Long before the days of Chinggis Khaan, Mongolia’s economy rode on the bcks of sheep, goats, cattle, horses, yaks and camels. Nowadays, sheep are the most important stock, constituting half of all animals raised. For each Mongolian, there is almost exactly one horse, 1.4 cattle (including yaks), nearly four goats and six sheep; there’s also one camel for every six Mongolians. In 1995, there were 28.5 million head of livestock in Mongolia, an increase of nearly two million from the previous year – but this is an increase of less than 2% since 1930, while the population more than trebled. Agriculture, including livestock, makes up more than a third of the country’s Gross Domestic Product (GDP).
Wheat has been grown on the steppes for thousands of years, but the Mongolian way of life took off when animals were first tamed. Livestock raising is practical because of the extensive grasslands – the harsh, dry climate makes most forms of agriculture impossible. Less than 1% of the land is under cultivation, and this is mostly used to grow wheat. Potatoes, vegetables, hay and other fodder crops are also grown. Small-scale timber production along the Russian border provides wood for building material.
The country has over 300 mines producing coal (17 mines produced seven million tons in 1995), copper and molybdenum (the mine in Erdenet earns the country US$900 million pa), gold (75 mines produced 4500kh in 1995), fluorspar (15% of the world’s output), uranium, tungsten and zinc. These minerals make up nearly one-third of Mongolia’s GDP and earn half of all foreign currency.
Cashmere wool is also a vital industry. Mongolia has no active oil fields, but recent explorations show that oil can be a potential export if regional transport improves.
Central Planning & Subsidies
The model of economic development adopted earlier this century by both the USSR and Mongolia became known as the ‘planned economy’. The communist Mongolian government instituted a series of five-year plans to decide how much should be invested and where, what the production quotas should be, and so on. The state owned all means of production and private enterprise was forbidden. When profits were made, they were given to the government. To keep the massive plan on course, the state created an enormous bureaucracy of economists, planners and supervisors. This required widespread literacy, and statistics on everything were collected. To this day, massive data on everything from herd size to cloud cover to geology is available.
Herders and urban workers weren’t taxed, but they were paid very little for their labour. However, the state heavily subsidised all goods and services. Thus, medical care and education were free, though basic. Even herders in remote nomadic camps had access to boarding schools in nearby towns, pensions for the old, veterinary services for their flocks, and basic health care. The subsidies from the Soviet Union amounted to hundreds of dollars per Mongolian each year.
State planning had relatively little impact in the countryside. Although the government organised farmers and herders into cooperatives, supervision in rural areas was slack, and herders earned much the same wage whether they were under or over their production quotas. The government did manage to create a few large, mechanised farms on the Soviet model.
In the cities, the Russian elite could not understand why an independent, self-sufficient, proud, nomadic people might be reluctant to work in factories. Factory workers were assigned to jobs in which they had little interest, and there were no financial rewards for working hard. The government tried to encourage people to work hard by giving medals and recognition to ‘labour heroes’, but this wasn’t very successful.
Wages were low, but no one starved. The state provided all that was needed to survive, and though the standard of living was basic, there were no great differences between rich and poor.
The Mongolians paid a heavy price for the dependency on the USSR. The bubble burst in 1991 when subsidies from the Soviet Union ended. Barter trade was halted, and the Russians started demanding hard currency – not wool and mutton – for their petrol and machinery. The Mongolians, however, had no hard foreign currency – all they had were debts. As a result, trade with Russia dropped so fast that cross-border trade all along Mongolia’s long northern border has virtually disappeared.
With petrol supplies drying up and spare parts for Soviet-built machinery not arriving, the Mongolians watched in dismay as trucks, buses, power stations and agricultural equipment stood idle. During the early 1990s, shop shelves were bare, people lost their jobs, and a severe lack of building materials brought the construction industry to a halt.
he failure of the Russians to deliver fuel crippled the Mongolian economy. Getting food to the urban masses required petrol (gasoline). In a country heavily reliant on agriculture, farmers were unable to get products to market. Not that they really wanted to, as price controls remained on their produce, and the state paid the farmers absurdly low prices in an effort to hold down prices of basic survival food for panicky city folk.
Privatisation & Reform
In the 1990s, Mongolia chose a unique path to privatisation. All state-owned enterprises, with a few notable exceptions, were nominally given away. Blue vouchers worth T10,000 were issued to every Mongolian citizen. In reality, no on had money to buy the vouchers, so enterprises issued shares in exchange for vouchers, and suddenly former managers became owners. The same communist bureaucrats continued to run these ‘privatised’ companies with the same inefficiency as before. For a while, no one was fired, and workers continued to get paid even though they didn’t work, but eventually the biggest of enterprises collapsed.
In 1995, the government still retained at least 50% ownership of crucial industries, such as the telephone company, railways, MIAT airlines, mines, the carpet factory in Erdenet, power stations, cashmere exports, dollar shops and so on. Most of these industries earned lots of hard currency; the government kept the plums for itself.
The possibility of total economic collapse was averted. From 1990 to 1994, Mongolia was granted more than a total of US$765 million in aid from Western Europe, South Korea, Japan and the USA; plus soft loans from the International Monetary Fund (IMF), World Bank and Asian Development Bank, among others; and technical assistance.
The Mongolians hoped western aid would simply replace the Soviet subsidies; western power initially hoped the aid would be a temporary measure to help Mongolia through a difficult state on the road to a market economy. But by 1995, the market economy hadn’t fully emerged, and requests for foreign aid increased.
In 1995, Mongolia received loans of US$210 million, which one day will have to be repaid. The major investors from 1990 to 1996 were the USA (39%), Japan (12%), Russia (12%) and China (10%).
The collapse of the Soviet-subsidised economy has forced Mongolians to take a second look at tourism. The country desperately needs the hard currency which foreign tourism could bring, but, unfortunately, some of the old communist attitudes still prevail.
In addition, because of its isolation, transport difficulties and short summers, Mongolia managed to attract only 34,000 foreigners (excluding Chinese and Russians) in 1995. Half of these were tourists, mainly on organised tours from Japan, South Korea, the USA and Germany.
Mongolian tourist authorities have yet to work out the financial importance of independent travellers. Most people on organised tours stay a short time and buy an all-inclusive tour in their home country; they contribute very little to the Mongolian economy, but plenty to the coffers of a handful of influential Mongolian travel companies. Independent travellers, who invariably stay longer that those on organised tours, may spend less per day, but everything they spend stays in the local economy.
Keep up with Mongolia's present economic situation by reading current articles in the Business rubric of the Mongolian page's In The News section.
Greenway, Paul, Storey, Robert & Lafitte, Gabriel, Lonely Planet – Mongolia, Second Edition, Lonely Planet Publications, Hawthorn, Australia, 1997, pp. 27-29.