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The worst you can do in this country is make 28%

October 24, 2011
Ulan Bator, Mongolia

“As rich as a Mongolian.”

Get used to hearing that expression, because it will have entered our lexicon in 10-years time.  I’ll explain–

Mongolia is a sizeable country blessed with unimaginable resource wealth. It almost seems that just about every other Tuesday brings another major resource discovery. Oil. Coal. Gold. Copper. Rare earths. Iron ore. Molybdenum. Uranium. You get the idea.

These deposits are substantial… in many instances, world class. Mongolia’s copper reserves alone rival those of Chile. Its oil wealth is in the same class as Angola. Its coal deposits blow Australia’s out of the water. And yet, the vast majority of this country is still unexplored. We can (and should) expect more discoveries in the months and years to come.

I’m not telling you this so that you’ll buy shares in every junior resource company with Mongolia exposure that you can find. Even with all of this mineral wealth, a lot of mining companies (and their shareholders) are going to lose their shirts.  Drilling holes in the earth is expensive, risky business.

The knock-on effect to Mongolia’s population, however, will be of historic proportions. There are only three million people in this country. Trillions of dollars of resource wealth divided by a few million people is exceptionally high per-capita wealth… and it’s all going to happen in less than a generation.

Perhaps the best example of this in history is the United Arab Emirates. Like the Mongols, these people were just nomadic tribesmen roaming the desert for hundreds of years. Oil was discovered in the early 1960s, and within a generation, people in Abu Dhabi were among the wealthiest in the world.

But I think it can happen even faster in Mongolia; much of the world has a vested interest in pulling Mongolia’s resources out of the ground as quickly as possible. The Middle East is destabilizing quickly, China has nearly monopolistic control over rare earth minerals, and demand for physical gold is skyrocketing.

All of these projects will also require substantial infrastructure investment before any extraction takes place, and billions of dollars are already being invested in the country to this end. You can imagine the economic effect when a $6 billion infrastructure investment is made in a $5 billion economy.

I saw similar effects in Panama years ago– in 2005, Panama’s GDP was roughly $15 billion.  After several years of substantial foreign investment (including tranches of the multi-billion dollar Panama Canal expansion project), GDP is now $27 billion. Perhaps more importantly, a strong middle class emerged in Panama as a result. It wasn’t just 5 guys getting rich.

I suspect the same thing will happen in Mongolia; the government is already handing out shares of mining concessions to the population, and in the long run, this society is probably going to look a lot like Kuwait: every native born into a life of privilege and state-sponsored welfare in the form of ridiculously overpaid “government jobs”.

This is the much safer bet– investing in Mongolia’s rising economy, and by consequence, the rising per capita income of the local population. Acknowledging the possibility for short-term fluctuations, I think it’s going to be very hard to get hurt with this investment thesis.

Put it this way: you know you can make some serious money in a country where the absolute -worst- that you can do is open a savings account yielding 13% interest, denominated in a currency that gained 15% against the US dollar last year.

More to follow.

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About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

Comments on this entry are closed.

  • Guest

    13% interest and and a gain 15% against dollar does not make it 28%, but rather (1+13%)*(1+15%)-1=29,95% ;)

  • Douglas

    Can one open a savings account from here in the US? And if so, do you have contact information to do so?

  • http://www.facebook.com/profile.php?id=1047677011 Kevin Wright

    Edited from an email from my friend Albert H. who lives in Mongolia,
    It is a stressful time. We were unable to find a company that would ship a
    container. Apparently the security situation on the roads through Cameroon is
    so poor that no one wants to ship any farther than the port in Douala. So, we
    need to repack and ship air freight at $11.50 per kilo. Needless to say, not
    much of what we have is worth that much. We need to trim it down to the 240
    kilo tool box and maybe 200 kg more.

    As for the situation in Mongolia. the sudden rise in wealth of the country is a
    double edge sword. It is not all coming up roses. On the one hand people are
    getting filthy rich. We see a ton of black Land Cruisers, Lexus, and Hummers on
    the road now. And the government ministers are also getting filthy rich (on a
    Minister’s salary?). There is a huge amount of inflation. Housing costs have
    doubled in the last 3 years along with everything else. The have-nots are
    actually going seriously backwards. Even with the government handing out money,
    it is doing most folks little good. The mining stock that the government is
    handing out is being sold immediately by the poorest folks and accumulating in
    the holdings of the rich – sometimes only for the next fix of vodka to kill
    their misery.
    The government needs to put more money in a safety net and better health care
    for the have-nots or face a revolt. Some people’s conditions in this country
    are getting dire and despite having a Communist bent the Ministries are all
    distracted by getting rich and elitist. Desperation will eventually drive
    people to some extraordinary things.
    A savings account will yield 13%, but the bank lends it out at 18%. Imagine how
    many people could afford to get a mortgage that costs 1.5% or more per month?
    Only the richest people who have cash can afford to buy an apartment or a
    The other negative is an anti-foreign backlash. Somehow many Mongolian people
    are convinced that it is the foreigners coming into the country that is causing
    the difficulties. I suppose it is convenient for the government people to let
    people believe it. We see the ugly appearance of the swastika all over the place
    these days. The Aryan Cross was used much in Buddhism – in the Pali language in
    which Buddhist script was written ariya means “noble” or
    “exhaled.” A lot of the Mongolian clothing is trimmed with a ribbon
    of such hooked crosses. But, now the symbol is again being co-opted by ugly
    face of racism. I got to admit though that many foreign mining company
    employees come in here without there wives and take up with the beautiful young
    Mongolian women. Many of the women see latching on to a foreigner as their way
    out. We have had some vicious attacks on mixed couples lately. Accordingly on
    the official side, the government is making it much more difficult for
    foreigners to stay here. I now need to carry a residence permit card (or my
    passport – not a copy) or face massive fines. I see in the future that Mongolia
    will follow the Russian example and make it very difficult for foreigners to
    stay and work.     

    As China is finding out. It is difficult to rapidly grow an economy and also
    keep inflation under control. 

  • Dr.Lynas von trips

    In September 2011 I spent 60 days in Tibet, poked around, and did the hight altitude train trip.
    Bottom line: The place is Out of sight.  But foreigners tend to be blamed for every local problem. 
    I suspect a high interest rate savings account is easier said than done. But the banks are sure solid enough, no matter how you look at it.

  • http://pulse.yahoo.com/_MXL57AAJZAGRVZ2LOHVZQCTSUE Jack Allen

    Does its currency trade on the forex markets?

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