Sherelle Jacobs in Cologne
August 2, 2012
Mongolia's growing economic clout is no secret, but evidence points to Germany being more privy to the Central Asian country's potential than most of its European counterparts.
There has been a powerful global shift in the way Mongolia is perceived, beyond Orientalist fantasies of the steppe and Genghis Khan; when it overtook Qatar last year as the world's fastest-growing economy, people took notice. Moreover, Mongolia's growth is being fuelled by the exporting of its treasured stockpile of natural resources, including copper and rare earth minerals, which are coveted by many nations. It has the world's largest untapped coal reserves.
And the accompanying infrastructural development and swelling of the wealthy class in Mongolia's urban centres offers the prospect of mouth-watering development contracts and export opportunities, which is attracting multinationals from a long list of countries. For these reasons, Mongolia is set to be one of the most interesting and exciting emerging economies of the 21st century.
Yet even though the rising interest in Mongolia is a global trend, Germany in many ways seems a step ahead of its European competitors. Export figures are revealing. In 2011, Germany was the leading European exporter to Mongolia; according to the Mongolia's statistics office, in 2011 Mongolia imported goods worth $272m from Germany. Other European countries managed to export considerably less: France, the second-largest European exporter to Mongolia, shifted only $97m worth of goods; the UK, at $47m, managed less still.
It is Germany's manufacturing edge over its European counterparts that ultimately explains its significantly more impressive bottom line, according to experts. "The industrial goods that Germany produces are needed by Mongolia," says Fabian Nemitz, a Mongolia expert at Germany Trade and Invest. "These are primarily investment goods like machinery and equipment."
There is also booming demand for cars in Mongolia, thanks to the increase in incomes, Nemitz adds. And Mongolians are no different from other people in emerging markets, who regard a German car as an important status symbol.
Merkel in Mongolia
It's clear the German government has explicitly identified Mongolia as a target country as it aggressively pushes German business interests in emerging markets beyond the so-called BRICS. In October 2011, German Chancellor Angela Merkel became the first leader of an advanced industrial country to visit Mongolia in six years. Crucially, the cornerstone of the event was the signing of lucrative intergovernmental contracts between Berlin and Ulaanbaatar.
They included a deal that gives the German-Australian consortium BBM Operta and Macmahon access to 15m tonnes of coal from Tavan Tolgoi mine in Mongolia, the largest deposit of coking coal in the world, in a deal estimated to be worth $2bn. The two sides also signed a promising resources partnership agreement that brings Germany one step closer to securing ready access to Mongolian natural resources, including the holy grail of rare earth metals, which are crucial for various high-tech products that Germany manufactures, from iPods to wind turbines.
Moreover, Merkel's visit was reciprocated in March by the Mongolian president’s tour of three German cities, which culminated in the signing of several Memorandum of Understandings, including one for a coal dilution and fuel manufacturing project, and another for the construction of a new coke plant.
It is important to note that Germany's approach to Mongolia seems to fit within a wider strategy to prise open new trade and investment opportunities outside of the BRICS. Other traditionally overlooked countries Germany has worked hard to nurture relations with range from Kazakhstan to Slovakia.
Despite the fruit that Merkel's efforts in Mongolia bore, curiously other European countries do not seem to have taken note. The UK is a good example – even now, British Prime Minister David Cameron, despite his emphasis on boosting British exports to encourage economic recovery, has failed even to schedule a trip to Ulaanbaatar. And although the Mongolian president visited the UK in November to meet Cameron, business-focused negotiations were notably absent from the dialogue. This stands in stark contrast to its exchanges with other BRICS nations like China or India, where the UK government's emphasis has been on commercial contracts.
Another respect in which Germany's relations with Mongolia have an edge is perhaps less immediately obvious – solid economic relations are underpinned by deeper cultural links dating from the Cold War, when the German Democratic Republic and Mongolia People's Republic enjoyed close ties. "Another aspect to the positive relationship between Germany and Mongolia could be the good general relations between the two sides. Many Mongolians studied in East Germany and have good knowledge of German," says Nemitz.
Nonetheless, Germany's impressive assertiveness in Mongolia needs to be contextualised. Although access to Mongolia's rare earth metals is the country's main aim, it has yet to conclude a concrete contract for their exploitation. And Berlin faces stiff competition from non-European competitors, specifically China, which represents formidable long-term competition.
Although China is currently one of the world's largest producers of rare earth metals, as its consumption of high-tech goods increases it is set to become a net importer by 2014. Mongolia will be a central target source. And with China already Mongolia's largest trading partner by far (92% of Mongolia's exports go to China), Beijing is especially well positioned to achieve its objectives.
Several other non-European countries also continue to outshine Germany in Mongolia. Although Russia's influence in the country is arguably in long-term decline, it still supplies just over 30% of Mongolia's imports. The US also exports twice as much as Germany does to the country. Japan and South Korea also perform slightly better in the same stakes.
It is a sobering reminder of just how competitive and saturated international trade and business in the emerging markets are set to become, even in previously obscure places like Mongolia. Yet just as is the case in several other traditionally overlooked but fast-growing economies in the developing world, Germany looks set to put up a good fight for its share of the market.