Interview: Mongolia’s Mining
Here is the article -> http://www.economist.com/node/21543113
This week I interviewed Dr. Donald Wargo an Economics professor at Temple University. Dr. Wargo’s field of study is in Development Economics. The article I choose to interview him about was from The Economist called “Booming Mongolia: Mine all, Mine.”
1. What do think about the mining of natural resources in Mongolia?
Dr. Wargo: “The exploitation of natural resources in countries has been generally unhelpful in the country with natural resources. Oil in Ecuador, Diamond mining in South Africa, the exploitation of natural resources in Iceland. It has all been exploitative. The mining company comes in, they have their own workers (not citizens), ship the resources out and keep profits for themselves and give the government a spilt of the proceeds. It is highly unusually that this type of mining will help the local people. If the government is corrupt it keeps the money and if it isn’t then it builds beautiful buildings for itself instead of income distribution to citizens. Ecuador, the company that mined the oil their created a lot of waste in the jungle, which is another problem.”
2. It said in the article that the town of Ulaanbaatar is now booming with all types of investors, stores, and services. Do think that this kind of growth will generate a need for more projects such as power plants, roads, bridges, and so on?
Dr. Wargo: “No once the resources are gone the companies will leave. Ulaanbaatar is a populated town because it is in the middle of Mongolia where all of the main roads meet. However, outside the city is mountainous. Most people in Mongolia are nomadic and will have little need for the mining companies coming in.”
3. How will this mining help Mongolia’s Gross National Product (GDP)?
Dr. Wargo: By definition it will improve their GDP because their government’s revenue increases. The real question is will it help the local people? No.
4. As of May 03, 2011 Moody’s rated Mongolia a rating of B1 (see link below.)Do you think that the mines will bring Mongolia’s credit rating up?
Dr. Wargo: Yes, it will increase their credit rating. It will increase the revenues of the government and their ability to pay back debt.
It is very important to understand what really motivates growth. I still believe that project finance helps people. However, in this example it can hurt people. If the mining company’s would hire the Mongolia’s and give some of their profit back to the community (not just government.) Then this will cause positive growth.
Just remember that project finance does help people and is very important to the world economy.