GeoEconomic Environment of Mongolia and Relations with Europe

I sincerely thank Prime Minister of Mongolia, S.Bayar, who is attending the opening of the 8th meeting of the forum during his official state visit to Europe and I wish you a success in your visits.

The goal of our discussion today is to exchange our opinions on delineation of geo economic environment of Mongolia, assessment of Mongolia’s links with Europe, especially with Germany, which is the main European partner of Mongolia from the point economic point of view and establishment of a mutually beneficial cooperation between Mongolia and Germany in mining sector, to be more specific, a cooperation based on the best German machinery and technology and Mongolian mineral resources. I believe that today’s conference theme is attuned to the goals and guidelines of your visit and will be an enriching experience, Your Excellency Prime Minister. 
                
Ladies and Gentlemen,

At the outset, I would like to note that multi lateral partnership and cooperation of Mongolia and Germany have been building up successfully. Mongolia has been expanding components and scopes of its geo economic environment and has been endowed with opportunities to participate and share in the world and regional revenue generating production.

Mongolian economy has been growing extensively in recent years and its average growth stood at 10%. The root of his extensive growth was its minerals sector or growth in the demand of commodity on the world market. As a side effect of this shift many developed countries and multinational corporations were enticed to Mongolia. Amidst geo economic paradigm shift, Russia and China, our two neighboring countries may have encountered a demand to tailor their traditional influences and interests.

The world financial and economic crisis that struck in 2008 makes us review the economic growth primarily derived from the commodity price increase for the last few years, furthermore, establish an accurate future development strategy, consider tendencies of economic interests of neighboring countries, evaluate correctly the strengths and weaknesses of this tendency and put more attention in fine tuning economic cooperation directions with Eastern Asia, Central Asia, Europe and North America into more geo economic sphere rather than geopolitical.

On the other hand, influence of development tendencies of neighboring countries are still pertinent in defining the geo economic policy of Mongolia, which is landlocked, with poor infrastructure and weak national processing industry. There is no doubt that the neighboring countries will be more involved more than ever in the current financial and economic crisis and a new financial system of the world after the crisis is over, furthermore to be an integral part of the world financial system.

China

Due to troubles in foreign market its export shrank, furthermore, it is being affected by the economic crisis, on the other hand, declining import prices of main energy sources such as oil and natural gas is reducing the impact. Also, China is working enthusiastically to bring the export oriented production and product market locally by increasing domestic economic turnover. In addition, taking advantage of falling price of imported raw materials such as copper, China is saving large reserves of raw materials, increasing shares in giant mining corporations such as Rio Tinto and buying more mining fields.

China is taking a full advantage of Europe’s increasing support in export funding in connection with the financial crisis.  China is buying massive machinery and technology which were previously refrained to be sold to and price disagreements are now being settled by the Chinese and this process is laying foundation of strong technical renovation of China in the future. An illustration of this is the large numbers of deals made during the Germany-China Forum held exactly a month ago in February 26 in Berlin.  

Facing the economic challenges, hundreds of thousands of Chinese workers return from bay industrial regions to other regions and villages of China. Of course, the production machinery and technological renovation will terminate hundreds of millions of jobs. Therefore, unemployment is likely to be a serious social problem in China.

Chinese Government is taking counter measures on this situation and it is striving to create jobs by heavily investing in infrastructure sector such as building roads, rails and new villages in the northern and north western areas, which have weaker infrastructure facilities.

Hence China’s shift of its economic development from bay areas to the northern and north western regions, bordering with Mongolia will bring about new economic dimensions and incentives to increase Mongolia-China border point trade, develop major mineral deposits located in border areas and build up infrastructure. A great deal of effort will be required for both countries to take advantage from this setting.  

At present, we are in the middle of a laying road connecting Russia and China stretching through Khovd in the western part of Mongolia. No doubt that in the future there will discussions of road project connecting Russia and China through central and eastern regions of Mongolia. The strategic location of Mongolia will convert Mongolia into an important transit zone between Russia and China. We shall not be satisfied with proceeds of transit transport but have to transform this infrastructure development into an opportunity to enter Chinese and Russian markets.  

In light of China’s economic shift from bay areas to its center I would like to emphasize an important point here pertaining to relations of Mongolia and Europe. The more China is directing its development into the center, there is more probability that railroad crossing Mongolia will be more profitable and more attractive than the sea transport.

It is pleasure to note that some German companies, especially Deutsche bann has started active negotiations with Mongolian partners. From the beginning of this year, Deutsche bann in collaboration with Russian railway authority is travelling trains in “Mongolian corridor“ twice a week. The trains departed from either Shanghai, Beijing or Tianjin reach the Western Europe within 14-16 days and it is more time saving than the sea transport. An active tri-party negotiations of Mongolia-Russia-Germany on capacity building and renovation of transit capacity of Mongolian railway started from the beginning of this year is the fact of assuring the future of this transport facility.

RUSSIA

It seems that Russia’s export revenue is declining due to falling prices of oil and natural gas and it is facing hindrances in some of its economic programs pertaining to machinery and technology sector. There is no doubt that Russia has the economic potential to overcome this obstacle with minimum loss.

Furthermore, in my opinion, Russia and China will play substantial roles in a new financial system as competent members of G-20 group and their economic renovation will be successful and extensive. The short cut route to transport petroleum from Russia to China is indeed the Mongolian railway and by building up the capacity of the Mongolian railway the above opportunity will be fully utilized.

EUROPEAN UNION

At present, economic relations between Mongolia and Europe is not in a satisfactory level. As of the beginning of 2009, there were over a hundred European companies out of 25 EU countries operating in Mongolia with a total investment of USD172.3 million and it is only a small portion compared with other countries.

As of 2008, trade with EU made up 12.6% of the total trade of Mongolia and it ranked as the third major trade partner after China and Russia and compared to 2007 the trade volume with Europe increased three fold.

 In 2008, Mongolia-EU trade reached a total of USD728.5 million and Mongolia’s export reached USD434.6 million, increasing four times from 2007 level. Mongolia’s import totaled USD293.8 million. Out of the total import 1/3 or USD93.3 million was made from Germany.

Altogether 7,200 items are exported exempt of customs tax thanks to EU-s customs favorable condition GSP+ given to Mongolia and the extension of the program during 2009-2011 has a significant importance to bilateral trade. As of today, Mongolia exports a few products to EU market, namely, cashmere, final cashmere knitted products, intestines, hides with preliminary processing and molybdenum concentration.

The more Mongolia’s economy grows and expands its processing industry, the more it will buy German machinery and technology. Mongolian market will be attractive for producers of mining and processing machinery and technology, and equipment producers of raw materials with food and animal origin. Mongolia has a high probability of becoming an attractive target market especially for those producing ecologically sound and best mining machinery.

On the other hand, Mongolia has the full potential to supply coke, copper and other minerals concentration and raw materials which are highly important in European processing industry. For instance, Tavan Tolgoi coking coal can be used to produce coke by German technology and export to Germany. There are two main reasons why this opportunity has not been utilized earlier.  

First, Mongolian mining industry especially the concentrating and processing sectors have not been developed in Mongolia, therefore, raw materials no additional value was not feasible to transport to Europe. Secondly, transport problem was unresolved and difficult. Now, we can conclude that the above situation can be changed. Firstly, Mongolian minerals industry is now entering the path of rapid development. Mongolian is pursuing a goal of processing the minerals at home first adding value to it or to producing final products. It will create an economic ground of transporting the mineral products to Europe. Secondly, China’s economic shift to its central regions will make  railway transport attractive.  Active cooperation of Mongolia-Russia-Germany has the potential to bring down the railway transport tariff and cut the transport time.  

I believe that our European partners, especially Germany partners will take an extensive use of this new geo economic condition and opportunity. In conclusion I would like to say that Mongolia’s geo economic environment is shifting into positive dimensions a new stage is starting n relations especially with Europe.

Thank you for attention.