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Risks and Opportunities of Resource Extraction: The Resource Curse and Beyond Dashdorj Zorigt Dashdorj and Dashdorj Partners LLC Sustainable Management of the Extractive Sector in Guyana 14-15 November2012 Georgetown, Guyana Story of Mongolia • Successful transition to market economy and democracy over the last 20 years But by 2007 • GDP per capita below USD 2000 • Poverty level at 30 percent • High unemployment In 2009 Mining boom starts • End of 2011 GDP grew by 17.3 percent – fastest growing economy globally • GDP per capita USD3600 • Unemployment down to 7.4 percent in first quarter of 2012 • Each students gets 40-50 percent of tuition fees paid by government • Each person above 60 years old gets close to USD1000 in cash through monthly and lump sum payments, government still will pay another USD350 • Everyone gets a share of strategic mining assets for free GOOD? Economic policies against resource curse are in place • Budget stability law: mineral price determined by formula, deficit is less than 2 percent, no rapid increase in spending • Stabilization fund • Human development fund • Development bank • Thriving democracy, elections every four years Paradox • Results of the last election gave rise to populist parties • At the crossroads in terms of the public debate on how to go forward with the mining industry. • The mining boom is, paradoxically, shifting the political discourse more and more towards populist alternatives Important lesson: Political economy of mining is as much important in avoiding the resource curse as the economic policies are Ingredients of political economy: • Overall legal framework is always better than ad hoc negotiations on specific project • Thorough debate on legal framework preceding major mining developments is necessary (“the worst quarrel is always better than the best fight”) • Do not make the law hostage to neither industry nor NGOs nor lawmakers exclusively – try to make it a joint effort but provide a firm leadership and commercial ground to discussion • After that put some legislative locks to ensure stability – two thirds voting rule is the best. But be aware of pressure building up – it may blow into your faces. Tackle hard issues in the law, not during the negotiations • • • • State equity participation Level of taxation Local procurement an employment Growth of national companies that are able to become global flagship enterprises – Vale • Local authorities and communities – their participation • Mine related infrastructure and their linkage to local economy Best lesson learnt from Mongolian case Despite all the difficulties most important lesson: HEALTHY TRANSPARENT DEBATE IN THE PARLIAMENT ENSURES SUCCESS OF THE PROJECT AND MINING INDUSTRY IN GENERAL