Situation and cooperation

Inside the buddhist monastery Amarbayasgalant in northern Mongolia

Compared with other countries in the region, Mongolia's path towards democracy and a market economy following the break-up of the Eastern Bloc has been exemplary. Since 1990, free and fair parliamentary elections have been held on a regular basis, while changes of government have proceeded peacefully. Human rights in Mongolia are enshrined in the constitution and are largely respected. The country has an active civil society with numerous citizens' movements and self-help initiatives.

However, governance is still weak and institutions still have limited capacities. Because of this, important reforms in the financial and energy sectors cannot be properly put into effect.

Widespread corruption is a serious problem. The non-governmental organisation Transparency International ranks the country 87th out of 176 countries listed on its 2016 Corruption Perceptions Index. The country has adopted anti-corruption laws and put monitoring bodies in place. Yet, more reforms are needed and offenses need to be prosecuted with due vigour.

In 2008, the Mongolian parliament adopted a National Development Strategy for the period up to 2021. The strategy envisages improvements in infrastructure, education and health, in particular. However, Mongolia is dependent on foreign investment in order to implement it.

Economic development

A herder woman milking yaks in Mongolia

The country's economy has gone through fundamental changes since the start of the new millennium. The share that the agricultural sector contributes to GDP has fallen from roughly 30 per cent in 2000 to approximately 13 per cent in 2016. At the same time, the share of the manufacturing sector has increased from 25 to 35 per cent.

Owing to its abundance of mineral resources (see below), the country is well placed to achieve rapid economic growth. From 2006 on, Mongolia's economy did indeed begin to develop very dynamically, with growth reaching a record 17.3 per cent in 2011. In recent years, however, Mongolia has been plunged into crisis, partly due to low commodity prices and poor financial management. In 2016, economic growth was down to just one per cent and the International Monetary Fund (IMF) does not expect any recovery in 2017 either.

Foreign direct investment has also slumped: While foreign companies still brought a record amount of 4.6 billion US dollars into the country in 2011, in 2015, investments in the Mongolian economy amounted to just 94 million US dollars. Sovereign debt has increased sharply and the tugrik, the country's currency, has fallen significantly in value. In view of its severe budgetary difficulties, Mongolia and the IMF agreed a standby loan in May 2017. The Asian Development Bank, the World Bank and other donors have also promised further support.

Rural exodus towards the capital

Nomads have set up their traditional Yurts on the outskirts of the capital Ulan Bator. Later on, the tents are often replaced by small wooden or stone houses.

Although poverty has been considerably reduced in recent years, more than 20 per cent of the Mongolian population still lives below the national poverty line. In 2016, the official rate of unemployment was 6.7 per cent. Yet experts believe it is in fact at least twice as high as that.

Many rural inhabitants move to the capital of the country, Ulan Bator, in search of income opportunities. Roughly 45 per cent of Mongolians now live in the capital city. However, its labour market is barely able to absorb any more newcomers. Ulan Bator is the centre for administration, trade and services, but it has practically no manufacturing industry. Any work that migrants do find is likely to be only in the informal sector.

Raw materials

Gold wash plant in the Boroo gold mine in Mongolia. The mine has since been closed for economic reasons.

Mongolia is one of the world's richest countries in terms of raw materials. Its resources include coal, copper, gold, many different minerals and ores, and also rare earth metals.

The mining sector has been weakened by low global market prices. Yet it still is the backbone of the Mongolian economy (accounting for almost 90 per cent of exports), even though it employs only 3.7 per cent of the people in work. In a bid to reduce the country's dependence on raw material exports and make Mongolian products more competitive, the government wants to get more mineral resources processed in local companies and diversify the economy.

Mongolia is the first country with which Germany has concluded a raw materials partnership agreement. The agreement, signed in October 2011, aims to promote closer cooperation in the fields of resources, technology and industry.

Mongolia joined the Extractive Industries Transparency Initiative (EITI) in December 2005. In October 2010, it was granted compliant country status, thereby making it a fully-fledged member of the initiative.


Heat and power station in Ulan Bator, Mongolia

Mongolia is a country with rich biodiversity. However, it is threatened by depletion of its natural resources and by climate change.

In recent years, reforms of its environmental policies have created a better basis for protecting the country's biodiversity. However, their implementation could still be improved. The controls in place to monitor mining methods are still insufficient, groundwater and rivers are repeatedly affected by pollution – with serious consequences for livestock farmers, who get their drinking water from wells and other watercourses.

Mongolia's fragile ecosystems are also at risk, from the taiga forest in the north to the vast grassy steppes and to the Gobi Desert in the south. In many regions, deforestation and overgrazing are causing the depletion and irreparable damage of soils. Logging and slash and burn clearance have reduced forest stands to just eight per cent of the country's surface area. So far, the government has designated 18 per cent of the country as protected areas, yet because of the size of the territory, surveillance is virtually impossible.

The impacts of climate change, in particular a rise in temperatures and a fall in the already low levels of precipitation, will have serious consequences for Mongolia's ecosystems. The government is therefore faced with having to adapt its environmental policy to take the effects of climate change into account. Efficient management of pasture land and sustainable utilisation of wood are two examples of measures to ensure that natural resources are managed in a sustainable manner.

In the cities, especially in the capital Ulan Bator, the population suffers from extreme levels of air pollution, particularly during the winter months. The burning of unprocessed raw coal in combined heat and power plants is one source of emissions. In addition, the people living in socially deprived districts of Ulan Bator do not have central heating. They are forced to heat their dwellings by using small-scale furnaces, in which they burn coal and wood, but also rubbish. The air pollution is now resulting in respiratory illnesses of epidemic proportions, which in turn is putting a strain on the country's economy.

Priority areas of German development cooperation with Mongolia

Germany began its development cooperation with Mongolia in 1991/1992, after the country underwent a political and economic transition. After Japan and South Korea, Germany is the third biggest traditional bilateral donor and the most important European partner for Mongolia.

In the 2012 Country Strategy, Germany and Mongolia agreed to focus cooperation on the following priority areas:

  • Energy efficiency
  • Support for sustainable management of raw materials
  • Biodiversity

At the recent government negotiations with Mongolia, which were held in Berlin in 2016, the German government made a commitment of 53.85 million euros for a period of two years. Of this sum, 35.95 million euros was allocated to Financial cooperation projects and 17.9 million euros to Technical Cooperation programmes.

Energy efficiency

Transformer substation in Darkhan, Mongolia

Mongolia's extreme climatic conditions mean that reliable electricity supplies and heating is vital for survival. The country's growing energy demand is primarily met through old, inefficient coal-fired power plants. However, the systems for supplying power and heat are outdated and hardly able to meet the growing demand, leaving Mongolia dependent on costly power imports. The country's transmission and supply infrastructure is also outdated and vulnerable to failures.

Consequently, Germany is supporting the modernisation of power plants, substations and public distribution grids. This will enable energy efficiency to be increased while at the same time cutting greenhouse green emissions.

Germany is supporting the efforts of the Mongolian government to further develop approaches and strategies to improve energy efficiency, for example with advice on the introduction of consumption-oriented, cost-covering and socially acceptable tariff systems. In addition, in cooperation with local administrations and construction companies, selected public buildings have been modernised so as to meet better energy efficiency standards. These measures also included components to upskill Mongolian workers so that, in future, they will be able to carry out this kind of modernisation work themselves.

Support for sustainable management of raw materials

Training facility for future welders at the Hasu Megawatt training centre in Ulan Bator, Mongolia

Germany is contributing to improving the conditions for sustainable, inclusive and resource-based economic growth in Mongolia. This includes, in particular, strengthening legal certainty, professionalising the justice system, and strengthening the political competencies for formulating strategies and policy in the extractive sector.

In addition, in the vocational training and further education sector, needs-based training is being provided for technical experts and executives, especially for the raw materials sector. The German-Mongolian Institute for Resources and Technology (GMIT), founded in 2013, which receives support from the BMZ, offers four practice-oriented bachelor degrees in Environmental Engineering, Mechanical Engineering, Industrial Engineering and Raw Materials/Process Engineering. Vocational training for apprentices learning about mechanics, electrical engineering and construction is currently being supported.

The German and Mongolian governments agree that the private sector needs to become much more involved in cooperation in the future. It should help create more diverse economic structures and increase value creation within the country. Among other things, efforts are being made to establish development partnerships (PPP) with German companies.

Biological diversity

The monastery Mandschir Chiid in Mongolia

In order to preserve Mongolia's unique natural heritage and at the same time improve the living conditions for the people, more must be done to promote and manage nature reserves. Germany is currently supporting eleven Mongolian nature reserves, which are located in the north, east and centre of the country. In future, the west of the country is to be included in this cooperation as well.

Priority areas are improving the management of protected areas, developing management and business plans, and financing infrastructure projects. Creating income opportunities for the people living in close proximity to the protected areas, for example through tourism, is a way to help reduce poverty in rural areas.

In addition, strategies are being developed and implemented in the Mongolian forestry sector for protecting and sustainably managing those forest ecosystems that are not declared nature reserves. Support has also been provided to carry out a national forest inventory that will deliver reliable information on forest development under the impact of climate change. The results will be fed into forest regulation and long-term adaptation strategies.

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