Mongolia: Emerging as a commodity powerhouse


French President Emmanuel Macron's recent trip to Mongolia marks a significant milestone, highlighting the changing geopolitical landscape in the region. It signifies the growing recognition of Mongolia's vast natural resources and strategic location, which position the country as a potential commodity powerhouse. This article delves into Mongolia's resource wealth, particularly its reserves of uranium, copper, rare earths, coal, and its thriving mining industry. Additionally, it explores the evolving relationships between Mongolia and major global powers, and the investment opportunities that arise from Mongolia's emergence as a strategic ally for securing future resources.

The economy of Mongolia expanded 7.9% year-on-year in the first quarter of 2023, accelerating from a downwardly revised 4.7% growth in the previous period. It marked the highest expansion since the first quarter of 2021, boosted by the strong growth in the mining & quarrying sector (49.6%) due to an increase in the extraction of coal and crude oil; and the service sector (7.1%) linked to a solid performance from the transportation sector. In contrast, negative contributions came from agriculture (-5.1%), construction (-2.2%), and manufacturing (-6.7%). On a seasonally adjusted quarterly basis, the GDP advanced 0.8%

### **The chart below illustrates the annual GDP growth rate of Mongolia**

![Chart illustrating Mongolia's annual GDP growth rate from July 2020 to January 2023](https://hedonova.b-cdn.net/Hedonova%20images/%20All%20Hedonova%20blogs/Mongolia%20Emerging%20as%20a%20commodity%20powerhouse/annual-gdp-growth-rate-of-mongolia-min.webp)

## **Mongolia's resource wealth and mining sector**

Mongolia, once a Soviet satellite state, boasts an abundance of mineral resources, including substantial reserves of copper, coal, gold, and uranium. Despite this wealth, Mongolia's economic potential remained largely untapped for many years. However, the country is now on the verge of an eagerly anticipated economic transformation driven by its resource wealth.

![Chart depicting the Mining sector as the primary growth driver of Mongolia's economy](https://hedonova.b-cdn.net/Hedonova%20images/%20All%20Hedonova%20blogs/Mongolia%20Emerging%20as%20a%20commodity%20powerhouse/mining-sector-is-a-main-growth-driver-of-mongolia%E2%80%99s-economy-min.webp)

### **Uranium: A strategic advantage for France's nuclear energy goals**

One resource that has attracted international attention is uranium, a critical component for nuclear energy. France, in its pursuit of augmenting its nuclear capabilities and reducing its carbon footprint, recognizes the advantage of a stable uranium supply. Traditionally, France relied on its former West African colonies for uranium, specifically within the Sahel region. However, growing regional instability and strained alliances have made Mongolia an appealing alternative. In fact, the partnership between Mongolia and French nuclear group Orano, which has maintained a presence in Mongolia for over 25 years, demonstrates the significance of Mongolia's uranium reserves.

### **Copper: Growth opportunities in green technology and electric vehicle markets**

Another valuable resource in Mongolia is copper, which plays a vital role in the green technology and electric vehicle industries due to its excellent conductivity. With supply gaps and resource nationalism affecting key copper markets such as Chile, Mongolia has a promising outlook for export growth in this sector. As other countries seek to secure reliable copper sources, Mongolia's share of exports is poised to increase.

### **Coal: Balancing domestic dependence and global decarbonization trends**

Coal is also a significant export for Mongolia, but the country's domestic dependence on coal presents a challenge amidst global decarbonization efforts. To align with the global trend, Mongolia aims to diversify its export partners and reduce its reliance on coal. Currently, over 70% of Mongolian exports are destined for China, necessitating efforts to expand trade relationships beyond its two major neighbors, China and Russia. President Macron's visit symbolizes Mongolia's commitment to these initiatives, showcasing the country's determination to leverage its resource wealth for a more balanced international position.

### **Strategic importance and international engagement**

Mongolia's abundant natural resources and strategic location, which facilitate Eurasian trade, make it an appealing partner for countries seeking to secure their resource supply chains. Europe's accelerated pursuit of energy transition adds even more strategic value to Mongolia's uranium reserves. Similarly, the United States, aiming to counterbalance China and Russia's regional influence, has shown interest in developing stronger relations with Mongolia.

### **Mongolia's evolving relationships with Moscow and Beijing**

Mongolia's relationships with its regional powers, Moscow and Beijing, are also undergoing transformation. Rather than solely serving as a buffer state between the two, Mongolia now seeks foreign direct investment in non-extractive sectors such as agriculture and tourism. By generating employment and reducing dependence on mining activities, Mongolia aims to diversify its economy and decrease reliance on China.

### **Investment opportunities based on Mongolia's potential**

The evolving geopolitical dynamics and Mongolia's emergence as a commodity powerhouse present compelling investment opportunities. Mongolia's rich mineral resources and strategic location place it at the center of the global resource market. Countries like France and the United States, striving for energy independence and security, recognize the significance of reliable resource partners like Mongolia.

### **Promising sectors in Mongolia's economy**

In addition to the mining sector, Mongolia's economy relies on promising sectors such as agriculture, construction, services, and manufacturing. The agriculture sector accounts for around 10 percent of GDP, with significant potential for growth and investment. The construction sector is experiencing rapid growth due to infrastructure and housing development demands. The services sector, particularly tourism, offers opportunities for development, leveraging Mongolia's unique culture and natural landscapes. The manufacturing sector, although relatively small, is also growing steadily.

Mining production in Mongolia increased 168 percent in April of 2023 over the same month in the previous year.

![Chart showing a 168% year-on-year increase in mining production in Mongolia for April 2023.](https://hedonova.b-cdn.net/Hedonova%20images/%20All%20Hedonova%20blogs/Mongolia%20Emerging%20as%20a%20commodity%20powerhouse/mongolia%E2%80%99s-mining-production-min-1-.webp)

### **Diversification of FDI**

Diversifying foreign direct investment (FDI) sources and sectors is crucial for Mongolia's long-term economic strategy. The concentration of FDI in the mining sector poses risks to the economy, as seen during the COVID-19 pandemic. Mongolia has been successful in attracting FDI, but efforts to diversify sources and sectors are necessary to mitigate economic instability. Sectors such as agriculture, tourism, and renewable energy have the potential to attract FDI and contribute to Mongolia's sustainable growth.

### **Top investors in Mongolia's mining sector**

While Chinese investment has been significant in Mongolia's mining sector, the country has been seeking to diversify its sources of investment. Investors from Japan, South Korea, the European Union, the United States, and Canada have played a substantial role in the development of Mongolia's mining industry. Japanese and South Korean companies have been involved in copper and gold mining projects, while European Union assistance has focused on improving the regulatory environment and infrastructure. Canadian and American companies have invested in coal and copper projects, respectively.

## **Conclusion**

As the competition for resources and influence intensifies, countries like Mongolia, previously on the periphery, are expected to play a more significant role in supply chain security and the race for energy independence. This presents Mongolia with an appealing opportunity to deepen its engagement with a broader group of political and economic partners. The choices Mongolia makes to address these challenges will have significant implications for its economic progress and its willingness to enter collaborative partnerships beyond its traditional reliance on regional allies. Mongolia stands poised to chart a path towards autonomy, balanced foreign policy, and sustained economic growth by leveraging its resource wealth and strategic advantages.


French President Emmanuel Macron's visit to Mongolia highlights the country's vast natural resources and strategic location, positioning it as a potential commodity powerhouse. Mongolia's uranium, copper, rare earths, and coal reserves attract global interest, offering investment opportunities. France seeks stable uranium supply, while Mongolia's copper exports benefit green technology and electric vehicles. The country aims to diversify export partners and reduce coal reliance. Mongolia's strategic importance and evolving relationships with Moscow and Beijing make it an appealing resource partner. The nation's economic growth potential lies in sectors like agriculture, construction, services, and manufacturing, attracting foreign investment. Diversifying FDI sources is crucial for long-term economic stability. Investors from Japan, South Korea, the EU, the US, and Canada have contributed to Mongolia's mining sector. Mongolia's resource wealth places it at the center of the global resource market, presenting opportunities for growth and collaborative partnerships beyond regional allies.

Mongolia: Emerging as a commodity powerhouse

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