The coalition government of Mongolia is taking steps to make good on promises made in the 2008 election to introduce an Alaska-style resource dividend. Mongolia is a large, sparsely populated land-locked country sandwiched between Russian and China. About half of its citizens still live as nomadic herders. Most of the land in the country is unowned: herders can camp anywhere they find a spot. But the country has recently discovered some of the world’s most valuable mineral deposits, including gold, copper, coal, and other resources. International mining companies, under contract from the Mongolian government are already well on their way to begin exploitation of those resources. Revenues from exportation of those resources have the potential to more than double Mongolia’s GDP.
The Mongolian government is moving toward implementation of three methods to ensure that every Mongolia receives a financial benefit from that sale. The first method—proposed in the coalition governments draft budget for 2011—is the distribution of a dividend of 21,000 Mongolian Tughrik (about US$17) per person per month. Reports are sketchy, but if adopted, that would amount to about $204 per person, or $816 for a family of four by the end of the year. This is a large sum in such a poor country. Mongolia currently has a per capita GDP of about $3600 per year (less than one-tenth of U.S. GDP).
The second method is to make every Mongolian a shareholder in the state’s mining enterprise. The initial plan calls for 50 percent of the enterprise to be owned by the state; 30 percent by international investors; 10 percent by domestic investors; and the remaining 10 percent to be divided equally between all Mongolia citizens. That plan would make each Mongolian the owner of about 550 shares of stock. Initially citizens will be prohibited reselling their shares, and it is unclear whether this prohibition will be relaxed later. Government officials hope that the shares will eventually start paying dividends. Apparently this would mean a second source of basic income from the mining industry, which might replace or supplement the first.
The third method is the creation of a Sovereign Wealth Fund designed after studying the operation of the Alaska Permanent Fund, the Alberta Heritage Fund, and other existing Sovereign Wealth Funds. This fund could pay regular dividends like the Alaska fund but government officials indicated that it might only pay occasional dividends like the Alberta fund.
Government officials hope that once these policies take shape, they will relieve the abject poverty experienced in Mongolia’s capital city, Ulaanbataar, without interfering with the traditional nomadic lifestyle half of Mongolians practice. Terence Ortslan, Managing Director of a Canada-based mining research firm called TSO & Associates, said, “Mongolia should recognize and preserve nomadic lifestyle of its people but in modern level of quality of life that they deserve. I would call it ‘Modern nomadic lifestyle.’” For example Mongolian nomads could use their share of wealth to obtain devices to generate electricity from solar and wind energy.
These policies are just at the stage of transition from planning to implementation, and the form the will eventually take remains to be seen.
More information about these policies in Mongolia is online at the following links:
David Stanway and Khaliun Bayartsogt, “Mongolia frets as giant coal mine launch looms,” Reuters, Mon Aug 8, 2011
MDNews, “From January, every citizen will get MNT 21,000 per month”
Dale Choi, market commentator of Frontier Securities, “Mongolia is to Set Up a Sovereign Wealth Fund,” UB Post, September 15, 2009 (Source: Bloomberg, Frontier Securities, September 11, 2009)
D. Jargalsaikhan, “Ulaan Qatar” MongolNews. Friday, 25 February 2011 12:44
P. Shinebayar “Coalition Government Makes Historical Decision” April 5, 2011