Capital is needed for development. If there is a lack of capital domestically, foreign capital is drawn in. Underdeveloped countries often compete to attract foreign investments. Knowledge and experience, both technological and administrative, come along with foreign investment.
However, investment is an issue that we have treat wisely as we are receiving other’s capital and giving them ours. We have to measure twice and cut once and fully understand what we are getting at what price. The main purpose of attracting foreign capital is to bring foreign capital only into those sectors that really need it without risking all of our capital or our independence and train our workers by providing them with knowledge about foreign markets. Thus, we will be able to create and produce on our own and become internationally competitive. Achieving this goal is an art that requires a long-term outlook, consistent policy, and intelligence.
The Chinese understood this more than 100 years ago when they developed Shandong with German capital, Hong Kong with British investment and Macau with capital from Portugal and made themselves big players in the economy. Then China took them back from those countries one by one. Bavarian Germans turned Qingdao, a fishing village, into a magnificent city with German architecture 100 years ago. They also established a metal factory in the city of Jinan, which is located deeper into the mainland, and built the first railroad there with world-class standards of production and construction. The brewery founded by the Bavarians has become one of the world’s biggest Tsingtao Brewery.
Mongolia has always tried to create an attractive and stable legal environment in order to attract foreign investment. As a result, Mongolia has attracted a total of USD 6 billion in investment from more than 100 countries so far according to a FIFTA report. But two thirds of this investment has gone into the mining sector while only half of the rest has gone into the trade and public catering sectors. This means that foreign capital is being brought into Mongolia in order to make profits primarily from the mining sector.
The mining sector is not a sector that creates the greatest number of jobs. Only 2 percent of the workforce in Australia, where this sector is highly developed, works in mining. The mining sector alone cannot take care of unemployment in Mongolia; therefore, other economic sectors must be developed with income from the mining sector. Our domestic market is small, which means we have to have products and services that are internationally competitive. But, then again, we will need foreign investment in order to do that.
There are two types of foreign investment: direct and portfolio. Currently, foreign direct investment is dominant in Mongolia and portfolio investment that buys bonds and stocks from companies abroad through stock markets is only starting to take place.
If we do not look at our experiences of the last 20 years, make a conclusions about the reality and benefits of foreign direct investments and do something immediately, there will be a misunderstanding that will begin to occur among people that will make them disapprove of foreign investment and blame foreign investors for inequalities in the country.
The root of this problem lies not in foreign investors but unstable, unclear laws and rules, failure to implement those laws and lack of ability, conciseness of public servants.
If business law is clear and stable, there is no need to give special attention to any companies and make specialty investments or stability agreements. As these kinds of agreements are being made more often, the number of companies that have a monopoly and special legal environments, which are not affected by changes to law, are increasing and the time has come to stop it from happening. This pattern only benefits politicians and people who grant those special rights and does not serve the public interest.
The main duty of the state is to ensure the security of its people, therefore, if companies, domestic and foreign are producing products and service that harm people’s health or have working conditions that are harmful to the health of its workers, the state should close down the company and impose penalties. Mongolia does not need foreign investment that leads to these kinds of situations. Those kinds of investors do not have to be here in Mongolia either.
The reputations of foreign investments are falling down because of the government’s inability to fulfill this duty and corrupt government officials.
Capital for restoration of the natural environment after it is finished must be specially accumulated starting from the first day. That capital will be given back to the operating company if the environment is restored after the mining finishes and, if not, the money will be spent on the restoration of the environment by a different company. If the company goes bankrupt, Mongolians must not face any losses. If we do not manage foreign investment in the mining sector wisely, benefits of natural resources will not be distributed equally, which might lead to social disruption. If there is no good management and legal framework, it might even have a bad influence on international relations.
If we manage to bring foreign investment into the right economic sectors and manage it wisely, we could establish the groundwork for rapid development of our country. If we fail to do so, foreigners will be the ones to blame, haters will chase them away, and then the last thing to happen will be fighting between ethnic groups, aimags (provinces) and sums.
Translated by B.Amar