Lack of diversity in Mongolian exports: Effects on employment & productivity

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Guest blog by Suzanna Sumkhuu

Over the past 4 years, I have been working at the country’s development policy planning reform, streamlining legislative, institutional and policy mechanisms. On this journey, I have encountered two contrasting views: necessity for strong central planning systems vs abolish the government and leave everything to the market economy. Because Mongolia has such a strong history of central planning under Socialist rule, the public view is also differing. I knew from the get-go that neither absolute form of these contrasting options could deliver on today’s socio-economic and planetary needs. Hence, I have been searching like a nomad for answers that could trigger systemic change in ensuring more inclusive and sustainable development.

Against this backdrop, I came into the Leading Economic Growth program with a growth challenge that I have been exploring for some time now and something that I was planning on making the central line of inquiry for the formulation of the country’s Annual Development Plan for 2022 and conceptualization of the next ten-year development strategy, which I was tasked to lead. My growth challenge was Mongolia’s lack of sufficient non-mineral export products and job creating exports, which mattered because it leads to low levels of employment and productivity.

As I went through the process of receiving proposals from national and sub-national governments, conducting medium-term economic projections and analysing existing growth diagnostics studies conducted by IFIs, I was still concerned whether this policy document could really meet the high or unrealistic expectations of decision-makers.

To my concern, Helmuth von Moltke, a German Field Marshal’s words stayed in my mind reminding me the importance of the process on strategic planning as plans itself tend to always change, which calls for constant iteration. The Leading Economic Growth program has provided me the systematic understanding and tools to assess past development patterns, specifically that of economic growth in Mongolia. Rather than giving me the set of “tested” recommendations or solutions to my growth question, Professor Hausmann and Andrews challenged me to formulate my very own strategy.

Using the PDIA toolkit, I was able to dissect root causes to Mongolia’s low economic development from a new perspective. Over the past 28 years, Mongolia’s annual gross domestic product rate has fluctuated between a contraction of 20 percent and growth of 17 percent reflecting the recurrent boom-and-bust cycles of economic growth mainly due to major mining operations and its volatility to global prices. 70 percent or so of Mongolia’s export basket is composed of minerals. We have an income per capita of $4,121 and ranks 107 out of 123 countries in economic complexity, meaning we are less complex compared to our income. Since 2003, Mongolia has added only 6 new products into its export basket contributing $178 in income per capita in 2018.

There has been significant investment in education and health sectors, however since mining is a capital-intensive sector and for the minimum level of labour it utilizes compared to other strategic sectors such as agriculture and tourism, its wage is higher. In other words, we are in dire need for economic structural transformation to transition from an unstable mineral-dependent development path. This will require coherent and targeted education, labour, immigration, and investment policy interventions to expand and create jobs in more productive sectors.

The government has been prioritizing economic diversification for the past 30 years, and yet, our economy has become even more volatile, unsustainable, and inequitable. Although, agriculture has been a strategic priority sector, it remains unproductive and low in complexity. As of 2018, the share of agricultural sector in gross domestic product was 10.9 percent, of which 84.5 percent was accounted by animal husbandry, and 15.5 percent attributed to farming. Despite employing around 30 percent of total labor force, agriculture, especially herding is increasingly becoming a social safety net for impoverished Mongolians who cannot find other economic opportunities.

Upon diagnosing the key barriers to my growth challenge, which infrastructure, energy, and tariffs, I was I was able to identify entry points for implementing a context-specific strategy.

Picture above is my fishbone diagram.
Picture above shows my decision tree in Mongolian (red indicates areas where the government could support)

Overall, the program was incredibly stimulating. Even though it was sometimes difficult to manage all the readings whilst pulling all-nighters formulating the country’s comprehensive plan, I absolutely soaked up the self-study materials because they were so relevant to my growth challenge as well as my current work.

I have actually mainstreamed my binding constraints and strategic entry points into the formulation of the Annual Development Plan 2022 and plan on applying the tools and frameworks for the ten-year policy development, which I will undertake in the second half of this year.

This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. 65 Participants successfully completed this 10-week online course in May 2021. These are their learning journey stories.

To learn more about Leading Economic Growth (LEG) watch the faculty video, and visit the course website.

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