With one major mining deal in the bag, and more expected to follow, Mongolia is about to enter a phase of astronomic growth. In fact, people are starting to compare the sparsely populated, resource-rich country to places like Brunei and the United Arab Emirates (UAE).
"Over the next decade, Mongolia will have the fastest growing economy in the world in terms of GDP growth, succeeding Qatar, which in percentage terms, although not absolute terms, surpassed that of China in the past decade," said John Finigan, chief executive officer of Golomt Bank, one of Mongolia's three largest banks.
The country's gross domestic product growth has averaged out at 8.6% during the past six years. By 2020, Finigan said Mongolia's GDP could be $67 billion, 14 times what it was in 2008, and that is based on conservative estimates.
This might seem like an incredible prediction, but Finigan has seen it all before. In the early seventies, he worked in the UAE, just as the fledgling state started to profit from its oil.
When the oil money started flowing in, the economy started to snowball in size; in 2008, the GDP of the UAE was $262 billion, nearly a hundred times its 1973 GDP of $2.8 billion. "The only thing that I was wrong about was that I underestimated just how much growth would be generated in the Qatari economy," he said. And it is happening all over again in Mongolia.
Mongolia's prospects become more plausible when you see exactly how mineral rich it is. Beneath the country's immense land mass is an untapped periodic table of metallurgical treats. To be precise, 69 of the 111 known elements have been found within its borders. The mainstays of the commodities industry -- copper, iron ore and coal -- are there in vast quantities.
The rarer substances include the politically sensitive uranium, as well as a whole host of obscure minerals that you would need a degree in chemistry to recognise. This treasure trove provides incredible trade opportunities for Mongolia, especially when you take into account the fact that it has a 4,700 kilometre long border with China, the most resource-hungry country in the world.
Therefore the equation is simple: Mongolia has $1.2 trillion of proven deposits, while its GDP in 2008 was just $4.8 billion.
When the Mongolians start to monetise their assets, the resulting trade will cause the economy to swell, triggering top-speed GDP growth. Such an abundance of resources will change how the world thinks about the resources business in East Asia.
"Mongolia will become the biggest competitor to Australia when it comes to supplying the China market, in terms of basic metals and energy resources like coal," said Edwin Chan, director of Golden Pogada and North Asia Resources, a group that owns the exploration licence for an iron ore mine located between Ulan Bator and the Chinese border. In July, Hong Kong-listed Green Global Resources paid $227 million to acquire North Asia Resources
Mongolia's edge over more established resource-rich markets, like Australia and Latin America, is its proximity to China, said Chan. Sending commodities from Australia to China by boat takes weeks. And if the shipment is bound for central China, it then has to be unloaded and sent on by train. The end result is a slow and costly procedure. Chan said that when his mine is up and running, with the necessary transportation links in place, he will be able to send iron ore to China's industrial centre in a matter of days. Mongolia therefore has a significant cost advantage over its more distant competitors.
However, he alluded to two other problems Mongolia still faces. One is the resources are as old as the land itself, but when it comes to getting them out of the ground, Mongolia has taken its time.
Equally important, China may be right next door, but infrastructure for getting minerals out of Mongolia and into China, is still in development.
"I looked at investing in a mine in Mongolia," said an executive at another mining company. "But I chose Southeast Asia instead, because at least I knew that once I got the goodies out of the ground, I could easily move them. In Mongolia, you may be close to China, but what am I going to do, ship it by yak? For immediate gains, Mongolia is not your bet."
The forecasts are real, but there's no denying, Mongolia is in the early stages of development. However, the country's undeniable potential has it firmly on the Asian banking radar.
