Progress on Oyu Tolgoi?

The Mongolian government has been battling a homemade economic crisis for some two years now. It has been a largely self-inflicted crisis brought on by some hasty policy decisions regarding investments that have led to a massive loss of (foreign) investor confidence, coupled with some large-scale public borrowing and spending on variously popular and populist projects.

In May this year, I wrote an editorial in the UB Post that tried to make the case that the main task for the Mongolian government should be to get Oyu Tolgoi (construction and operations) (back) on track. There are some tentative signs this week that Mongolia is coming up to a turning point for short and medium-term economic development. The long-term prospects for Mongolia have not really been in doubt given its mineral wealth and positive factors like a small population, democracy, and a young and educated workforce.

Two pieces of news came in the last days regarding the giant Oyu Tolgoi project which is controlled by Rio Tinto but in which the government of Mongolia holds a 1/3 stake: First, a tax dispute seems to have been settled on mutually agreeable terms, but perhaps more importantly, a new feasibility study that examines the continued construction of Oyu Tolgoi underground has been released. These two pieces of news may be just the impetus that continuing discussions between Rio Tinto and the government have needed. This is especially true as a September 30 deadline from banks regarding the financing of the expansion looms.

Resolution of Tax Dispute

The resolution of the tax questions is hopefully an indicator that both parties recognize the importance of cooperation in all areas. Obviously, the Government of Mongolia should expect Oyu Tolgoi to fully comply with all regulations and laws of Mongolia, but Rio Tinto as the partner in Oyu Tolgoi should also expect cooperation form the Government in the form of the pursuit of a productive relationship.

OT Feasibility Study

The feasibility study is important not because of the price tag it quotes for underground expansion (which is in line with previous estimates), but because costs for construction up to the beginning of production had been a bone of contention for over a year between Rio Tinto and the government of Mongolia. Some of the costs associated with construction of above-ground facilities and some underground operations had been questioned by Mongolian officials. President Elbegdorj raised many of his concerns in a speech to parliament in February 2013. As part-owner the Government of Mongolia balked at approving further expansion until a feasibility study provided some potential clarity on costs that would arise from this expansion. The feasibility study announced US$4.9b as the necessary expansion of capital for underground operations.

The costs incurred in construction crucially determine any calculation on part of the government for when they might actually begin to see income streams from their stake in Oyu Tolgoi following the massive up-front investment costs of a block-caving operation.

Up until the announcement of these news items, there had been very little movement on discussions between Rio Tinto and the government for a very long time, at least no movement that was publicly visible. Obviously, some of the discussions between partners in a commercial venture ought to be held privately, but the Mongolian public certainly deserves to be kept informed about significant progress in negotiations. While government officials had claimed that such progress was being made in the last year, there was little evidence for such claims giving rise to suspicions that Rio Tinto may be relatively happy to accept a stall in the interest of avoiding further capital investments at a time of financial strain, or to seek out investment in the project by some other third party which would complicate matters for the government, especially if that third party was a Chinese concern.

The fact that the announcement of the feasibility study has come from Rio Tinto (via Turquoise Hill Resources, its Oyu Tolgoi “vehicle”) suggests that strategic decisions for further construction and expansion may have come from Rio Tinto and potentially alleviating the fears about contrary plans.

Timing

If these announcements are indeed a turning point in the relationship between Rio Tinto and the government, this comes at an opportune moment.

Foreign Relations

Not only is the financial crisis in Mongolia growing more acute with the massive decline in FDI and the ballooning of debt, but Mongolia is also potentially being squeezed by its immediate neighbours, Russia and China, in the context of a cozying up to China by Russian Pres. V Putin following his ostracism by European and North American countries over the Crimea and Ukraine.

While any agreement between Russia and China poses no existential threat to Mongolia, it is likely to constrain the country in terms of its foreign policy options. For example, is there room for Mongolia to not participate in a proposed Russia-China-Mongolia customs union even though the Mongolian meat sector may be the only potential beneficiary while other benefits would primarily accrue to Chinese and Russian exporters? Pres Elbegdorj’s tightrope walk to retain Mongolia’s observer status at the recent meeting of the Shanghai Cooperation Organization points to some of the challenges that Mongolia will face in coming years.

This context is relevant to the OT decision because the recent visits by Pres Xi and Pres Putin involved a warm embrace of economic “goodies” on offer in terms of investments and commitments to infrastructure projects, etc. These overtures along with the likely participation of Chinese and Russian investors in the offering of new exploration licenses in Mongolia (delayed from the originally planned Sept 24 date) might signal an ever-increasing economic collaboration with the immediate neighbours that will be balance well by a reassertion of foreign (ie non-Chinese and non-Russian) interest in OT.

It is also hard to imagine that any Russia-China collaborations would support Mongolian democracy in any way should it ever be challenged by deepened economic crisis. This would be especially unfortunate as Mongolia is just beginning to play a role in democracy-promotion around Asia, particularly vis-à-vis the Kirghiz Republic and, potentially, Myanmar.

Electoral Cycles

Contrary to Mongolia’s potential role in democracy promotion, the current developments may come just in time in terms of the electoral cycle as well. Almost two years remain before the next parliamentary election and already the rumour mill about a replacement of the current governing coalition by a grand coalition has been heating up all year. Any decisions about Oyu Tolgoi that do not come very soon are likely to be doomed by politicization of the process and the looming electoral campaign.

Not out of the woods, but…

There is nothing definite in the current news that spells out a quick resolution of the Oyu Tolgoi disputes between Rio Tinto and the government, but for the first time in a while, there is some concrete and positive movement.

Posted in China, Foreign Investment, Foreign Policy, Mining, Mining, Oyu Tolgoi, Policy, Russia | Tagged | Leave a comment

Appreciating the Work of the Canadian Embassy

I am not even Canadian, and I don’t work for the Canadian or for the Mongolian government for that matter, though they are obviously important interlocutors for me given my interest in economic, political, and social development in Mongolia.

Yet, in the 12 years that I’ve worked as an academic focused on Japan and Mongolia in Canada, I have come to appreciate interactions with Canadian diplomats very much. In my previous experience, I found German diplomats to be largely uninterested in the work of German country experts (like me), although I am beginning to revise that impression through some interactions with the German embassy and foreign ministry recently. The US always offers such a large field of academics that contacts with the State Department are also relatively limited. Relations with Japanese diplomats posted to Vancouver have always been very good and the interactions with the Japanese embassy in Ulaanbaatar have also been interesting, but largely focused on information exchange and knowledge of each other’s activities.

By contrast, I have found Canada’s diplomatic missions to be very open to discussions about in-country developments and to an exchange of views.

The Canadian Embassy in Ulaanbaatar

The Canadian embassy to Ulaanbaatar has been a particular pleasure to work with. Set up under Ambassador Anna Biolik in 2009, the embassy has established itself as one of the most active players on the Ulaanbaatar diplomatic circuit under Ambassador Greg Goldhawk over the past four years in tandem with the efforts of Maxim Berdichevsky as Counsellor at the embassy.

In my interactions with Canadian diplomats I have come across different types as to their preferred interactions with academics. There are officials who are very academic in their own outlook and interest in countries, i.e. they seek out analytical views of developments to compare with their own. There are some officials who are somewhat indifferent to academic interests, sometimes paired with a strong focus on economic and business relations. And there are a few officials who have a somewhat conflicted relationship with academics for whatever reason.

For the past four years, Amb Goldhawk and Maxim Berdichevsky have not really fit into any of these categories, but instead have been active, supportive and welcoming in all interactions I’ve had with them on Canada-Mongolia relations, despite the constraints (not just budget) that they’ve been operating under.

It has been a particular pleasure to work with them and to be able to establish a relationship where I have been able to share my views on Mongolia, to have these taken seriously, and to know that they are being taken into account in the formulation of policy in some small way. Amb Goldhawk and Maxim have also been terrific discussion partners as they have kept such a sharp eye on events in Mongolia and their observations have thus often had a significant impact on my own understanding.

Obvious Achievements of the Embassy

Over the past several years there have been notable achievements for the embassy.

The most obvious and concrete change was obviously the move to the permanent location in Central Tower. The offices there are attractive, er, centrally located, and seem to be working out well as far as an outsider can tell.

The other outwardly visible achievements were the multiple visits by officials in both directions as well as the ramping up of a bilateral aid program for Mongolia.

Some of the most notable visits:

Mongolia -> Canada

  • Prime Minister, S Batbold (Oct 2010)
  • Speaker of the Ikh Khural, Z Enkhbold (March 2013)

Canada -> Mongolia

Substantive Achievements

While the embassy building and official visits are easily seen from the outside, the substantive work of the embassy may sometimes be less immediately visible. In the case of the Canadian mission in Ulaanbaatar there are a number of areas of particular activism on the part of the embassy.

Education and especially higher education is of obvious interest to me as a university professor. Here, the first-ever Canadian education fair in Mongolia in October 2013 was a real milestone. The general push to let Mongolians know about education opportunities in Canada is surely also linked to the over 30 Mongolian students we now have at UBC.

International agreements are another obvious marker in bilateral relations and discussions around a FIPA have been on-and-off since PM Batbold’s visit to Ottawa and his initial request for the opening of trade negotiations to which the FIPA is seen as a first step. Currently, the FIPA discussions seem to have gathered some momentum again, no doubt in part through the persistence of the embassy in Ulaanbaatar, but also at DFATD headquarters and the very engaged Mongolia desk there, I imagine.

While the Canadian embassy is a small mission, I have heard much about its activities from Mongolian interlocutors. This is in part due to the Mongolian recognition of Canada as a 3rd neighbour with particular expertise in resource issues, but surely also due to the active advocacy by the embassy on issues like the ongoing development of mining regulation where Canada clearly is an advocacy leader in Ulaanbaatar.

Amb Goldhawk and Maxim’s tenure also coincide with a push onto social media by Canadian missions. Maxim has been very active in this regard on Twitter. But the embassy also has a presence on Twitter and Facebook now.

 The Future of the Canadian Embassy

While Amb Goldhawk and Maxim have left Ulaanbaatar, I have not seen an announcement of a new ambassador. Obviously, I hope that this appointment will be announced soon and that relations with the embassy will be as productive and enjoyable in the future as they’ve been in the recent past.

Amb Goldhawk is now head of office in Canada’s High Commission Trade Office in Johannesburg with responsibility for Canada’s commercial interests across Sub-Saharan Africa. Maxim Berdichevsky has returned to DFATD headquarters as a Deputy Director involved in investment treaties negotiation. I wish them all the best in their new postings!

Posted in Bilateral Aid, Canada, Foreign Policy, Governor General's Visit 2013 | Tagged | 2 Comments

Why are American investors struggling in Mongolia?

Unlike the 1990s, Mongolia is now in the radar of US investors. Then, Mongolians were desperate for US investors, but few responded because of the unattractive market environment, uncertain political and socio-economic development, and undeveloped regulatory framework for foreign investment. Today, Mongolia is described as a high-potential investment destination for US investors, although there remain some complications.

Mongolia has restructured its macroeconomy with assistance from international financial institutions (IFIs), entered into a series of agreements with the US to increase bilateral trade and investment, and even offers short-term visa exemptions for US citizens. Above all, Mongolia recognizes the US as a vital ‘third neighbor’ to balance the influence of its powerful neighbors, China and Russia. Mongolia sought to strengthen its relationship with the US by renewing its commitment to democracy, deploying over 2,000 military personnel to Iraq and Afghanistan, and constantly seeking opportunities to develop closer ties. In spite of cultural and geographic distance, Mongolian officials have invited US corporations to invest in large-scale mining and infrastructure projects. Moreover, Mongolia is committed to democratic principles, proximate to East Asian economies, and is not experiencing any armed conflict. Why then are major US investors struggling to close investment deals in Mongolia – especially, in areas of mining and infrastructure development?

It is neither because of changes in our foreign policy objectives nor limited knowledge about Mongolia’s investment environment. The ‘third neighbor’ foreign policy has been re-affirmed by politicians in policy statements and in meetings with US officials. This soft-balancing strategy has never been challenged by China or Russia. They seem to respect Mongolia’s strategy as long as Mongolia remains militarily neutral. Nor can ignorance be the problem: an enormous amount of knowledge has been generated by IFIs, ranging from the World Bank to the European Bank of Reconstruction and Development, embassies, trade representatives, local branches of multinational corporations, legal firms, consulting services, and media ever since Mongolia’s opening in 1990 and re-opening of mineral wealth in the first decade of the millennium. Mongolia has been recognized as the new frontier for US entrepreneurs.

The main obstacle for US investors is domestic politics in Mongolia. Self-interested politicians and political-business factions increasingly dominate domestic politics and foreign policy. This results in weak government institutions, unaccountable politicians and political parties, and unclear decision-making processes.

The government’s ability to make long-term policies has been weakened by the politicization of public service. In theory, public servants are supposed to serve as gatekeepers against parochial, short-term interests by adhering to long-term developmental policies that would benefit Mongolia as a whole. Following the first parliamentary election in 1992, there was competition in Mongolia between two major political parties as well as smaller ones to appoint party-affiliated individuals to senior, mid-level and junior positions of the government and state-owned enterprises. This encourages individuals and public servants to seek political party affiliation, and in turn, discredits merit-based professional public service. The emerging pattern now is that political parties either attempt to reduce politicization during coalition governments, as in 2004 and 2008, or take revenge and politicize positions when one party dominates both the legislature and the Cabinet as occurred in 1996, 2000, and 2012. As a result, key policymaking areas are understaffed with career technocrats while overall posts were filled with party-affiliated officials whose main aim is to benefit within the four-year election cycle.

Similarly, Parliament, a key legislative, policymaking body, lacks nonpartisan professional staff and research capacity, which are important aspects of parliamentary democracy if there is to be policy continuity. The absence of such capacity allows politicians to intrude on the lawmaking process without much analysis by politicizing any issue on populist grounds. For example, Parliament has been unable to produce substantial studies and reports on major developmental projects like strategic mines or infrastructure development for the public since its establishment in 1992. In the vacuum, influential individuals and factions spur public opinion with one-sided facts to cancel or delay other factions’ projects and to advance their own interests. That means the government is operating on flash-drive memories of influential politicians and factions rather than the hard-drives of capable, professional government institutions.

Another related problem is increasing unaccountable, opportunistic behavior by government officials at the national and local levels. Particularly at the national level, members of Parliament and the Cabinet are influential political actors. They engage in competitions over governmental posts at ministries, agencies, and state-owned enterprises such as the Erdenet copper plant, airlines, and railways, as well as in newly established ones in the mining and infrastructure sectors. Since political parties are divided along factional interests and are losing political cohesiveness to self-interested individuals and business factions, the two major political parties are unable to hold their members accountable for opportunistic behavior. Politicians and factions favor short-term construction projects in their locality for quick benefits, rather than supporting long-term major projects. In general, politicians are afraid of allowing their opponents to get credit for implementing major long-term projects – like Oyu Tolgoi and Tavan Tolgoi, two of the largest mining operations in Mongolia – and related infrastructure. This creates an environment that favors blame game tactics against opponents and encourages unaccountable, opportunistic, political behavior. As a result, members of Parliament and the Cabinet are perceived as skillful rent-seekers who make false promises to foreign and domestic investors.

The other problem is an unclear decision-making process. On paper, Mongolia has a clear decision-making process where all issues can be openly debated in public. But, over the last decade, the decision-making processes have been overtaken by informal politics and bargaining among politicians and political-business factions. Good intentions become hostage to self-interested politicians, factions, and political entrepreneurs who seek to disadvantage opponents to improve their own bargaining position. Therefore, politicians and business factions enter into a non-transparent decision-making processes. This creates opportunities for others to upset the balance of power to trigger more rounds of crises, bargaining, and compromise. As a result, no major development projects and policies to solve socio-economic challenges are fully implemented. No single study has been completed on the pros and cons of any major investment agreement or policy. The public and investors (both foreign and domestic) suffer while self-interested individuals and factions benefit.

The self-interest-dominated Mongolian politics is worsened by competition among foreign and domestic investors. Unlike US, German, and Japanese companies, the main competitors in Mongolia are not obligated under international and domestic anti-bribery and corruption acts (e.g., the Foreign Corrupt Practices Act, OECD Antibribery Convention). As a result, competition over major projects generates incentives for politicians and political factions to gain short-term benefits at the expense of national priorities. For such politicians, narratives of geopolitics and nationalism are easy ways to spur public opinion while meeting their short-term self-interest.

Mongolian politicians are aware of the importance of US investments to strengthen the ‘third neighbor’ policy. But, ‘short-termism’ in Mongolian politics is weakening the institutional capacity of the state to reach and honor investment agreements while implementing long-term policies to cope with socio-economic challenges. Unless politicians and political-business factions restrain their short-sighted interests and focus on national priorities that would strengthen state sovereignty and benefit Mongolians as a whole, the country will become an unstable, debt-ridden ‘island of the poor’ in the stormy sea of Inner Asia. Celebrations of democracy will not save the nation and keep third neighbors close by. Disciplined, professional, and apolitical state institutions together with responsible political parties and politicians will create an ‘island of opportunities.’

Note: re-posted with the permission of the PacNet of Pacific Forum CSIS, for the original news, PacNet #61.

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Caveats for the Mongolia-China Strategic Partnership

China and Mongolia upgraded their bilateral relationship to a Strategic Partnership in 2011. Last year, both countries agreed to the implementation of a detailed action plan to strengthen their strategic partnership in the five specific areas of politics, security, the economy, culture, and multilateral diplomacy. Some may ask the question why China is looking to further strengthen bilateral relations with a small country like Mongolia.

China’s relationship with Mongolia dates back for thousands of years and is one reason for the construction of the Great Wall. More recently, Mongolia’s independence was recognized by both the Republic of China (Taiwan) in 1945 and the People’s Republic of China (China) in 1949. China-Mongolia relations were frozen during the Sino-Soviet split in the 1960s, and not normalized again until the end of the Cold War in 1989.

The reasons behind upgrading the bilateral relationship from the “good neighborly, mutually trusted partnership” which was the term used in 2003, to the Strategic Partnership of today, differ for both sides. However, the end-goal for both is for a long-term and stable relationship.

Since the end of the Cold War, China has prioritized cooperation over confrontation with its neighbors. It has attempted to institutionalize bilateral relations with major regional powers, including former rivals—Japan, India, and Russia.  Beginning in 2005 China began to upgrade, at least in joint statements and declarations, its relations with many of its neighbors—with the exceptions of Bhutan, Nepal, and North Korea—to that of Strategic Partnership. In relative terms, the majority of China’s 14 neighbors are small and peripheral given the distinctive demographic, geographic, and economic characteristics of China. However, for China, stability and mutual understanding with peripheral states is just as important as its relationships with other major powers. Over the past decade, this strategic partnership policy has been an evolving key strategy for China with clear political, security, economic, and cultural objectives. China’s newly-declared strategic partnership with Mongolia reflects these objectives.

Regarding political objectives, China’s goal is to reassure leaders of neighboring states that it will not intervene in their domestic politics and will treat them as equal, sovereign entities. China, in return, secures reassurances on its own foreign policy objectives regarding Taiwan, Tibet and Xinjiang. The strategic partnership with Mongolia, for China, is also designed to achieve these same policy goals. Mongolians regard the Dalai Lama as a religious leader. In addition, Mongolia is ethnically connected to Inner Mongolia and Xinjiang and has growing economic and cultural ties with Taiwan. All issues of concern for China.

China has a long history of external threats destabilizing the country and there has always been a fear of outside forces entering China from Mongolia, as the two countries share a 4,700 km border. Historically, Mongolia and other central Asian states have all been used by Russia to maintain strategic pressure on China. Though Chinese fears about Russia have waned, it is still cautious about the possible use of Mongolia by other potential challengers, namely the United States and India. Thus, Mongolia’s commitment to neutrality and non-alignment are important factors for strategic and military planners in Beijing.

China, furthermore, utilizes the strategic partnership with Mongolia, just like it does with other peripheral states, for natural resources, trade routes, Chinese business interests, and, more importantly, to integrate China’s own bordering provinces into economic prosperity with these countries. In addition, Mongolia, while not rich in natural gas and oil, does however process significant quantities of coal, copper, and uranium, all of which are of value to China. Moreover, Mongolia is the shortest transit route to Russia and Europe for Chinese products, just like Laos to Southeast Asia and Kyrgyzstan to Eurasia.

Mongolia has long enacted a protectionist policy regarding Chinese investment in key economic sectors including mining, banking, and communications. However, as Mongolia’s economic interaction with China continues to grow, there are fears that the country will become too dependent upon China for economic development. Therefore, the strategic partnership with China increases this fear by locking the Mongolian government into long-term investments from China, especially in mining and infrastructure development.

Another goal for China with its strategic partnerships is the promotion of Chinese culture and people-to-people exchanges. In 1990, China enacted a visa-exemption policy and preferential access to medical facilities for Mongolians. More recently, as outlined in the 2013 Strategic Partnership action plan, China will provide 1,000 scholarships annually for the next five years and one-fifth will be for undergraduates. Many of China’s smaller neighbors, however, are cautious about Chinese cultural assimilation. All of China’s neighboring states are proud of their unique and distinctive cultural identity that is separate from China, and this is reflected in their own understanding of their vital interests. In addition, people who grew up in Southeast and Central Asia in the 1960s and 1970s during the era of state-run anti-Chinese propaganda are still fearful of a rising China. This also applies to Mongolia today, which is striving to maintain its own nomadic, Buddhist, and now democratic identity, in a region where Chinese influence and stature is increasing.

From the Mongolian perspective, the strategic partnership with China is important across a number of areas, but there are caveats, especially concerning the economy, security, and culture. For Mongolia’s sovereignty, the Chinese endorsement of equal partnership and non-intervention are the most valued. Mongolia needs Chinese endorsement for its foreign policy objectives in order to develop a balanced relationship with its other major neighbor, Russia. Other areas of interest to Mongolia are the autonomy to increase its international profile by integrating further with other Central and Northeast Asian neighbors.

Mongolia as a landlocked country between China and Russia has limited economic options. Therefore, an economically vibrant China is a natural trading partner, which also offers transit infrastructure for economic interaction with other East Asian states, namely Japan and South Korea. China also provides the closest ports for Mongolia’s economy and is an important source for select investment, technology, and labor. As such Mongolia is highly vulnerable to rising Chinese influence, and this fear is natural taking into consideration China’s expanding role in the region. Therefore, Mongolia in 2008 established a Strategic Partnership with Russia, with Japan in 2010, a Comprehensive Partnership with the United States in 2011, and in 2013 a Partnership and Cooperation Agreement with the European Union. Significantly for Mongolia, none of these partnerships provide substantive security and economic guarantees, though they do help Mongolia consolidate its political sovereignty and most importantly, its distinct identity of a democratic outpost in Inner Asia.

Overall, the China-Mongolia Strategic Partnership is a road map for neighborly cooperation. China is furthering its policy of institutionalizing relations with smaller neighbors whereas Mongolia secures political recognition, economic benefits, and security assurances. Specifically for Mongolia, it is following its foreign policy of maintaining balanced relations with its two giant neighbors, China and Russia.  Inevitably, Mongolia’s options are limited by geography, and therefore it seeks other like-minded democratic states to support its democratic future.

Note: re-posted with the permission of the Asia Pacific Bulletin of the East West Center in Washington, DC., for the original news, link.

 

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Joint Statement Lu Bold & J Baird

Foreign Ministers Lu Bold and John Baird issued a joint statement following their discussions in Ulaanbaatar. The statement included no surprises nor any concrete news that I can discern, but no translation is available yet.

The topics covered in the statement include:

  • reaffirm partnership
  • democracy, human rights, rule of law
  • Mongolia’s designation as a “country of focus” for Canadian development assistance
  • urban/rural development, judicial reform & police cooperation
  • FIPA
  • cooperation in international organizations
  • people-to-people relations
  • importance of collaboration in education
  • 40 years of diplomatic relations

[July 24: The English versions of the statement were published on the MFA and DFATD websites later July 23 and early July 24, respectively. The bullet points above do summarize the statement which offered nothing new and little of substance.]

 

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DFATD Announcement of FM Baird Visit

On July 22 the Canadian Department of Foreign Affairs, Trade and Development confirmed previous reporting in the Mongolia press that Foreign Minister Baird will be visiting Mongolia later this week:

In his first trip to Mongolia, Baird will discuss the role of the Canadian government and of Canadian businesses in contributing to the democratic development of the country, including public service reform and mining governance.

Since public service reform and mining governance have been identified as focus areas for any Canadian development assistance in the past, the above phrasing could hint that the bilateral program will finally be announced, as I have speculated, but it doesn’t quite say that, yet.

Note that the DFATD page on bilateral relations now writes about “Canada’s international development bilateral assistance program in Mongolia” (as of July 14 revision) whereas the phrase had previously been “Canada’s international development assistance program in Mongolia”. Perhaps this editorial change was made in anticipation of an announcement.

“We are committed to establishing stronger bilateral and commercial ties with East Asia in order to create more opportunities for job creation and growth at home and abroad,” said Baird. “Promoting Canadian interests and Canadian values will be central in all of my discussions.

Beyond the political and development links between Canada and Mongolia are commercial ties, of course. Just like Mongolia has been added to the “countries of focus” list for aid by DFATD, so it is included in the Global Markets Action Plan as an “emerging market – specific opportunities”. To the extent that a FIPA would be part of strengthening “stronger bilateral and commercial ties” with Mongolia, I would guess that FM Baird will be pushing for a re-start of the FIPA talks.

 

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FM Baird to Visit Mongolia

According to Mongolian news sources ( 24 Tsag | infomongolia.com), Canadian Foreign Minister John Baird will be visiting Ulaanbaatar July 23-25. There’s no official Canadian announcement as of July 20, but let’s assume that this visit is really happening, after a number of planned official visits by Canadians that had been aborted in previous years.

Why is John Baird Going to Mongolia?

For once, this is not foreign diplomacy that’s motivated by Canadian domestic electoral politics. While the number of Mongolians living (and presumably voting) in Canada is growing, they are neither numerous nor concentrated enough to be an attractive group to address even for micro-targetting politician strategists.

Instead, this visit will be a further step in a slowly deepening bilateral relationship that is rooted in democracy and natural resources. It would follow on the October visit of the Governor General.

Mongolia has long fit the profile of a country that is of interest to the Harper government because of this combination of political and economic shared interests. Mongolia seems to be firmly committed to democracy (though worries have been expressed recently), and its economic and thus social development depends almost entirely on resource development.

Current Developments

FM Baird is arriving just after Naadam, the annual summer festival that celebrates wrestling, archery, and horseback riding. Generally, the period from after Naadam to the end of summer is rather slow in Mongolia, a little like France that way, with  many people, including officials, away to the countryside.

If I had a chance to speak to the Mongolian foreign policy establishment, the top item on my agenda would be the squeeze that Pres Putin’s overtures to Pres Xi potentially puts on Mongolia. This Spring has changed Mongolia’s foreign policy environment rapidly in the aftermath of the Crimea annexation and opposition to it from OECD countries. I would offer strong moral support for democracy and for Mongolia’s independence, especially in light of the upcoming visits by Pres. Xi and Putin. The coming months may well be a time when Mongolia will need to cash in some friendship chips with the “3rd neighbours” it has been cultivating for years – including Canada -, to negotiate a viable course between pressure from its two overbearing neighbours. I imagine that German FM Steinmeier had discussions along these lines on his visit last month. This pressure can be seen in the international sphere in noises about a Russian-Mongolian and possible Russian-Chinese-Mongolian customs union, or in apparent suggestions that Mongolia accelerate its accession to the Shanghai Cooperation Organization. These are developments that are not obviously in Mongolia’s interest, but might be seen as desirable by its direct neighbours.

The other topic that I would emphasize with current officials is the importance of a balanced approach to governing even with a solid majority in place. Of course, FM Baird as a member of the majority Conservatives might be an odd person to deliver such a message.

Concrete Outcomes?

There are two broad areas where the visit might lead to announcement of concrete outcomes, though I’ve been entirely wrong on second-guessing government intentions and discussions in the past.

  1. FIPA. Negotiations for a Foreign Investment Protection Agreement have been stalled for some time, apparently due to objections or a lack of interest by Min of Econ Development, N Batbayar. Recently, there have been some noises about a re-initialization of these discussions.
  2. A Canadian aid program for Mongolia. Last month, it was announced that Mongolia had been added to DFATD’s countries of focus list for foreign aid. A bilateral aid program has been under discussion/in the making for some years, so the visit by the Foreign Minister would seem like an opportune moment for an announcement.

Canada’s excellent ambassador to Mongolia, Greg Goldhawk, is due to leave Ulaanbaatar in August. So far, no word of a successor has come, but perhaps this is something that FM Baird will share with his Mongolian hosts at least, if not with the interested Canadian public.

There have been some hints that Mongolian President Elbegdorj would be interested in visiting Canada, possibly this Fall. If this were to be moving toward a concrete plan rather than a rumour, the visit by Foreign Minister Baird could be a time to announce such a plan, though that strikes me as somewhat unlikely.

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Canadian Development Aid

The Canadian Department of Foreign Affairs, Trade and Development revised its list of priority countries in June 2014 to include Mongolia.

Past Bilateral Engagement

This is a further step in the long-term process to increase Canadian-Mongolian bilateral engagement. A bilateral aid program has been in the making for some years, at least since the visit of then-PM Batbold to Ottawa in Fall 2010.

A CIDA (now amalgamated in DFATD) officer has been posted at the Canadian embassy for some years. Then-Min of Intl Cooperation Bev Oda visited Ulaanbaatar in August 2011 and a number of smaller development projects in Mongolia funded by CIDA have focused on public service reform and women parliamentarians (those are the projects I am aware of).

The announcement of the addition of Mongolia to the list of focus countries and the increase of the budget share devoted to these countries from 80 to 90% suggests that more concrete announcements of Mongolia activities will be coming, perhaps during the next visit any high-ranking Canadian political officials might make to Ulaanbaatar.

Motivations for Engagement

Canadian engagement with Mongolia appears to be primarily politically motivated. Compared to other countries on the DFATD priority list, Mongolia is relatively prosperous and does not face any kind of humanitarian crisis. Other large donors are also either winding down activities in Mongolia (USAID) or switching from a grant-making to a loan-based engagement as Mongolia is closing in on upper middle-income country status. [See the WorldBank for this classification of countries. The band for lower middle-income goes to $4,085 per capita GNI, Mongolia currently stands at $3,160 (2012) up from near $2,000 in 2010.]

So, why should a country that’s growing economically be a priority focus for foreign aid?

The cynical/critical perspective on this points to an overlap between trading patterns and development aid. This is an aspect of the priority list announcement that Kristen Shane of The Embassy identified, for example.

And, true enough, DFATD’s “Global Markets Action Plan” identifies Mongolia as an “Emerging Market – Specific Opportunities for Canadian Businesses” and thus a priority.

From my perspective this not a case of commercial interests driving development engagement entirely, but rather one where commercial interests have produced a plethora of expertise on the resource sector in Canada, not just among corporations, but also governments, academics, NGOs and development experts.

It is in this common source (a pool of expertise) that I see the roots of a productive and non-cynical overlap between commercial interests and development activities.

In this context I also take note that the volume of bilateral trade and investment is somewhat inflated by the formal part-ownership of the giant Oyu Tolgoi gold and copper project by Vancouver-based Turquoise Hill even though this stake is effectively controlled by Anglo-Australian Rio Tinto. Canadian commercial interests, even in the mining sector, are thus at the moment limited to exploration and the near-development of relatively smaller projects, professional and other services, as well activities in other sectors. This may change in the future, of course.

I am more skeptical on the direct involvement of corporations in the delivery of development projects, though there surely is some scope for collaboration in this as well.

What Role for Canada?

The role that Canada can play very effectively in my mind is to help Mongolians understand and evaluate the policy alternatives that present themselves, in part on the basis of decades-long experience with resource policy in this country. This is not to imply that there is a Canadian or a British Columbia model to follow, but rather that this experience might point to the consequences that policy choices that present themselves to Mongolian decision-makers might have. As I have explained in a recent interview in the Mongolian Mining Journal, “Mongolians must ask their own questions, find their own answers”, but Canadian expertise can (and should, I think) support such a search.

The focus areas that have been announced for Canadian development activities in Mongolia are

“ensuring human development, decreasing rural-urban disparities and improving economic competitiveness.
“The goal of Canada’s assistance is to help the country stimulate sustainable economic growth by strengthening public service capacity, particularly the management of the extractive sector.”

Given the expertise that Canada offers in some of these areas, it is not surprising that Canadian development aid might be welcomed by Mongolians and might contribute to the more sustainable and equitable continued development of that country.

Disclosure

As one of the relatively small (but active) cabal of Mongolia-interested Canadian academics, I (hope to) benefit from increased governmental interactions between the Mongolian and Canadian governments. However, I am not on any payroll in the facilitation of such interactions. I do regularly discuss opportunities with Canadian and Mongolian officials. I also do hope to be more directly involved in development activities in Mongolia at some point sooner rather than later.

Posted in Bilateral Aid, Canada, Development | Tagged | 4 Comments

Khaan Quest 2014: a small exercise with big implications

Just recovering from the heavy study term and now trying to join you all.  Here is a link to my recent op-ed on Khaan Quest, a brainchild of the US-Mongolian militaries over two decades of partnership.  The exercise is the only large-scale non-SCO military event in Inner Asia – and as paving its way to be the only constructive framework for the PLA and militaries of the NATO members.

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Foreign Policy Roundup #20: June 9- 22, 2014

A big couple of weeks in Mongolian foreign affairs with the first “Ulaanbaatar Dialogues” held to discuss security issues in East Asia, the President of Latvia making an official visit, and Mongolia’s participation in the ILO and ARF meetings.

 

 

Neighbors

On the invitation of Parliamentary Director Z. Ekhbold, the Chairman of the Federation Council of the Russian Federation, Valentina Ivanovna Matviyenko, made an official visit to Mongolia.

The Mongolian and Russian Ministries of Foreign Affairs held their 8th consultative meeting.

  

Central Asia

Director of the Mongolian General Election Commission, Ch. Sodnomtseren met with the Kyrgyz Ambassador to Mongolia.

L. Bold met with Uzbekistan’s newly appointed ambassador to Mongolia.

 

 Asia-Pacific

L. Bold met with representatives from Japan in the seventh session of meetings regarding the Mongolia-Japan Economic Partnership Agreement (EPA).

  

Europe

The President of Latvia made an official visit to Mongolia. During his visit official meetings were held with Mongolian President Elbegdorj, PM N. Altankhuyag, and Minister of Foreign Affairs L. Bold. Ideas regarding small state foreign policy were also on the agenda.

Mongolia’s newly appointed ambassador to Denmark, Z. Altai, presented his credentials to the Queen of Denmark.

Both the Mongolian and German sides of the Mongolia-Germany Parliamentary Working Groups met in Ulaanbaatar to discuss their bilateral relations.

Mongolia’s Justice Minister, X. Temuujin made an official visit to Germany to meet with the German Minister of Internal Affairs.

 

Latin America

Mongolia and Columbia held their first consultative meeting in Bogota. Deputy Minister of Foreign Affairs D. Gankhuyag met with his counterpart in the Columbia government and discussed issues ranging from mining and development to tourism and industrialization.

D. Gankhuyag made an official visit to Brazil, where he met with the Brazilian Minister of Foreign Affairs.

L. Bold received the Mexican Ambassador to Mongolia.

 

North America

Mongolia’s Ambassador the United States, B. Altangerel signed a contract with U.S. Immigration and Customs, requiring the U.S. to return dinosaur fossils illegally removed from the territory of Mongolia.

 

Multilateral

PM N. Altankhuyag was invited by the President of the ILO to the Convention on Labor and Social Security held in Geneva to present the Mongolian government’s “Employed and Profitable Mongolian” program. 

Last year at the meeting of the Community of Democracies, President Elbegdorj announced the creation of the “Ulaanbaatar Dialogues”, modeled after the “Helsinki Process” as a forum to discuss issues in East Asia. Since Mongolia enjoys friendly relations with all East Asian states, President Elbegdorj expressed that Mongolia would be an ideal location for such a forum. The first meeting was held June 17-18, 2014.

Mongolia’s permanent representative to ASEAN, Ts. Jambaldorj, participated in the annual ASEAN Regional Forum (ARF) held in Yangon, Myanmar. Ts. Jambaldorj remarked on Myanmar’s successful directorship of ASEAN over the past year.

D. Gankhuyag participated in the G77+China Summit, held in Santa Cruz, Bolivia.

MP D. Battsog received the UN Population Fund advisor Katrin Schneider and representatives from the National Gender Commission.

Minister S. Oyun has been nominated for the position of Director of the UN Environmental Assembly (UNEA).

 

For previous postings, please CLICK HERE.

 

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Foreign Policy Roundup #19: May 26-June 8, 2014

In this roundup, highlights include Mongolia’s hosting the UN Forum on Trade and Development in Landlocked and Small Island Nations, and continued high level engagement with the Russian Federation.

 

Neighbors

On invitation of the Mongolia Minister of Law X. Temuujin, the Chinese Minister of Law made an official visit to Ulaanbaatar to exchange ideas of possible cooperation in this sector.

Director of the Mongolian Parliament Z. Enkhbold received the Chinese Ambassador to Mongolia and the Head of the Chinese Investment Corporation. The meeting opened with an expression of gratitude for China’s contributions to the Confidence Building Measures in Asia meeting held in Shanghai. The conversation then moved to discuss the development of coal and natural gas related projects.

Russia’s Deputy Minister of Internal Affairs and Law met with the Mongolian Minister of Law X. Temuujin.

Mongolian Minister of Foreign Affairs L. Bold received the Russian Deputy Minister of Foreign Affairs I. V. Morgulov at the Mongolian Minister of Foreign Affairs.

Russia eyes Mongolia as transit country for energy trade in Asia.

Mongolia’s relations with NATO, EU, and Russia effected by situation in Ukraine.

 

Europe

Minister of Foreign Affairs L. Bold, made an official visit to Sweden and Denmark and met with his counterparts in the Swedish and Danish governments. While in Sweden, L. Bold also participated in a meeting of the Mongolia-Sweden Business Forum.

Deputy Director of the Mongolian Parliament and Director of the Mongolia-Austria Parliamentary Working Group L. Tsog received the Austrian Ambassador to China, the Vice-President of the Austrian Economic Chamber, and economic attaché to the Ambassador.

 

Asia-Pacific

Mongolia and Vietnam are marking 60 years of diplomatic relations. In honor of this anniversary, an article was released entitled “The First 60 years of Friendship and Cooperation.”

The Ministries of Foreign Affairs of Mongolia and South Korea held their 8th consultative meeting in Seoul.

B. Tsogoo made an official visit to Laos on invitation of the Laotian government.

 

Middle East

Mongolia’s General Consul in Istanbul met with representatives from the Turkish Minister of Foreign Affairs to express Mongolia’s condolences following the mining accident in Soma, Turkey.

Turkey and Mongolia are celebrating 45 years of diplomatic relations.

On the invitation of L. Bold, the UAE Minister of Foreign Affairs is making an official visit to Ulaanbaatar.

 

Multilateral

Mongolia is hosting a UN forum on trade and development in landlocked countries.

 

 

 

 

For previous postings, please CLICK HERE.

 

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Will Events in Ukraine Trickle East to Mongolia?

As President Obama declares that the US is preparing to boost its military presence in Europe to the tune of $1 billion, and NATO and the EU move quickly to deepen relations with Georgia and Moldova it is easy to conclude that the crisis in Ukraine and the recent actions of the Russian Federation are a very European issue. However, if we turn our attention to Mongolia, we can see that worsening US/EU relations with Russia are likely to have a far more global effect than may have been initially assumed.

Mongolia, for its part, seeks to simultaneously maintain good relations with its neighbors (Russia and China) while deepening relations with extra-regional powers such as EU member states, the US, Japan, and South Korea. While maintaining this balance and neutrality is difficult enough in a stable international environment, the recent increase in tensions between Russia and NATO/EU members has made playing both sides of the fence an increasingly delicate process.

The first sign that Mongolia was finding itself in an increasingly sticky situation appeared when the country chose to abstain from the UN resolution condemning the Russian annexation of the Crimean Peninsula. Everything about Mongolian foreign policy and general international outlook would lead one to believe that Mongolian officials do not welcome Russia’s aggressive actions. Not only would Mongolia not be keen on Russia’s attempts to legitimize its actions by reference to historic rights and “arbitrary decisions” (this having the potential to set a precedent for claims on Mongolia’s territory by China), but this kind of action by a great power against a smaller neighbor more generally underlines Mongolia’s own vulnerability. That said, it is also clear that Mongolia is not in a position to upset its relations with the Russian Federation, given its importance to the Mongolian economy and its role as a neighboring balancer vis-à-vis China. “Abstain” was likely the only decision Mongolia could make.

It would appear that the Russian government is also watching how countries on its eastern borders will respond to the crisis in its relations with Europe and North America. Case in point: Russian President Putin met with Mongolian officials 2 times in just the last 3 weeks. The first time, Mongolian Prime Minister N. Altankhuyag met with Putin to discuss the two countries’ bilateral relationship at the St. Petersburg International Economic Forum. The second time, Putin met with Mongolian President Elbegdorj at the Confidence Building Measures in Asia meeting in Shanghai. Russia is eager to keep Mongolia from sliding towards the United States and Europe.

While I do not know if the current situation in Ukraine was discussed at these meetings, Ukraine was on the agenda during recent meetings between the Mongolian Minister of Foreign Affairs L. Bold and the British Minister of Foreign Affairs two weeks ago. I would also guess that U.S. Senators Steve Lynch and Steven Shabet mentioned the issue during their visit to Ulaanbaatar as part of an official tour of Asia.

Mongolia and other small states seeking to maintain relations with Russia and the “West” are going to find it increasingly difficult to maintain a favorable balance. As Russia becomes more assertive of its foreign policy and security interests, its relationship with NATO and EU member states is unlikely to improve. While Mongolia has navigated the international arena successfully for the past couple decades, that well thought-out success has a limit. As Mongolia’s international profile rises and relations between real and third neighbors deteriorate, I predict that Mongolia’s goal of an omni-directional foreign policy will become more and more difficult to maintain. Difficult, but by no means impossible.

 

 

(Many of the resources and links for the post came directly from my “Foreign Policy Roundup”, which be can found here).

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New to Ulaanbaatar in May 2014

Back in October 2013, I made a list of things that are arriving to/disappearing from central Ulaanbaatar.

I’ve copied that list here and am adding to it. New items since October 2013 that I’m adding in May 2014 in italics.

What has arrived?

  • sadly, Louis Vuitton and KFC
  • Mini, Bentley
  • child seats
  • sidewalks
  • parks [these are closely linked to Bat-Uul's election win in 2012]
  • farmers’ markets
  • yoga
  • dogs on leashes
  • Sunday morning joggers and bikers
  • coffee culture

Barista Art at the Rosewood in Ulaanbaatar

What has disappeared, or at least nearly?

Note that some of these may be due to seasonal changes, as I hadn’t been in Ulaanbaatar in September before my last winter, really only in summer or winter.

  • stationary 80s-office-phone-looking old-granny cell phone booth
  • for-pay scales
  • free WiFi on Sukhbaatar, er Chinggis Khaan Square
  • Sukhbaatar Square
  • open gullys/missing manholes
  • street kids
  • packs of dogs
  • smoking
  • the sixth-floor souvenir shop at the State Department Store (though perhaps seasonal)
  • oversized sunglasses for women that were so popular across Asia (?) some years ago
  • Nescafe (see above on coffee culture)

What will appear in the future

  • navigation systems
  • wheelchair accessibility
  • bike lanes
  • city park along the Tuul
  • new airport (apparently)
  • subway (really, I wish they had selected light rail instead)
  • sports cars
  • Harley-Davidson
  • urban renewal and historical restorations embracing district north of government house (National University of Mongolia, German embassy, etc.)
  • road signs in the countryside
  • street names and signs in the city
  • network of cross-country riding trails
  • parking (meters)

What will disappear in the near future

I’m going out on a predictive limb here… 2-3 years is what I mean by “near future”.

  • stray dogs
  • stretched-out hand to signal for a car ride
  • that awkward extra half-step on most stairs

What will disappear in the medium-term future

I mean around 5 years or so.

  • new (to Mongolia) cars that are right-hand drive
  • the neo-classical Ministry of Foreign Affairs building, with its Stalinist (if that’s an architectural style) spire
  • deels in the city
  • some of the downtown university campuses
  • buildings of 4 floors or less in the urban core.
Posted in Curios, Ulaanbaatar | Tagged | 3 Comments

Foreign Policy Roundup #18: May 12-26, 2014

Highlights for the past few weeks include: Putin meets with the Mongolian President at the Confidence Building Measures in Asia international forum and with Mongolian Prime Minister N. Altankhuyag at the St. Petersburg International Economic Forum.

 

Neighbors

Mongolian Prime Minister N. Altankhuyag is traveling to St. Petersburg to represent Mongolia at the St. Petersburg International Economic Forum. This year, Western opposition to current developments in Russian foreign policy has affected the Forum, with 40% lower international attendance. Western opposition has also put Mongolia’s relations with the Russian Federation in a tense position, highlighted by N. Altankhuyag’s meeting with President Putin during the event.

During the Confidence Building Measures in Asia meeting Shanghai, Mongolian President Elbegdorj and Russian President Putin had a meeting, during which they discussed bilateral relations.

Mongolian Minister of Law, X. Temuujin invited the Chinese Deputy Law Minister to exchange ideas on cooperation in the fields of law and rights.

 

Europe

Mongolia’s newly appointed ambassador to Moldova, L. Dugerjav, presented his credentials to the Moldovan President.

Mongolia’s Ambassador to the European Union, Kh. Davaadorj, participated in a conference held for the opening of a new East Asian Studies Center in the Netherlands at Gronigen University.

As Mongolia and Sweden mark 50 years of diplomatic relations, Sweden’s non-resident ambassador made an official visit to Ulaanbaatar.

L. Bold met with the British Minister of Foreign Affairs to discuss international developments ranging from Afghanistan and Ukraine to North Korea.

 

Middle East

Mongolian Minister of Foreign Affairs, L. Bold, received the Israeli Ambassador to Mongolia to discuss the two countries’ bilateral relations and congratulated the ambassador on the Israeli National Day.

North America

In preparation for the 2015 conference on Nuclear Nonproliferation, Mongolian representatives met with the 5 nuclear states’ in New York. The representatives made particular note of Mongolia’s non-nuclear status.

Minister L. Bold met with US Senators Steve Shabet and Steven Lynch during the Mongolian leg of their Asian tour.

 

For previous postings, please CLICK HERE.

 

 

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In Ulaanbaatar with EITI Project Graduate Students

Together with Dirk van Zyl, a colleague in UBC’s NBK Institute of Mining Engineering, I supervised an interdisciplinary group of graduate students in a project on the Extractive Industries Transparency Initiative (EITI) and focused especially on EITI reporting in Mongolia in the Spring term, see http://blogs.ubc.ca/maapps

I’m in Mongolia May 21-30 with some of the students from the group who will be presenting the results of their analysis of the EITI reporting to various audiences. One presentation at the Ministry of Mining that will focus on policy makers has been scheduled for Tuesday, May 27, already.

Another presentation will be at 16h on Monday, May 26, in the conference room of the Puma Imperial Hotel. This event will be co-hosted by the EITI Secretariat in Mongolia and will be free and open to the public.

Posted in Corruption, Governance, Mining, Mining | Tagged | Leave a comment