Эрдсийг эрдэнэст
Ирээдүйг өндөр хөгжилд
Mining The Resources
Minding the future
Interview

“We are competitors, but Australia and Mongolia can still work and grow together”

Australia’s ambassador to Mongolia, Dave Vosen, assumed office in late January this year. In a wide-ranging interview with MMJ, he talks about the two countries’ economic cooperation, development policies and the investment environment. 

E.Odjargal

Please tell us a little about yourself, both before and after becoming a diplomat. 
My father was an immigrant to Australia and my family’s experience helped me grow up with an understanding of different cultures, languages and a perspective of Australia’s place in the world. I studied finance and public policy, but much of my early career was focused on the education and welfare sector, working with marginalised youth. 

It might seem a long stretch from youth worker to diplomat, but I was always interested in international relations, and many of the skills you need as a youth worker are similar to the ones we use in diplomacy, such as developing and maintaining strong networks, ability to refer people to services, negotiating and advocacy. Win-win situations do exist.

I’ve had the honour to serve Australia in a number of countries including Papua New Guinea, Laos, Nauru and Afghanistan. Much of my work has centred on management of public finances, supporting countries in developing policies that facilitate economic growth and development of human capital and implementing budgets based on them.

What are your first impressions of our country? Were you in Mongolia before coming here as the second resident Australian Ambassador?
My work in South   and on issues relating to North East had given me the opportunity to meet and work with many Mongolian colleagues, but my first visit here was in late January 2019 when I took up my present responsibility. The mountains and the natural beauty of Mongolia are clearly striking. I’m far more comfortable with open plains, pastures, horses and pristine rivers than the city life.

My predecessor John Langtry was very enthusiastic about my assignment. As ambassador, he was a strident advocate for Australia’s interests here, but he was also a huge advocate for Mongolia – both in terms of its potential and as an interesting posting.

How do you view the current level of economic cooperation between Australia and Mongolia? 
Economic cooperation has many different aspects. Mongolia ranks 72nd in terms of our total exports, so there is great opportunity to grow. Australia’s trade in goods remains relatively low at AUD21 million, accounting for less than 0.01 per cent of total Australian exports, whereas trade in services reached nearly AUD100 million in the last financial year. Clearly, Mongolia is an important market for Australian know-how and technology, especially in the mining sector. 

The Oyu Tolgoi copper-gold project is a significant contributor to the GDP of Mongolia and for its future wealth. Its operations strengthen Mongolia’s competitiveness internationally as a successfully developing economy based on minerals wealth with foreign investment. Our cooperation in relation to major projects obviously extends beyond the commercial aspects and also includes working to improve the regulatory environment, working to promote Mongolia as a competitive and attractive business environment and supporting the public financial management system that determines how proceeds are managed.

Increase in foreign direct investment (FDI) is a clear recognition of Mongolia’s open economy and highly skilled workforce. FDI isn’t common in tightly controlled or centrally controlled economies. The technology transfer that is associated with FDI is a huge benefit to Mongolia. Global standard management systems that also follow FDI can be transformative. That’s why Rio Tinto’s investment is so significant and critical for the Oyu Tolgoi project. Australian banks and our Export Financial Investment Commission (EFIC), in addition to Rio Tinto, have provided significant capital investment to enable the project to become feasible, and construction to commence. 

More broadly, a successful economy needs a healthy and educated population and Australia is making a significant contribution to this through our scholarship programme, which sends highly skilled Mongolians to Australian universities. They will continue to make a positive contribution to government and all segments of the Mongolian economy.

What are your main priorities and what do you plan to accomplish over the next three years? 
The Oyu Tolgoi project is clearly number one, mainly because of the technical and engineering challenges it poses and the sheer scale of the operation. I’d like to see the project continue to develop successfully, meeting all safety and security requirements of the workforce and communities. This is a long-term prospect. 

I’d like to see the Oyu Tolgoi project continue to develop. I’d like to see recognition of the value of the investment and a clearer understanding of its immediate and direct benefits to Mongolia through taxes, royalties, other fees and local procurement and suppliers’ value chains, the transfer of advanced technology, training and employment creation. It is a project that will benefit this country for decades. But it is important that all stakeholders have a clear appreciation of the critical stage the project is at now. We need all parties to work together to ensure stability. The successful implementation of that project will provide a platform for attracting new, big investments across the country securing financial benefits and value to the country and its people in years to come.

Being blessed with natural resources is no guarantee for prosperity. Over the next three years, I’d like to see positive progress towards another significant Australian-related investment. The lead time to identify a potential project, seek investment and reach agreement on financing can be quite long, so we should start looking for the next major project that will help fill the anticipated revenue demand for government in coming years.
Mongolia’s courageous decision to embrace democracy in the 1990s   needs to be remembered. From afar, Australia’s vibrant democracy can sometimes appear a little messy – but it has delivered strong economic growth, a high standard of living, and a positive role for Australia in international relations. I will be working closely with the government   supporting its third neighbour policy. We are strongly committed to the same outcomes in our region. We both have relatively small populations, and are outside the G7, but rely on adherence to international rules and norms to promote human rights, political and religious freedom and regional stability.

We are already close partners in many fields. There are many Mongolian families and individuals living in Australia, I’d like to see more Australians visiting Mongolia to experience the warmth and the friendliness that exist here. u There is great potential for our agriculture, food and beverages, tourism and services sectors to grow together.

How can our two countries cooperate more in the mining sector? 
Our mining sectors clearly operate on a global stage and require cooperation and FDI.  Australia’s largest export commodities are coal, iron ore and natural gas and our three largest markets are China, Japan and the Republic of Korea.
So, we are competitors.

But the global nature of trade and investment means that we can work together and both succeed. Australia and Mongolia can both be major suppliers to major export destinations. And with the right transfer of knowledge, and safe and environmentally conscious operations, the potential continues to grow.

Our aid programme provides a range of assistance to support Mongolia’s extractive sector and we are proud to have collaborated in a number of areas. Mongolia’s success in developing major initiatives is in the interest of all of us.

How do you see the economic and mining cooperation between Australia and Mongolia growing? 
Our cooperation is already positive, but there is potential for it to grow. Mongolia, like Australia, is blessed with natural resources and high-quality human capital. More FDI will help generate more employment, increase government revenue and develop human resources in both countries. 
Economic cooperation is a long-term endeavour, and investor confidence is a key ingredient. 

What policy does Australia follow to attract investment in mining and geological exploration? 
Transparent, predictable and non-discriminatory investment policies are critical to Australia maintaining its appeal as a place to do business. 
Australia has relied on foreign direct investment (FDI) in many sectors to kickstart major mining and infrastructure projects. Australia’s solid democracy, commitment to the rule of law, including strong contract law, has provided a solid platform for investor confidence.

Increased investment, domestic or foreign, in mining and geological surveys will be achieved with a fair and consistent regulatory environment, strong social and environmental protection measures, and a fair, predictable and globally competitive tax regime.
Inferior infrastructure and high cost labour can be an impediment to attracting investment. That’s where looking at mining as a part of the broader economy and acknowledging interdependencies is critical for attracting investment, remaining competitive and ensuring that mining operations last their full life. 

Investors will continue to be interested in Australia in 2019, especially with a lower AUD/USD and low borrowing costs, as a source of quality returns from well managed mines.

Australia and China have very good economic relations, including a free-trade agreement. Are things souring slightly, with Australian agricultural and mineral exports to China slowing down? 
Our free trade agreements in North East Asia with China, Japan and the Republic of Korea provide exporters, importers, producers and investors a great opportunity in areas where they have a comparative advantage. These agreements provide a strong basis for business – both ways – as we seek to remove barriers to trade to ensure customers get the best price for quality goods.

Trade with China is a significant component of our international trade. China’s demand for quality goods and services is positive for Australia given our natural resources, geographic location and capabilities. We are a globally competitive exporter and our free trade agreement recognises Australia as a quality supplier of quality agriculture, energy and minerals.

There are always issues in any relationship, and economies, by their very nature, fluctuate. Australia’s trade and investment relationship with China is overall very positive. But when we do face issues in a relationship, we seek to resolve these in ways consistent with the agreements we have signed or through established processes at the World Trade Organisation (WTO). 

A study says that seven out of eight Australians believe that mining is important to their economic prosperity and development and will remain so? Do you agree with this? 
I am clearly one of the seven. From an economic perspective, mining accounts for around ten percent of Australia’s GDP, 60 percent of exports and contributes significantly to government tax revenue through GST (VAT equivalent), and company and individual income tax. Local procurement of goods and services adds to this equation.

For future prosperity and development, mining will continue to provide materials that we need and expect in a modern developed society. Copper, for example, is critical as we move to more environmentally friendly vehicles. Innovation across the board may change the reliance we have on certain materials and the emergence of lower cost renewable energy may replace existing materials. 
Public sentiment matters to investors and operators of large companies. Public sentiment towards mining matters in Australia and in Mongolia, and investment will flow to where it will generate returns. Public opposition to any industry, or destabilising policies or frequent regulatory changes is obviously a drag on investor confidence.

Although direct employment in the mining sector is relatively small at two percent in Australia, most Australians realise that public services such as health, education, and infrastructure are delivered from the proceeds of tax collections at the state and federal levels. Companies listed on the ASX allow individuals and institutional investors to decide on their investment on the basis of the companies’ policies and performance. 

Australia has a multitude of patents in mining. Can you give us a few typical examples? 
Growth in patents gives an indication of the extent of innovation, an agenda that is supported strongly by Australian universities, the private sector and the government. Australia’s ability to compete internationally from an export perspective is obviously strengthened by its ability to innovate to bring costs down, identify efficiencies and to improve environmental management and safety.

Many new patents involve the use of new techniques and materials in actual mining operations, like drilling or blasting. But several companies providing equipment, engineering and technical services have also patented control devices, and manufacturing or processing systems. Systems patents are a distinct advantage for Australia. A significant proportion of mining related software is written in Australia.
I do not know of another company which can do what Oyu Tolgoi and Rio Tinto are doing more than 2 kilometers underground. So, patents that protect and then allow high quality businesses to utilise new developments in a global marketplace are an important feature of the mining sector.

Australia is a major supplier of both services and products to the Oyu Tolgoi project. What are the more notable among them at this time, when the underground mine development is at its peak? 
Jacobs Engineering, Monadelphous, Thiess, Wagners, Clough, RUC Cementation, Hahn Electric, B&R Enclosures are all well-known companies supplying the OT project. 

Goods and services cover the wide range of requirements to build such an extensive mine site and ensure it remains safe and secure for all staff and the local environment. But local labour hiring and local procurement is a major priority for OT, so 93 percent of the  OT workforce is Mongolian. It is the biggest private sector  employer in the country.  It’s great to see the combination of Australian and Mongolian teams in action. 

There are approximately 50 Australian companies in Mongolia. What are the main obstacles and the issues facing them? 
We are happy to work with the various business councils and chambers in Mongolia and very proud to work closely with the Australian Chamber of Commerce – Australia’s premier business body.

The majority of companies in the Australian Mining, Equipment, Technology and Services (METS) sector provide a wide range of products and services to major projects, including HR management, core engineering design and construction, engineering services, process and mechanical design, mine planning, mineral analytical and processing services. So, another major mine operation in Mongolia would be beneficial to these companies.

There are a number of Australian companies seeking operating licences or already in various stages of exploration and mining. Some of them are ASX-listed exploration companies, developing coal, copper and gas projects. 

Of course, there are challenges in doing business in every country. But I don’t think there are any issues here that cannot be resolved. Ensuring the sanctity of contracts is an essential requirement of business in a global operating environment. So, the consistent application of rules is critical and businesses operating globally appreciate a degree of certainty when it comes to the operating environment, tax regimes and a regulatory framework.

Cutting down on bureaucratic processes that unnecessarily hinder import/exports, will reduce costs to customers. 
Mongolia remains an attractive market and there are a range of Australian businesses exploring the market. We clearly monitor the range of issues that affect business, and these are important signals to new investors. 

How do you view the legal environment and the investment climate in Mongolia? 
Macroeconomic stability is a key factor determining overall attractiveness. But the legal environment should be certain and competitive internationally. Mongolia’s next major investment, wherever this will originate, will be taking into account the progress of existing major projects. 
The 2018 Global Competitiveness Index places Mongolia   99th place out of 140 countries.  The report highlights the need to improve judicial independence, auditing and reporting standards, and to have better performance in the financial sector, leading to the soundness of banks and insurance providers.
We are pleased to see positive progress on the IMF Extended Fund Facility. Recent amendments to anti-money laundering legislation are a good step, and we encourage Mongolia to focus attention in 2019 to addressing concerns raised by the Financial Action Task Force. 

Can you share with us some of Australia’s best practices in attracting foreign direct investment? 
It’s a combination of investor confidence, infrastructure, regulation, taxation and skills that attracts foreign investment and Australia has a positive track record on all accounts. Strong macroeconomic indicators, including 27 years without a recession, are obviously a bonus, but strong fiscal discipline and a commitment to having high quality free trade agreements add to Australia’s attractiveness.

FDI has been critical to Australia’s ability to finance infrastructure projects. We have been one of the top ten destinations for global FDI over the past few years and this has been in the order of more than AUD50 billion p.a. Australia’s economic resilience, proximity to key markets and globalisation have also played kept us attractive. So have our stable democracy and strong governance.
Like Mongolia, FDI has been critical in our mining sector, but also real estate and financial services.

But once the investment is secured, we have also delivered. Providing certainty and consistency in our regulatory and governance arrangements and delivering on commitments feeds a positive cycle of investment.

What is the leading economic sector in Australia? 
Australia’s GDP reached almost USD$1.3 trillion in 2018, largely dominated by the services sector. Our GDP per capita is high given our relatively small population and ability to supply large populations in the neighbourhood. Exports remain important – iron ore, coal, natural gas and education services are our leading sectors.

Mining, ever since Australia’s gold rush in the 1850s, has steadily contributed to GDP growth, but it’s the development of our services sector which has contributed the most to employment, the quality of our public services and our lifestyle.  Tourism has also grown.
A mining-led economy needs backing up by quality education and health sectors to provide labour and a quality services. It’s a mutually reinforcing cycle.

Mongolia plans to use its mining revenue to create a fund for future generations. Are there lessons to be learnt from Australia’s Future Fund?
That’s an important question. And it’s critical for intergenerational equity, and the long-term sustainability of public finances and population. Our Future Fund was established over ten years ago both to provide protection against the fluctuations in mining revenues and to pay for the critical needs of future generations. The governance arrangements and investment decisions are critical to ensure balance and the success of a long-term vision. The board operates independently of the government but includes its representatives, particularly from the finance ministry, and is responsible for decisions on how and where to invest and then to allocate resources. The fund operates on the principle of saving today to meet the costs of tomorrow. The fund has enabled Australia to invest in medical research, infrastructure and disability insurance. 

Australian investment in the Mongolian education sector has been important. What are the guiding principles in this cooperation?
You can’t lose by investing in education. Whether we are talking about early childhood, primary, secondary, higher education or TVET, investments that provide access to quality education and experience will be repaid over and over again. As for Australia’s work in Mongolia, our primary focus is on higher education through our well-known Australia Awards programme and through our support to TVET.

Our scholarships provide already immensely qualified and well-credentialled individuals a chance to further their formal education and leadership qualities through study in Australia. The “Mozzies” are the result of that investment. Their contribution across Mongolian society and throughout government and business has been huge and growing. The fact that more and more Mongolia students are choosing Australia as a destination for study – at present their number stands at 4,500 -- is good for our services exports. But the long-term positive impact is far more valuable here.

Mongolia’s young demography and the structure of the economy mean there is a huge potential for quality technical and vocational training to provide future employment. The integrated nature of a holistic education system would see TVET as a realistic and attractive option to both women and men if they choose a vocation based on a technical competency or trade. This is true in mining, hospitality, tourism and other services.
A world-class TVET system sees the government play a strong role in providing enabling regulation  and integrating the system and delivery into the broader education/labour policy and a strong partnership established with businesses who can define the skills and competencies and provide ‘real world’ experiences and on the job training. 

Australia’s work with GIZ, Oyu Tolgoi and the South Gobi provincial government is a great example of this partnership and system in work. Young people are taking the opportunities, obtaining internationally recognised qualifications, getting jobs, generating income (and paying taxes), and learning from working within international best practices.