A new BIC publication outlines the World Bank Group’s approach to development in Mongolia since 1991, focusing on the extractives industry.
Mongolia is a large, sparsely populated country sandwiched between Russia and China whose economy has been growing rapidly over the past 10 years due to the discovery of vast mineral deposits such as coal and copper. Competition between foreign investors for the right to develop these deposits has become fierce, especially in the case of the Tavan Tolgoi coking coal mine, where it has become symbolic of the international struggle between the United States and China for supremacy in East Asia. Both China (state-owned Shenhua Energy) and the US (St. Louis-based Peabody Energy) have companies with bids on Tavan Tolgoi, and both see winning the contract as a bargaining chip in their diplomatic relationships with Mongolia. As a result, the extractives industry Mongolia has become a political as well as economic game.
The role of the World Bank Group (WBG) and other international financial institutions in supporting the broader development goals of Mongolia is less politically-charged than these bilateral negotiations. However, the WBG can influence country policies and foreign investment by example through the projects it funds, as the Bank is a globally recognized leader in international development. The Bank’s strategy for Mongolia, where it has been active since 1991, has focused almost exclusively on developing the energy and mining sector as the main engine of growth at the expense of traditional sectors such as agriculture, which still employs over a third of the Mongolian labor force.
One example of the Bank’s singular vision of “responsible mining” in Mongolia is the proposed International Finance Corporation (IFC) investment in the Oyu Tolgoi copper/silver/gold mine in the South Gobi. The mine is thought to be one of the largest untapped copper deposits in the world and it is expected to increase Mongolia’s GDP by 30% once production begins in late 2012. As civil society groups such as Oyu Tolgoi Watch have pointed out, this mine will have potentially serious environmental and social impacts that must be fully addressed before the IFC proceeds with the $300 million investment. Water is of primary concern, as it is an already scarce resource in the Gobi, and nomadic herders have had to abandon their traditional livelihoods due to competition over land and water resources with the mining company.
In the eyes of many, this is a golden opportunity for the World Bank Group, the Government of Mongolia, and foreign investors to cash in on Mongolia’s mineral riches. If handled correctly, the country has the potential to become the next United Arab Emirates. But with Mongolia’s poverty rate on the rise and cases like Oyu Tolgoi threatening the stability of a fragile ecosystem, it appears that the social and environmental costs of the Bank’s extractive-dependent strategy have been largely ignored. We should therefore question whether the World Bank model can be developmentally sustainable in this context. This paper seeks to address this by unpacking the model and partnership strategy employed by the World Bank in Mongolia.