Mongolia—Economic System | Research & Encyclopedia Articles

Like most developing countries, Mongolia has two economies. There is a traditional one, consisting of what Mongols have practiced for centuries. There is also a modern one that is primarily for export.

Mongolia's traditional economy is based on animal husbandry, with the mixture of animals herded varying from one part of Mongolia to another. Sheep, herded from horseback, are found everywhere and are almost always mixed with goats. Cattle are herded in the north while camels are found in the northwest, west, and in the Gobi Desert. Since natural fodder, the basis of most Mongolian herding, is limited, continual movement of herds is usually necessary. Various patterns of movement exist, most commonly from low ground in the spring to high ground in summer and then back again in the autumn. Movement along rivers follows this pattern. Where there is little high ground, principally in the Gobi, movement is circular. Most movement takes place during spring and autumn, while summer and particularly winter pastures tend to be stationary. Traditionally, winter campgrounds were out in the steppe, but in the twentieth century, they moved adjacent to the suburbs of numerous small settlements in the Gobi and elsewhere. This affords a more comfortable life for the herdsmen and their families, possible access to stored fodder during the most difficult times, and a more or less regular exposure of their children to formal education during at least part of the year.

Mongolian sheep are not large, usually about a meal's worth for a large family (and there is little means for storing more meat than that). Their wool is largely worthless for commercial purposes. Better varieties of sheep with better wool were introduced during the Communist era (1921–1989), but herding them has not always proven practical under Mongolian conditions, where special feeds required by some breeds are rarely available, and where long, lush wool is likely to end up entangling the sheep in thorny desert vegetation. What wool there is goes mostly for clothing and for felt that is used as the outer covering of Mongol housing, known as ger (yurts). Mongols do not weave as a rule, although there is some card weaving of belt fittings for ger, and there has been a carpet industry for several decades. Sheep hides are used locally for clothing and have been exported, but the external market for them is limited since most production is of poor quality. In addition to their meat, ewes produce milk, usually consumed in fermented form. Most of the milk is consumed locally.

The products of the goat are similar to those of the sheep except that goats tend to be larger and produce cashmere, once a major Mongolian export but less so after the late-twentieth-century collapse in world prices. Camel down is exported by Mongols, while camel meat is eaten locally, although camels are generally too valuable to slaughter as food. Both camel and mare's milk are fermented into beverages. The latter, known in English as koumiss, is the preferred Mongolian beverage, while the former is also happily consumed wherever it is available. Neither product is exported. Among Mongolia's livestock, cattle are probably the most valuable for export, but most are raised in geographically limited areas of Mongolia, where rain is sufficient and grass is lush enough to support the cattle. Beef has become an export of growing importance in the last ten years, while leather and cow hides have been important exports since the 1930s. Cow's milk is used like other livestock milks, mostly in fermented forms. Beef is a common food only in areas where cattle are raised.

Thus, except for a small number of products for which there is a demand and which Mongolia can produce for export, the country's traditional economy is largely for subsistence. Mongolia's traditional economy also suffers from its vulnerability to natural disasters such as winter storms when the ground freezes solid and the livestock cannot eat plants under the snow, which can reduce herds to minimal levels almost overnight, and the continued problem of disease epidemics. When livestock numbers plummet, the effect ripples through the rest of the economy and can quickly counterbalance economic gains achieved in more modern sectors. Before the heavy losses of the winter of 1999–2000, Mongolia had almost 33 million head of livestock, mostly sheep (14.6 million) and goats (11.0 million) but also cattle (3.7 million) and horses (3.0 million), as well as a much smaller number of camels (356,400).

Agriculture is practiced to a limited extent in Mongolia, focusing principally on wheat and potatoes, along with a few hardy vegetables. There is some irrigation, but by and large the climate limits agricultural production and soils are usually not rich enough to sustain high yields. In part this is a reflection of severe environmental damage dating back to the Communist era, when production was stressed regardless of the environmental cost.

Most important within Mongolia's modern economy is a large mining sector, and since Mongolia has substantial mineral resources, most still unexploited, this sector will continue to grow. There is also a manufacturing sector, mostly based in Ulaanbaatar, Mongolia's capital, producing both for increasingly sophisticated domestic consumption and for export. In addition, there is a large trade and services sector that includes a well-established tourism industry, big-game hunting services for foreigners, and site services for filmmakers.

Mongolia's modern economy faces severe restrictions, the most important one being an inadequate transportation network. The main railroad, less than 2,000 kilometers long, runs north-south, from Russia to China. There are branches to the Nalayh coal fields and into north central Mongolia and the Erdenet mining region. There are railroads in eastern Mongolia, but most are narrow-gauge and were created to support long-gone Soviet forces. Upkeep is poor. They are linked only to Russia's railroads, and not to Mongolia's other rail lines. The modern highway system, consisting of only 1,300 kilometers, is even more limited than rail lines, and new construction is minimal.

Mongolia's modern economic sector must have access to world markets to prosper, but because of poor transportation, development is more or less limited to the north-south rail corridor, its few branches, and a few other points hooked into the Russian road net. The principal areas covered are Bayan-Olgiy aimag (province) and parts of eastern Mongolia. Elsewhere, there are only dirt roads at best; at worst, areas are accessible only by horse or camel or by all-terrain vehicle.

Given Mongolia's limited population and resources, these transportation problems will persist indefinitely. As a consequence, most of Mongolia's mineral riches will remain inaccessible. The most important of these resources, mined at some two hundred locations, are coal, copper, gold (3,473 kilograms of the latter were mined during the first six months of 2000), molybdenum, tin, tungsten, and fluorspar. In the 1990s, production of petroleum and diamonds also began. Also present and sometimes exploited in small quantities are phosphates, nickel, zinc, wolfram, uranium, iron, and silver. Most of the minerals mined are also processed in Mongolia; mineral processing constitutes a major portion of the country's heavy industry. Copper, molybdenum, and fluorspar together account for 60 percent of Mongolia's export income.

After a number of late-twentieth-century shocks, above all the sudden end of Soviet aid (equal to 30 percent of Mongolia's gross national product) in 1990, Mongolia's economy has been stabilizing. That in large part is thanks to international help, including aid from the World Bank and International Monetary Fund, which have played an active role not only in financing Mongolian development but in regularizing the Mongolian banking system and bringing it up to international standards. The old, traditional economy remains weak, but with improvements in Mongolia's infrastructure, exports should grow. That will enhance Mongolia's ability to survive hard times such as the difficult 1999–2000 winter, which resulted in outright starvation in some parts of the country.

Sanders, Alan J. K. (1996) Historical Dictionary of Mongolia. Lanham, MD: Scarecrow Press.

Mongolian Central Bank. (2001) Numerous economic documents. Retrieved 3 December 2001, from: http://www.mongolbank.mn/english/index. html.

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