Gold Rush Ninjas: A Resource Curse Perspective on Mongolia’s Informal Mining
Abstract
This paper will explore the economic situation in Mongolia, particularly focusing on the role of informal gold mining, often referred to as ‘ninja’ mining. The research will be framed within the context of the Resource Curse theory and delve into the following aspects:
An in-depth analysis of the informal gold mining sector, its economic implications, and its relation to the overall mining sector.
The current economic situation in Mongolia, with a focus on the mining sector’s contribution to the GDP23.
Exploration of potential strategies for economic diversification to mitigate the effects of the resource curse, with a focus on the role of the informal mining sector.
Theoretical review
The Resource Curse Theory, also known as the Paradox of Plenty posits that an abundance of non-renewable resources such as minerals and fuels can paradoxically result in less economic growth and poorer developmental outcomes. This counter-intuitive outcome arises from several interconnected factors.
Firstly, countries rich in natural resources often experience income volatility due to the cyclical nature of global commodity markets. Prices for resources like oil and minerals can fluctuate wildly based on global supply and demand dynamics, geopolitical events, and other factors. This volatility can lead to economic instability, making long-term economic planning challenging. Secondly, the presence of valuable resources can lead to governance challenges. The potential for enormous wealth can incentivize corruption and rent-seeking behavior, leading to the misallocation of resources. In extreme cases, it can even fuel conflict, as different groups vie for control of valuable resources. Thirdly, the focus on resource extraction can lead to the neglect of other sectors of the economy, a phenomenon known as Dutch Disease. As resources are extracted and exported, the country’s currency may strengthen, making other sectors of the economy, like manufacturing and agriculture, less competitive on the international market. This can result in a one-dimensional economy that is overly reliant on a single actor. Lastly, the wealth generated by resource extraction often does not benefit the broader population. Instead, it tends to be concentrated among a small elite, leading to increased inequality and social unrest. This is particularly true in countries with weak institutions and poor governance.
In conclusion, while natural resources can provide a significant source of income, they can also bring about economic and social challenges. The Resource Curse Theory highlights the importance of good governance, economic diversification, and sound fiscal management in ensuring that natural resource wealth benefits all citizens. It’s a reminder that resources, while valuable, are not a panacea for economic development and must be managed carefully to ensure sustainable and inclusive growth.
Introduction
Mongolia, the biggest global nation without coastal access to a closed sea, is predominantly composed of expansive grassy plains. It is bordered by mountains in the north and west, while the southern region is dominated by the Gobi Desert. Ulaanbaatar, the nation’s capital and most populous city houses approximately half of Mongolia’s inhabitants. Furthermore, it is important to note that Mongolia is positioned between two global and political powerhouses, Russia and China.
Mongolia, during the socialist era, was often unofficially referred to as the sixteenth republic of the Soviet Union, being its poorest and most dependent ally. The economy during this period was primarily based on agriculture and was underdeveloped. Despite these challenges, Mongolia experienced rapid economic growth in the 1960s, leading to universal literacy, a first in Asia. The transition from socialism to a free-market economy and democratic political system in the early 1990s was a significant turning point for Mongolia. This period was marked by sweeping economic and political reforms. However, the transition was not without its challenges. The economic growth that Mongolia experienced during this period was impressive but also highly volatile.
In the recent years leading up to 2024, Mongolia’s economy has undergone significant changes. Once an economy heavily reliant on agriculture and livestock, it has now shifted towards mining. The mining sector has been a major driver of economic growth, with projections indicating a growth rate of 5.8 percent in 2023 and 6.2 percent in 2024. Private consumption is recovering, and fiscal expansion remains strong, contributing to this growth. However, the growth has not been uniform across all sectors. The non-mining sector has lagged behind, highlighting the economy’s heavy dependence on mining. There are also significant risks to Mongolia’s economic growth, including potential decreases in mineral exports due to slower growth in China, inflationary pressures, and uncertainties surrounding coal offtake agreements.
Taking all the above into consideration, Mongolia has made remarkable progress in its economic development since the socialist era. The shift towards a market-oriented economy has brought about significant economic growth. However, challenges such as economic volatility and over-reliance on the mining sector persist. As Mongolia continues to navigate its economic journey, it will be crucial to address these challenges to ensure sustainable and inclusive growth.
The Gold Ninjas of Mongolia and Their Influence on the Mining Sector
Gold Situation in Mongolia
Mongolia’s wealth in natural resources is significant, with the mining sector, including gold extraction, playing a pivotal role in its economy. The country’s mineral wealth, primary coal, copper, and gold, has been valued between US$1 trillion and US$3 trillion. As for gold production, Mongolia recorded a yield of 19,000.00 kg in December 2022, showing a slight drop from the 19,054.00 kg produced in December 2021. The data, which is updated annually, shows an average production of 11,504.00 kg from December 1990 to 2022. Mongolia’s landscape and natural resources significantly contribute to this situation. The country is among the 29 developing nations identified by the International Monetary Fund as being rich in resources. It’s estimated that geological mapping has been conducted on 45% of Mongolia’s territory, uncovering extensive reserves of coal, copper, and gold. In Mongolia, the gold industry functions at multiple levels, including large-scale operations and smaller, artisanal ventures. The Artisanal and Small-scale Gold mining (ASGM) sector is notably vibrant and faces both challenges and opportunities in regulating and formalizing the gold trade within the country. The industry is driven by a mix of domestic and international players. For example, the Mongolia Energy Corporation, a mining and energy firm operating in Mongolia and Xinjiang, and the Erdenet Mining Corporation, a Mongolian-Russian joint venture, contribute significantly to the country’s mining output. Furthermore, Anglo-Australian firms like Rio Tinto and Canadian companies such as Turquoise Hill Resources have a strong presence in the country, backed by agreements with the Mongolian government.
Mongolia’s approach to its gold industry incorporates both local and international collaborations. For instance, during a state visit to France in October 2023, Mongolian President Ukhnaa Khurelsukh endorsed a significant agreement that led to a US$1.7 billion investment by Orano Mining, owned by the French government. This deal enabled Orano to initiate Mongolia’s first uranium mining and processing operation. The strategy of forging international partnerships is advantageous as it enables Mongolia to diversity its mining sector and its investor base. It also acts as a strategic instrument to broaden Mongolia’s third-neighbour foreign policy, where Mongolia aims to cultivate relationships with countries beyond China and Russia. However, there are also weaknesses in Mongolia’s strategy. The country’s exports are 90% dependent on natural resource extraction, accounting for 90% of total exports, which exposes the economy to the volatility of commodity prices. Moreover, despite adopting a more cautious approach to mining and learning not to take investment lightly, Mongolia continues to grapple with issues related to environmental sustainability and the societal impacts of mining.
2. The Gold Ninjas of Mongolia
The term “Gold Ninjas” is a colloquialism used in Mongolia to describe individuals who engage in unauthorized, small-scale mining activities, often panning for gold. The moniker “Ninja” is inspired by the green bowls they use for panning, which, when carried on their backs, resemble the shells of the Teenage Mutant Ninja Turtles. Most of these miners are Mongolians who turned to traditional herding after losing their jobs due to the collapse of the People’s Republic of Mongolia during the post-socialist era. However, harsh winters in 2001 and 2002 resulted in the loss of a significant portion of the country’s livestock, forcing numerous families to resort to ninja mining. These miners typically look for quartz or gold in areas that large mining companies have deemed unprofitable.
Informal mining in Mongolia originated in the mid-1990s, triggered by the closure of an old coal mine near Ulaanbaatar in 1995. During the Socialist era, the state-owned Nalaikh coal mine’s output was primarily consumed locally in the capital for power generation and heating purposes. Following the mine’s closure, the local urban poor, typically from the ger district or underprivileged slum areas, started scavenging around this mine, using coal to combat the harsh winter chill. However, it wasn’t until 1999, when nomadic herders began gold digging and panning, that informal mining in Mongolia gained global recognition. This period saw the establishment of approximately 130 placer gold mining companies. As the number of gold mining companies increased, so did the number of “wildcatters” - herder groups who abandoned their homes and jobs to part-time or full-time gold digging and sifting. This exponential growth during the first decade of the 21st century led to what the Mongolian Business Development Agency (MBDA) termed the “First” and “Second” gold rush in 2003. Notably, a significant proportion of these miners were women and children of 10-19.
The ninja mining process usually involves a team of miners digging a hole about 10-15 feet deep using iron stakes, or until they reach a layer with a high gold content. Holes that are close to each other are interconnected underground. Once the hole is dug, one ninja miner works at the bottom of the hole by candlelight, excavating dirt, while another hauls the dirt to the surface to be sifter by a third ninja miner.
In the past, Mongolia’s “ninja” miners, named for their green panning bowls that resemble the shells of the Teenage Mutant Ninja Turtles, were largely left to their own devices. This was a time when nearly three-quarters of Mongolia’s 2.9 million people were living on less than $2 a day. The activities of these miners, scavenging and mining on a small scale, were seen as a necessary evil, a way to alleviate the harsh realities of poverty and unemployment.
However, the winds of change began to blow when a Russian mining company, having had its mine invaded by thousands of these “ninja” miners, demanded increased security measures. The miners had not only beaten the guards and stolen gold but also destroyed equipment. This incident led to a significant ramping up of security measures in the town. A large trench was dug around the town, additional security personnel were deployed, and checkpoints were established on the roads leading into the community. Reflecting on this, it’s clear that the balance between tolerating informal mining as a means of survival and protecting formal mining operations is a delicate one. The escalation of security measures has created an atmosphere of fear among the local population. They live in constant dread of being arrested, with even mundane activities like carrying a green bowl in public or having muddy shoes being used as a pretext for arrest.
Since the enforcement of these measures, it’s estimated that about one-sixth of the town’s residents have been detained. It’s a sobering thought that it’s now hard to find a family that hasn’t had a member arrested. The age range of those arrested is wide, with individuals as young as 16 and as old as 66 being taken into custody. While some of the arrests are justified, as the “ninja” miners are technically trespassing and stealing, the police action appears to have become indiscriminate. Residents are being arrested at night, chased down in the streets, or detained at checkpoints with little evidence of their involvement in scavenging activities. This situation highlights the complex challenges faced by resource-rich countries like Mongolia. It underscores the need for balanced policies that protect the rights and livelihoods of all stakeholders, from large mining companies to informal miners and local communities. It’s a delicate balancing act, one that requires thoughtful and inclusive policymaking. It’s a reminder that the path to sustainable development is often fraught with challenges, but with the right approach, it’s a journey that can lead to a more equitable and prosperous future.
3. Impact on the Broader Mining Sector
The informal mining sector, especially the activities of the Gold Ninjas, significantly influences Mongolia’s overall mining sector. As per Planet Gold Mongolia, a UN-led project, it’s estimated that 40,000 to 60,000 people, including a third who are women, are involved in artisanal mining across 14 of Mongolia’s 21 provinces. This figure represents about 12-20% of the labor force and is comparable to the number of people employed in formal mining (60,000, according to the World Mining Congress). These informal miners, often referred to as ‘Ninja’ miners and small-scale miners, contribute the majority of the 19.4 t of gold that Mongolia produces annually.
The proximity of these informal miners to large mining operations has resulted in a complex interplay between the two sectors. While the activities of the Gold Ninjas can lead to environmental degradation and other social impacts, the informal mining sector also provides a crucial source of income for many rural, low-income communities in Mongolia. The informal mining sector also shapes the regulatory environment of Mongolia’s mining industry. The government faces the challenge of regulating these activities, striving to balance economic development with environmental conservation and social fairness. In conclusion, the Gold Ninjas of Mongolia, despite operating outside the formal structures of the mining industry, play a pivotal role in the country’s economy. Their activities contribute significantly to Mongolia’s gold production and also shape the dynamics of the overall mining sector. As Mongolia continues its economic journey, addressing these challenges will be vital to ensure sustainable and inclusive growth.
Mongolia’s Current Economic Situation: The Mining Sector’s GDP Contribution
Over the past three decades, Mongolia, a thriving democracy, has undergone a remarkable economic transformation. The per capita GDP of the country has tripled since 1991. Despite some economic instability and slower growth leading to a halt in poverty reduction in recent years, the future of Mongolia’s development is optimistic. The mining sector is a cornerstone of Mongolia’s economy, contributing 25% to the country’s GDP. This sector’s impact goes beyond its direct contributions to the GDP, as it also represents 57% of total industrial production and 42% of total investments in 2022. The Mongolian economy is projected to expand by 5.1 percent in 2023, propelled by the ongoing recovery in mining production and services. This growth rate is expected to quicken to 5.4% in 2023 and further to 6.1% in 2024, bolstered by exports, a rebound in mining, and its positive ripple effects on transport and other sectors.
The growth of the mining sector is primarily driven by the country’s abundant mineral resources. The GDP from Mining in Mongolia rose to 1125066.80 MNT Million in the last quarter of 2023, up from 1118513.30 MNT Million in the previous quarter. This growth trajectory is likely to persist, especially with the start of the Oyu Tolgoi underground mining phase. However, Mongolia is confronted with significant risks and challenges, including a potential worsening of external balances due to weaker external demand from China, tighter external credit conditions, and ongoing fiscal risks associated with large contingent liabilities. Despite these challenges, the medium-term outlook remains strong, primarily supported by a significant increase in mining output from the underground mining phase of Oyu Tolgoi.
Reflecting on these facts, it’s clear that the mining sector is a critical driver of Mongolia’s economy. The sector’s contribution to the GDP underscores its importance in the country’s economic growth and development. However, the reliance on the mining sector also exposes the economy to vulnerabilities associated with fluctuations in global commodity prices and demand. Therefore, while the mining sector’s contribution to Mongolia’s GDP is significant, it’s crucial for the country to diversify its economy to mitigate the risks associated with over-reliance on a single sector. This could involve investing in other sectors such as agriculture, manufacturing, and services, and implementing structural reforms to foster a more resilient and sustainable economy.
In conclusion, Mongolia’s economic situation, particularly the mining sector’s contribution to the GDP, presents a complex yet promising picture. With careful management and strategic planning, Mongolia can leverage its abundant resources to ensure sustained economic growth and prosperity.
Strategies for Diversification to Counter Resource Curse
As we have analyzed from the previous sections it is certain that Mongolia is a country abundant in mineral wealth but it certainly deals with the effects of “resource curse.” This paradox is particularly noticeable in Mongolia’s mining sector, which, while making a significant contribution to the country’s GDP, has also led to economic instability due to its susceptibility to global commodity price changes. A potential strategy to mitigate the effects of the resource curse is economic diversification. This involves expanding an economy’s income sources, thereby reducing reliance on a single actor. This strategy can help shield the economy from shocks in the global commodity market, promote sustainable growth, and generate jobs.
In Mongolia’s context, economic diversification could mean investing in sectors other than mining, such as agriculture, manufacturing, and services. For example, developing the manufacturing sector could help create value-added products from Mongolia’s mineral resources, thereby increasing the country’s export earnings. Similarly, investing in the services sector, particularly in areas like tourism and information technology, could help create new income sources and jobs. Another key aspect of economic diversification in Mongolia is the role of the informal mining sector. Informal mining, also known as artisanal and small-scale mining, has been growing in Mongolia, with many Mongolians turning to this sector for their livelihood. This sector provides an alternative income source for many rural and urban Mongolians, particularly in times of economic hardship.
However, the informal mining sector also poses challenges. These include environmental degradation, health and safety risks for miners, and legal issues related to mining rights. Therefore, any strategy to promote economic diversification in Mongolia must also address these challenges. This could involve providing training and support for informal miners, implementing regulations to protect the environment and miners’ health and safety, and establishing legal frameworks that recognize and protect the right of informal miners. Reflecting on these strategies, it’s clear that economic diversification holds significant potential for mitigating the effects of the resource curse in Mongolia. However, achieving economic diversification is not without challenges. It requires careful planning, significant investment, and strong political will. Moreover, it requires a holistic approach that considers not only the economic aspects but also the social, environmental, and legal dimensions of development.
In conclusion, while the resource curse poses significant challenges for Mongolia, these challenges are not insurmountable. With the right strategies and policies, Mongolia can leverage its abundant resources to achieve sustainable and inclusive economic growth. The journey may be long and fraught with challenges, but the destination - a diversified, resilient, and prosperous Mongolian economy - is well worth the effort.
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