Gold is one of very few commodities that does not lose its value at any given time or circumstances. Mongolia’s first president P.Ochirbat viewed that gold was the only way to overcome the 1990s economic crisis and initiated the Gold programme. Subsequently, the Gold-2000 programme was implemented from 2000, and the Gold-2 programme from 2017. As of 2017, Mongolia had mined 200 tonnes of gold (worth 2.8 billion USD).
Mongolia’s economy was injected with these programmes focused on gold every ten years. Even though the gold injections revived the economy, we now need to come together as a society and reflect on what consequences have been brought on the environment, economy, and society.
Gold and taxes
Seventy-five per cent of Mongolia’s export revenue comes from coal, copper, and gold. Mongolbank bought 15 tonnes of gold in 2005, but only two tonnes in 2010. But the number grew back gradually and reached 20 tonnes for the first time in 2017. This drastic drop and the subsequent rise were created by tax policies from the government.
[Amount of gold purchased by Mongolbank]
[Average price, USD per ounce]
Gold is mined by companies and individuals. When the windfall profits tax was introduced at 68 per cent in 2006, Mongolia’s gold industry went underground. In addition, if business entities recorded a revenue of over 3 billion MNT, they had to pay a 25-per-cent tax. It forced the gold miners to sell their gold to Mongolbank via individuals. This was also not helped by a 5-per-cent royalty. It also increased the illegal trade of gold sold over the border. All of these factors resulted in a decrease of Mongolia’s gold reserves and weakening tugrug.
In 2010, the government changed its policy, cancelling the windfall profit tax, reducing the royalty rate for gold to 2.5 per cent, and nullifying the above mentioned business entity tax for five years. This gradually prompted people to increasingly trade gold with Mongolbank, which culminated in 2017 when Mongolbank set a new record, having purchased 20 tonnes of gold.
Individual gold miners (‘ninjas’) currently comprise a significant portion of Mongolia’s labor market. Today we have 8,000 registered ninjas and nearly 30,000 unregistered ones moving around the country to wherever they have heard gold is. There is a gold fever going on, where ninjas are fiercely competing with each other to find gold, without time to eat or go home. The traces of Mongolia’s gold fever are evident in the pits and holes in the ground and the remains of animals that fell and died there, found in dozens of soums including Zaamar, Sumber, Mandal, Biger, and Urgamal.
The ninjas try their best to spend the night selling the rice-like gold they found during the day, so that they can start looking for bigger finds the following day. The real owners of these ninjas are the ‘secret lords’ who pay them with cash in exchange for the gold. The secret lords then collect the gold, mould them together, and sell to Mongolbank at international rates using an individual’s name and paying a tax of only 2.5 per cent.
The local government does not even bother talking about protection of environment with ninjas. It is because the local government is usually the one who starts and encourages the gold fever in the first place.
The government is currently pursuing a policy to retain the gold in-country by purchasing them without checking where and how it was mined and almost without asking for any tax. Our government has become unable to enforce rules and regulations, so they chose to cut the taxes in order to not lose the gold. This is what is special about Mongolia’s gold fever.
Legal economy and underground economy
If the tax on gold is high, gold miners choose not to sell to Mongolbank, but to smuggle gold abroad for cash and goods. This increases the growth of person-to-person trade. When gold does not go through the bank, the circulation of cash slows down while the underground economy expands. Also, individual traders do not pay taxes, which strengthens the underground economy.
In contrast, businesses operating in the legal economy create jobs and pay an amount equal to one third of salaries to the government in the form of medical insurance and personal income tax. The individual traders feed on it because they are covered by medical insurance despite not paying taxes. As a result, the amount covered by our medical care is never enough.
The secret lords of gold mining have been growing so big that they have now become the hidden financiers of political parties. Given that they have already paid up, these secret lords have started to decide whether the central or local government should give mining licences and permits. It also looks like they are in control of which laws to pass and which ones to be postponed.
Under a government decree, the regulations pertaining to micro mining were passed, which allowed local governors (at soum and district levels) to give ninjas permits to conduct mining activities. As soon as this decree was issued, some governors started receiving bribes and even began their own gold mining.
The members of local citizens’ representatives khural are now behaving like they govern their own country. For example, an Umnugovi governor said that any mineral resources found in the territory of Umnugovi aimag shall foremost belong to the people of Umnugovi. The citizens’ representatives’ khural of Umnugovi aimag once decided on their own to ban the use of water for mining activities in the territory of the aimag.
We are also seeing groups that instigate ninjas under the name of the people. In Khuvsgul, Sukhbaatar, and Bayankhongor aimags, ninjas attacked mining companies to do their own gold mining. As soon as gold reserves are estimated, ninjas are the first people who come to the site. Steppe Gold Company had not even started their operations when ninjas attacked their mine in groups and chased away their employees. As a result, the company’s shares saw a drastic fall on the Toronto Stock Exchange.
Mining and Heavy Industry Minister D.Sumiyabazar made a vague statement and said “law enforcement, especially the police, is connected to the case” when explaining why the gold mining at Noyon Mountain had been disrupted. The police and law enforcement are serving the secret lords.
Today Mongolia’s people and government are both experiencing a gold fever. If we see the government start enforcing rules, the business environment improves, officials stop doing their own businesses under the name of the government, and the private sector sees free competition, then business will expand and create jobs that would prompt ninjas to go home.
2018.08.23
Trans. by B.Amar