Who benefits from Mongolia's riches? (Feature)

By Renate Bormann Oct 11, 2010, 4:11 GMT

Ulaanbaatar, Mongolia - 'Our leaders are getting richer and richer. But for us, everything is getting more expensive,' says Altangerel, who works in a beauty salon in the Mongolian capital Ulaanbaatar.

'A few years ago a litre of milk was still 700 tugrik (0.53 dollars), but now I have to pay twice that much.'

Many Mongolians are sceptical that the country's newfound geological wealth is being shared with its citizens. The benefits of recent payout schemes have been questioned, as politicians argue over what to do with the new money, and economists warn of the negative effects of cash handouts.

Altangerel, who like many Mongolians goes by only one name, cannot share the enthusiasm of her country's politicians and foreign corporations for the expected mining boom. 'The cost of rent, heating and electricity are also rising. My income hasn't been able to keep up for a long time,' she says.

Significant deposits of coal, gold, silver, uranium, zinc and fluorite have been identified under the arid steppes of Mongolia, putting the country in 14th place globally for natural resources.

Many more uncharted mineral resources are thought to be awaiting discovery, potentially enough to put Mongolia in third place.

Such prospects are enticing for China or South Korea, where raw materials are in high demand from the manufacturing industries.

But the question of how to share the benefits of the country's mineral rights has stirred up controversy.

In 2001, the Oyu Tolgoi area in the South Gobi province, was shown to hold one of the world's richest copper, silver and gold fields.

In October 2009 - seven years and much wrangling later - the government signed an agreement with international mining companies Ivanhoe Mines Ltd/CA and Rio Tinto Plc for their exploitation.

Political opposition and civil society groups have protested that the deal, which signed over 66 per cent of the rights over the deposits to the investors, amounted to a sellout.

With the multinationals' money pouring into state coffers, each of the estimated 2.7 million Mongolians was promised a payment as 'erdeniin khuv,' or share of the treasure, of between 1 and 1.5 million tugrik.

Earlier this year, each citizen received 70,000 tugriks, with another 50,000-turgik-payout planned for the end of the year, and the rest was scheduled for disbursement by the end of 2012.

Many dreamt of following in the footsteps of Kuwait, where immigrant wage-earners do the heavy lifting while the citizens cash in on the income from the extraction industries, and the knock-on benefits to the rest of the economy.

But the reality in Mongolia has fallen short of such high hopes.

With its 2009 decision to implement the handouts, the government also axed child benefit payments and subsidies for young couples.

For many Mongolians, around 20 per cent of whom live on less than 1.25 dollars per day according to the United Nations Development Programme (UNDP), child benefit had been their only source of income.

The cash injection also caused a spike in inflation, in line with economists' unheeded warnings, hitting Mongolia's poorest even harder.

Opposition leaders have argued against the handouts, citing their negative impact on the economy, calling instead for the money to be invested in education, health and other social services.

And the burgeoning mining industry has hardly created any jobs for Mongolians. Many school leavers have little other option than the illegal gold mines, often hotbeds of prostitution and other criminal activities.

Local livestock farmers are involved in frequent violent clashes with both legal and illegal mining companies, as they defend their lands against degradation from the heavy machinery and contamination of the waterways.

International financial institutions may have praised Mongolia for stabilizing its financial markets and reining in public sending, but ground-level research has shown that improvement for the country's poor is slow.

A report compiled by the national authorities and local UNDP representatives said that the UN Millenium Development Goal of halving poverty by 2015 is now out of reach, with 47 per cent of the rural population officially under the poverty line, and 27 per cent in the capital.

Unless more effective solutions are found to share the country's abundant natural riches, Mongolia's wealth alone is unlikely to earn it a place among developed nations, but the rising value of copper and gold and recent oil discoveries mean a change in policy is unlikely in the near future.

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