A

Жижиг

A

Дунд

A

Том
http://zgm.mn/post/1419/

War against West

​Rumors about foreign investors dismantling Mongolia’s economy are nothing new​

 0 сэтгэгдэл

A

Жижиг

A

Дунд

A

Том
http://zgm.mn/post/1419/


THE FIRST WAR AGAINST THE WEST

Rumors about foreign investors dismantling Mongolia’s economy are nothing new. There is even a history of one of our mighty neighbors conducting such an operation before they established total political and economic control over our country. In the beginning of the 20th century, Mongolia proclaimed their newly regained independence and announced that Chinggis Khaan’s steppes woke up from their slumber. The world became interested in Mongolians, who were quietly sleeping under the Manchu or Qin rule for several centuries. In general, that was an interesting period when the world was set in motion and the kindling of two great wars that will change the political map of our planet several times started smoking. Christian priests headed by Frans August Larson, who later received a title of Duke from Bogd Khaan, came to Mongolia. Danish farmers, such as Henning Haslund-Christensen, and others moved to Khuvsgul aimag to start a modern livestock breeding and trade firms. Many other countries began operation in Mongolia; for instance, a foreign-invested company called “Mongolor” mined gold and the famous Roy Andrews’ expedition astonished the world with dinosaur eggs found in the Gobi dessert. Along with state flags of the Great White Tsar of Russia and the Chinese Republic, flags of many countries such as the USA, Sweden and Denmark could be seen around the capital of our country.

Since half of Mongolians were herding livestock and the other half were monks, no one was providing the nation with necessary goods. Nobody forbid Mongolian to engage in such works, but Mongolians themselves were not much interested in businesses. Trade and commerce were regarded as an inferior job, and Mongolians disdainfully regarded that “traders are one step away from becoming a thief” and “a spirited thief is better than a soulless merchant”. The “spirited thieves”, who stole livestock, were respected as noble outlaws and the real men. That is why only foreign traders provided Mongolia with three import goods they needed, namely, tea, tobacco and textiles. The traders also bought wool, fur and hides, which were plentiful, from Mongolia so a mutually beneficial business was flourishing. Out of 103,019 puu (1 puu16.3kg) of camel wool, 783,00 puu of cashmere, 979,512 puu of sheep wool transported from Mongolia to Tianjin in 1912 and 122,123 puu of camel wool, 43,231 puu of cashmere, 1,036,629 puu of sheep wool imported in 1913, the majority of camel wool was shipped to England and all of sheep wool went to the USA. Russia bought both wool and cashmere, as well as livestock. For instance, a total of 98,000 cattle were exported to Russian Empire in 1913, 67,700 in 1914 and 80,000 in 1915. “Non- Russian” phrases, such as Machinery Manual and “miles per hour”, shows that a part of Mongolian language remained as witnesses to the fact that technology was first introduced to these steppes from a different place.

Century-old doctrine of condemning foreign investors for potential exploitation is reviving

As such, Mongolia forged relations with the rest of the world, becoming a part of the changing world. In present terms, it was, to a certain degree, a globalization and with each passing days, Mongolia was shaping into a typical independent state with diplomacy of that time. However, the Soviets, who set up their total control upon the Mongolian government by mid-twenties, started a war against foreign capitals in Mongolia. That was the beginning of the first war against foreign investment. Let us see from the history how Soviets wrote about it in their “made up” story for Mongolians. In the history of revolution, it is mentioned that ”…in addition to the oppression over Mongolians, Western Europe and American capitalists conspired with greedy China to rob the country”. Is it not a familiar slogan? It reminds me of slogans against present Oyu Tolgoi, Tavan Tolgoi and Boroo Gold. Both state and civil movements against foreign investors have spread out.

At first, they forbid investors from hanging up their national flags, then froze their bank accounts and lastly, expelled the owners from the country. The last foreign investor left the country in 1928. Just like the phrase “there is no other God than Allah”, only the Soviet economy dominated Mongolia after that. A day later, private properties of Mongolians themselves were confiscated and nationalized under the excuse of “confiscating assets of feudal lords”. If Larson’s property had been confiscated, it might have led to a dispute between Russia and Sweden or Russia and America, which would have delay the exertion of robbing resources off of Mongolia. If the herds of Danish farmers had been given to collective farms, it might have led to a quarrel between Russia and Scandinavian countries and would ultimately make it difficult to take livestock from Mongolia. However, such problems were avoided by conducting a campaign on “chasing away foreign investors” by the hands of Mongolians. That was the beginning of a Red terror against the Mongolian economy and the Mongolian people. As a result, Mongolia lost all of their private properties, a strict limitation was imposed on small amount of properties one could own and one in every five adult males was killed.

THE SECOND WAR AGAINST THE WEST

A decade before the end of the 20th century, the socialist system collapsed on its own. Mongolia had an opportunity to regain their economic and political independence. In my personal view, main achievements of democracy in our country were that, first, the Government of Mongolia no longer had to ask another country to make a decision and, secondly, Mongolia’s economy was free from the control of a single country. In almost three decades into democracy, many foreign investors came to our country, which is making an effort to become a part of the globalized world and striving to reach the standards of modern independent state. Besides, numerous mineral deposits with rich resources were discovered throughout the country. Mongolians’ tradition of inviting skilled people to do the job that we are unable trails back to the ancient times. Households without a man to slaughter a sheep, used to ask their neighbors to do the job and cooked them a breast-bone or gave them the sheep’s leg as a reward afterwards. Aside from collecting dung and ruthlessly cutting wood, Mongolia had limited experience in energy production sphere; thus, the mining industry was established on the back of the Soviet investment in the 20th century.

• Soviets avoided potential disputes with Western countries through a campaign on "chasing away foreign investors" by the hands of Mongolians.

• Aside from collecting dung and ruthlessly cutting wood, Mongolia had limited experience in energy production sphere; thus, the mining industry was established on the back of the Soviet investment in the 20th century.

• The fact that the “hatred towards foreign capitals” excluded our two powerful neighbors seems suspicious.

However, in modern mining, it is inevitable that we cooperate with modern companies and give them the “breast-bone or leg”. Unfortunately, in recent years, the century-old doctrine of condemning foreign investors for potential exploitations is reviving and spreading further. There were rumors about books that detailed the methods of exploiting Mongolia’s economy. Some even cited from the book. Well, there are lots of different books. If these people read the Koran, they would probably say “it is written in the book that there are no other Gods than Allah” and destroy the Gandan temple and break the Megzedjanraiseg statue. An open window lets in fresh air, as well as flies. Since no one would want to suffocate in order to keep off flies, one would open the window and be ready with a fly-swatter. Since anybody can walk in through the open door of Mongolia, one needs to be vigilant and that is what the state is working for. Is the fact that the main objective of the war against foreign investors in Mongolia is directed at Western countries, specifically American and Canadian investors, a sign of history repeating itself? It feels like the fact that the “hatred towards foreign capitals” excluded our two powerful neighbors seems to be proving this point.

I am not saying it is wrong, I am just saying that this exclusion seems suspicious. Chinese companies account for the majority of foreign investments with Government approval set by a certain law on foreign investment. But how many companies with Chinese investment can you name? While there are a lot of general rhetorics about Chinese invasion and a danger of assimilation, do you know of any civil movement against 100 percent Chinese-invested companies or joint ventures? Do you at least know the names of Chinese companies that are using strategic deposits of iron ore, zinc or oil in our country? Have you ever heard about one person, let alone a movement, who protested against a Russian company called the Altan Dornod Mongolia, which dug out all the gold from the Zaamar mountain and then demanded USD 500 million from the state? Have you considered the reason why people are protecting Mongolia’s economy from Western investors and not holding a grudge against Chinese or Russian investors? Do you know the history of foreign investors in Mongolia getting expelled from the country as “exploiters”, so that only one foreign country could possess our country? Like it or not, but such questions are raised every time I think about topics such as “economic hit man” or “foreign exploitation” that are replacing the search for the assassin of Zorig Sanjaasuren.

A

Жижиг

A

Дунд

A

Том

Inflation rises above BoM target

 0 сэтгэгдэл


National Statistics Office (NSO) released the year-end preliminary results of social and economic situations of Mongolia yesterday. The year-end economic indicators were mostly positive as expected thanks to mining sector boom and the implementation of the International Monetary Fund program; however, inflation peaked above the Bank of Mongolia’s (BoM) target level for the second month in December 2018 following the rise in fuel prices and consumption.

2018 was rather generous for Mongolia considering the fact that the economy grew by 6.3 percent in the first half. At the time, the Asian Development Bank highlighted that this was “driven by the expansion of investments in the mining sector and an increase in household consumption on the back of improved household loan grants.” As mentioned, consumer loan played its role in the economy. However, growing inflation is drawback for increased consumption. Consumer loan pushes households to pay three-quarters of their income to loans, creating a situation where the consumer could face bigger risk from the loan repayment.
According to the report, the inflation measured by the national consumer price index increased by 8.1 percent from the previous year. NSO explained that the growth was mainly contributed by increases in prices of food and non-alcoholic beverages by 9.1 percent and alcoholic beverages and tobacco by 8 percent, transport by 9.7 percent, housing, water, electricity, and fuels by 16.3 percent, and health by 11.4 percent.

The Monetary Policy Committee reached a decision to limit household debt-to-income ratio at 70 percent and set the maturity of non-mortgage commercials to not exceed 30 months, which took effect on January 1, 2019. Plus, petroleum price was lowered by MNT 100 this week; thus, economists expect the inflation to stabilize in the upcoming months.

Additionally, the total trade turnover reached USD 12.9 billion as of December 2018, of which exports totaled USD 7 billion and imports - USD 5.9 billion. Compared to the same period of the previous year, export increased by 13.1 percent and import by 35.5 percent. Money supply reached MNT 19.5 trillion in November, displaying MNT 3.6 trillion growth (4.4 percent) year over year. The currency issued in circulation totaled MNT 968.6 billion, an 8.2 percent increase. Additionally, the nominal average exchange rate of the MNT against the USD announced by the Bank of Mongolia depreciated by 8.4 percent from the previous year and fell 3.8 percent against CNY.

A

Жижиг

A

Дунд

A

Том

Dissolution of consortium suspends Fifth Thermal Power Plant construction

2019 dubbed Smart Energy System year

 0 сэтгэгдэл


Minister of Energy Davaasuren Tserenpil announced 2019 as the year for smart energy and disclosed the current situation of certain energy projects, including the constructions of the fifth thermal power plant and hydropower plants during a press conference yesterday.

Mr. Davaasuren addressed, “I, hereby, announce this year as the year for Smart Energy System. The entire world is adapting to the usage of a smart system. We have to follow this practice. This will allow us to settle various issues. In doing so, we will involve top-notch programmers, technicians, and engineers, as well as all the government bodies in the energy sector.”

Within the frame, electricity and heat measurement instruments will be installed in power plants, which will drastically reduce the risks of accidents and delays. For instance, the ministry is planning to cooperate with the Russian Federation to install a smart system in turbine generators. The cost is currently unidentified and will be set soon as the ministry assigned tasks to the boards of implementing companies.

According to the ministry, the construction of the Fifth Thermal Power Plant has been suspended due to the dissolution of the consortium. Therefore, the ministry plans to increase the capacities of currently existing power plants. For example, the feasibility study of expanding the capacity of the Second Thermal Powerplant to 300MW has been completed. Additionally, Mr. Davaasuren noted that the night-time electricity discount will further continue in 2019- 2020.

As for the Erdeneburen Hydropower Plant, the ministry has reportedly settled the project financing and is planning to commence the construction this year. However, the Egiin Gol Hydroelectricity project is on a hold-up due to environmental issues. The minister highlighted that the completion of these two hydropower plants will create a fully independent electrical system.

On the air pollution reduction actions, the ministry announced to install a 4 kWh heating equipment in 42,000 households in Ulaanbaatar city.

ENERGY SECTOR FACES MNT 20 BILLION LOSS ANNUALLY

According to the Director General of the Energy Regulatory Commission Tleikhan Almalik, the base electric charge did not change since 2015. Currently, Mongolia is purchasing electricity at MNT 32,000 per kWh and is selling them to private entities at MNT 9,000 per kWh. The annual loss of the energy sector is currently over MNT 20 billion. With the exception of coal, all the materials and equipment are imported, and due to the increase in foreign exchange rates, the deficit has further piled up. Therefore, the commission is planning to revise the base charge this year.

A

Жижиг

A

Дунд

A

Том

Parliament forms quorum after two months

MP Ulaan Chultem appointed as the Minister of Food, Agriculture and Light Industry

 0 сэтгэгдэл


After prolonging the lawmaking process for about two months, the Parliament finally formed a quorum last week. With multiple urgent items of high importance on the order list, the Parliament appointed Ulaan Chultem as the Minister of Food, Agriculture and Light Industry.

Next on the order list was the suspension of some Parliament members’ special rights who have involved in Small and Medium-sized Enterprise Development Fund embezzlement allegations. The Prosecutor General of Mongolia Enkh-Amgalan Magvannorov submitted a bill on suspending the rights of four Parliament members. Although a number of public servants related to the case were detained, the Parliament viewed that the loans of four MPs, namely Soltan Gombojai, Damba-Ochir Dorjdamba, Undarmaa Batbayar and Enkhbold Luvsan, drawn from the SMEDF are in line with the law of Mongolia.

At the plenary session, Mr. Enkh-Amgalan addressed, “We are investigating everyone related to funds. This is a very large-scale investigation. It is taking time because of the lack of staff. Only 25 people are working on each loans granted from the SMDF and the  Independent Authority Against Corruption is investigating the fund. There are many others, including Animal Husbandry Fund and Agriculture Support Fund.”

Additionally, the end to public demonstration on ousting the Speaker was followed with the meeting of Standing Committee on State Structure last friday. The committee held discussion on President-initiated bill on Parliament Session Procedures, which allows the Parliament to oust the Speaker with the majority votes from Parliament members. Accordingly, the bill will be discussed by the Parliament this week. The ratification of the bill lead to potential dissolution of the Parliament as Democratic Party caucus began collecting signatures for a petition to oust the Speaker.

A

Жижиг

A

Дунд

A

Том

Higher gold royalty poses threat to FX reserves

 0 сэтгэгдэл


Due to consecutive failure to form the quorum, the Parliament has delayed its plenary sessions for two months. One of the key items on the order list was a bill on extending 2.5 percent gold royalty for another three years, which was supposed to be ratified before the turn of the year. Thus, gold tax will now be set at pre-revision level at 5-10 percent, depending on the global price of gold.

According to a study conducted by the Bank of Mongolia (BoM), higher royalties lead to  lower gold purchase, which ultimately affects foreign exchange (FX) reserves. For instance, gold tax was at an unbearably high level of 68 percent with the sudden income tax in 2006-2013. As a result, gold purchase fell from 15.5 tons to 2.1 tons by 2010. In other words, the BoM’s treasury fund was almost drained empty.

Officials explain that the sudden income tax, which raised gold tax from 5 percent to 68 percent, was due to boom in copper price; however, the decision had more adverse effects than its benefits as the number of artisanal miners drastically increased as a result.

The 2.5 percent gold royalty was approved in 2014. The result was almost immediate as gold purchase consistently increased in an annual amount, reaching a record high of 22 tons last year, which is 10 percent higher than the previous record in 2017, expanding FX reserves by USD 800 million to a 15-year record.

Therefore, the increased gold royalty is raising concern over a potential tax avoidance of gold producers, reduced gold purchase and increased illegal transportation of gold. A spokesperson of the BoM previously stated, “This law was ratified to boost the economy that was collapsing in 2014. The 9 percent royalties will increase budget revenue by only MNT 50 billion. BoM views the 2.5 percent royalties should be extended by at least 3 years.” BoM estimates to increase foreign exchange (FX) reserves by USD 750 million this year. The 2019 Monetary Policy Guidelines ratified by the Parliament stated to increase FX reserves to USD 6.5 billion in the middle-term.

As for other countries, gold royalty stands at 3 percent in the U.S, 5 percent in Brazil, 4 percent in Indonesia and 2.5 percent in India. This shows that the current 5-10 percent tax is higher than average. 

Miners and investors seek favorable tax environment. China, for instance, deduct only CNY1.2-7 per ton of gold depending on the capacity of the mine, technical conditions and locations, as well as 2 percent royalty on import golds.