Alleged Corruption in Mongolia’s Resource Extraction Sector

Journal of Political Risk, Vol. 7, No. 7, July 2018 

By Enkhzul Tsatsral

Dump trucks operate in an open pit at the Oyu Tolgoi copper-gold mine, jointly owned by Rio Tinto Group’s Turquoise Hill Resources Ltd. unit and state-owned Erdenes Oyu Tolgoi LLC, in Khanbogd, the South Gobi desert, Mongolia, on Saturday, July 23, 2016. Mongolia exported 817,000 tons of copper concentrate in the first half of the year compared with 663,800 tons a year earlier, an increase of 23.1 percent. Photographer: Taylor Weidman/Bloomberg

The year is 2008 and Ulaanbaatar, the capital city of Mongolia, still resembles a gritty Soviet satellite state with its deteriorating apartment blocks and a statue of Lenin standing bold. Fast-forward a mere four years later and the apartment blocks have deteriorated further while a dazzling 25-story hotel overlooks the shadow of the recently removed statue. Today, with a plethora of Western companies ranging from luxury brands such as Rolex to the familiar Pizza Hut sprouting all over the city, you will be forgiven for mistaking Ulaanbaatar as one of the Four Asian Tigers. Unlike the Four Asian Tigers, which flourished predominately through industrialisation, however, Mongolia’s rapid ‘development’ is mainly attributed to the country’s colossal mineral wealth.

The negative consequences of possessing natural resources are difficult – even disastrous – for any nation but even more so for developing ones. To quote Di John, “Natural resources, for most poor countries, are deemed to be more of a “curse” than a “blessing.” Unluckily for Mongolia, which has a meagre population of just over three million, it is not only developing but also poverty-stricken. It is no wonder, then, that the country was hit hard by Di John’s resource curse. This is evident in the fact that Mine-golia, as others have termed the country, has been placed second to last in this year’s IMD World Competitiveness Ranking. A simple walk through the capital city, where the elite and poor reside side by side, is enough of an illustration. Come winter, the city’s pollution levels skyrocket to being “6-7 times higher than the most lenient” WHO goals, resulting in a multitude of major health problems for locals. Why is it that a government made up of wealthy individuals, some of whom have millions in offshore accounts, are unable to tackle domestic issues? The answer is simple: they don’t want to.

One illustration lies in the city’s housing problem. According to reports, 55% of the city’s residents live in traditional yurts in slum-like conditions which include not having access to clean water and central heating. With approximately half of Mongolia’s population residing in the capital city – which was supposedly originally built with the intention of housing only 400,000 residents –, it would be forgivable if the government admitted that they were finding it difficult to address domestic problems because of genuine obstacles such as mass migration from nomadic herders. Yet, the city has seen an annual increase in the amount of luxurious penthouse-esque apartments with names such as Royal Green Villa and Bella Vista Town being built. So then who actually is residing in them? Expatriates and elite locals, including elite Mongolian citizens who live abroad but return for the summer. Evidently, there is excellent housing available, but there is also prioritization of that housing. The aforementioned trio, excluding a guiltless few, are all linked by one thing – alleged corruption.

Every country has a history with corruption, and this corruption is not necessarily linked to natural resources. Mongolia’s recent history of alleged corruption, however, can be traced to at least 2009 when its Oyu Tolgoi mining project joined forces with Australia’s mining corporation, Rio Tinto. In April, former Finance Minister Bayartsogt Sangajav was arrested in an investigation that includes allegations of corrupt mining payments, and $10 million being paid into his Swiss account. Former Prime Minister (2014-16) Saikhanbileg Chimed was also recalled from the U.S. for questioning in connection to the probe. In March, Swiss prosecutors confirmed that they are investigating allegations that Rio Tinto paid bribes linked to the Oyu Tolgoi mine. Rio Tinto has also recently faced allegations of underpaying $230 million in Mongolian taxes.

Try and picture the scene back in 2009. A tiny population, most of whom reside in the capital city, trying to develop but still struggling with the anomic conditions caused by the disintegration of the Soviet Union even seventeen years on. Looking back, it seems inevitable that from that tiny population, a minority elite emerged and took advantage of the atmosphere and still does. The problem with having such a small population also meant that there was a lack of democratic government. It wasn’t authoritarian but more a case of us versus them – you either sided with the corruption or you didn’t. From that year on, the former have enjoyed luxuries such as the ability to live and study in the West or if they wished to stay put, send their children to $5000-a-year preschools. The latter, already reeling from the rapid deterioration of the life they always knew, were relegated to the periphery of Mongolian society where they still are neglected and shunned. They often resort to alcoholism, as can be evidenced by the fact that the country has the highest rate of liver cancer in the world and even today, some families can be seen wandering the streets looking for empty bottles to sell in order to buy food and water. While some gathered in 2015 to protest and hunger strike against the degradation caused by mining, it garnered little attention from the authorities. Sadly but clearly, it achieved nothing.

2017’s newly elected President Battulga Khaltmaa has vowed to improve Mongolia and its living standards. Evidently, he won – in both the election and in gaining the trust of even the most poverty-stricken and desperate of the Mongolian population. But he likely succeeded by taking note of and emulating the way in which President Donald Trump captivated the most impoverished of the American people’s hearts and minds through a strong focus on patriotism and nationalism. Indeed, his presidential campaign was eerily similar to that of Trump’s with slogans such as “Mongolia will win”, an anti-Chinese rhetoric as well as a narrative pertaining to Mongolia’s traditional and conservative values. Yet, the reality has shown otherwise. In a country where xenophobic attitudes against the Chinese are plentiful, Mongolia’s President – despite his fiercely nationalistic speeches – has not only continued but has started the creation of new oil refineries that will allow oil to be sold to China. This has not only intensified the animosity that the locals have for the Chinese but has proven that oil and the wealth it brings continue to be prioritised over Mongolia and her nature and people.

Based in London and Oxford, Enkhzul Tsatsral holds an MA in International Security from Oxford Brookes University. She has interned in the United Nations’ ECOSOC and HABITAT agencies and specialises in the former USSR, Europe, and Asia. JPR status: opinion.