The Experimental High School Attached to Beijing Normal University
This paper briefly summarizes the key risks of Mongolia in four areas–economic, social, political, and geopolitical. Among them, the major social risk is the over-concentration of population. Then, economic risks, majorly economic instability, along with political risks, majorly low administrative efficiency, are also worth noticing. Lastly, geopolitical risks, best represented by “Third Neighbor” doctrine that destroys the balance between Mongolia, China, and Russia, also need to be reckoned with.
Among these four major risks faced by Mongolia, the social risk, over-concentration of population, is the most distinct and serious one. This is partly because the concentration of population has caused negative influence on all territories of Mongolia. In Ulaanbaatar where over 50% population gather, poverty becomes overt due to the mismatch of job vacancies in the city and beyond-expectation population assemble in the suburb area of the city. In other provinces, labor shortage is also fatal, making local governments unable to deal with natural disasters and effectively manage native stock farming industry. Besides the broadness of influence, over-concentration of population shows no trend to be solved in the future years. Although Mongolia govenrment cooperates with international groups such as the United Nation to deal with the problem, the population of Ulaanbaatar is still increasing in a constant trend. Therefore, the level of this risk maintains in High range.
economic and political risks, though as serious as the social risk in recent perspective, are likely to see an alleviation in the upcoming year. For economic risk, after the global recovery from COVID-19, Mongolia will experience a surge in export and therefore promote the economic resurgence. Also, for political risk, the new President Khurelsukh might conduct reforms in the country, which is positive in solving the problem of low administrative efficiency of the government. Therefore, risks in these two areas are put in Medium range.
Geopolitical risk is the slightest one in Mongolia. Although the “Third Neighbor” doctrine has prompted the partial breakdown of Mongolia-China-Russia balance, Mongolia government has imposed the new “Permanent Neutrality” policy, which has led to the success of vaccine diplomacy earlier this year. Therefore, geopolitical risk is in Low range.
The risk report focuses on the upcoming year–from July,2021 to July,2022. In the upcoming year, the pandemic of COVID-19 along with the presidency of new president Ukhnaa Khurelsukh will bring changes to the major risks of Mongolia. Therefore, this paper will try to predict the new risks and their levels in the future 12 months.
In economy perspective, the greatest risk of Mongolia is economic instability. The causes of economic instability could be diverse in different countries. However, in Mongolia, economic instability is mainly caused by two reasons: first, the economic structure lacks diversification; second, macroeconomic control from the government is too problematic.
Over-reliance on mining
First, Mongolia’s economy extremely depends on mining. In recent years, mining industry accounts for about 20% of the country’s GDP. Mining also accounts for about 60% of industrial output and about 80% of total exports.
This kind of economic structure with a large proportion of mining industry naturally has its advantages: mining industry can bring rapid economic growth to Mongolia when the price of minerals experiences rises or when investments of mining from other countries increases. For example, in 2011, foreign investment in Mongolia’s mining industry reached a peak, resulting in a 17% GDP growth rate in Mongolia, which was the highest in the world. However, rapid economic growth is accompanied by potential risks. When the mining market is depressed, Mongolia’s economy will suffer considerable losses. Recently, due to the influence of COVID-19 pandemic, international market of minerals shrank from the first quarter of 2020 to the first quarter of 2021.Take some of the major mineral contributors- the United States, Canada, and Russia-as example. From the chart provided by Trading Economics, all of the mining GDP of these three countries have plummeted since the first quarter of 2020.
Mongolia was undoubtedly influenced by this depression. Due to the statistics from Trading Economics, GDP from mining in Mongolia decreased to 861972.10 MNT million in the first quarter of 2021 from 1299410.90 MNT in the fourth quarter of 2020.1This trend is also reflected on the chart.(Figure 5)
Therefore, the over-dependence on mining provides Mongolia’s economy with too much uncertainty.
Problematic macroeconomic control policy
Secondly, the Mongolian government’s problematic macroeconomic control policy increases the risk of single industry structure. In fact, many countries in the world have a dominant economic industry, which is similar to Mongolia. However, many of these countries avoid economic risks through reasonable macroeconomic control. For example, the dominant industries of Brunei’s economy are crude oil and natural gas, which account for about 50% of the country’s GDP. However, the Brunei government provides high land lease subsidies to encourage agriculture. At the same time, the government introduces the most advanced technical transformation to ensure more FDI inflows, and thus promote the industrial progress of the country. It can be seen that the Brunei government has made great efforts in industrial diversification and upgrading. On the other hand, although the Mongolian government has carried out relevant policies, the actual effect of these policies is not contributing due to the lack of executive power and wrong regulation. For example, after the economic crisis in 2009, the government of Mongolia implemented Financial Stability Law(FSL). However, in facing the downturn in the international mining market since 2012, the Mongolian government mistakenly liberalized its expenditure control, resulting in a sharp rise in debt.
In a word, the dependence on mining and problematic macroeconomic control are major causes of economic instability in Mongolia.
Potential social risks caused by economic instability
Mongolia’s excessive dependence on mining makes its economic growth vulnerable to mining. According to the Statistics Bureau of Mongolia, the GDP growth rate of Mongolia in 2011 was 17.3%, which was the highest in history. It was because foreign investment in Mongolia’s mining industry in this year was most considerable. With the recession of the international mining market, Mongolia’s GDP growth once fell to 1.2% of 2016 (Figure 6).
With the depression of mining industry, there are a lot of unemployment and poverty. Mining industry does not account for the majority of the total labor force, but its related industries (such as clothing industry) influence a lot of labors. With the depression of mining industry and the saturation of mines, many mine workers and related-industry workers are facing the problem of unemployment. According to the chart made by Trading Economics, the unemployment rate of Mongolia steadily increased since January of 2020.
Around the capital Ulaanbaatar, many medium and large-scale mines gradually went bankrupt, which transported a large number of unemployed people to the suburbs of the capital. So far, there are nearly 380000 poor people in the suburbs of Ulaanbaatar, accounting for about 12% of the national population, which is a surprising proportion. And they need a lot of financial supports from the country, making them a huge burden of the national economy.
The future trend of economic instability in Mongolia
The future of Mongolia’s economy is not optimistic when it is considered in the long term. Mongolia is not likely to improve its macro-control policy in the short term. Since the promulgation of FSL in 2009, the Mongolian government has repeatedly postponed the revision of the policy, making the policy unable to keep up with the changes in international market. At the same time, the low executive power of the Mongolian government comes from the imperfect operation system from the government to the people. It will take ten years or even several decades to improve. Debt is the major factor to consider whether Mongolia government impose effective policies and make efficient implementations in economy. However, the forecast model gets the result of 32570462.00 USD Thousand in 2021 and 34198985.00 USD Thousand in 2022 of public debts, which means the debt is still steadily increasing, and the problem shows no sign of alleviation.
However, when we fix our eyes upon the upcoming year(july 2021-july2022), we can find out some positive trends. During the most time in 2020, it was difficult for Mongolia to open its border trade with neighboring countries. According to statistics, the first destination of Mongolia’s exports is China—the destination of 90% of Mongolia’s export is China. However, the border was reopened in October, 2020.2 Accordingly, trading websites forecast the economy growth of Mongolia in the upcoming year, and the figure shows that Mongolia’s GDP starts its growth since july 2021 and reach one billion in the month of july in 2022.
This prediction is also supported by Chinese news website– Xinhua News–in its report of Mongolia’s pandemic control. The reporter said that Mongolia’s economic growth is expected to recover gradually in 2021 and accelerate in 2022 as the COVID-19 pandemic risks fade and the global recovery strengthens, said a new Asian Development Bank (ADB) report released on Wednesday.3
Furthermore, the prediction of ADB might be more direct. It forecasts that the annual GDP growth rate of Mongolia in 2021 and 2022 are 4.8% and 5.7%, which means that Mongolia is stepping on the road of economy rapid growth after the pandemic. 4
In conclusion, Mongolia’s economy will likely to recover in the next year, and the major economic risk–instability–will also be weakened. However, due to the long-term effect of wrong policy making, the risk is still worth caring about. Therefore, the level of risk is Medium.
At present, the biggest social risk in Mongolia is the over-concentration of population and problems that derive from it.
How concentrated is the population of Mongolia
By 2021, Mongolia’s population is about 3.3 million, while the capital Ulaanbaatar alone has 1.5 million people, nearly half of the country’s total population.
Erdenet, the second largest city in Mongolia, has only 80000 people. It can be seen that the population of Mongolia is extremely concentrated in the capital Ulaanbaatar. This kind of population distribution has caused different social problems in Ulaanbaatar and other areas.
Labor shortage outside Ulaanbaatar
The problem of labor shortage outside Ulaanbaatar is very serious. About 55% of adults in the country live in Ulaanbaatar, which means that there is a serious shortage of labor force in other areas. The least populous areas in Mongolia are the West and southwest, and none of the provinces in these two areas has a population of more than 100000. Due to the lack of natural resources such as ore, the main economic source of these areas is stock farming. However, the shortage of labor makes the local government unable to mobilize enough manpower to implement environmental protection measures, which makes the local stock farming industry vulnerable to extreme weather and then reduce in production. According to statistics, due to poor environmental control and imperfect natural disaster contingency plans, “dzud” (natural disasters such as snow and sudden drop in temperature in winter) has become more frequent in recent years, which makes many herdsmen unable to maintain their livelihood. For example, an article in Reliefweb stated that the government’s disaster relief funding for a disaster of this magnitude was inadequate to meet the urgent demands of the affected population.5
Poverty in Ulaanbaatar
Most of Mongolia’s population is concentrated in the capital Ulaanbaatar, which seems to promote the development of Ulaanbaatar. But in fact, many of the capital’s residents live in extreme poverty. According to statistics, the poor population in Ulaanbaatar accounts for 33% of the poor population in the country. Most of these people live in yurts on the outskirts of the city, and their unemployment rate is so high that many people can’t find jobs in the city. The government of Mongolia has reported the situation of unemployment. According to the government report, 54.7% male labors were underutilized, along with 45.3% female labors were underutilized, in 2020. Also, it is likely that the unemployment of Ulaanbaatar will remain constant above 8% in the upcoming year. The above situation has a certain relationship with the urban design of Ulaanbaatar. In building the capital, urban planners in Mongolia did not realize that Ulaanbaatar would experience a population explosion. First of all, the government’s regulation is that each resident of Ulaanbaatar with a registered permanent residence can own 750 square meters of land in the city.6 Therefore, the new residents can not live on the privatized land in the city, so they can only live in the suburbs. Secondly, Ulaanbaatar itself can not contribute enough jobs, and the discrimination against sex and age at those jobs is extremely obvious. The inequality that suburb residents are facing has aroused protests. According to AM Best’s country risk report of Mongolia, Mongolia is a peaceful country in protests, but recently the major causes of protests is income inequality.7 Apart from protest, residents in Ulaanbaatar tend to express their opinions through polls. According to a poll made by International Republican Institude(IRI) in 2021, over 53% participants of the poll in Ulaanbaatar stated that the urban unemployment of Ulaanbaatar needed to be solved immediately.8 The result of this IRI poll effectively reflects residents’ views, indicating that poverty and unemployment in the capital are already severe and unsatisfactory.
The trend of population over-concentration
Now, the situation of over-concentration of population shows no signs of alleviation. Since 2011, although the population growth rate of Ulaanbaatar has been declining, it has been between 2% and 4%, and the unemployment rate of Ulaanbaatar is still high. Of course, the government is also actively solving the problem of over concentration of population. The government actively cooperates with the World Bank of the United Nations to provide funds to support Mongolia’s social welfare and economic transformation. Also, international organizations such as IFRC Disaster Relief Emergency Fund(DREF) actively support extreme weather forecasts in Mongolia. These measures are likely to ease the social conditions in Ulaanbaatar and other areas in the next 10 years. Therefore, the problem of over concentration of population is likely to be alleviated in 10 years. However, when focusing on the period from july,2021 to july,2022, we are not likely to see the risk level of social problems in Mongolia decline. So, the level of risk will still remain in High range.
In the term of politics, the biggest risk is the low administrative efficiency of Mongolia government, which has been mentioned many times in this article. Political problems in many countries are related to conflicts between political parties, political power and local forces, but there are no such problems in Mongolia. Also, freedom isn’t an issue of Mongolia. According to the scoring given by Freedom House, Mongolia’s score is 84, which belongs to the free rank. Therefore, administrative efficiency has become the biggest political risk in Mongolia.
Causes of low administrative efficiency of Mongolia government
There are three main reasons for the low administrative efficiency of Mongolian Government: excessive concentration of government power; unreasonable government structure; And the lack of government integrity.
First of all, we need to talk about the excessive concentration of government power. With the development of market-oriented reform, the Mongolian government gradually takes the responsibility of macro-control, but it still has too much power. The affairs that the government needs to manage and deal with are increasing since the development of society, which inevitably reduces its administrative efficiency. At the same time, the final result of 2021 president election is announced–former Mongolian Prime Minister Ukhnaa Khurelsukh was elected on june 9th 2021 to be the new president of Mongolia. Working for the former Mongolian People’s Party government led by Khaltmaa Battulga for six years, Khurelsukh’s presidency means that the governance of MPP is continued. And the Democratic party in Mongolia, losing the election for twice, is predicted to be marginalized by MPP. Just like what Sodnomzundui Erdene, the candidate of Democratic Party said, the country was sliding towards a one-party state. One-party state has been warned by Freedom House.9 Now, it seems that the worry of Freedom House is going to come true, and MPP is likely to take more control over the country’s power. More importantly, MPP party in Mongolia has the inclination of authoritarianism, which is shown by Battulga, the former president.10 The new president also belongs to MPP, and he once served as the Prime Minister of Battulga. Therefore, it is possible to predict that the new president will continue to be authoritarian and exacerbate the situation of power concentration.
Then, let’s talk about the poor structure of the government. Before and after the collapse of the Soviet Union in 1991, the Mongolian government abandoned the socialist system and adopted the democratic system. In the process of continuous reform, the Mongolian government structure has also been adjusted. However, in the process of adjustment, many government departments’ function positioning is not accurate, which results in its inability to work efficiently and play a corresponding role. During the presidency of president Battulga, over 30 institutions were established to limit the powers of institutions that had similar functions. The new president Khurelsukh, coming from the same party as Battulga, seems to continue Battulga’s authoritarian policy and increase the number of offices.
Finally, the lack of government integrity is quite obvious in Mongolia. It is first reflected in the rapid change of policies. In terms of social and economic fields, Mongolia’s policies change rapidly, which makes it difficult for people in the country to trust in the government. In addition, the lack of government integrity is also reflected in corruption. Corruption is serious in Mongolia. According to the statistics of Transparency International, the corruption index of Mongolia ranks 111th among 180 countries (the bigger the number, the more corrupt the country is). The survey in Mongolia shows that 41.9% of domestic interviewees think that the government should make more efforts in anti-corruption work. The lack of credibility also slows down the efficiency of government administration.
How does low administrative ability influence society
Although the low administrative efficiency will not cause great harm to the stability of society in the short term, this problem will experience long-term accumulation and gradually reduce the stability of society. First, the low administrative efficiency will easily lead to the decrease of the trust of the people to the government and the ruling party. This is not conducive to the government’s policy towards the public.
At the same time, the low administrative efficiency also makes many policies not able to keep up with the changes of the situations. For example, the environmental protection policy of Mongolia has not made effective adjustment to the environmental problems such as land desertification, but let land desertification become more and more serious, which makes most of the domestic areas covered by deserts and Gobis, while the grassland in the traditional impression only occupies a small area.
The future trend of low administrative ability
In the short term, the problem of administrative inefficiency can not be significantly improved. Of course, the Mongolian government is also actively solving this problem. At present, Mongolia can take the following measures: changing government functions; Reform the government structure; Strengthen the construction of the sense of integrity. Russia, which has undergone great reform since the collapse of the Soviet Union, is a good example for Mongolia. There are many similarities between the two countries, such as the deep socialist background, energy as the main industry, and serious corruption. After 30 years of reform and efforts, Russia is superior to Mongolia in government administrative efficiency. I believe Mongolia can learn from Russia’s reform model. Of course, this means that Mongolia may also need decades to complete this process. Before that, the problem of administrative inefficiency will still affect social stability.
However, The unknown policies of the new president Khurelsukh will become the X factor of the political risk of Mongolia. During Battulga’s presidency, his opposing party-Democratic Party, supported protests about the government’s COVID policy and its low efficiency in dealing with the pandemic, which significantly threatened the legitimacy of Battulga’s government. As the former prime minister of Battulga, the administrative efficiency of new president Khurelsukh’s leading group might also be criticized. However, it is actually not trustful to make an analogy between Battulga and Khurelsukh. In fact, Khurelsukh is likely to impose his new policies to make an administration reform, which is the tradition of Mongolian presidents.11 Also, the legitimacy of Khurelsukh’s government is reassuring: based on the data from 2021 election, Khurelsukh gained 67.76% votes, which means that most of citizens in Mongolia are likely to support Khurelsukh’s reforms. Therefore, it is not fancy to predict that reforms will be successfully conducted in the next year, and the risk will be slightly alleviated. Therefore, the potential provided by Khurelsukh drags the level of risk from High to Medium.
The biggest geopolitical risk of Mongolia is that “Third Neighbor” doctrine destroys the traditional balance between Mongolia, China and Russia. Mongolia is very special in geographical location, Because of the lack of coastlines, it can only establish contact with neighboring China and Russia. After the collapse of the Soviet Union, China and Russia’s influence on Mongolia tends to be balanced. However, with the formal proposal of the Mongolian government in 2011 to form a “third neighbor” relationship with the United States, Japan, Turkey and other countries, the original balance between Mongolia, China, and Russia may be broken, and the disappearance of the balance may cause great risks to Mongolia.
The contradiction between Mongolia’s expectation of “Third Neighbor” and “Third Neighbor”’s expectation of Mongolia
Since Mongolia began to actively seek the “third neighbor”, the United States and Japan have become the two most far-reaching “third neighbor” countries. Mongolia hopes that the two countries can form a balance of power with China and Russia, so that Mongolia can get more benefits when dealing with its three neighbors; At the same time, Mongolia hopes that these two “third neighbors” can expand Mongolia’s political influence in the world. However, the expectation of the United States and Japan for Mongolia is beyond the prediction of the Mongolian government.
The United States hopes to find a reliable fulcrum in the Asia Pacific region to effectively threaten China and Russia. Therefore, the United States hopes to infiltrate its military power into Mongolia.
Second is Japan, which is extremely short of energy, so it needs a big energy country like Mongolia to gain energy. Therefore, Japan has repeatedly proposed to strengthen the mining rights in Mongolia.
Mongolia originally hoped that the United States and Japan would bring more benefits and greater international influence to itself, but it never thought that the two countries would strengthen their control over Mongolia in their own ways, which would increase Mongolia’s own danger.
The risks caused by the United States and Japan
As we all know, the United States and Japan are oppose to China and Russia. The increasing influence of the United States and Japan in Mongolia will lead to the counterattack from China and Russia. At that time, the balance between Mongolia, China, and Russia will be broken, and Mongolia will have to be involved in the vortex of conflict. As a matter of fact, the conflict of China and Russia against the “third neighbor” is now emerging. In April 2016, Russian Foreign Minister Sergey Lavrov visited Mongolia to strengthen cooperation between Russia and Mongolia. His real purpose was to limit the development of American and Japanese forces in Mongolia. More importantly, this was Russia’s first visit to Mongolia in the past ten years, which showed that Russian government was worried about Mongolia’s “third neighbor” doctrine. It can be imagined that if the situation continue to develop, the conflict between China, Russia, the United States and Japan in Mongolia will expand and deepen, which will do no good to Mongolia’s economic and social development.
At the same time, the increasing control of the United States and Japan over Mongolia has led to many obstacles in the administration of the Mongolian government. As early as 1996, the United States and Mongolia signed an agreement which pointed that the U.S. military can enter the military bases in Mongolia when necessary. Therefore, the military power of the United States will have a great influence and restriction on the Mongolian government. On the other hand, by means of economic aid and political propaganda, Japan has established a general favor in Mongolia and won a large number of mining development rights, which will have a huge impact on Mongolia’s already risky mining industry and may even shake Mongolia’s economy.
The future development of “Third Neighbor” doctrine
Mongolia is also aware of the uncertainty brought by the “Third Neighbor” doctrine. Therefore, in 2015, the Mongolian government changed the “Third Neighbor” policy in favor of the United States and Japan to the “Permanent Neutrality” policy, aiming to show China and Russia that Mongolia will not be completely inclined to the United States and Japan, but will maintain a balanced relationship with everyone. In the future, the influence of China, Russia, the United States, and Japan in Mongolia is likely to be balanced by the promulgation of this new policy. The new policy paid off during the pandemic of COVID-19. While keeping good relationships with China and Russia, two major vaccination contributors among the world, Mongolia also received vaccinations from multiple sources. Now, Mongolia has received Sputnik V from Russia, Sinopharm from China, and other brands such as COVAX and Pfizer. With the success brought by the wise “Permanent Neutrality” policy, Mongolia government has vaccinated 42.9 of its population, which is amazing around the world.12 With the encouragement of vaccine diplomacy triumph, Mongolia government will be more confident to insist on the “Permanent Neutrality Policy.” Also, America president Joe Biden is likely to lean toward consolidating the relationship between Mongolia and America. Biden visited Mongolia in 2011, paving the road of making a good relationship between these two countries. In 2021 when the conflict between China and America has maintained and the meeting with Putin in Geneva has made no progress, Biden might try to find a breakthrough by allying with Mongolia. Accordingly, Mongolia has a promising future in Geo-policy, and the risk in this field belongs to Low rank.
Client introduction: Amazon,founded in 1995, is the biggest electronic commerce corporation in the United States. Initially, the company focused on book selling. After successful management, the company expanded its market to different fields, including books, groceries, shipping, containers, and even houses. In recent years, Amazon fixes its eyes on Asian market, making a large amount of investment in East Asia and South Asia markets.
The conclusion is Amazon should consider developing its service in Mongolia, while there are things to be warned.
The benefits of Mongolia market are diverse. First, Mongolia is a country which highly relies on mining, and its government is eagerly expecting diversification of its industries. Therefore, the coming in of logistics, one of third industry, business will help the government a lot, so that Amazon is going to gain support from the government. Also, Amazon will not face competing logistics companies in Mongolia. Now, the biggest logistics company in Monglia is Mongolian Express, which has little financial support and investment compared to Amazon. Therefore, Amazon will easily win the competition and own most consumers in Mongolia. Second, Ulaanbaatar is a city with high unemployment. If the headquarters of Amazon is in Ulaanbaatar, it will be easy to fulfill couriers, package distributors, and other job vacancies . Also, Mongolia is a country which insists on “Permanent Neutrality” and hopes to develop relationships with countries apart from China and Russia. A company from America will be the government’s first choice to cooperate with.
Apart from benefits, Amazon still needs to care about the low efficiency of local government departments. Logistics companies need strong government to succeed. For example, if the government support infrastructure programs such as highways and airports, the logistics company can utilize them to send packages more efficiently. However, although the government is trying to eliminate administrative inefficiency, this situation will still exist for decades. Therefore, Amazon needs to care about this situation, or it will be the obstacle of their business.
Conclusively, the benefits of Mongolia market outweigh its drawbacks. Thus, Amazon should consider the market in Mongolia, but they also should try their best to reduce the effect of administrative inefficiency of local government.