A tipping point for Mongolia's democracy?

Sandwiched between the giants of Russia and China, Mongolia is looking to develop its vast mineral wealth. How will this affect one of the most stable democracies in the region, and what will happen to the benefits of development?

Pan-Africanism has acted as an umbrella containing diverse attempts to democratise the newly decolonised sub-Saharan continent, whether through the efforts of domestic forces or external aides, albeit with mixed results. Internal pressure groups, as well as transnational forces (especially international donors, banking institutions and multinationals) may help explain the various fates encountered by the single countries on their path to democratisation. Local variables, together with regional trends and international organisations can therefore provide a vaguely reliable model of behaviour for most of the developing countries. But, is democratisation achievable at all latitudes regardless of distinct regional peculiarities?

Whatever the approach, what happens when a nation reaches an acceptable democratic standard (i.e. free multi-party elections, a network of independent media and so on) and its mineral resources provide enough material reasons for a relatively positive outlook? Once an initial consolidation of democratic and liberal values has taken place, what happens next? Is there a stage at which the development of a nation reaches a tipping point beyond which it cannot possibly go either in terms of economic development or political advancement? Mongolia represents a unique case in this context.

Mongolia: between two authoritarian states

Landlocked between two champions of authoritarianism like Russia and China, this steppe territory with the Altai mountain range in the West and the Gobi desert in the south detached itself from the Soviet yoke and changed its Constitution in 1992, when it went from being a “people’s Republic” to a multiparty state. The transition was not without issues but, 20 years later, Mongolia still represents an anomaly to scholars of democratisation. The only nation of its region to be ranked as ‘Free’ in Freedom House’s “Freedom in the World 2013 Index”, Mongolia never fell in the autocratic trap the way Kyrgyzstan and Turkmenistan did and its geostrategic position between two nuclear powers has not posed a real threat in the last two decades. On the other hand, its vast territory (roughly the size of Western Europe) is home for less than three million inhabitants, half of which live in the capital Ulan Bator, while the other half continue living as steppe nomads.

Mongolia is therefore a stable democracy despite these preconditions, rather than thanks to them. But the big engine of economic development is undeniably its soil, with its extensive mineral deposits that have recently seen the government enter a partnership with mining giant Rio Tinto to exploit the mines in the south.

In a country that in recent years has experienced a strong economic growth. The development of mining projects like Oyu Tolgoi (capable of extracting, at full capacity, 430,000 tons of copper and 425,000 ounces of gold per year on average, as well as silver and molybdenum, according to estimates made by Rio Tinto) in the south of the country, would lead one to think that the economic future of this country can be deemed if not bright, at least hopeful. The Mongolian government has structured the exploitation of this mine in such a way that it fits into the shareholding organisation of the joint venture, while still enjoying the tax revenues generated by this activity. Classically, one would be lead to think that the cash flows arising from Oyu Tolgoi would be reinvested in developing Mongolia's infrastructure in order to diversify production, thus making the country, over time, more resilient against price fluctuations of commodities that it produces. In addition, the inflow of Foreign Direct Investment and the reduction of unemployment suggest that the mine could contribute to the growth of per capita income, thus letting more complex indicators such as the United Nations’ Human Development Index (based on level of education, of income and life expectancy) predict, for Mongolia, a degree of development with no equal in the region.

Is future development possible?

So, will everything be OK? Not really. The development undertaken by the country may involve a number of risks, due to the typicality of the predominant economic sector, but more importantly to Mongolia's demographic and social features. Concerns about the development of the nation may in fact lie in its own peculiar topographic arrangement. Apart from the capital city, no other urban settlement exceeds the 90.000 settlers, with most city centres consisting of an average of 20.000 residents. This, combined with the large distances between one place and the next creates a layout that discourages investments in mobility or transport infrastructures. The question of whether or not Mongolia could further develop once the wealth generated by the big mining projects will start to flow, puzzles analysts and politicians alike.

This derives in particular from the nature of Mongolia’s main source of income; minerals. The minerals market is, in fact, a sector prone to the volatility of international exchanges in which there is no chance of monopolisation and wherein the production of a country is fungible with the one of another. The investments and their performance in this area are heavily influenced by international prices which could change at any time, making a project less profitable, and at risk of closure. As in the case of Mongolia, a country with high growth, it is common to observe high inflation - a phenomenon that tends to increase the operating costs -, which affects the profitability of the investment, too.

Strength in economic diversity

In this context, manufacturing and agriculture, already weak and affected by the exodus of labour and capital towards the mining sector, cannot act as a shock absorber, and in the worst cases, the country is bound to experience problems of stagnation. To prevent this situation of ‘quasi-Dutch Disease’ happening, it is clear that the proceeds of the dominant sector should be immediately invested in the industrial diversification of the country. But, the peculiarity of Mongolian economy, one where for instance, even the traditional investment in transport infrastructure such as highways and railways are not a priority, due to low urban density demographic structure and social traditions, limit the value of this form of investment.

Mongolia will therefore soon face a dilemma in terms of economic and social growth. How far can a country on the verge of an economic boom of epic proportions go to prevent its economy from being hijacked by not only external interests and trends, but also by the lack of an economic cycle that could harmoniously drive its growth? Also, is it possible to achieve an acceptable development standard in a country with almost no infrastructure and half its population leading a nomadic lifestyle that pre-dates Genghis Khan’s Mongol Empire? The answer, as always happens with Mongolia, can be found nowhere else than in Mongolia.

His presidency is commonly perceived as successful because of his commitment in the national and international spheres. Domestically, after playing a key role in the democratic movement in the late 1980s and early 1990s, his liberal stance has firmly established civil rights at the centre of his political platform, contributing, for example, to the abolition of capital punishment in 2012. Elbegdorj’s efforts have undoubtedly favoured the growth of civil engagement in public affairs both locally and nationally. This has reversed a common trend of post-Soviet states, Mongolia included (although it was never part of the Soviet Union, Mongolia followed Moscow’s diktats almost verbatim), which tend towards low levels of political association. The growth in political engagement has helped ignite national debates on issues like the construction of nuclear storage facilities and on the ever-growing fear of Chinese soft colonialism and falling commodity prices.

So, why change? Despite her close affiliation with former President Enkhbayar, who was arrested following accusations of corruption in April 2012, Natsag Udval did not obtain much support from erstwhile supporters of the disgraced, although still widely popular, politician. Her candidacy somehow failed to appeal to the female electorate, thus not taking her beyond a mere 6.5 per cent. Wrestling champion Bat-Erdene, considered by many the only potential threat to the incumbent, managed to tally 41.97 per cent of the votes, failing to pose a real threat but making sure that the winning candidate got just enough to avoid a second round whose outcome would have been potentially uncertain.

President Tsakhia Elbegdorj is therefore Mongolia’s sixth President with 50.23 per cent of the votes in what will probably be the most challenging term for the young nation, both domestically and internationally. What the outcome of the election tells us is that, for the first time in its democratic history, Mongolia has chosen to re-elect a candidate of the Democratic Party, thus renewing its trust in what US President Barack Obama has designated an “important leader in advancing democracy and freedom” in a country that remains “a key partner for the United States in Asia and globally” and “which serves as a significant example of positive reform and transformation for peoples around the world". If one looks beyond the obligatory hyperbole of the message, it is clear how valuable a partner Ulaanbaatar is for Washington, especially in light of the new role that Mongolia is trying to carve out for itself in the international arena. 

Talks with the US and Japan regarding the building of storage facilities to stock and dispose of nuclear waste in the vast Mongolian grassland have been halted after a series of protests. But President Elbegdorj can now continue to advance the idea of his country as a mediator in international disputes. Like the one on the Dokdo/Takeshima islands that sees two key American allies in East Asia, Japan and South Korea, dangerously claiming sovereignty over a bunch of apparently unimportant rocks. Or the close diplomatic relations with North Korea, which put Mongolia on top of the list of potential mediators to resolve the intricate network of interests south of the 38th Parallel.

Elbegdorj will most probably not try to back down on these issues having spent most of his career, both as Prime Minister and President, contributing to shaping Mongolia’s foreign relations in a country which constitutes a novelty and an anomaly both in terms of democratisation and international relations. Elbegdorj’s re-election means that Mongolia’s policies have proved – so far – to be successful and aimed at expanding that Third Neighbour Policy that has steered the country’s sense of the importance of political and economic alliances with the west as an outlet from the limiting boundaries to which it is geographically and geopolitically confined.

‘Perseverance’ and ‘steadiness’ seem to be the keywords for this second mandate, which domestically, analysts say, will be focused on resolving one of Mongolia’s main issues: corruption. The negative models, in this case, abound. Countries like Tajikistan, Kyrgyzstan and Uzbekistan, which, following a brief stint of democracy in the early 1990s, have returned to a state of authoritarianism, serve as a warning to a country that is yet to find a balance between poverty and, potentially, immense wealth. An enormous amount of it that will soon come from its coal, uranium, copper and gold deposits is mostly located just north of the border with China.

A $6.5bn facility has been built at the biggest extracting site at Oyu Tolgoi, in the Ömnögovi Province, by a joint-venture co-owned by the Mongolian government and mining giant Rio Tinto. But the export of copper concentrate, which was due to start just before the elections, was stopped by the Mongolian government following a request to have all revenues processed through Mongolian banks. The first shipment left for China on 9 July and, according to analysts, Oyu Tolgoi alone will increase Mongolia’s GDP by a third by 2020, although benefits to local populations are still deemed ‘doubtful’ by international NGOs and observers.

This second term is likely to confirm the direction taken by Mongolia since Elbegdorj’s ascent to office in 2009. The electorate wants to see stability and consistency brought to a political system of which it has historically been very critical. The ‘catch-all’ policies of the main parties, aimed at securing high levels of membership, have somehow reduced the differences between the candidates and have strongly contributed to making the electoral campaign a largely unappealing affair where no real debates between the three main actors have taken place. The main exception being the television discussion that took place on 24 June, described by Julian Dierkes, Associate Professor at British Columbia University and an expert in Mongolian politics, as a Q & A which had a winner in the weakest contestant: Natsag Udval.

The apparent banality of the election contest is, in part, a product of the new Presidential Election Law. Adopted at the end of 2012, it prevents individuals from standing for election, thereby restricting the choice to candidates nominated by parties or coalitions. Additionally, candidates are not allowed to include in their political platforms subjects that are deemed to be outside their sphere of competence (mainly security and foreign policy). This limits not only the range of potential issues to be debated but also the possibility that a huge part of the electorate (the less informed or educated, for instance) might identify itself with themes like the role of Mongolia in the world. Overall, the OSCE, in its preliminary conclusions, has defined the elections as “characterized by respect for the fundamental freedoms of assembly, association and movement; contestants were able to campaign without hindrance, and rallies remained free of incidents”; an outstanding result even for a peaceful nation with a sparse population like Mongolia.

Rather ironically, the very normality will be the main challenge for Elbegdorj, who will be asked to continue to represent what less than two years ago was the world’s fastest growing economy. And which is now starting to come to terms with both the country’s renewed role at the international level and the demands of a global commodity market that, despite being extremely volatile, represents the main source of growth for an industrial sector still far from competitive.

“Stability, stability, stability! Isn’t that what happens when an incumbent is re-elected?”, argues Professor Julian Dierkes. Will Mongolia keep on dodging international controversies while scouting for them at the same time? Four years can be a very long time.