Integrated Mineral Resources Initiative

Programme description

Title: Integrated Mineral Resources Initiative
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Mongolia
Lead executing agency: Ministry of Economic Development
Overall term: 2011 to 2014

Context
Mongolia is one of the world’s richest countries in terms of mineral resources, with major coal reserves and significant deposits of copper, gold, fluorspar and tungsten. Development of the raw materials sector can lead to substantial growth and widespread prosperity for the population as a whole. However, under no circumstances is this guaranteed. In order to develop the raw materials sector and at the same time diversify the economy, the country needs foreign direct investment and technical expertise.

Many resource-rich countries are faced with what is termed a ‘resource curse’. In Mongolia too, there is the risk that this natural wealth will either not be used or used incorrectly during times of high raw materials prices. The very low global market prices witnessed during the economic and financial crisis of 2008 and 2009 had a profound impact. However, thanks to the current high price of copper, the forecasts for the next decade are very positive, with annual growth set to average 9 per cent. With per capita income of just USD 3,300 (2009), there is sufficient scope for growth in Mongolia.

Taking the world’s largest gold and copper mine, Oyu Tolgoi – which is scheduled to begin production at the end of 2012 – as an example, the pressing issue arises as to whether the Mongolian Government is not only able to manage this boom in resources but also to avoid the typical scenario of an overheating economy which accompanies such cycles of boom and bust.

In order to translate mineral wealth into strong, sustainable and balanced economic growth, structured macroeconomic policies are required, together with a coherent political framework to support foreign direct investment. As a long-standing partner, Germany supports Mongolia in the implementation of its development strategy:

  • Development of the raw materials sector as a source of government revenue and a basis for further economic diversification as well as the development of public infrastructure.
  • Adaptation to European norms and standards in both the public and private sector in order to increase international competitiveness.
  • Improvement in quality infrastructure along mining-related value chains.
  • Development of a mining cluster.
  • Introduction of concepts and strategies for good economic governance and the implementation of corporate social responsibility (CSR) standards.

Objective
The institutional and economic policy conditions required to achieve sustainable, pro-poor economic growth based on the raw materials sector are in place. These allow for the involvement of the Mongolian, German and foreign private sectors.

Approach
The Integrated Mineral Resources Initiative (IMRI) brings together three German federal ministries – namely the Federal Ministry for Economic Development and Cooperation, the Federal Ministry of Economics and Technology and the Federal Foreign Office – in a partnership for the first time, alongside GIZ, the Federal Institute for Geosciences and Natural Resources (BGR), the Physikalisch-Technische Bundesanstalt (PTB) and the private sector.

The main partner is Mongolia’s National Development and Innovation Committee (NDIC). The initiative cooperates with the Ministry of Mineral Resources and Energy, the Ministry of Food, Agriculture and Light Industry as well as the Ministry of Foreign Affairs and Trade. Other partners include government agencies such as the Mineral Resources Authority, the standardisation authority and the privatisation agency, as well as the stock exchange, financial supervisory authority, and non-governmental organisations.

The IMRI conducts a number of formal and on-the-job training courses. The aim of these courses is to help people employed in the public sector to assess technical options as well as the economic and financial implications of proposed projects and strategies.

Advice on investment projects focuses on economic diversification and a coherent policy approach for managing and using the income generated from mining. The advice provided for setting up a pension fund is one such example.

Good economic governance is a key concern of the IMRI. Capacity development and the training of employees from selected ministries and specialist agencies or authorities will also help to achieve this, as will the broadening of knowledge on how to assess raw materials deposits and on how to draft and monitor conditions, laws and agreements in the raw materials sector.

Training courses are held on macroeconomic modelling and analysis as well as on the assessment of feasibility studies. As part of these courses, employees of government institutions learn how to judge options and forecasts of anticipated economic development on the basis of facts, whenever alternative investment decisions are taken.

The aim of the initiative is to promote industrial clusters, in particular a supplier and services cluster for the extractive industry. The National Development and Innovation Committee (NDIC) is working to develop networks of companies. NDIC will also advise on the development of a strategy based on value chains. A working group headed by Mongolia’s Deputy Prime Minister is addressing both this issue and the development of quality infrastructure, which is to run in parallel.

Results achieved so far
With a focus on developing supplier and service clusters for the mining industry and on establishing value chains, the NDIC has assumed responsibility for the KHAN Initiative 2030. This initiative, which was developed by the programme, combines aspects such as the transfer of technology and know-how in the field of mining, the pilot-scale development of technological skills and training in the processing of raw materials and the expansion of quality infrastructure. Together with IMRI, the National Security Council and a parliamentary working group, NDIC is also preparing a national strategy paper on the subject of rare earths and the accompanying statutory regulations.

The programme is supporting NDIC in the formulation of policies and strategies for several national programmes. In the case of Mongolia’s Development Bank, the advice provided has resulted in amendments being made to both draft legislation and the bank’s organisational structures.

Recommendations put forward by IMRI advisors have been incorporated into the Stock Corporation Act developed by Mongolia’s financial supervisory authority. Together with the support of IMRI employees, the government’s privatisation agency is setting up a department specialising in IPOs. The employees are essentially focusing on preparations for the flotation of the state-owned investment company Erdenes Tavan Tolgoi and other public mining enterprises.

German companies are increasingly using the IMRI as a point of contact and support for developing local activities in the mining and mining supplier sectors. The opening of the German Centre of Excellence provides the programme with an innovative platform for German companies wishing to profile themselves on the Mongolian market. Three companies have made use of this service so far, and a further five companies, offering components for transportation and drive technology, are planning a joint entry into the market in 2012.

Mongolia. Mongolian and German partners sign a memorandum of understanding. © GIZ

Contact

Stefan Hanselmann
stefan.hanselmann@giz.de