Tapping into the Opportunities in Mongolia’s Transition from Mining to Minds

For the past decade, the Mongolian mining sector has been at the center of the foreign investors’ attention and the national export goals. Yet, for the past few years, a different sector has been gaining as much or even more popularity and attraction among both the locals and the internationals.

Web 3.0: What’s next? an international event organized by AmCham Mongolia.

With the global rise of Web 3.0, educated youth driving digital transformation and internal push for developing non-mining related sectors, Mongolia has made concrete steps forward in leveling up its game in the digital business sector, which heavily engages human capital. Although Mongolia does not have a big pool of IT talent like the Philippines or Vietnam, it certainly has a few advantages not to be missed by potential investors, including those either from China or operating in China. The advantages are Mongolia’s young talents with adaptable cultural upbringing and mindset, its freedom of internet use and penetration and the government’s policy to prioritize IT sector development and digital transformation at all levels.

Firstly, unlike typical East Asians or Southeast Asians, who have relatively strong domestic cultural sensitivity and influence in their consumer behaviors and product preferences and so forth, Mongolian consumers have an interesting mixed taste of western and eastern cultural influence in their purchasing decision-making. Its ancestors’ hundreds of years of world adventures, centuries of influence from Qin dynasty and decades of influence of the Soviet Union have certainly brought up a nation of mixed culture and mindset. Such flexible cultural upbringing and diverse influence have enabled Mongolians to be able to do business with Westerners, Asians and Islamic countries.

“Startups in artificial intelligence, fintech and other sectors are set to transform Mongolia’s economy, as they begin turning the capital of Ulaanbaatar into a small but thriving high tech hub,” reported the Japanese Nikkei Asia in 2019. Nikkei Asia has also published several other articles on the Mongolian IT sector, its talents and the crypto mining possibilities due to its cold weather and relatively efficient energy price.

With its hundreds of years of nomadic culture, mindset and resilience built within, Mongolians around the world have proven to have the capability and capacity to excel in their chosen fields. Nikkei Asia reported: “The country’s proficiency in math is another plus. This year, Mongolia ranked 26th in the International Mathematical Olympiad, just behind France and Canada, and up from 50th place in 2010”.

Therefore, tapping into Mongolia’s not only geographical proximity to Eurasia and beyond, but also its’ mixed cultural attributions, international investors, namely those from East Asia, should be able to benefit in certain ways such as in having their investment portfolio managed out of Mongolia.

Secondly, Mongolia is a member of the Freedom Online Coalition (FOC), a cross-regional intergovernmental coalition of 30 countries established in 2011 committed to advancing internet freedom worldwide.  In its Freedom of the Press 2017 report, Freedom House, an independent international watchdog NGO, rated Mongolia “partly free,” giving the country a score of 85 on a scale of 1-100 (0=best, 100=worst). South Korea, Ghana, and Italy received similar scores. Additionally, Mongolia has been named one of the most active social media, namely Facebook, users in the region.

Mongolia focused on building its core hard IT infrastructure (i.e., internet cable connections) between 2000 and 2010 and the soft infrastructure (i.e., software development and adoption) between 2010 and 2020. COVID 19 pandemic has accelerated the use of various digital enterprise solutions like CRM and HRM and the digital business sector at large. By 2025, it is projected that the nationwide digital solutions like the e-Mongolia platform, which has been digitalizing hundreds of government services, will be fully functional.

Thirdly, according to the World Bank report Mongolia’s Mines and Minds, released in 2020, as demand for key minerals is likely to tumble due to climate change concerns, a shift of investors’ preference toward sustainability, China’s ambitious goal to reduce coal consumption, and persistence of the COVID-19 shock. (The mining sector makes up 24 percent of the country’s GDP, 69 percent of the industrial sector, 77 percent of foreign direct investment and 93 percent of exports.) To be forward looking and tap into the current global push for sustainable growth, Mongolia should use its mineral wealth to invest in its people and institutions, while gradually reducing its dependence on the mining sector.

In 2020, the Mongolian government set out its five-year mission to build a ‘digital nation’, harnessing data and technology to facilitate innovation, streamline public services and diversify Mongolia’s mining-reliant economy. Later in 2021, the government established a new ministry dedicated to Digital Development and Communications. In addition, in the latest economic stimulus package, developed and pushed forward by the current government led by Prime Minister Oyun – Erdene Luvsannamsrai, green economy recovery has been identified as one of the six main areas. Such facts clearly signal that Mongolia has been aiming to shift their development center from mines to minds by providing a wide variety of opportunities including tax incentives for the foreign investors in IT sector.

In summary, due to external global development shifts and internal political decisions, namely the pressure for a greener economy, Mongolia has been eyeing to transform itself from a mining-centric economy to a more diversified nation, which cherishes its human capital and leverages technological advancements. Those driving the tech industry are, again, the young, educated, mostly abroad, and have ties with GAFA /Google, Apple, Facebook and Amazon/;  their future outlook is to test their products and services in Mongolia and scale out of Mongolia.

Having been Mongolia’s largest trading partner for decades, China is the ultimate destination to expand in for many Mongolian businesses, including the tech startups. On the other hand, Mongolia provides the internet freedom and the unique geographical and cultural proximity to Eurasia, which should create benefits for the international business community. So, it might be the ideal time for the Chinese investors and businesses to tap into its neighbor’s current aspirations by being a part of the new business developments and old business expansions.

(Enkhzul Orgodol /Zula is a Dezan Shira & Associates’ Asian Alliance Partner. She may be reached at enkhzul.orgodol@dbiaa.org.)

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