No Stable Anti-Mining Coalition

By Julian Dierkes

Today, I published an Asia Pacific Memo that argued that no stable anti-mining coalition has coalesced in Mongolia to support or advance the recent petition asking the government to open negotiations with Oyu Tolgoi to increase the government ownership stake. Likewise, I don’t foresee a pro-mining party emerging any time soon.

Below, I offer an expanded version of this Memo:

Next week, German Chancellor Angela Merkel is scheduled to address the Mongolian parliament.  With this visit, Chancellor Merkel may hope to escape some of the turbulence of the current European debt crisis, but this visit will come in the middle of a mining policy tumult as Mongolian politicians are gearing up for a summer 2012 election. 20 MPs recently petitioned the government to re-visit an Investment Agreement signed with Ivanhoe Mines and Rio Tinto covering the giant Oyu Tolgoi project in 2009. This sent the shares of Ivanhoe and Mongolia’s credibility as a resource investment destination momentarily tumbling. Now, the speaker of the Mongolian parliament – who sets the legislative agenda – has lent his support to calls for a renegotiation of the Investment Agreement. Despite these voices, no enduring anti-mining coalition is behind this petition, nor has an anti-mining or pro-mining, single issue party emerged.

Mongolia has moved beyond the status of a “recent democracy” over twenty years after the gentle demise of state socialism through popular agitation. While Mongolian democracy has faced procedural and substantive changes, repeated peaceful changes of government and broad participation of the citizenry in politics  have established the rule of the people for the people firmly.

This puts Mongolia in noticeable contrast with the authoritarian post-Soviet republics of Central Asia where natural resources have also come to form the basis of economic development.

For the past five years and likely into the foreseeable future, Mongolian politics have revolved around the development of the Oyu Tolgoi copper and gold project in the South Gobi. When the mine goes into production (perhaps in 2013), it will dwarf all other single economic activities, contributing perhaps one third of GDP and will continue to do so even if the best-intentioned efforts at diversification succeed. The future of Mongolia’s GDP thus depends on this project to a great extend. However, many Mongolians also contend that the future of Gross National Happiness may depend on the participation – as owners – of the Mongolian people in this development project.

The negotiations between Ivanhoe Mines and the Mongolian government, later joined by Ivanhoe investor Rio Tinto, were a slow-moving roller coaster with numerous twists, turns, and dips largely created by the public musings of Mongolian politicians. Some of these musings led to a one-third ownership stake of the government in the Oyu Tolgoi project, bought with money borrowed from Ivanhoe Mines. While many had hoped that the conclusion of an agreement would lead to the stability favoured by international investors, the current turmoil has dashed these hopes.

But are current debates an indication of a long-term risk? Curiously no anti-mining party has emerged. Instead, individual politicians have created turmoil and continue to do so now. Noticeably these individual politicians are never members of the executive. While some politicians have railed against the Investment Agreement covering Oyu Tolgoi for years, they have not attempted to rally around this issue to form a single-issue party.

Of course, single-issue parties are not uncommon. Consider the Bloc Québécois in Canada or the anti-nuclear German Green Party of the early 1980s. So why no such single-issue grouping in Mongolia when the issue – Oyu Tolgoi – is arguably THE central issue facing Mongolians?

Two dynamics prevent the emergence of such a movement: 1. Corruption and patronage, and 2. The uncertainty about their opposition or support among even ardent proponents.

Mongolian politics revolve around patronage. That is politicians build their electoral strength relying on the positions and funding that they can offer to supporters once elected. Corruption can play an important role in shoring up such support by making greater financial means for such efforts available. Since patronage appointments are only available to members of the government or at least of parliament. There are thus significant incentives to individual politicians to be a member of a ruling coalition or of the government. These incentives have stabilized a grand coalition for some years, despite the Mongolian People’s Party’s majority of seats, by offering an incentive to Democratic Party officials to participate in a coalition.

Secondly, the strong populist ethic in Mongolian politics and especially its election campaigns has prevented politicians (and thus parties) to stake out strong substantive positions, lest they be identified to closely with this position and risk the wrath of the electorate should this position turn out to loose or fall out of favour. This has also stabilized the government coalition in that neither participating party wanted to risk being seen as the sole proponent of the OT Investment Agreement. While Mongolian politicians are commitment-shy on the Investment Agreement, they are not at all shy about sharing their musings on this issue very publicly, often via Twitter these days, with little regard to the state of mind of investors who interpret these musings to place Mongolia among investment-friendly and hostile economies.

Unless these underlying dynamics change – and the current turmoil if anything suggests that they will not leading up to next summer’s election – no stable anti-mining coalition, nor a forceful pro-mining grouping will emerge. If you are interested in following this story over coming years or, worse, if you are financially invested, buckle your seat belts! Mongolian politicians are going to continue to muse about the best way for the Mongolian people to participate in their mining boom and the options they will be considering will frequently be misidentified as resource nationalism.

P.S. (Feb 2013):
The absence of an anti-mining movement continues through 2012 and into 2013 despite simplistic cries of “resource nationalism” by foreign investors that are echoed by some writers. See:

• Marissa Smith on “Mongolian Resource Nationalism“
• Julian Dierkes in the FT’s beyond brics blog, “Mongolia doesn’t have resource nationalism – for now“

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