CONTENTS

Preface Scenarios for Mongolia: Building a Positive Future 4 Alternative Scenarios................................................................................................ 5 Early Warning System. ................................................................................................. 7 Solving the problems................................................................................................... 8 Mongolia in 2025 Scenario 1: The Future Promise ................................................................................. 10 Scenario 2: Nine White Banners ................................................................................. 14 Scenarios 3: Storm of Gobi ........................................................................................ 17 Scenario 4: Disappointed Dreams. ............................................................................... 21 Next Steps Scenario Planning...................................................................................................... 24

FOREWORD
What will Mongolia look like in 10 years? If a single person were to consider this question alone, they would come up with only one version of the future. But if ten or even a hundred people were to reflect on this question, they would no doubt develop a much more interesting and diverse product. Scenarios can be developed under the consideration of different national and international aspects. The World Economic Forum organized a Country Strategy Dialogue on the Future of Mongolia on September 15-16, 2013. The goal of this event was to develop scenarios for Mongolia. These scenarios focus on Mongolias role in the North-East Asian context and from a global point of view. The results will be presented at the annual World Economic Forum in Davos 2014. Prior to the World Economic Forums initiative, in 2012 experts from Heminge & Condell held rounds of discussions in Ulaanbaatar with representatives from government; business and society on what Mongolias future could look like. As a result of these discussions and separate contributions from Mongolias various stakeholders, four different scenarios emerged on What would Mongolia look like in 2025. it was thought that the future of Mongolia will substantially depend on the foresight of Mongolian leaders and their ability to anticipate and manage the future. Furthermore, as Mongolia is a mining-dependent nation at present, the demand for Mongolias mineral products on the world market will also have a considerable impact on our future. Hence, the four different scenarios are based on the two different outcomes of these two assumptions: will the actions of Mongolias leaders be determined by short-term opportunities or long-term investments, and what will happen to the global demand for commodities. The resulting scenarios present four starkly different versions of Mongolias future which we think will be most interesting to our readers. However, these scenarios are not merely intended for reading enjoyment. They can achieve their full value only when used as tools to identify the best possible path for long-term development and progress. When looking at the four different scenarios, it becomes much simpler to identify which circumstances are desirable for our future, and which ones we must strive to avoid. Thus, by using these scenarios we must assess the path we are currently taking, and consider our options on how to create a better future. These scenarios can be utilized for many positive examples of such an application of scenario thinking methodology to plan for the future. They are useful as a guide to produce an optimal long-term development policy for Mongolia, and to provide a guide to ultimately enhance Mongolias competitiveness and economic development. Thus, with the purpose of hosting in-depth deliberations on long-term, sustainable development policies for our nation, the Economic Policy and Competitiveness Research Center organized two workshops entitled Scenarios for Mongolia: Building a Positive Future. Many representatives from the public and private sectors, as well as academia and international organizations participated in these discussions, providing their invaluable analytical input into the four scenarios. Our participants proved to be extremely vigorous, discussing the current tendencies in Mongolias economy and societal framework as well as possible future challenges. They also came up with a list of early-warning signs to indicate which scenario we are heading towards and what signs we need to be wary of. The future of Mongolia will depend on the actions of Mongolians. Hence, we must discuss and identify the necessary steps we must take and implement them ourselves to create a brighter future. We would like to express our gratitude to participants of the discussions for providing valuable contribution through their thoughts and ideas for sustainable development for Mongolia. Herewith, we present to our readers the product of their work that they committed long hours and serious thinking towards. We are confident that our readers will be able to find many different possible scenarios for Mongolia. But let us reflect on what these versions of our future look like, and what we must do to make it better and brighter. General director B.Lakshmi 3

Scenarios for Mongolia: Building a Positive Future

Scenarios for Mongolia: Building a Positive Future

In June and July 2013, the Economic Policy and Competitiveness Research Center (EPCRC) held a series of workshops entitled Scenarios for Mongolia: Building a Positive Future. During these two workshops, notable representatives from government, business, civil society, academia and international development organizations analyzed four alternative scenarios for the future of Mongolia in 2025. Through these workshops, the EPCRC engaged and provided these stakeholders with a neutral platform for multi-stakeholder strategic dialogue on these scenarios. The aim was to identify actions needed to support the sustainable development of Mongolia towards a brighter future.

Four Alternative Scenarios

In early 2012, scenario planning experts from consulting group Heminge & Condell came to Ulaanbaatar and organized workshops amongst Mongolian business, social and political leaders to discuss the future of the country. The group discussed the range of uncertainties affecting Mongolia, including economic uncertainties, technological developments, social concerns, environmental issues and political programs and policies. As a result, they identified the most important external influences and the most important decisions that will affect the future of Mongolia. These are as follows: What will happen to the global demand for commodities?
-Economic slowdown in China -World economic crisis -New technologies that could decrease commodity demand
Moderate/Stable

-Chinese economic boom Commodity Demand

High/Volatile

-World economic recovery -New technologies will be expensive

What will guide the actions of Mongolian leaders?

-Political, economic and social instability -Bad fiscal and monetary policy -Corruption, red-tape
Short term opportunities

-Political, economic and social stability Focus of Mongolian Leaders

Long term investments

Box 1. Scenario Planning

Scenario planning is based on the observation that, given the impossibility of knowing precisely how the future will play out, a good decision or strategy to adopt is one that plays out well across several possible futures. To find such a robust strategy that works across all futures, scenarios are created in plural, such that each scenario diverges markedly from the others. These sets of scenarios are, specially constructed stories about the future, each one modeling a distinct, plausible world in which we might someday have to live and work. The purpose of scenario planning is not to pinpoint future events but to highlight large-scale forces that push the future in different directions. Its about making these forces visible, so that if they do happen, the planner will at least recognize them. Its about helping make better decisions today. Scenarios are: -Stories built around a methodically constructed plot; -A tool for identifying strategic options in the face of long-range uncertainty; -A framework and a vocabulary for an on-going strategic conversation. A good set of scenarios are: -Plausible stories; -Relevant to the question at hand; -Divergent from one another; -Challenging to our assumptions about how the future will play out.
Source: Global Business Network

-Good fiscal and monetary policy -The Rule of Law

From this work, they developed four alternative futures for Mongolia based on the most important external influences and the most important decisions.These scenarios are presented in the following diagram
Long- term investment

Moderate commodity demand / Long-term investments

Future Promise

High commodity demand / Long-term investments

Nine White Banners

Moderate

Commodity demand Focus of

mongolian leaders

Mongolian leaders join together to create a shared vision and plan to build an economy that is more open, educated and competitive.

Business, social and political leaders work together to build a positive future that can be shared by all Mongolians.

High

Moderate commodity demand / Short-term opportunities

Disappointed Dreams

High commodity demand / Short-term opportunities

Storm of Gobi

An ultranationalist party comes to power as international support falters and antipathy increases toward government and private enterprise.
Short-term opportunities

The gap between rich and poor widens, and competitiveness falters as oligarchs and foreign influences use political and economic power for personal gain.

Scenarios for Mongolia: Building a Positive Future

Box 2. Mining as Mongolias main economic driver

Due to the huge mining developments underway, Mongolias economy has been experiencing rapid growth in recent years. Mining currently accounts for about 20% of GDP, 60% of industry, and 90% of exports. Hence, it is appropriate to consider mining as Mongolias economic driver. Mongolian GDP growth
20 15 10
in percentage

Early warning system

The scenarios represent four very different, very challenging and yet plausible worlds that stakeholders in Mongolia may face in the future. Thus, with the help of the participants, we have come up with a list of Early Warning Signs that provide an indication to identify the path Mongolia is on. Annex. List of early warning system
FUTURE PROMISE Politics Governance is transparent with increased civic participation Rule of law is consolidated Public service is prompt and transparent Economy State involvement is minimal with more opportunites for private sector participation Sectors other than mining, especially agricultural sector experiences rapid growth. Exports of wool, cashmere and leather products increase Stable MNT exchange rate with low inflation Transparent and accountable budget management. The Government debth will increase (by issuing bonds etc.), but the proceeds shall only be invested in highly profitable projects. The environment for investment improves, with financial and capital markets expands. Environment Social movements against environmental degradation will heighten due to insufficient environmental rehabilitation from mining activities. Water prices surge and water saving movements begin due to decline in water reserves. Society Strong middle class. Strong enforcement of quality standarts for commodities and servies. Advancement in education system and quality. Increase in employment. Cash hadnouts cease to exist, with only targeted welfare programs for those in-need. Infrastructure Major energy projects implemented jointly with foreign investors, with national energy demand fulfilled domestically. Investments in road and rail networks expand, and budget income is supplemented through transportation and transit services. Science and technology are prioritized by the state, with knowledgeintensive industries and their exports being under special state consideration. Poltics Political stability and good governance are prevailing. Clear and stable legal framework is materilizing. High quality public service. Economics Public and private partnership will be introduced and employed broadly. Large income influx due to the mining boom. More value added products are being produced Signs of Dutch Desease will be observed. MNT gains, surging inflation. Large sums from the National Wealth Fund would be invested in other sectors as well as to markets abroad. The Government will turn out to be extravagant, investing even in not so profitable projects. As foreign investment pour in, financial sector will grow to be healthy with ample supply of funds. Environment Companies will have higher social responsibility, implementing various green projects. Environmental rehabilitation from mining activities is executed in high quality. Water purification and recycling are broadly used. Clean water reserves will increase. Society Even though Mongolia would be a high cost country, Mongolians will have a sufficient income that can support a high standard of living. Consumption of luxury goods and services will increase. High number of Mongolian students would be studying in top universities of the world. Supply of professional workforce with higher level of education will increase. Average wage and welfare amount would be similar to those developed countries. People will start to show signs of laziness and inactivity. Infrastructure Coal liquefaction and renewable energy technologies will be introduced. Mongolia will become an energy exporting nation. Road and transport sector will be developed into a world class system. Large amount of investment is made in developing scientific infrastructure. The nation strives to be a knowledge-based economy.

9 WHITE BANNERS

5 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-5

Share of the mining industry for Mongolias GDP, Industry and Exports
100
90 80

70
60 50 40 30 20 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GDP Industry Export

Unfortunately, over-dependence on mining is already taking its toll on the Mongolian economy through fluctuations of world commodity prices. For instance, economic growth fell from 17.3% in 2011 to 12.3% in 2012 due to volatility in the mining industry. Moreover, Mongolias export and budget income shrank in the first half of 2013 due to the decrease in coal demands and prices caused by Chinese economic slowdown. In the first quarter of 2013, GDP growth was a mere 7.2% from the year before. In addition, due to a dual deficit in the government budget and trade balance MNT rate fell drastically against USD and other major currencies. in order to maintain a reasonable economic growth pace and to achieve sustainable growth, Mongolia still needs to shed its over-dependence on mining by providing the necessary support to other sectors. There were many great ideas proposed by workshops participants during discussions. This included establishing a sovereign wealth fund, developing Mongolias agriculture and tourism sectors, and supporting a knowledge-based economic structure. These ideas are considered in the Solving the Problems sections for each of the scenarios below.

DISAPPOINTED DREAMS Politics Political instability. Uncertain legal environment. An ultra-nationalist, Populist Political Party would claim resources under state authority. Economy State intervention overwhelms the private sector. Mining sector in a state of decline, the whole economy is supported by livestock and agricultural industry. Deflation rises and industrial output drops.. Economic and financial crises is caused by dual deficits in budget and foreign trade. By pressuring and turning foreign investors out, Mongolia faces staggering amount of penalties due to breaches of contracts. Environment Environmental pollution peaks due to a vast number of closed and poorly rehabilitated mines.. Contagious diseases are frequent due to drinking water scarcity and pollution. Society Mongolia faces poverty and famine, internal struggles and clashes. Commodities including food, water, energy and other imported goods are scarce. Education and health sectors are in ruins. Mass unemployment leads to increased alcoholism and crime rate while leaders will continue with their populist promises. Freedom of speech is halted in order to suppress social outrage. Infrastructure Declines in imports will lead to energy scarcity. Insufficient funds for infrastructure investment. Outdated and wrecked roads and railroads are no longer suitable for use. Technological and scientific research are long forgotten..

STORM OF GOBI Politics Mongolian politics is dominated by the interests of oligarchic businesses and political power. Fight for control results in unstable and corrupt politics. Distorted and unstable legal environment. State intervention reaches its worst, with overabundance of bureaucracy and pressure, resulting in widespread corruption. Economics Economy now rests in the hands of a few political figures, oligarchs and monopolies. Economy is dependent solely on mining and resource exports. Rapid growth of inflation. Overwhelming increases in the budget deficit and foreign debt. Even though a large amount of income keeps flowing, it is pocketed by a limited number of politicians and foreign investors. Shadow economy expands. Environment Due to unregulated mining activities, environmental degradation and desertification become increasingly common. Widespread water scarcity. Society Due to unregulated mining activities, environmental degradation and desertification become increasingly common. Quality of public schools declines leading to be frequent strikes by teachers. Children of the affluent will attend exclusive private schools or schools abroad. Even though there are vast numbers of unemployed Mongolians, mining and construction sectors would employ equally large number of Chinese migrant workers. Infrastructure Energy imports increase, domestic energy market is now fully dependent on import Construction of roads and rails intended only for transportation of minerals. Due to low quality and poor maintenance of other infrastructure, costs related to damage and to the environment increase.. Technological and scientific infrastructure are gravely outdated; Mongolia falls far behind when compared to world advancements.

Scenarios for Mongolia: Building a Positive Future

Annex (Early warning sign) The list of Early Warning Signs identified in the workshops and included here provides us with an indication that Mongolia is heading in a particular direction towards one of the scenarios. However, it is not complete; indeed, no list of early warning signs ever can be fully complete. The purpose of the Early Warning System process is to broaden and to enrich the list of early indicators by monitoring the changing environment over time.

During the second workshop on July 5, by accessing the list of Early Warning Signs participants identified Mongolias current development tendency. By giving scores from 1 to 5 to each of the 16 signs for all 4 scenarios, participants agreed that most of the indications are pointing towards the direction of the Storm of Gobi more than the other scenarios. On the other hand, there were some strong and some early signs for the other three scenarios: Nine White Banners, The Future Promise and the Disappointed Dreams. The results of the questionnaries are presented in the Early warning Signs part of the analysis for each scenario below. Solving the Problems Anything can happen in the future. Thus, to test and understand strategies under different circumstances, the workshop participants identified issues and opportunities in each of the four scenarios that Mongolia may face. Participants were then asked to come up with policies and measures to overcome the issues, and strategies to employ the opportunities identified to foster a better future for each of the scenarios.

MONGOLIA IN 2025

Scenarios for Mongolia: Building a Positive Future

Scenario 1: Future Promise

Scenario 1: Future Promise

Moderate commodity demand / Long-term investments This is a world in which The promise of Mongolias mineral wealth is deferred, as commodity demand declines gradually to more moderate levels. Economic, political and social pressures increase, leading to widespread recognition of the need for reform. Mongolian leaders join together to create a shared vision and plan to build an economy that is more open, educated and competitive.

Timeline
Chinas economic growth slows; copper and coal prices decline gradually from their peak. A new Parliament of technocrats is elected with a mandate for targeted reforms this would begin with judicial reform, measures to establish a sovereign wealth fund and plans for constructing infrastructure projects.

2013

2025

Government budget crisis, high-profile corruption cases and continued poverty and/unemployment lead to widespread calls for reform.

Mongolia attracts global investment on the basis of its stability and strategic plans for development.

Early Warning Signs

Results of survey question Are these signs observed in Mongolia today
1 - Not observed 2 - Seldom observed 3 - Sometimes observed 4 - Often observed 5 - Always observed

Future promise
Science and technology are prioritized by the state, with knowledgeintensive industries and exports under special state consideration. Investments in road and rail networks expand, and budget income is supplemented through transportation and transit services. Major energy projects implemented jointly with foreign investors, with national energy demand fulfilled domestically. Increase in employment. Cash handouts cease to exist, with only targeted welfare programs for those in-need.

1,9 2,2 2,2

2,2

Advancement in education system and quality.

Strong middle class. Strong enforcement of quality standarts for commodities and servies. Water prices surge and water saving movements begin due to decline in water reserves. Social movements against environmental degradation will heighten due to insufficient environmental rehabilitation from mining activities. The environment for investment improves, while the financial and capital markets expands. Transparent and accountable budget management. The Government debt will increase (by issuing bonds etc.), but the proceeds shall only be

2,1 2,1 2,1 2,9 2,6 2,1

2,1

Stable MNT exchange rate with low inflation Sectors other than mining, especially agricultural sector experiences rapid growth. Exports of wool, cashmere and leather products increase State involvement is minimal with more opportunites for private sector participation
Public service is prompt and transparent Rule of law is consolidated Governance is transparent with increased civic participation

2,2 2,2 2,6 2,5 2,7 1 2 3 4 5

Where there is a will, there is a way

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Scenarios for Mongolia: Building a Positive Future

Scenario 1: Future Promise

Issues and Opportunities

Key issues: Drop in budget revenue Increase in foreign debt Social discontent Rapid investment decline for a short period of time Key opportunities: Economic diversification Increasing private sector participation and initiatives Good governance Capital market development Good practices on budget policy and planning are introduced extensively Foreign relations flourish

Strengthening capital markets; Improving the insurance systems; Facilitate the establishment of venture investment funds, and support innovation; Attract international investment banks through favorable conditions.

5. Discovering new markets. Closely observe foreign relations and regional cooperation. Initiate free trade agreements, and discover new markets for Mongolian exports.

Solving the Problems In this scenario, Mongolias leaders will have the necessary foresight and willingness to promote sustainable development despite financial limitations. Hence, it is necessary to diversify the financial sector, creating more income sources, and to increase private sector participation. The following policies and steps were recommended: 1. Fostering knowledge-based economy. Science and technological sectors are priorities, and innovation is encouraged and supported. Only through such efforts will the livestock and agriculture sector, and information technology sector be able to produce value added products for export diversification. The following steps are recommended within this policy: Training of highly professional workforce, through improvements in education; Developing innovation infrastructure, establishing science parks, research and development centers, and technology transfer centers; Provide incentives for the private sector to strive for innovation, pushing them to launch new, competitive products for international markets.

2. Promoting private sector participation. The State should endeavor to share its load, creating more opportunities for the private sector. Enforcement of laws on concessions, and engaging private sector through public and private partnership are equally important. 3. Promoting transparency and increasing civic participation: -Consolidating rule of law. Private sector and civil society to monitor and engage in the process of law drafting, debating, and adoption; -Facilitating budget transparency. Create mechanisms where citizens, private sector, and civil society are involved in the budget discussion, and are able to monitor its implementation. This could be done by hosting regular open deliberations during budget planning; -To instill the mindset I am a taxpayer. Thus, I must participate in budget decisions, and support civic participation and initiatives. Initiate taxes for herders as to turn every working person into a taxpayer. 4. Diversifying the financial market: Since budget income is low and foreign investment has declined under this scenario, the Government should lead the way in employing its own financial tools (issuing bond on international markets etc.), providing necessary opportunities and assistance to the private sector;
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Scenarios for Mongolia: Building a Positive Future

Scenario 2: Nine White Banners

Scenario 2: Nine White Banners

High commodity demand / Long-term investments This is a world in which The promise of Mongolians mineral wealth is fulfilled, with high levels of demand for commodities, particularly from China. Pressures of growth create widespread challenges inflation, currency appreciation, social turmoil and resource constraints. In the midst of these pressures, business, social and political leaders work together to build a positive future that can be shared by all Mongolians.

Timeline
China achieves strong growth and political stability smooth transfer of power, as controlled expansion extends across Chinese provinces (including inner Mongolia). Leaders fight special interests and join with technical experts to build competitiveness sovereign wealth fund, free trade agreements, and productive investments in education, healthcare and infrastructure.
Growth brings both opportunities and challenges economic development, political power, social change, environmental vulnerability and pressures to control resources.

2013

2025

Mongolian mining surges severe case of Dutch disease takes hold, with growing wealth, need for skilled workforce and clear evidence of failed national leadership.

Mongolians manage growth to become global leaders in mining and a model for resourcedriven development.

Early Warning Signs

Results of survey question Are these signs observed in Mongolia today 1 - Not observed 2 - Seldom observed 3 - Sometimes observed 4 - Often observed 5 - Always observed
Nine White banners
Large amount of investment is made in developing scientific infrastructure. The nation strives to be a knowledge-based economy.
Road and transport sector will be developed into a world class system. Coal liquefaction and renewable energy technologies will be introduced. Mongolia will become an energy exporting nation. Supply of professional workforce with higher level of education will increase. Average wage and welfare amount would be similar to those developed countries. People will start to show signs of laziness and inactivity. High number of Mongolian students would be studying in top universities of the world. Even though Mongolia would be a high cost country, Mongolians will have a sufficient income that can support a high standard of living. Consumption of luxury goods and services will increase. Water purification and recycling are broadly used. Clean water reserves will increase.
Companies will have higher social responsibility, implementing various green projects. Environmental rehabilitation from mining activities is executed in high quality.

2,2 2,2 2,1 2,2

2,7
2,1 1,9 2,0 2,2

As foreign investment pour in, financial sector will grow to be healthy with ample supply of funds. Large sums from the Soveriegn Wealth Fund would be invested in other sectors as well as to markets abroad. The Government will turn out to be extravagant, investing even in not so profitable projects.
Signs of Dutch Desease will be observed. MNT gains, surging inflation.

2,3
2,4

Large income influx due to the mining boom. More value added products are being produced
Public and private partnership will be introduced and employed broadly.

2,2
2,1 1,9

A rising tide lifts all boats

High quality public services. Clear and stable legal framework is materilizing.
Political stability and good governance are prevailing.

1,9
2,3 1 2 3 4 5

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Scenarios for Mongolia: Building a Positive Future

Scenario 3: Storm of Gobi

Issues and Opportunities

Key issues: Low economic diversification Environmental degradation Increase in laziness due to reliance on mining sector Growing pains or insufficient resources to catch up with rapid economic growth (workforce etc.) Signs of Dutch disease Risk of unprofitable investments Key opportunities: Good financial capabilities Green development Proper income distribution mechanism High quality standards Well-developed infrastructure Good governance Human development, humane society

Scenario 3: Storm of Gobi

High commodity demand / Short-term opportunities This is a world in which The promise of Mongolias mineral wealth is supported by high yet volatile demand for commodities. A global battle for control of resources leads to expanded corruption and exploitation by forces both inside and outside Mongolia. The gap between rich and poor widens, and competitiveness falters as oligarchs and foreign influences use political and economic power for personal gain.

Solving the problems Mongolians can learn from the United Arab Emirates, a prime example of how this scenario can eventuate. Affluent and well-off Mongolians are likely to face the risk of employing immigrant workers for blue collar jobs, with local Mongolians soon becoming lazy and self-indulgence due. The following policies and programs are recommended: 1. Maintaining and fostering traditional modes of thinking and living. Since there would be great financial capabilities to back various projects, Educated Mongolian program should be launched to promote higher level education, productivity, and creativity among Mongolians. within this framework, the following measures are recommended: Implementing programs intended at motivating Mongolians to learn, to strive for higher education, and to work productively; Support Mongolian families; Proper control over immigrants and migrant workers; Maintaining and further promoting national traditions, culture, and heritage.

2. Accumulate savings. Creating sufficient savings is essential in ensuring not only the present happiness but also the future wellbeing of Mongolia. Along with smart and savvy wealth management and risk management, the following steps should be implemented: Certain percentage of income to be accumulated in a sovereign wealth fund for possible future predicaments; Turn cash from wealth funds into tangible wealth in order to ensure future wealth. Invest in top companies of the world at that time;

3. Economic diversification. Devote mining incomes to strengthen other vital sectors: Creating and fortifying knowledge-based economy; Supporting industries with value-added output; Developing animal, agriculture, light industry, and tourism sectors. A miss is as good as a mile

4. Perfecting the accountability mechanism. Effective accountability mechanisms should be introduced, and political, economic, and social transparency should be upheld. Civil society as well as NGOs should join forces in monitoring the activities of the state, and building of the capacity of citizens as well as themselves.

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Scenarios for Mongolia: Building a Positive Future

Scenario 3: Storm of Gobi

Timeline
Global economic recovery and continued growth of China increase demand for copper. Growing income disparity as the resource curse takes hold politicians continue spending. Exploitation by foreign interests is clear, with fight for control of resources.

Issues and Opportunities

Key issues: Resource curse Social inequality, increasing gap between rich and poor Populism, oligarchs in business and politics Corruption and bribery Outflow on wealth and money Ecological degradation Falling into the mercy of major investors Key opportunities: Increased FDI in mining Investment in infrastructure Pre-conditions for reform

2013

2025

Solving the problems As the gravest challenge in this scenario is the resource curse, it would be most important to overcome this condition. The operations of major mines as well as the distribution of income must become more transparent and open to the public, so that a broader range of stakeholders can be engaged in monitoring and control. Tax mechanisms and policies must be upgraded to expose the shadow economy. 1. Fostering transparent and responsible mining sector: Laws should be strictly enforced. Serious retributions should be forced for crimes such as illegal exploration and extraction of minerals, and illegal spending of mining-generated income. Proper use of resources and manufacturing of value-added products should receive state support; Strengthening corporate social responsibility. There should be assistance with facilitation and capacity building for citizens in overseeing operations of mining companies.

Mongolian politics is dominated by a fight for control, with widespread corruption and a blurring of business and political power.

Economy is controlled by oligarchs and dominated by mining and government.

Early Warning Signs Results of survey question Are these signs observed in Mongolia today 1 - Not observed 2 - Seldom observed 3 - Sometimes observed 4 - Often observed 5 - Always observed
Storm of Gobi
Technological and scientific infrastructure are gravely outdated; Mongolia falls far behind when compared to world advancements. Construction of roads and rails intended only for transportation of minerals. Due to low quality and poor maintenance of other infrastructure, costs related to damage

2. Proper spending of income:

2,1 2,3 2,2 2,5 2,6 2,1 2,4 2,6 2,4 2,7 2,8 3,6 2,9 2,4 2,5 2,3

Establishment and effective management of sovereign wealth funds; Only invest in profitable projects which would benefit the whole society; Civic monitoring and control over the budget planning and sovereign wealth fund spending.

Energy imports increase, domestic energy market is now fully dependent on imports
Even though there are vast numbers of unemployed Mongolians, mining and construction sectors would employ equally large number of Chinese migrant workers. Quality of public schools declines leading to frequent strikes by teachers. Children of the affluent will attend exclusive private schools or schools abroad. Due to unregulated mining activities, environmental degradation and desertification become increasingly common.

Widespread water scarcity

Due to unregulated mining activities, environmental degradation and desertification become increasingly common. Even though a large amount of income keeps flowing, it is pocketed by a limited number of politicians and foreign investors. Shadow economy expands. Overwhelming increases in the budget deficit and foreign debt.

3. Support industrialization and import substitution Trade tax subsidies; Promote a highly professional workforce. Provide student loans to send students to universities abroad. Establish high quality vocational institutes such as the MongolGerman Technological University, offering positions for international professors and academics, and providing jobs for graduates.

Rapid growth of inflation.

Economy is dependent solely on mining and resource exports. Economy now rests in the hands of a few political figures, oligarchs and monopolies. State intervention reaches its worst, with overabundance of bureaucracy and pressure, resulting in widespread corruption.

Distorted and unstable legal environment.

Mongolian politics is dominated by the interests of oligarchic businesses and political power. Fight for control results in unstable and corrupt politics.

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Scenarios for Mongolia: Building a Positive Future

Scenario 4: Disappointed Dreams

4. Improving tax and social security mechanisms: Introduce an electronic tax system, where taxpayers can monitor the amount of taxes paid. Offer incentives and rewards for taxpayers. Facilitate civic control over the spending of taxpayers money by the state, and whether it has been spent for due purposes such as establishment of necessary infrastructure and quality of public services. Introduce electronic social security system. Through social security, citizens would be able to receive certain discounted services (support with housing mortgages, health insurance for all treatments etc.).

Scenario 4: Disappointed Dreams

Moderate commodity demand / Short-term opportunities This is a world in which The promise of Mongolias mineral wealth is cut short by an economic slowdown in China, resulting in only moderate demand for commodities. Governments and companies around the world are under populist pressure from the economic dislocation. An ultranationalist party comes to power as international support falters and antipathy increases toward government and private enterprise.

Every cloud has a silver lining

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Scenarios for Mongolia: Building a Positive Future

Scenario 4: Disappointed Dreams

Timeline
Global economic collapse due to European financial crisis and an economic slowdown in China. Rise of ultranationalist party with promises to end the rule of oligarchs and support populist causes.

Mongolian economy and civil society show clear decline as the stock exchange is closed, free speech is curtailed, and environmental problems become acute Mongolian lifestyle becomes worse than Inner Mongolia.

Issues and opportunities

Key issues: Unemployment, poverty, crime Political instability /clashes and conflicts/ Ultra nationalism State pressure Brain drain as skilled workers go overseas Corruption and bribery Banking and financial crisis FDI decline Shadow economy increases Key opportunities: International support and aid from other countries Preconditions for reform Strengthening of animal and agriculture husbandry Opportunity to learn from mistakes

2013

2025

Solving the problems In this scenario, political, social, and economic circumstances are at their worst. Thus Mongolia would need a strong leader to create reforms, similarly to Singapores Lee Kwan Yew, who found strong, modern Singapore from an underdeveloped, British colony. Perhaps a planned economy would be more suitable at first, for restoring industries and services, and reducing poverty. Once the economy and society is in better shape, it would be possible to gradually open up again to foreign investors. 1. Creating a strong leader. Choosing a strong and worthy leader to give hope to the people, and move society towards a shared vision: 2,1 1,4 1,7 1,3 1,5 1,2 1,9 2,5

Lower commodity revenue in Mongolia leads to increased deficits, unemployment, poverty, and instability.

Amidst worsening finances, government begins active intervention in the economy, renegotiating contracts and prompting concern by private investors.

Early Warning Signs

Results of survey question Are these signs observed in Mongolia today 1 - Not observed 2 - Seldom observed 3 - Sometimes observed 4 - Often observed 5 - Always observed
Disappointed Dreams
Technological and scientific research are long forgotten.. Insufficient funds for infrastructure investment. Outdated and wrecked roads and railroads are no longer suitable for use. Declines in imports will lead to energy scarcity. Mass unemployment leads to increased alcoholism and crime rate while leaders will continue with their populist promises. Freedom of speech is halted in order to Education and health sectors are in ruins. Mongolia faces poverty and famine, internal struggles and clashes. Commodities including food, water, energy and other imported goods are scarce. Contagious diseases are frequent due to drinking water scarcity and pollution.

Electing a strong national leader; Strengthening law enforcement and implementation. Improving accountability mechanisms; Fight against corruption, and strengthening of measurements to limit corruption; Establish strong state institutions to ensure the unity of the nation.

2. Remedy the society. In order to eliminate social disorder, and to bring positive changes to public mindset: Try to increase jobs, measurements to reduce poverty; Fight alcoholism; Increase availability and improve quality of health and education services.

Environmental pollution peaks due to a vast number of closed and poorly rehabilitated mines..
By pressuring and turning foreign investors out, Mongolia faces staggering amount of penalties due to breaches of contracts. Economic and financial crises is caused by dual deficits in budget and foreign trade. Deflation rises and industrial output drops.. Mining sector in a state of decline, the whole economy is supported by livestock and agricultural industry. State intervention overwhelms the private sector. An ultra-nationalist, Populist Political Party would claim resources under state authority. Uncertain legal environment. Political instability.

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2,5 1,6 1,7 2,8 2,6 3,1 2,5 1 2 3 4 5

3. Establish centrally-planned state supported economy. Since the mining sector has collapsed, animal and agricultural sector should be propped up by the existing resources and capabilities. Thus the following steps are recommended: The state should try to provide subsidies and loft loans and other policy support to the animal husbandry and agricultural industry. Hence, overseeing the prices for commodities and food products such as meat, vegetables, and flour; Establishing large state owned industries and factories.

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Scenarios for Mongolia: Building a Positive Future

NEXT STEPS
We would never want to live in world similar to The Storm of Gobi, where politicians and oligarchs employ economic power for their own interest, and where there is excessive income disparity. However, some signs indicating the emergence of such a future are already beginning to become visible. Workshop participants unanimously stressed that the economy is becoming more and more dependent on mining and resource exports, while inflation increases, and budget and foreign trade deficits soar. Development policies deviate and change depending on which political party is in power, with an unstable and unclear legal framework. As previously mentioned, results of our survey of participants show that all these signs suggest Mongolia is heading towards the Storm of Gobi scenario. In other words, the Early Warning System warns us that we are on a wrong path. Then, what should we do to get on the path to the most favorable scenario, Nine White Banners? We have begun a discussion about the establishment of sovereign wealth funds. Talks have been held on reinforcing sectors other than mining, and economic diversification. Students studying at top universities of the world are to receive full financial support from the state. We also aim to create a knowledge-based economy. Such policies directed at future well-being could lay the grounds for Mongolias development. Yet, even the scenario Nine White Banners has its issues and disadvantages. Then what should we do in order to maintain a prosperous future? It should be noted that some of the participants observed that the scenario Nine White Banners greatly reminded them of objectives put forward on the Mongolias Millennium Development Goals based Comprehensive National Development Strategy. Moreover, initiatives of the New Government for Changes (i.e. the Democratic Party Government formed in 2012) for economic diversification was deemed to lead towards to scenario Future Promise. In other words, we do have good medium to long term policies in place. But the question remains on how effectively they are being implemented, and how to make them even better. And to answer these questions, we can employ our scenarios. As scenarios are not predictions, it is highly unlikely that any of these scenarios will emerge exactly as they have been foretold. Rather the future will most likely consist of some combination of all of these scenarios to different degrees. However, as scenarios can answer the question What if?, we can use them to explore a wide range of uncertainties at the global and local levels and to cast forecasts on what might happen in the future. Hence, we can be prepared for uncertainties in the future, and to take appropriate action if need be. Where do the current signs in political, social, and economic sphere lead us? How do we correct it, if we are on the wrong path? How to correct it, if we are on the wrong path? What should we do to create a brighter, more prosperous future? This booklet is a product of intense discussions our participants had on these important subjects. Using these four scenarios on the future Mongolia, you could also try to answer these questions yourself. Are you full of ideas on how to make our future even better? Then we are happy to inform that you are welcome to participate in our next round of discussions. Using scenario planning, many more rounds of talks will be held on ways and means to foster the sustainable and long-term development for our country. Because circumstances and situations surrounding us evolve and change constantly, we will revisit these scenarios annually, and renew our list of prevention signs to once again assess if we are still on the right path. 24