Closing speech by Z.Enkhbold for 2015 Economic Forum

Ulaanbaatar /MONTSAME/ On April 3, the Chairman of the State Great Khural Z.Enkhbold addressed the closing ceremony for the Mongolian Economic Forum 2015. This year’s Economic Forum coincides with our deep business cycle recession and the critical point in time where we need to formulate our long-term economic policy more realistically, said the Speaker. Indeed, the current economic challenges require us to genuinely understand the nature of our different economic sectors and to correct and strengthen our economic policy while focusing on real economic development. “It should be commended that this year’s Economic Forum has addressed many important issues related to both the cyclical shifts and the long-term trend of our economy. Today, I would like to share with you my thoughts on the key features of our real economy, its real challenges and real opportunities” he went on. A few years ago, our annual economic growth reached 17 percent, to the surprise of the world, he said, however, this number plummeted to 7.8 percent just within three years. This extreme volatility, he noted, can be attributed to the following factors, first, our economy is highly dependent on mineral prices; second, due to the volatile shifts and dynamic trends of the mineral prices, investment in our mining industry also exhibits a highly volatile pattern; third, given the small economy, the lumpy sunk-cost nature of investment in the mining sector amplifies the volatility even further. For instance, the speaker said that Oyu Tolgoi alone accounts for more than one half of the foreign direct investment that exceeded four billlion US dollars annually in 2011 and 2012. On the account of the share of the natural resources revenue in the total government revenue, we rank very high in the world, approximately at top 30, he said adding that, in the recent past, the share of the natural resources revenue in the government revenue has been in the range of 20-30 percent. Thus, our budget is highly dependent on the mining sector, he said. Ignoring this important aspect of our economy, Mongolia has engaged in overly pro-cyclical government expenditure in the recent past, which took its toll on our economy. “We have learned a hard lesson that our economy is highly exposed to large extractive industry shocks and this will continue in the foreseeable future. In addition, for developing countries such as ours, it is common that the business cycle recessions run deeper and longer. Another important feature of the Mongolian economy is its weak infrastructure and under-developed non-mining sectors," said the Speaker. “Therefore, our broad economic policy can be characterized by dual economic policy that aims to efficiently respond to highly volatile mining shocks and to ensure long-term economic growth through stable investment in our infrastructure and manufacturing sector," he went on. Building a strong foundation of the manufacturing industry is a process as essential as kids learn to read and write, he said and added that Mongolia can create true national wealth only by producing more value-added goods while competing on the global market. “This will also ensure stable and faster growth”. "Let me give you a very simple example. It is not unusual that the copper price changes 2-3 times just within a year. On the contrary, the price of electrical machinery, which is made of copper, hardly fluctuates. Moreover, it is interesting to notice that Japan, South Korea, and Taiwan, who do not have any copper mining, together produce 40 percent of the world’s printed circuit boards (PCBs)". “Then, why cannot we have the ambition to produce 50 percent of the world market of this relatively simple product just by using a tiny portion of our own copper? We also have to have a very strong emphasis on our agricultural sector, which accounts for the economic fortune of half of the Mongolian households. In many respects, creating our national wealth means creating good jobs. To this end, it should be noted that the shocks to the mineral prices tend to translate to even larger shocks to productivity of the non-mining labor forces. Then, more volatile employment risks make it harder for us to train the individual skilled workers through stable employment and thus to improve overall labor productivity," said the Speaker. "Everything has two sides, the good and the bad. Over the last two years, there has been too much populism that Togrog became weak. However, we do not really see the bright side that the weaker Togrog creates more auspicious environment for the non-mining sector. For example, just within the last one year, export of certain products of the agricultural and textile industries has increased by 25-60 percent. "Mongolia must also be able to maintain a sufficient level of public investment by raising our public debt when there is a sudden drop in the price or demand of our mineral goods, he said and pointed out that that there are not many countries that have a debt ceiling, and that only seven countries have debt ceiling, such as Denmark, Kenya, Malaysia, Namibia, Pakistan, Poland and the USA. “It is not very surprising that these seven countries, on average, have a relatively small share of extractive industries in the revenues. Of these seven countries, only Malaysia has a higher revenue share of the extractive industries than Mongolia. In other words, a debt ceiling is rare among countries that have a high revenue share of the extractive industry. "Last fall, President Xi Jinping proposed to construct an economic corridor linking China, Mongolia and Russia. We hope that this will strengthen traffic interconnectivity and facilitate cargo transportation in the region. Three countries also seek to build a transnational power grid, which may allow us to export energy to China. With Chinese urbanization at its hike, the regional energy demand is expected to have highly robust growth in the near future. "It is not very easy for our economy to maintain steady investment growth without attracting our Third neighbors, such as Germany, Japan, Republic of Korea and the USA. In this regard, just a little over a month ago, there was a major event for our economy, the Japan-Mongolian Economic Partnership Agreement", said Mr Enkhbold and noted that the Mongolian parliament ratified the agreement shortly after it was signed. "The Mongolian economy is multifaceted and has very rich dynamics. We cannot discuss all the important aspects of the economy just by meeting once in a year. As we know, this year’s Economic Forum has discussed many important questions. Of course, there are also many other unaddressed issues. I recommend that we discuss our economic issues on a regular basis by using more empirical analyses and make an efficient use of this discussion when formulating our social and economic policy," he concluded. Mr Enkhbold thanked all guests and stakeholders for participating in the Economic Forum.