Economic situation Strong focus on natural resources

Mongolia’s transition to a market economy has been a success. Some 80 per cent of gross domestic product (GDP) is currently generated by private companies. The share that the agricultural sector contributes to GDP has fallen from roughly 30 per cent (2000) to approximately 13 per cent (2021); industry is now contributing 37 per cent.

Vulnerable to external influence

Abundant mineral resources are the backbone of the country’s economy. Coal, copper and iron ore are important export goods. In 2020, resources accounted for more than 90 per cent of Mongolia’s exports. This strong focus on one sector makes the country vulnerable to external influence. Falling global market prices for resources have a direct impact on the country’s export earnings and on government revenue.

The country is especially dependent on its neighbour China, which accounts for 90 per cent of Mongolia’s exports. The resulting consequences were thrown into sharp focus by the COVID-19 pandemic. Not only did China’s rigorous containment policy bring down demand for Mongolian resources. It also had a negative effect on trade flows across the joint border and resulted in temporary shutdowns of companies in Mongolia.

Economic development

From 2003 on, Mongolia's economy began to develop very dynamically, with growth reaching a record 17.3 per cent in 2011. In the years that followed, however, growth failed to reach those heights again, partly due to falling commodity prices and poor financial management. Then, as a result of the COVID-19 pandemic, the economy shrunk massively in 2020 (minus 4.6 per cent). In 2021, the economy picked up only moderately with growth returning to 1.4 per cent. And for 2022 experts are again expecting a mere two per cent. The International Monetary Fund (IMF) has predicted growth rates of between six and seven per cent for the next few years.

The removal of many COVID-19 restrictions has led to a significant increase in foreign investment. The Mongolian government, too, is making efforts to inject new momentum. It passed an action plan in late 2021 that envisages a ten-year investment volume of roughly 30 billion US dollars to propel growth in important economic sectors such as energy, transport and logistics.

Poverty and environmental degradation lead to rural exodus

Since 1991, the statistical per capita income has increased more than fourfold. Yet the gap between rich and poor has widened. Almost 30 per cent of the Mongolian population still lives below the national poverty line. In 2021, the official rate of unemployment was around seven per cent. Yet experts believe it is in fact considerably higher than that.

Around 25 per cent of the population are employed in agriculture. Conditions, however, are difficult. Mongolia has an extreme climate, with low levels of precipitation and large variations in temperature.

The consequences of climate change are exacerbating the environmental damage caused by human activity. Increasing demand for cashmere wool and meat has resulted in the unchecked growth of livestock herds and serious overgrazing. According to the authorities, soil degradation or desertification are already affecting roughly three quarters of the land surface to varying degrees.

Many rural inhabitants move to the capital of the country, Ulan Bator, in search of income opportunities. Almost 50 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.

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As at: 21/07/2023