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Mongol(d)ia – A Cursed Gold Rush ?

For the past few years, the price of gold has been on a constant rise. Investors around the world are quite fond of this precious metal, and of its stable and increasing value. This renewed interest in gold has lead to a sharp increase in Mongolia’s mining activity.

An underground Mongolian fortune

Home to the world’s lowest population density, Mongolia is better known for its vast steppes than its international presence. Ruled by a communist regime until 1992, the country shifts towards a market economy and undergoes a process of democratization.This young Mongolian democracy is far from exemplary, but despite the rigged elections of 2008 and widespread corruption, it continues to stand by its ideals.

To be sure, Mongolia is one of the region’s poorest countries and has been subject to numerous interventions by the IMF.However, Mongolia’s economy grew at a rate of 17% during the first trimester of 2012, compared to 6% in 2010. The reason for this success? A new found interest for what lies underground.

Indeed, the Mongolian steppes are rich in gold, but also in coal, copper, lithium (crucial for electronic components), uranium, and other precious minerals. According to estimations, the Mongols sit on a fortune of about $2.75 trillion dollars – a fortune which makes every single citizen a potential billionaire.

Of course, states and enterprises were quick to realize the magnitude of the situation and have started to grapple for the control of the country’s mining activities.

Malediction?

Mongolia would not be the first country to fall victim to their wealth of natural resources. Indeed, Nigeria and Angola have already experienced this so-called “resource curse”. This concept posits that there is a correlation between inadequate governance and the presence of natural resources such as oil, diamonds, and rare minerals. In Mongolia, gold presents the risk for a spike in fraudulent practices: corruption, expropriation of resources, and criminal operations are seen as the main risks of resource wealth.

Reports from around the country show that illegal mining operations are already underway. Furthermore, due to this recent enthusiasm, wages and prices have skyrocketed, and it is very probable that the inequalities between the winners (politicians and entrepreneurs) and losers in this situation will only increase.

In addition to these internal issues, Mongolia must also keep an eye out for its neighbors, especially China, who seeks to benefit from the situation. The latter, being a rising superpower, needs all the resources it can get in order to keep fueling its growth.

However, Mongolia has thus far proved its strength of character by rejecting offers from many Chinese companies. The Mongolian government has passed a law making foreign investment more difficult at an industrial and financial level.

These efforts to thwart China’s plans threaten the Mongolian mining industry: with its 2.7 million inhabitants, the country has no means of exploiting all of these resources by itself. Mongolia’s overprotective policies could cause investors to abandon them, which would rob the country of a real chance to grow. Hence,  Mongol(d)ia is a story to be continued.

– Pierre Barthelemy

(Translated from French by Matthieu Charriaud)

 

(Featured photo:AttributionShare Alike Al Jazeera English, Creative Commons, Flickr)

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