By Antonio Graceffo
Originally published in BNE Intelligence News March 17, 2023
Mongolia’s economy has struggled since the outbreak of the coronavirus pandemic in 2020. In the past three years, the country has endured double-digit annual inflation, coupled with a double-digit decline in the value of its currency, the tughrik. To make matters worse, the price of petrol, imported from Russia, has nearly doubled, given market impacts of the war in Ukraine.
Mongolia’s National Statistics Office reported average inflation in 2022 at 13.6%, with food inflation of 15.4%. Medicine saw a 17% price rise, while footwear was up 18.5%.
In a landlocked country, where most consumer goods, and all but the most basic foods, are imported via land routes, high inflation and other ills amount to a frightful combination, making the average citizen’s life much harder.
Mongolia’s main exports are mining products, coal and metals, with China by far the primary purchaser. Exports, however, struggled during 2020-2022, with the Chinese border closed as part of Beijing’s strict covid containment policy. In late 2022, China repealed its “zero-covid” regimen and reopened the border. While exports have recovered somewhat, Mongolia now faces a slower Chinese economy, a flagging global economy and high inflation, plus hiked transportation costs. At the same time, the country’s main exports—coal, copper and iron—are not enjoying buoyant times.
A new railroad is in action facilitating more exports to China, but offered prices and demand for Mongolian raw materials are down. Additionally, China has shifted some mineral purchases away from Mongolia, in favour of Australia. Consequently, the Mongolian economic outlook this year is mixed, at best.
Lkhagvadorj Dorjburegdaa, an economics lecturer and herding expert at Mongolian University of Life Sciences (MULS), explained how bad the situation is and how it is affecting city dwellers. “Inflation is high, sales of automobiles and real estate are dropping. Purchasing power is decreasing. The exchange rates for dollars, yuan and euros are rising. People’s lives are becoming harder.”
There’s no doubt that household debt is increasing in a worrying way. You can see it in the growing trend of Mongolians leaving for jobs overseas, particularly Korea.
In technical terms, as outlined by Dorjburegdaa, wages are not keeping pace with inflation, while with bank interest rates lower than inflation, any money stashed in the bank is actually losing value. As a result, families’ purchasing power is down. Those who can, convert savings to dollars, but in the past two years there have been shortages of dollars, as well as strict rules on the quantity a citizen can purchase. The central bank may be moving to raise rates, which will help rein in inflation and buoy the tughrik (or MNT), but there is a downside—it will make debt burdens heavier.
A nomad family takes down their ger (yurt) as they move from a winter to spring camp (Credit: Taylor Weidman, The Vanishing Cultures Project, cc-by-sa 3.0).
As bad as things are for the urbanites, Mongolia’s nomadic herders, representing a fifth of the population, are suffering more. Although they can live from the animals they raise, there are certain products they have to buy that they cannot make themselves, such as flour, rice, sugar, vegetables, clothes and household items, cars, motorcycles and furniture. Basically, everything except meat and dairy. And these products become more expensive, as they must be transported overland from the border or from the capital Ulaanbaatar to the remote regions. Herder families, who generally have very little cash income, face an undue burden.
Meat and cashmere are two of the best revenue sources for herders. Meat exports were negatively affected in 2021, according to Dorjburegdaa, “but in 2022 meat exports were better than the year before.” At the same time, unfortunately, money received by herders for their cashmere has decreased.
Altankhuyag Batochir, 64, is a herder in Bulgan Province. Five of his children are grown, married and living in the city, while one school-age child and one grandchild remain with him and his wife. “It costs around $500 per child for education. It’s terrible, the value of money is nothing nowadays. I think every family is struggling with the situation we are in now,” said Batochir.
The family has around 200 sheep and goats, barely equating to a herding subsistence level. In the depths of Mongolia’s winter, with steppe temperatures as low as 50 to 60 below zero, herders purchase feed to supplement the animals’ diet until the spring thaw. Batochir said this cost him around $400.
When it’s time to sell the animals for meat, herders have two options. Either sell to agents, who travel to rural parts and buy at a discount, or take the animals to the sum (district village) or city and sell at a higher price. The latter option entails paying for a vehicle, petrol and labour. The journey can be 300-600 kilometres. With sheep selling at about $70 and goats $50, a herder needs a good number of animals to justify a trip. With this year’s petrol price doubled, many herders have been forced to sell to agents, at a lower reward.
Altankhuyag Batochir said he sold his sheep for between $23-$60 per head, with age key to the price. He only sells 20 or so sheep a year, thus, after paying for his children’s schooling and winter feed for the herd, he and his wife have little if any cash left over. Only a government subsidy of about $300 per month keeps them going.
A ger district near a power plant in Ulaanbaatar (Credit: Nathalie Daoust, cc-by-sa 4.0).
When asked if herders consider giving up and moving to the city, Dorjburegdaa answered: “The herders themselves don’t move to the city unless they are left with no animals.”
Every few years, Mongolia experiences a natural weather phenomenon, the dzud in which summer drought effects combine with those of a following harsh winter. It wipes out a tremendous number of livestock. Families who lose their entire herd, or so much of it that they can no longer survive, move to the city. In Ulaanbaatar, former herders are generally relegated to living in the ger (or yurt) district. In the yurt, they burn coal to keep warm. The air pollution can be overwhelming. Given their lack of education and job skills, most stay very poor.
For those herders who manage to stay on the steppe, sending their children to the city to get educated and pave the way to a better life is usually the favoured option, but as Dorjburegdaa reflected, it means a tremendous cash burden. Typically, no schools are found on the steppe, so city schools combined with paid board is the only choice if there are no urban relatives the kids can live with during the academic year.
On average, a state school education costs $500 to $1,000 per child. Herders largely have a cash income of less than $4,000 per year. The cost is stark.
Dorjburegdaa concluded: “Nowadays, the number of herders who want their children to be herders is decreasing. Herders generally want their children to learn, get educated. Especially, their daughters, and that reduces marriage in the countryside.”
Once the children graduate, they usually do not return to the steppe. The countryside has a growing gender imbalance. Many young, male herders cannot find a girl to marry.
For a herder sitting on a horse or camel out on the snow-covered steppe, it is probably inconceivable that life has been made harder by a war in a place called Ukraine, thousands of miles away, or by decisions taken by Xi Jinping in Beijing. The herder simply knows things are tough, but they maintain their responsibility to their animals and families, just as the ancestors have done for millennia.
As Altankhuyag Batochir put it: “Herders like us have no time to worry. Our faith is only in herding our livestock and keeping a good living, but each year, it gets getting harder and harder to afford.”
Thinking of his children, he said: “I wish they didn’t have to face this reality, but I also hope they understand what it takes to keep them educated, fed and warm.”
Antonio Graceffo, PhD, China-MBA, is an economist and China analyst. He has spent over 20 years living in Asia, including seven years in China, two and a half in Taiwan and three in Mongolia. He conducted post-doctoral studies in international trade at the School of Economics, Shanghai University, holds a PhD. from Shanghai University of Sport, and a China-MBA from Shanghai Jiaotong University. Antonio is the author of seven books about Asia, three of which are about the Chinese economy. For the past 10 years, he has been reporting on the Chinese economy, the US-China trade war, investment, geopolitics and defence. In recent years, he has written a diverse range of articles on Mongolian economics and society.
