Until 1990, Mongolia had a socialist, centrally planned economy. Most of the trade took place with the Soviet Union, and from that came extensive development assistance. Therefore, when the Soviet Union disbanded, it had a drastic impact on Mongolia’s economy. Market economy was introduced and business was opened to competition from outside. Above all, the light industry got very difficult to survive without the protection of high tariffs. Livestock management was decolonized, social service was charged and the infrastructure was in short supply for maintenance. It was not until 2003 that GDP reached the level it was in 1989. Then followed a few years of good growth in the economy, mainly as a result of strong development in the mining industry, which accounts for about 1/3 of GDP and 3/4 of exports.
According to COUNTRYAAH, the global crisis of 2008-09 led to a significant reduction in both export and foreign investment in the mining industry. In 2006-07, GDP growth had been at 9 per cent per year, but it was halted and in 2009 it fell by close to 2 percent. In terms of labor, livestock management is the largest industry. Together with a limited field of agriculture, it accounts for about 1/3 of employment most years. However, it is a very vulnerable nutrition. Long and extremely cold winters occur every decade, when millions of cattle die and nomad families become blotted out. During 2000-02, 1/3 of all livestock died; the consequences of the extreme winter 2010 were even worse. After that, however, the livestock tribe has recovered again.
An increasingly divided economy is emerging in Mongolia. In the capital Ulaanbaatar there are half of all economic activities in the country; there and in the major mines there is growing power and relatively safe conditions. In contrast, the countryside and small towns are increasingly characterized by poverty and insecurity.
In 2017, livestock management and agriculture were estimated to account for 12 percent of GDP and 33 percent of employment in Mongolia. Most of this was attributed to nomadic breeding of sheep, goats, cattle, horses and camels. Production and employment fluctuate widely between different years as a result of the weather, and during the first decade of the 21st century the number of animals varied between 24 million and just over 40 million. The proportion of goats has increased significantly, mainly due to increased demand for cashmere wool, and in 2007 there were 18 million goats and 17 million sheep. Until 1990, there were fixed monthly salaries, social safety nets, veterinarians and joint transports of goods within the state shepherd collectives. Then, decollectivization began, and in 1997 almost 95 percent of the cattle were privately owned. The public services had become individually linked and charged. The individual nomad households now have to take all the risks themselves, and most shepherds live a much safer life. Bad roads also hamper the opportunities to sell meat and other animal products to the market, and families may therefore have been forced to self-catering.
Until 1990, arable farming was largely operated within 52 state farms. The most important crops were cereals, potatoes and vegetables. The harvest then covered Mongolia’s need for vegetable food, and an excess of wheat could be exported to Siberia. Cultivation of fodder seed also occurred within the shepherd collective. In the 1990s, state agriculture was dissolved into small private farms or became large companies. This led to a very sharp decline in production. After a slight upturn, the harvest in 2007 corresponded to one-seventh of the 1989 harvest, accounting for only 54 percent of the country’s annual consumption of vegetables. Nowadays, Mongolia has to import grain. The holding of tractors and combine harvesters has been reduced to less than half of what was in 1989.
Forests cover about 8 percent of Mongolia’s acreage. In northern Mongolia it mainly consists of pine and larch trees, while there are mixed forests south of it. The forest grows slowly in the harsh climate with a short growing season, and the potential for forestry is not exploited. The forest area gradually decreases, as the replanting corresponds to only a small part of the area being harvested.
Nearly 11 percent of the country’s area has been set aside as a strictly protected area, including almost half of the forest area, to counteract desertification and preserve wildlife and ecological balance. But such legislation is difficult to enforce, and illegal logging and timber export are a major problem. Sustainable forestry and forest management are scarce, as maintenance and management of the forest areas at local and national level have major shortcomings. The only wood processing that occurs is at sawmills.
Minerals and energy
The mining sector is the most important part of Mongolia’s business. It rests on the country’s economic growth, and it accounts for more than 3/4 of exports. This is also where most of the foreign direct investment is directed. This means that the country is vulnerable to global crises that dampen demand. In addition, mining is responsible for only 1.5 percent of the country’s employment. Growth in the mining industry has a minor impact on other industries.
The most important is the copper and molybdenum extraction in Erdenet, and the country’s economy has been heavily dependent on copper price developments in the world market. In particular, China’s rapidly growing copper demand during the period 2006-08 played a major role in providing Mongolia with export earnings.
During the first decade of the 21st century, several gold mines were opened, and Mongolia also has the extraction of tungsten, flux, iron ore, tin, zinc and limestone. There are also enrichment plants in the most important mining fields, as minerals are exported in enriched form. Also important is the mining of coal, mainly lignite.
All electricity produced in Mongolia is extracted from fossil fuels, in major cities in coal-fired power plants and otherwise from diesel generators. In the countryside much of the energy comes from firewood and dried manure. Oil is extracted on a small scale, and 95 percent of all oil products needed are imported from the Russian Federation. A significant part of the electricity is also imported from there. In northeastern Mongolia there are large resources of uranium, and companies from a number of countries are seeking licenses to develop the mining industry there. The toughest competitors are the Russian Federation and China.
The manufacturing industry is underdeveloped in Mongolia, abbreviated as MNG by abbreviationfinder.org. Unlike the mining industry, it also shows weak growth. The problems are mainly unskilled labor, inadequate machine investment, weak infrastructure and large distances to the market. The manufacturing industry is based exclusively on domestic raw materials, mainly from livestock and agricultural. It is mainly found in the capital Ulaanbaatar and to some extent in Darchan. Heavy industry covers only brickwork, cement industry and production of other building products. The vast majority of factories produce food, beverages, detergents, crockery and simple household and agricultural implements as well as textile and leather goods.
During the first half of the 1990s, all industrial production declined sharply because the companies could not cope with an open market economy. Many industrial workers returned to traditional livestock farming when factories were closed. During the period 1996-2006, the production of clothing, leather goods and carpets showed the best growth at 2 percent per year. In 2000-04, it came mainly from Chinese companies that, in the low-wage country of Mongolia, had their production of clothing made from imported cotton fabrics. This then ceased. Most years, however, Mongolia has been the world’s second largest producer of cashmere wool products in China, and the textile and leather industry accounts for up to 1/4 of export revenue most years.
Note: the capital city of Mongolia is Ulan Bator (Ulaanbataar) with a population of 1,463,000 residents. Other major cities include Erdenet with a population of 78,000, Darchan with a population of 75,000, Tjojbalsan with a population of 37,500 (estimate 2010).
Until 1990, foreign trade was almost entirely focused on socialist countries and the Soviet Union played a dominant role. Since then, several trading partners have gained importance, especially China. Mongolia’s imports mainly consisted of fuels, machinery and transport equipment and other industrial goods as well as food. However, imports of industrial raw materials were extremely insignificant. The majority of exports go to China. The second most important country for export was the Russian Federation. Around 2005, export value increased sharply, mainly due to rising copper prices in the world market. Copper, gold and other minerals account for the majority of exports. Exports of industrial goods are quite small, but they have increased slightly every year, mainly in leather and textile products and yarn from domestic livestock breeding.