Global Policy Forum

Mongolia's Mining Boom Could Expose It to the Resource Curse

Originally a nomadic country, Mongolia is experiencing a mining boom. The country’s Gobi desert is rich in coal, gold, copper and lithium, and many foreign multinational companies are eager to exploit Mongolia’s natural resource opportunities, which could transform the country and lift it out of poverty. However, past examples show that a rapid increase in wealth in countries with weak government and civic structures can lead to corruption and autocracy. Thus, “Mine-golia” should be careful not to fall prey to the so-called resource curse.

By Terry Macalister

August 20, 2012

The Gobi desert is soon to welcome Rio Tinto's mega-mine, but coping with the sudden influx of investment may be problematic

Barely a day goes past without mining or other parts of the extractive industries talking up a "new frontier" for their work: Thursday it must be the Arctic, Friday perhaps Burma, and Saturday could be Mozambique.

But today it is surely Mongolia, a country remembered largely for 13th-century exploits of Ghengis Khan but in 2012 celebrated for a 16.7% first-quarter economic growth rate – more than double that of China.

There is an enormous mining boom going on in this wild region of sparsely populated steppe and semi-desert that could bring great wealth to a country of barely 3m currently impoverished people.

Rio Tinto, the London-based mining group, is but one of the leading corporations hoping to cash in. Rio is about to open what could eventually be the third largest copper mine in the world.

There are also big supplies in the Gobi region of coal, gold, rare earth minerals and even lithium, on which the mobile phone world relies. And it is all but a stone's throw from resource-hungry China.

What's not to like about this? Well, a sudden burst of wealth on this score is like a national version of winning the lottery in that it can cause enormous upheaval as well as benefits. It can also leave a country dependent on the ups and downs of the volatile commodity markets.

Countries with rudimentary government and civic structures, such as Nigeria, have been almost overwhelmed by oil wealth in the past. It triggered widespread corruption and ultimately autocracy but little improvement in the lives of ordinary people. Charities such as Oxfam have called it the resource curse.

Mongolia is a democratic nation but the former prime minister has just been jailed for corruption and the future direction of the political establishment is somewhat uncertain.

Meanwhile a series of mega-mines has brought new infrastructure to the southern Gobi region but also threats to the traditional lives of some herding communities and potential environmental degradation.

This small country must learn how to deal with powerful foreign multinationals on its own terms. Mine-golia will need to study commodity success stories such as Norway to avoid the pitfalls of Nigeria.

• This article was amended on 22 August 2012 to clarify that Lithium is not a rare earth mineral.


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