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Economy / Mongolia News / October 24, 2014

Game changers for Mongolia?

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While preparing for a class I am teaching on economic growth and productivity, I read a very interesting document by the McKinsey Global Institute. What this very good document points out is that there is real hope for significant improvements in the U.S. economy by energy development, increased exports, development of big data, improvement in infrastructure, and improvement in talent in the work force (and I might add we need it in government also).
We have been very lucky with the huge increases in shale gas and shale oil production in the U.S. This has been a real and large benefit to the areas where the production is happening. U.S. shale gas and shale oil production has also dropped prices for natural gas within the U.S. and has helped soften global oil prices. When energy prices are low, industries that use energy – which is all of them – have costs cut and are making more profits. These companies have good reasons to hire more people. Some companies are also moving from countries where energy is expensive, such as Germany, to the U.S., where natural gas, in particular, is quite cheap compared to Europe and Asia.
A country’s gross domestic product is equal to its private personal consumption (people buying clothes, food, etc.) plus private investment (companies building new factories, people buying houses, etc.) plus government expenditures (government spending on defense, education, and so forth) plus exports minus imports. The U.S. imports a lot of things. Looking at the local stores, it is hard to find something that is not from China. We also export a lot of things and a lot of services. We are the largest exporter of business, banking and other such services. We also export a lot of airplanes, weapons, cars, food and other agricultural products, information products, software, and we could be exporting a lot of natural gas and oil, if allowed, but that is another story.
Big data development is a very big deal. When a country has a lot of its data set up in the right way, better decision making could be done. If a country or an industry has a clearer idea what is out there, then they can plan better. Also, a company of a country that has a lot of the big data can then sell that business and other data as an export or a service. There are down sides to big data. There are some ethical and moral issues with these massive data sets and their uses, but that is for another article. This one looks at how more data can help with better economic and business decisions, and hence, a stronger economy with better informed companies and consumers – hopefully.
Improving infrastructure is what we call here a “no brainer”. Many of our bridges, roads, electricity networks, and more are getting old and need not only repairs, but also improvements and modernization. The development of the smart grid, which I will talk about in a future article, could be a very big improvement to the overall energy network of the country. More and better natural gas and oil pipelines that get the gas and oil from where it is produced to where it is needed can be a very big help in developing jobs, companies and the overall economy. Railroads that transport almost all of our coal and much of everything else are in dire need of improvement. Many are clogged with oil, coal, grain and other trains. Delays in rail travel are common due to the overuse of the rail tracks, and the lack of PTC (positive train control), which allows more trains to travel more safely and more efficiently on the same amount of rails.
Talent development is key. Our education system, especially at the university level is very good. Many of our graduate schools are the best in the world. However, our elementary, middle, and high schools are, to put it nicely, in need of great improvements for how and what our children learn. Some of these children are also falling behind. All children need to have improved education, especially about the global economy, languages, world cultures, geography, science, technology, and many more employment focused fields, along with the usual reading, writing and arithmetic. Think of how much better a company, an industry and an economy work with better educated and trained people.
So how would all of this apply to Mongolia? Many of you reading this may have already figured this out. Mongolia has massive potential for its energy industry, in not only getting the fuel out of the ground and exporting it, but also developing industries around the fuel production, such as processing, petrochemicals, plastics, and more. Jobs and economic development could come out of this. A real game changer for Mongolia is to better connect its raw materials production to its overall economy by developing industries and companies that can grasp the value added in the use of the fuels by making other things with those fuels. Mongolia can also increase its exports to help that part of its gross domestic product. However, this is not just increasing the exports of coal, gold, uranium, copper, rare earths and the like, but also the products that can be made with those. Mongolia has to jump a step ahead in what it is exporting in order to increase the value of those exports. This will not happen overnight, but it could be a big goal for the country.
Developing big data in Mongolia has a long way to go. However, Mongolia could be a great place for data centers and outsourcing of data analyses for many countries in the region and the world with the right investment, training and education, and with the right laws for information security and so forth. This may be a difficult task for Mongolia, but would it not be better to be known as a data hub instead of just a raw materials exporter?
Mongolia needs a lot to be done on its electricity infrastructure and other energy infrastructures. Its roads need improvement. Its communications infrastructure could be a lot better. Infrastructure investments may not give immediate large benefits to the country and its people, but over the long run they will. Improvements in energy, water, transport, communications and other such infrastructures will increase productivity and decrease waste in the economy if they are done right – and if the improvements are applied properly.
The last game changer for Mongolia, talent improvement, may be the most important one. Mongolia is a country with a small population. However, that population is the source of its real wealth in the future if they are developed, educated and trained for the future. Mongolia could be a strongly competitive state in the region and in the word if its people are developed. Roads, data, energy, and all of that could be developed for the people, as should the economy. Part of the talent development could also be to develop leadership in government, industry, education, and more that is geared towards the development of the people of Mongolia.
If leaders of the future are looking just to fill their pockets – seeing that as their personal game changer – then they may find that Mongolia will change, but not for the better.


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