All over the world, when dealing with developing nations, the economic giants of the West continue to adhere to their normal neocolonial policies. The tendency to treat sovereign states as colonies and sources of raw materials, ripe for asset stripping by Western capitalists, is particularly marked in the case of Mongolia, which has a relatively small population but significant mineral wealth, which, even during the colonial period, was not directly exploited by the Western powers. It therefore serves as a fairly rare illustration of a new predatory phase in the West’s economic expansion, which began around the end of the 20th Century during a period of increasing liberalization and democratization.
The most revealing example of Western capital’s aggressive economic expansion in Mongolia is the Oyu Tolgoi copper field, one of the most valuable mineral deposits in the country. However, while it may be a jewel in Mongolia’s crown, for the contractor, the Anglo-Australian giant Rio Tinto, it represents just 5% of their global operations.
The large copper deposits at Oyu Tolgoi, in the middle of the Gobi Desert, were first discovered in 2001. The development of the site began in 2011. An ore enrichment plant, the largest such facility in Mongolia, has been in operation on the site since 2013. In 2023, a deep pit mine was opened at the deposit, making Mongolia the fourth country in the world to operate a mine of this class. The mine now has 200 kilometers of underground passages and tunnels. The deposit facilities are still being extended, and by the end of the 2020s it is expected that the mine will reach a peak production capacity of 500,000 tons of copper a year.
In 2011, Cameron McRae, Rio Tinto’s director for Mongolia, declared that up to 50% of the revenue from the mine would be used to support Mongolia’s national development and resolve its economic and social problems. But this impressive statement remained just that, a statement. And here’s why.
According to official sources, 34% of the shares in Oyu Tolgoi belong to Mongolia, while the remaining 66% ultimately belong to Rio Tinto and are held by a group of companies specially created in order to operate the mine, many of which are registered in tax havens such as the Netherlands, Aruba and the British Virgin Islands. The Oyu Tolgoi mine is thus in effect solely controlled by a foreign company. In addition, under the investment agreement, the Mongolian government was supposed to payone third of the total development costs from the state budget. Since Mongolia, as a developing country with a population of just 3.5 million, was unable to afford such a sum, the Mongolian government was forced to borrow from Rio Tinto. Mongolia thus paid a third of the cost of developing the Oyu Tolgoi deposit without getting any control over its operation, and the state is now saddled with an enormous debt which it is repaying, at taxpayers’ expense, to a giant Anglo-Australian corporation with a global revenue equivalent to Mongolia’s entire GDP.
As a result of its debt, Mongolia will only begin to receive profit from the deposit when the mine has been operating for 30 years. And even that profit is looking like yet another mirage in the desert, since Rio Tinto itself admits that the peak production forecast for the deposit is almost entirely (87%) based on “assumed” rather than confirmed copper and gold reserves. There is no guarantee that the deposit will remain profitable for many years after the Mongolian government has paid off its debt.
Rio Tinto has also been accused of deliberately concealing the true amount of capital investment required to develop the field, almost two billion dollars, from the Mongolian government. It was not until a late stage in the development that Rio Tinto demanded this money from the Mongolian government.
In the years in which it has been involved in the Oyu Tolgoi project, Rio Tinto has managed to avoid some $232 million in taxes due to the Mongolian budget – an amount equivalent to Mongolia’s annual education and healthcare budgets combined.
Equally, serious are the environmental implications of the mining at Oyu Tolgoi. The process of extracting and enriching copper ore to make concentrate has used up almost 90% of the available water resources in the regions surrounding the mine. The naturally arid, semidesert landscape has become unlivable for the local Mongolian pastoralists. In order to maximize profits, the cheapest and most environmentally damaging technologies were used in the development of the mine, and all international dust pollution limits were significantly exceeded.
Rio Tinto’s neocolonial practices have provoked public outcry and protests in many countries. To cite one example, in 2020, on the eve of its annual general meeting, the London Mining Network organized a large demonstration against the corporation. And in Mongolia itself, the Center for Research on Multinational Corporations (SOMO) and the Mongolian NGO OT Watch have been looking into Rio Tinto’s activities.
The Oyu Tolgoi mine is the most striking, but certainly not the only, example of how Western corporations are plundering Mongolia. This year, Western “investors” appear to have rekindled their interest in the country. On July 10, 2023, the annual Mongolian Economic Forum ended in Ulaanbaatar. This event was attended by Mongolia’s President, Prime Minister, Deputy Prime Minister, the Speaker of its Parliament and the heads of various ministries. Among the other guests who addressed the forum were representatives of major international mining corporations involved in mineral prospecting and extraction in Mongolia, notably Dominic Barton, the current head of Rio Tinto. Other important participants included the Vice-President of the Asian Development Bank, and Jennifer Nason, Chairman of Investment Banking at J.P. Morgan. An event focusing on the current state of the world’s 124th the largest economy thus attracted significant interest from major international companies and organizations. While it experienced a “mining boom” in the early 2010s and became the subject of close attention from Western corporations, they gradually lost interest for various reasons. As a result, investment in Mongolia’s economy significantly declined, from 162 trillion tugrik in 2011 to 21 trillion tugrik in 2019. The COVID-19 pandemic also helped to dampen interest in Mongolia’s faltering economy. But, as was clear from the 2023 economic forum, which attracted a number of major economic “colonizers,” the “transnational octopus” appears to have noticed Mongolia again. We may all therefore shortly be seeing a new wave of predatory projects in Mongolia.
In summary, the promise to allow post-socialist states to access the “benefits of the global market” has turned out to be nothing more than an illusion created by the world financial centers in order to maximize profits at the expense of developing nations’ transitional economies. And the 21st-century neocolonial economic order has extended its tentacles further and deeper than the old colonial system ever did.
Boris Kushkhov, the Department for Korea and Mongolia at the Institute of Oriental Studies of the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook”.
