Page 73 - bne_May magazine 2023_20230503 BRICS

bne May 2023
Opinion 73
1.5mn tonnes annually while the underground production is expected to average 3mn tonnes. This comes at a time when the outlook for the price of copper is very strong, with many industry analysts expecting it to double in the next three years. This is because of the fast growth in renewable energy projects (copper is still the most efficient and affordable way to transmit electric power) and strong growth in electric vehicle production globally. This is against a backdrop of low global inventories of copper.
Coal. China will continue to open new coal plants (until 2030), leading to rising coal demand. However, prices are expected to remain under pressure due to competition from Russian coal producers who are looking to markets in Asia to sell coal now blocked from Europe due to sanctions.
Casinos. The period 2023-25 has been designated as the “Years to Visit Mongolia.” The government has launched a major campaign to attract more visitors, including waiving visa requirements for citizens of 34 countries. The ambition is to attract an additional 1.5mn visitors this year and raise this to 2mn in 2024. Part of the effort to attract more tourists is
to liberalize the casino industry. A bill has been submitted to Parliament and is currently being debated. The idea is to allow casinos to operate in a 1,000-hectare free trade zone located near the new Ulaanbaatar Airport. But only tourists would be allowed to use the casinos (no locals) and the proposed profit tax is 40%. Casinos and gambling are highly controversial in Mongolia following major scandals in the 1990s.
Corruption. The so-called Coal-Mafia scandal (allegations that current and former senior government and elected officials conspired to stealbns of dollars by falsifying coal export volumes) has proven to be the proverbial last straw for people’s frustration with public corruption. The very big protests of last December have forced the government to start tackling the issue more seriously. Several new measures and legislation have been announced and 2023 is designated the "Year for Fighting Corruption". The hope is that such measures can also lead to higher investment, especially by multinationals.
Credits. The government successfully placed new Eurobond debt in January (the first since June 2021) and restructured the repayment schedule. The result is a much more comfortable debt service schedule in 2023 and 2024 and a declining debt load (relative to GDP). Sovereign external debt is expected to drop to 71% by the end of this year, from over 76% at the end of 2022. The country’s debt risk rating should be improved this year.
Civic society. The country has a young population structure but a high level of people living on, or below, the poverty line. Environmental problems have worsened in recent years. These issues had already led to some protests before last year's major scandal (the coal-mafia) broke. There is a sense now that people will no longer put up with weak and ineffective government and state agencies – a message which appears to
be heeded by the government and at a time when, relative to previous years, it can afford to start spending more money on economic and social programs.
But it is not all plain sailing.
There is a risk of further social and political instability. According to the World Bank, almost 30% of people live below the poverty line and another 15% are close to it. People are very frustrated, especially when they hear of officials stealing budget money, and the risk of further protests is high. Attempts by political factions to align with the protests, i.e., to attack political opponents, have failed. Protests in 2022 were mostly nonpartisan and any future protests will likely remain so. This creates a more dangerous situation for government if, for example, it does not deliver on social, economic and environment promises or, if there are more corruption scandals.
The most recent protests took place late last year as news of the Coal-Mafia scandal infuriated people so much that they occupied the centre of Ulaanbaatar (and several other areas) for several days in mid-December. The fact that the nighttime temperatures fell to minus 20C but did not deter the protestors shows how fragile is the socio-political balance right now.
The next parliamentary election is scheduled for June 2024. There were reports that President Khurelsukh pushed for it to be brought forward to this year. He said it was to allow people to express their frustration in an organized manner. But more likely this was an effort to hurt his rival, current Prime Minister Oyun-Erdene, with whom he is vying for control
of the Mongolian People’s Party (MPP) which has controlled parliament (The Great Khural) since 2016. Khurelsukh was previously PM (and head of the MPP) before starting a six-year term as president in January 2021.
Another action showing the rift between the President
and government was his recent vetoing of a contentious law aimed at protecting human rights on social networks after international criticism and some public protests. The law is criticized as being too draconian and would restrict freedom of speech. The veto means that the legislation now returns to Parliament for further debate. A vote in favour by two-thirds of deputies is needed to approve the law and to overrule the veto.
The government is now in a more comfortable financial position and the outlook for export growth looks much better than it did this time last year. The big question is how it will use the improving export and tax receipts. There are several areas in need or urgent action, such as the environment
and alleviating poverty. There is also the New Revival Policy program which is targeting economic diversification and reforms. All of which will be expensive. The hope is that lessons from the past have been learned and programs to create stable recovery will be favoured over the sort of short term expediency spending which led to problems in the past.
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