodity prices. China’s step back made a particular impact because it was Mongolia’s top investment source.
Expect another dismal 2017, maybe no growth at all, sending people deeper into poverty and prompting a desperate search for a stronger national economic model.
“There is no silver bullet to address Mongolia’s structural challenges and repeat the boom years,” says Lee Cashell, CEO of one of the largest real estate development companies in Mongolia. “If Mongolia is to benefit from increased commodity demand, its market will need to respond more effectively to improved global pricing.”
The International Monetary Fund forecasts growth in Mongolia of around 1% this year, less than half the rate of 2016 and the lowest of seven “frontier” economies that it tracks in Asia. French investment bank Natixis expects zero growth this year in the $12 billion economy after a drop in investment last year.
“Mongolia has been enjoying rapid growth for the last few years on the back of strong Chinese demand and a commodity boom, which suddenly came to a stop in 2014 and quickly pushed the country into stagnant growth and sharply increased financial fragility,” Natixis says in a Jan. 6 research note.
Minerals are selling for less around the world because of oversupply, weaker demand in China and a tandem drop in energy prices.
Reforms in China to cut pollution and overproduction of coal have raised coal prices, a boon now to Mongolia’s economic outlook, Cashell notes. The restructuring of a loan at the massive Tavan Tolgoi mine could also add $2 billion in revenues to the government, the veteran investor believes.