NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

As I was reading news of increased economic partnerships between Mongolia and Gulf states, I realized how similar these states are in terms of their abundant resources, low population (with the exception of Saudi Arabia) and developing economies. It became clear to me that these Arab countries, replete with petro-dollars, can offer relevant lessons for Mongolia to translate its resource boom into social development through enterprise.

Both regions have become homes to the world’s fastest growing economies thanks to their vast resource wealth (oil and gas for the Persian Gulf; coal, gold, copper and uranium for Mongolia). Coal extraction in Mongolia’s south is expected to triple the national economy by 2020. In 2011, Mongolia’s exploitation of its mineral deposits enabled a 6.7 percent economic growth rate, the second highest in the world. Just like oil-producing states of the Middle East, natural resources, namely copper for Mongolia, are the main source of budget revenue. In 2011, the government was estimated to collect $407 million in revenues from the exportation of copper and $292 millions from coal. Ironically, Mongolia has been coined “the Saudi Arabia of Asia”.

In this regard, Mongolia can learn from countries such as such as Qatar, Kuwait and the United Arab Emirates (UAE) on how to best catalyze human development via business strategies through the resource boom. For example, Gulf states heavily invested in infrastructure and redirected a large part of oil revenues towards free education for all citizens. This is a significant issue in Mongolia, as much of the revenue generated from mining has been outfitted towards increasing civil service salaries and monthly cash payments to secure electoral votes. Here comes the role of businesses as an efficient alternative to government-led initiatives.

I believe that Mongolia’s first step for social improvement would be to look to the example of the Gulf energy-rich countries to diversify its economy and invest in basic social services. For instance, even though the UAE relies significantly on the exploitation of resources, it has also diversified its exports to more than 184 industrial products. Similarly, Qatar used its hydrocarbon resources to heavily invest in education, health, construction and infrastructure projects. In 2011, the Human Development Index ranked the country 37^th.

In the crucial infrastructure sector, it is clear that pollution is a major challenge due to a lack of affordable housing. Mongolian government and socially-oriented entrepreneurs have attempted to promote pilot programs to use high-efficiency stoves in gers (traditional felted tents) areas, which lack adequate heating systems. For example, XacBank, a Mongolian microfinance institution and community development bank, developed eco banking services to reduce air, soil and water pollution in the country through banking services.

However, the scale of the problem is larger. Providing more effective heating tools does not overcome the challenge of making housing affordable. There are, therefore, many opportunities for foreign construction companies to step in and build houses.

Investing in human capital is another important factor to the growth of the economy. In Mongolia, though the literacy rate is over 95% the government must continue to invest in the population due to inadequate labor skills. There are plenty of opportunities to prioritize vocational schools in order to teach unemployed Mongolians job-specific skills that are needed. Recently, the private sector has taken a concerted role towards education investment, where the Oyu Tolgoi mine will support an $85 million project to train Mongolian youths for future employment in the mining industry.

With the growth of impact investing in Asia, many investors are now choosing to put their money into companies that provide tangible and measurable social impact alongside financial returns. In this respect, Mongolia provides many business opportunities for socially-oriented entrepreneurs to invest in sectors that require capital to spur social progress.

On Aug. 4, 2012, the Global Institute For Tomorrow (GIFT) will conduct an executive education program in Mongolia to create an impact investing fund in the country. It aims at aiding Mongolia in diversifying its economy and de-emphasising reliance on the current resource boom for growth. To enrol or find out more, please e-mail Eric Stryson at estryson@global-inst.com or visit GIFT at www.global-inst.com.