“RESOURCE NATIONALISM 2.0” IS AT OUR DOORSTEP

By O. Dulguun

Over the past two decades, Mongolia's modern mining sector has evolved through a series of challenges, missteps, and achievements, reflecting the nation's ongoing effort to assert greater ownership over its natural resources. In this context, resource nationalism should not be viewed as a rigid ideology aimed at excluding foreign investment. Rather, it represents a legitimate and natural aspiration to ensure a fair and equitable share of the country's resource wealth - an inheritance entrusted to us by preceding generations.

"Resource nationalism" is a recurring historical phenomenon, following a familiar pattern on the stage of global geopolitics. It is no longer something to be avoided or treated with hesitation.

While traditional nationalism is rooted in ethnic identity and the pursuit of sovereign statehood, resource nationalism is defined by three key characteristics:

State Sovereignty: Addressing issues related to natural resources within the framework of national independence and sovereign authority.

Economic Equality: Moving beyond simple profit-sharing with multinational corporations toward partnerships based on mutual benefit and balanced negotiating power.

Governance and Control: Ensuring effective, owner-like oversight of subsoil resources, as well as full accountability over the revenues generated from their extraction and sale.

Originating in Latin America, this wave has spread across Asia and Africa, emerging as a defining feature of the global mining landscape. In Mongolia's case, the concept has progressed beyond a civil society movement and is increasingly taking shape as a central pillar of state policy.

While some continue to argue that Mongolia risks falling behind global development unless it fosters a more favorable investment climate and engages in mutually beneficial partnerships, the principle of asserting ownership over natural resources has already become an integral part of the country's national consciousness.

At the same time, there are important and often difficult lessons from periods when efforts to assert control over natural resources have been accompanied by populism and excessive nationalism.

Using the country's natural wealth - an inheritance from previous generations, wisely, responsibly, and equitably for the benefit of its people is the historic responsibility now facing the state and government.

The 68% windfall profit tax introduced in 2006 dealt a significant blow to Mongolia's mining sector.

However, the tax was levied not on net profits, after deducting operational costs, but directly on gross sales revenue, forcing many companies to operate at a loss. Consequently, gold deliveries to the Bank of Mongolia fell sharply, while a shadow economy emerged as producers sought to evade taxes through illegal cross-border exports.

Exploration for new deposits came to a standstill, and investment flows shifted to more stable mining jurisdictions such as Chile and Kazakhstan. Mongolia gained a reputation for frequently changing the rules of the game, leaving the government with little choice but to repeal the law in 2011.

RESOURCE NATIONALISM REQUIRES PROFESSIONAL GOVERNANCE

Today, resource nationalism is no longer viewed merely as a source of turbulence for resource-dependent countries such as Mongolia. Globally, powerful nations are increasingly treating strategic minerals as critical components of national security, adopting new policies and principles to secure their reserves.

A clear example is the United States' $12 billion "Project Vault" initiative. This goes beyond profit generation to serve as a strategic measure to reduce reliance on China for the supply of rare earth elements essential to electrification, defense, and artificial intelligence.

At the same time, under its RESourceEU strategy, the European Union is building joint reserves of critical raw materials in collaboration with countries such as Germany, France, and Italy.

Australia is investing $800 million to strengthen its reserves of rare metals, including antimony and gallium, while India and Brazil have announced strategic partnerships to challenge China's dominance in the global supply chain.

Where mineral resources were once viewed primarily as a buffer against price fluctuations, they are now recognized as strategic industrial assets and instruments of national security. China's restrictions on rare earth exports have underscored just how vulnerable global supply chains can be.

Over the years, in Mongolia's pursuit of ownership over its natural resources, the country has navigated extremes of populism, economic stagnation, and intense debates over debt and benefits. Today, however, resource nationalism is evolving from a popular slogan into a form of professional governance exercised at the negotiation table.

In an era when nations are strategically securing critical resources, the question for Mongolia is clear: will the country be left on the sidelines, or will it leverage its natural wealth to become a strategic player on the global stage? The choice is ours.

EXCESSIVE NATIONALISM CAN DRIVE AWAY INVESTMENT

The 2012 law regulating foreign investment in enterprises operating in strategically important sectors (SEFIL) proved to be a misstep that suppressed foreign direct investment in Mongolia's economy. This case serves as a clear example of how imposing overly stringent controls on the investment environment, under the guise of asserting resource ownership, can hinder economic growth and undermine market confidence.

The primary catalyst for the law's adoption was China's state-owned company, Chalco, attempting to acquire Canada's SouthGobi Resources (the Ovoot Tolgoi coal mine). Concerns that a foreign, state-owned enterprise could gain direct control over Mongolia's major coal deposits, perceived as a threat to national security, galvanized political consensus and led Parliament to pass this stringent law in just two days.

Under the SEFIL law, three sectors - mining, banking and finance, and media-were designated as strategic. Foreign investors seeking to acquire more than 49% ownership were required to obtain government approval, while foreign state-owned enterprises, regardless of their shareholding, had to undergo parliamentary review and approval.

Although the law was intended to block the Chalco deal, it sent a clear signal to international investors that operating in Mongolia carried significant risk. The global perception emerged that Mongolia frequently changes the rules and is heavily influenced by political whims.

Foreign direct investment, which had reached $4.5 billion in 2011, plummeted by 90% to just $500 million within two years of the law's enactment. The collapse of capital inflows triggered a sharp depreciation of the MNT, a surge in inflation, and exposed Mongolia to the harsh realities of a deep economic crisis.

The government eventually recognized its mistake. In October 2013, it repealed SEFIL, enacted a new Investment Law, and officials visited stock exchanges in New York, London, and Hong Kong to promote the message that "Mongolia is open again." But investor confidence did not rebound immediately. A flawed governance decision can drive investors away in a single day, but restoring credibility and trust requires consistent policies and sustained effort over many years.

However, closing the doors to the outside world was only one aspect of resource governance. Policymakers soon turned their attention inward, launching a major experiment in sharing wealth with citizens through the 1,072 shares of Erdenes Tavantolgoi JSC.

Before the 2012 elections, political parties, unable to fulfill their promises of direct cash payouts, distributed free shares of Erdenes Tavantolgoi to every citizen. The 1,072 shares, which for many years existed only as numbers on paper, "came to life," but over time became entangled in disputes over coal theft, leading to public opposition amid perceptions that the benefits of Mongolia's wealth were being concentrated in the hands of a few groups.

The government appointed a Fully Authorized Representative (FAR) to Erdenes Tavantolgoi JSC and implemented a transparent sales process, enabling the company to operate profitably for the first time in its history. Consequently, every citizen received dividends ranging from 116,500 to over 350,000 MNT, providing a tangible sense of ownership over Mongolia's national wealth.

However, distributing cash benefits is only one way to share the gains from natural resources. A country's strategic capacity is measured not only by domestic allocation but also by how effectively it negotiates on the international stage. The Oyu Tolgoi Project represents the most significant test and the most visible arena of this capacity.

AS THE SHORE HOLDS THE WATER, SO THE OWNER HOLDS THEIR WEALTH (MONGOLIAN PROVERB)

Under the Oyu Tolgoi Investment Agreement ratified in 2009, Mongolia was entitled to a 34% stake in the project. However, acquiring this share required taking a high-interest loan from Rio Tinto, and the cost of developing the underground mine exceeded projections by $1.45 billion. This placed Mongolia at risk of never realizing profits, potentially leaving the country burdened with a $22 billion debt. The issues raised have since become the foundational requirements for Mongolia's resource nationalism.

In 2018, U. Khurelsukh, who was serving as Prime Minister at the time, became the first to press Rio Tinto's management to increase the project's returns and reduce loan interest. The negotiations were challenging. Seven years later, in 2025, the issue resurfaced when Prime Minister G. Zandanshatar, during meetings with investors, invoked his famous saying, "As the Shore Holds the Water, So the Owner Holds Their Wealth," sharply criticizing Rio Tinto's explanations as insufficient. The issues he raised have since formed the foundational principles of Mongolia's resource nationalism."

Unfair Loan Terms: The loan taken to acquire Mongolia's 34% stake in Oyu Tolgoi carries an interest rate nearly twice the standard set by international financial institutions. This created an imbalanced arrangement in which investors benefit from the interest differential, while Mongolia bears substantial debt without receiving proportional returns.

Symbolic Stake, Minimal Benefits: Although Mongolia holds a 34% stake, the promised dividends may not materialize for decades, providing no immediate benefit to citizens. This symbolic ownership, lacking voting rights and effective oversight, runs counter to the core principles of responsible resource governance.

Unequal Tax Environment: Oyu Tolgoi LLC pays nearly four times less in Mineral Resource Royalties (MRR) than Erdenet Corporation, a situation that contradicts the principle of fair and equitable distribution of resource wealth.

When Mongolia negotiates with Rio Tinto over Oyu Tolgoi, it must recognize that it is not merely dealing with a single company, but actively participating in the new global race for strategic resources, Resource Nationalism 2.0. Ultimately, true patriotism does not mean hoarding one's resources from others, but rather using them wisely to invest in long-term development. When the time comes for "the Shore to Hold the Water, and the Owner to Hold Their Wealth," the shore should not act as a dam that stifles the economy, but as a channel that guides it toward sustainable growth.