What does Mongolia bring to mind? Maybe Genghis Khan. It’s in central Asia somewhere, isn’t it? Unless you’re a fan of sumo wrestling, that’s likely to be about the extent of your associations. Johan Nylander sets out to correct that, at least with respect to Mongolia’s economy, with his The Wolf Economy Awakens. It’s a cruise through Mongolia’s economic situation, and especially its economic future.
Nylander is a financial journalist, and his account is built around interviews with Mongolian bureaucrats and business leaders. The presentation as a whole then comes across as a set of cameos. Nylander visits a bureaucrat or a captain of industry for an interview and first describes his office and gives some biographical background. He then normally injects some quotes from the interviewee. Of course a bureaucrat is not going to denigrate the work of his department, and a businessman is going to talk up his firm’s prospects. So the discussions tend to be consistently upbeat.
That leads to a very readable book, but one lacking some of the rigor you might expect from a financial journalist. Indeed, the presentation is so relentlessly optimistic that it’s reasonable to wonder about Nylander’s motivation in writing it. The Minister of Health candidly admits that, “We drink too much alcohol and eat too much meat,” but there is no deeper analysis of drunkenness nor of the presumably important problem of language skills in the workforce.
Mining contributes about 20% of the government’s revenue, and that is expected to rise to about a third over the next few years. Just one copper mine, in which the government holds a 34% interest, constitutes about 5% of the nation’s economy. Nylander reports that it contributed about US$3.9 billion to government revenues between 2010 and 2022. Royalties and taxes from Rio Tinto (the operator) are expected to rise to as much as $300 million annually in the next couple of decades. The total contribution to the Mongolian government over the life of the mine should be roughly $13.4 billion. Nylander devotes about a third of his analysis to mining, and he makes a convincing case that it is all being mismanaged. Those revenues should be invested so as to earn a positive return once the mineral wealth has been depleted. Instead they are supporting the government’s current operating expenses. Worse, Mongolia has been borrowing heavily against its resource endowment and its anticipated future revenues, leaving negative wealth for future generations.
So in fact the basic situation is not an attractive one. As Nylander sums it up, “Mongolia is being dug up and sold to China.” His interviewees recognize the problem, but have trouble doing anything about it because senior government officials have purchased their positions and it is the mining revenues that offer them a return on their investment.
When your economy is based so heavily on a wasting resource, it makes sense to try to diversify while you still have the resources to do so. Mongolia hasn’t been doing that, but Nylander’s upbeat interviewees claim that it is starting to do so now. Really? In this grim context Nylander valiantly sets out to find some indications of hope for the economy’s future by interviewing a strange assortment of entrepreneurs with diversification ideas. Cashmere processing rather than selling the raw wool is already working successfully. As is cryptocurrency mining. Lots of coal gives Mongolians cheap power, and that combined with very cold weather gives Mongolia a real competitive advantage in that sort of mining just as in the conventional kind. Indeed, 257 sunny days each year and reliable winds in theory give Mongolia green energy capacity to supply all of East Asia. But of course that would require transmission infrastructure linking several countries. A tough sell. Some of the diversification ideas are simply nutty. How about building a hotel in space out of satellite debris? Do yak milk cosmetics tempt you? Would you visit a Mars simulator in the desert? Mongolia may have awakened to the scope of its problems, but substantial solutions remain elusive.
As a financial journalist, Nylander relies almost entirely on secondary sources. If you want to know how much Mongolian bitcoin miners pay for their electricity, you won’t find out here unless the figure has already been reported by the Asian Development Bank or in Wired magazine. If your knowledge of Mongolia ends at sumo champions you’ll no doubt find The Wolf Economy Awakens an instructive read, but you may finish it feeling that you’ve heard only one side of the story.