Another Word About Mongolia

As some may have noticed, my post regarding an aid project in Mongolia to reform herding and agricultural practices was characterized as snide (and short).  I am very familiar with donor funded projects and know pretty well how they are designed and by whom.  So, if I sound snide, I have good reasons.

But, in this case, I was mostly deriding the title of the project in its context, not necessarily its terms of reference - about which I know little. Also, as most Americans know next to nothing about their neighboring county much less another country, gave a microscopic history of the Mongols for contextual purposes. So, try not to be overly sensitive - even if it is your project.

Let's look at the numbers: Mongolia has around 2.5 million people. Between 1991 and 2000 total aid was almost US$1.9 billion.  By any measure, a huge sum of money-to-population ratio ranking up there with Armenia. Funding has been growing as if nothing has been learned,  because the situation is getting worse.


As I mentioned in the post, for centuries economic activity in Mongolia was based on migratory livestock breeding. Again - the numbers speak for themselves: Over 30% of the GDP from 1921 to 1990 came from Moscow in order to industrialize the country and destroy nomadism. By the mid-1950s, over 90% of the population were rural herders -  by 1990 that dropped to 33%. Industrialization was a success but the true nature of economic activity in Mongolia could not be perpetually hidden.


In 1991 Mongolia had two world-class industries: copper and cashmere. Now, despite millions of dollars in international aid and the combined wisdom of hundreds of Western consultants, there is none. For example, around 1995 the World Bank, IMF and ADB forced Mongolia to lift a ban on the export of raw cashmere. China has purchased all of the raw cashmere and Mongolia’s processing industry is vaporized. This is otherwise known as globalization. You may have heard of this? Thank you donor community.

Then, the devasting effects of several severe winters and dry summers have taken their toll. Millions of animals have died this winter alone and herders are dropping further into poverty and debt and retreating to the cities. There is nothing - nothing - aid agencies can do about the effects of climate change in Mongolia; but blaming the herders appears to be easy. 

One idea tossed around by the aid industry in the past is ranching. I'm willing to bet that this new project will promote ranching. I hope I am wrong, but if that is the case, then the climate, terrain and history will disabuse the consultant of pre-conceived notions quickly.  The vegetation is too sparse and the climate too harsh - just for a start.  Less than 1% of the land is cultivated. You think this will change? Perhaps to double it? Triple? Quadruple?  Ranching is a joke.

The fact of the matter is that the herders - indulging in long held nomadic practices -  rescued the Mongolian urban population from starvation during the early 1990s after the Soviet Union collapsed, inflation skyrocketed and food vanished (except for a price). But, Mongolians did not starve and the unemployed did not riot. Why? Because they returned to the kind of activity most suitable for the environment. Neither education nor employment made a major contribution to Mongolia’s economic growth, but livestock raising - nomadic style, was key to Mongolia’s quick recovery after 1995 even if its share in GDP has been declining since 1999.
The donors of today downgrade or outright ignore the salvation of the economy during that period. One merely needs to read the UNDP reports from 2001 (Keith Griffin’s Poverty Reduction in Mongolia (2001) )where he  emphasizes the lowering of productivity among the herders because the animals only increased 30% while the number of people increased 183% in one decade. So what? The implication is that the alternative - for the population to sit around hungry in Ulan Bator - was better? There is a denial of reality - the reality being that a nomadic lifestyle can be viable. Furthermore, these donor agencies appear to believe that the nomadic herders would not be what they are if they had alternatives. Well, I suggest that these preconcieved notions (applied everywhere, I might add, and not just in Mongolia) be tested against research on nomadic societies. A little understanding can go a long way.

The UNDP has actually called for livestock collective farms - an absurd suggestion given the collective memory of the Soviet system.

I agree that the capacity of the pastures to absorb increases in herds must be studied and that some improvement in herding and livestock farming is always possible; but, climate change and over-grazing, although real, are not alone in adversely impacting the industry.

So, good luck with the project. Imposition of western techniques is normally resented, so I hope the project actual helps the Mongolian people and takes into consideration their history and the environment.

MCC Crash and Burn Redux

I feel compelled to apologize to MCC Washington on the story regarding the Mongolian Railroad project a couple of days ago. It was not entirely their fault.

Since local - and not DC - MCC offices prepare projects under country compacts, MCC/Mongolia was at fault. Twice. The project was first tendered in July 2008 and pulled when an agreement with the railroad (read "the Russian side") could not be reached.

So, it was tendered again and DC were assured by MCA/Mongolia that the ownership of the railroad (the Mongolian and Russian governments)had bought into the project. This was decidedly not the case - with the unsurprising result.

I've also been told that the bidding contractor did not attend a bidder's meeting to ask any questions and prepared a proposal for a contract that was never going to be signed, much less implemented. They didn't attend the bidder's meeting because it was too expensive. Gentlemen - the cost to attend would have been far less than proposal preparation.

MCC needs more control over its local representative offices, the local offices need to tell the truth and bidders should perform some minimal due diligence.

Truly Bizarre MCC Project Dies

In a bizarre report, an RFP issued by MCC for modernizing the Mongolian rail system has crashed and burned. The result should not have been a surprise - the fact that it ever even got past the drawing board (or indeed past the first snicker in the board room) is beyond the pale. To protect the innocent, I have not identified the source; but the source is very reliable.

The MCC issued an RFP to modernize the rail system for the purpose of preparing it to carry an increased load of minerals from mines, including heavy strikes of gold, copper and uranium. The rail system is owned 50% by the Mongolian government. The other 50% is owned by the Russian Federation.

What could be the problem with this? Anyone...anyone...Bueller?

To implement the project a leasing company would be established that would be wholly owned by the Mongolian government. MCC would acquire the rolling stock, signaling and track maintenance equipment, which in turn would be provided to the leasing company. The leasing company would retain title to all the equipment and lease it to the railroad.

So, what is wrong with this?

I'm glad you asked.

The leasing company, wholly owned by the Mongolian government would be leasing the equipment to the railroad - 50% of which is owned by the Russians. Did anyone at MCC pass this by the Russians even if it was a wise deal (which it was not)? Apparently, no.

On May 18 MCC cancelled the entire program. The Russians - astoundingly - would not agree to an audit of the railroad's books. That must have shocked the experts in Washington. To be fair, MCC had included the audit provision as a condition to moving ahead with the project. But...

MCC has put a bunch of people and firms to a great deal of effort and expense preparing proposals but they did not vet this first with the Russian owners? This should have been a major consideration in having the project move forward, but as is all to frequently the case, the funding agency, in this case MCC, simply made at best, a dangerous assumption or, at worst, was negligent and should pay the firms for their time and costs in developing bid proposals.

The failure by the MCC would be excused under several scenarios. First, if the MCC had revealed all the above (and I have not read the RFP)and the bidders did not ask any questions, then the bidders assumed a major risk. Second, if the railroad parties and the Mongolian government agreed to the audit, but lied, then everyone was deceived; and, third, if the bidders knew all the risks and assumed them, well - greed is not often a virtue.

The story, however, gets a little worse. The Mongolian rail system is not only 50% owned by the Russian, but it is considered "sovereign territory" and therefore exempt from Mongolian laws. So, to actually make any contracts enforceable, conditions would need to have been attached to the MCC agreement and the leasing contract that Mongolian commercial (at the least) laws would apply.

Finally, my contact said, as reported in the news, that Putin was in Mongolia last week, offering the Mongolian railroad loans to buy rolling stock from the Russians and - yes it gets worse - recommended that the rail system purchase equity stakes in the mines that they intend to serve.

What was MCC thinking? And - how would a default in the leasing agreement be handled by MCC or the leasing company (such as a repo of rolling stock). Does anyone remotely think the Russians would honor the contract?

Many thanks to my source.