By Dave Tacon
It's more than 800 years since Genghis Khan and his Mongol horde galloped out of central Asia, but today Khan looms large in the Mongolian capital Ulaanbaatar. He is the face of commerce emblazoned on bank notes and multiple brands of vodka. There is even a Grand Khan Irish Pub.
From the steps of parliament, a statue of Khan glares down from a bronze throne. On the banks of the Tuul River, 54 kilometres east of the city, he sits mounted on the world's largest steel horse, one hand grasping a golden whip.
A steel statue of Genghis Khan and his horse outside of Ulaanbaatar.Credit: Dave Tacon
Under Khan's advance, all those centuries ago, cities fell, east and west, their civilian populations put to the sword. At his peak, Khan ruled a quarter of the world's population. Only the Black Death halted his men and heralded his empire's gradual decline, which culminated in the humiliation of Mongolia's annexation by Russia in 1783.
Mongolia emerged from the 1991 collapse of the Soviet Union a dusty backwater, but with its culture mostly intact, isolated by a national language spoken only by its own people and a population of around 2.5 million. The once mighty empire was now sandwiched between two dominant neighbours, Russia and China, with combined populations almost 500 times their own.
A woman casts pebbles near a pagoda overlooking Zaisan, on the southern edge of the city.Credit: Dave Tacon
Still, the last 20 years have seen a meteoric rise in the fortunes of Mongolia. The country is experiencing its most profound social and economic changes since Khan's reign. Although 40 per cent of Mongolians still live as nomadic herders, democracy, market capitalism and a resources boom catapulted the nation's economy to achieve the world's fastest growth in 2011 with GDP growth of 17.3 per cent. Trillions of dollars of natural resources – coal, copper, gold, uranium, silver, fluorite and other minerals – lie beneath its steppes.
But as in Russia, post-Soviet resource wealth has been spread oligarch style. A handful with government connections became rich overnight. Today, Mongolia's richest ten citizens include two members of parliament and a former prime minister. Predictably, the Mongolian elite have a taste for luxury brands and prestige cars.
"It changes each year," explains Belgian Chris De Gruben, managing partner of M.A.D. Investment Solutions, a real estate and consultancy firm established in Ulaanbaatar in 2008. "The first must-have car was the Hummer, then it was the Range Rover and this year it's the black G-Class AMG [Mercedes 4WD]." One parliamentarian, he says, has four Rolls-Royces. "They drive through the city in convoy: one for him, one for his wife, one for his daughter, one for his son."
Yet within the last two years, Mongolia's boom has turned to bust. Dependent on the mining industry for 90 per cent of its GDP (with more than 90 per cent of exports destined for China), Mongolia has been hurt by a downturn in minerals prices, in particular coal, and a decline in China's economic growth.
More contentiously, a government elected on a nationalist platform has introduced a raft of economic policies intended to protect the country's sovereignty. One new law has greatly complicated foreign firms' acquisition of mining or other strategic assets.
Additionally, a freeze on 106 mining licences due to a corruption scandal and an ongoing dispute between the Mongolian government and British-Australian mining giant Rio Tinto over profits and expenses from the gargantuan Oyu Tolgoi (Turquoise Hill) copper-gold mine reduced direct foreign investment by almost 90 per cent in two years. Ulaanbaatar's Western expatriate population dropped from around 7000 to 2500 in 18 months.
Still, Oyungerel Tsedevdamba, the Stanford-educated Minister for Culture, Sports and Tourism and one of three female government ministers, says the sudden spike in expat numbers brought by the mining boom was a mixed blessing.
"For regular citizens of Ulaanbaatar, [the drop in expatriate numbers] was good news," she says. "High numbers of well-paid expatriates had brought high inflation on basic products like meat, house rent and house pricing… One thing I know is that Mongolia has seen worse times and that our nomadic economy has proved resilient."
Despite measures by the government to remedy an investment climate described as "toxic" by a leading Mongolian economist, conditions, including an already deflated property market, are likely to worsen before they improve.
Mongolia has already been bailed out by the International Monetary Fund five times. On average a domestic bank fails every 18 months. With the economy on the verge of collapse, Mongolia's powerful neighbours are circling. In August President Xi Jinping became the first Chinese leader to visit the country in 11 years while Russian President Vladimir Putin visited earlier this month.
Despite an average yearly income of $4000, Mongolians are well-educated. More than half of the country is under 25 years of age. The children of wealthy families are often educated abroad.
The country has shifted away from its nomadic roots, but xenophobia is deeply ingrained. "The Russians and especially Chinese are trying to suck out everything from us ... It's why we hate the Chinese," says Tsuki Batar, 22, who recently returned from fashion design and French studies in Los Angeles.
Yet for most Mongolians, life is a struggle. According to the World Bank, around 30 per cent of the country lives in poverty. Most of them live in the Ger District, a sprawling slum of traditional tents ("gers") and cheaply built homes that cover the northern hills of Ulaanbaatar.
Many residents are climate refugees of the cruel winter of 2009-10. These former nomadic herders fell victim to the dreaded zud, a weather phenomenon in which snow is frozen solid by temperatures as low as minus 48 degrees. Eight and a half million cows, horses, goats, sheep and camels starved and froze to death during an extreme 55-day cold snap.
From the air, in the clear, mild summer, the Ger District looks like dull confetti sprinkled on the slopes and folds of the city's northern hills. In reality, these are the cramped tents and cheaply built houses of 60 per cent of the city, which has swollen to 1.6 million. Soviet town planners designed Ulaanbaatar for 400,000.
The area has no running water, no sewerage system or regular garbage collection. Alcohol dependency is rife, estimated at 13.6 per cent of the entire population by the Health Ministry of Mongolia and World Health Organization (WHO), compounded by an unemployment rate of around 34 per cent.
In winter, drunks have been known to freeze to death in Ulaanbaatar, the coldest capital city in the world. The average temperature for December and January is below minus 20.
Poor Mongolian families struggle to keep warm by burning raw coal and any combustible material in their small iron stoves. Come winter, Ulaanbaatar becomes the second most polluted city in the world, after Ahwaz in Iran, according to the WHO.
With another zud likely this year, non-government organisations such the International Federation of Red Cross are preparing for the worst. The national currency, the tughrik has depreciated by 40 per cent in the last two years, the price of meat, the mainstay of the Mongolian diet, has increased by 500 per cent, while residents of the Ger District are already spending 60 to 70 per cent of their winter income on coal.
With harsh times ahead, many are looking to Rio Tinto's Oyu Tolgoi mine for salvation. When fully operational, the South Gobi Desert mine, 550 kilometres south of Ulaanbaatar, is expected to contribute 35 per cent of Mongolia's GDP.
The site holds the world's third largest untapped source of gold and its sixth largest untapped source of copper.
"'Super giant', is the geological term," explains Grant Hendrickson, who led the geophysical team during the discovery years.
"Such an experience perhaps only comes once in a lifetime. During the exploration drill out phase, we had the feeling that it was infinite."
The ore body appears to extend at least 26 kilometres. The 370 million-year-old deposits could be mined for up to a century. Hendrickson admits to a general feeling on his team that such an immense deposit was destined to become a political football in such a relatively poor country.
Rio Tinto, the site manager of Oyu Tolgoi, began producing copper concentrate from its open pit mine in January last year. Close to $6.7 billion has already been invested, but the miner is yet to make a profit from it.
Critically, progress on the mine's second phase, deep underground, stalled in August last year. Oyu Tolgoi has since shed around 1700 workers linked to the underground mine. The $5.5 billion second phase is the world's largest project funding exercise with 14 banks involved. Yet with a September 30 deadline for its funding, already extended by six months, time may be running out.
There are signs of progress on the disputes with Rio Tinto. Mongolia has offered to cut its tax claim by $US100 million, and while Rio Tinto and its subsidiaries have not yet accepted the offer, they have responded by publishing a new feasibility for the second stage of Oyu Tolgoi. After months of silence, the flurry of activity over the past month suggests the relationship is thawing.
Still, cost overruns of up to $US1 billion have infuriated the Mongolian government, which has a 34 per cent stake in the mine.
Mongolia already has two other foreign-funded projects in international arbitration.
Rio Tinto refused requests for interviews. But in an interview with Fairfax Media, Sainbileg Chuluunbat, the government's deputy chief of cabinet and board chairman of Erdenes Mongol, the body that presides over Mongolia's resources industry, denied the country's economic downturn was any result of government policy and rejected rumours that the second phase of funding for Mongolia's largest foreign investment was in jeopardy. "We are still confident that underground mining will start in 2016," he said via a translator.
Mr Chuluunbat claimed Mongolia could fall back on its agriculture in hard times. However, this aspect of the Mongolian economy, which suffered in the country's post-Soviet restructure, is also fragile.
Back in the Ger District, Tsetsgihee, 60, who declined to give her surname, hopes Oyu Tolgoi will create jobs, but is yet to see any evidence. She has lived here since she lost her job at a state-run meat distributor at the close of the Soviet era. "I don't think it is bad to dig up those things, but the government promises apartments and comfortable lives and we're still living in mud houses," she says.
While the short term view for Mongolia's economy is bleak, the country still has the potential to become one of Asia's wealthiest nations.
Only 15 per cent of Mongolia's 1.55 million square kilometres has been exhaustively surveyed for mineral exploration. Australian Xanadu Mines recently released a report of significant discoveries of copper and gold mineralisation at their Kharmagtai site, 420 kilometres south-east of Ulaanbaatar.
"Ideally, I'd like Mongolia to be like Norway or Australia [as a resource rich and wealthy country]," says Ms Tsedevdamba, "but it's a very long process... The Mongolian nomadic lifestyle didn't change for thousands of years… In the end we have to adjust and we will adjust."