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: National Development Agency
Overall term: 2017 to 2020

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

Context

The Mongolian economy is characterised by a high degree of volatility and rapidly changing policy decisions. Within a few years, the country has experienced an economic boom and bust cycle. With the decline in commodity prices on the world market, economic growth has fallen sharply in recent years. The Mongolian economy's dependence on the extraction and the exportation of raw materials has exacerbated the recent economic crisis. Commodities continue to account for the largest share of exports, with a persistent lack of diversification. In addition, the country does not have an appropriate financial governance system due to a lack of institutional capacity and a high degree of corruption, facing the nation with high public debt. In 2017, the International Monetary Fund saved the State from bankruptcy with a financing package of USD 5.5 billion in total, which amounts to approximately 50 per cent of the yearly state budget. In recent years, the country has been characterised by frequent changes in the government and policies involving a change of administrative officials from top to bottom. 
 
The development in Ulan Bator and the Mongolian provinces (Aimags) show great socio-economic disparities. The impact of the national poverty rate increase from 21.4 per cent in 2014 to 29.6 per cent in 2016, is stronger felt in rural areas which serve as fallback options for urban families and individuals with a lower income. At the same time, the negative environmental impact of mining on the consumption of water and land becomes visible. In some mining areas, conflicts have developed between the local population, the administrations and the mining companies. Economic alternatives to mining in the region are still developing slowly, such as manufacturing and services with the exception of animal husbandry. Existing employment potential in small and medium-sized enterprises in various industries has not yet been sufficiently developed. 

Aimag-level administrations have insufficient capacity to exploit the positive incentives that mining activities in their region can bring to diversify their economies and create jobs in non-mining sectors. In addition, there is insufficient institutional knowledge of the economics of a commodity-driven economy and relevant instruments to ensure good financial governance. Local actors from civil society, chambers and associations, institutions of the local financial system as well as education and training providers have little experience in establishing an effective dialogue with the local or even national administration to formulate common development goals for the establishment of a conducive business environment and to accompany measures for their realisation. 

Despite existing potentials, Mongolian SMEs still face a number of institutional barriers and market failures that pose obstacles to their business operations. 
The "Government Program for Overcoming the Difficult Economic Situation and Stabilization" (Mongolia Government Action Program 2016-2020) jointly with the recent “Three pillar development policy” as the main document of the 2018-2020 Investment Program of the Government of Mongolia, set the economic policy priorities for achieving increased employment and income for large sections of the population. With the establishment of the National Development Agency, there is improved coordination of policies and strategies at national and regional level, as well as the further development of the implementation capacity of Aimag administrations. 

Objective

The ability of national and local partner institutions to promote inclusive and sustainable economic growth based on Mongolia’s mineral resource wealth is improved. Moreover, in four selected aimags with a strong focus on mining, more people are employed in small and medium-sized enterprises from diverse industries.

Approach

The Integrated Mineral Resource Initiative implements economic develop¬ment projects in four selected focus aimags. 

  1. The Initiative uses an integrated approach to local and regional development such as multi-stakeholder sustainable dialogue platforms – Integrated Community Development Partnerships –and capacity development measures to enable stakeholders to improve their participation in economic, social, and political discourse and development to create a conducive business environment and implement measures for the diversification of the economy and businesses. The focus of these endeavors lies in the establishment of sustainable dialogue platforms, which are leading strategy elaboration and participate in economic development measures in the agricultural value chain and regional tourism.
  2. The Initiative promotes small and medium-sized enterprises (SME) from various sectors through conducting business capacity building for innovation and the diversification of local SMEs and linking them to sources of finance and markets. This is aiming at the sustainable generation of employ¬ment and income as well as at a SME-driven diversification of the economy. In cooperation with Gobi Oyu Development Support Fund, the Initiative establishes a self-sustaining SME Business Growth Center located in Umnugobi and Ulanbataar to ensure the sustainable provision of business development services throughout Mongolia.