Resource-rich, strategically located and outward-looking, Mongolia is the world's most sparsely populated country, with 3 million people spread over an area almost as big as Queensland. In the 20th century, as a satellite state of the former Soviet Union, Mongolia had a primarily agrarian and centrally-planned economy. After structural reforms and privatisation since the 1990s, it has emerged as a developing democracy with one of the fastest-growing economies in the world.
From the mid-1990s, Mongolia has pursued a ‘third neighbour’ policy which seeks to engage countries with similar views on human rights, democracy and free markets. Engagement with countries such as Australia has helped Mongolia expand its trade, investment, development cooperation and foreign policy contacts beyond its immediate neighbours, Russia and China. Australia and Mongolia are well-positioned to advance their shared interests over the next decade, as Mongolia becomes more active in the region and develops stronger ties with its ‘third neighbours’.
Agriculture (primarily herding), once the mainstay of the Mongolian economy, declines in terms of share of national employment and contribution to GDP. In 2014, less than 30% of the workforce was employed in agriculture, down from 42% in 2007. Agriculture comprises about 16% of GDP, while services alone account for nearly 50% of GDP and 56% of national employment. Industry is estimated to account for 37% of GDP (including mining with 19%).
Mongolia's landlocked position, geographical isolation, extreme climate, lack of infrastructure, and uncertain regulatory environment have all hampered its economic development. China is Mongolia's largest trading partner, accounting for around 89% of Mongolia's merchandise export revenues (predominantly through the export of copper and coal), and 37% of merchandise import expenditure. Strong demand from China and high commodity prices helped Mongolia to recover strongly from the Global Financial Crisis. More Chinese workers are providing labour in Mongolia.
While economic growth has helped the country reach lower-middle income status, Mongolia's poverty rate remains relatively high; about one in three people still lives in poverty.
The Australian Government will provide an estimated $10.0 million in total ODA to Mongolia in 2016-17. This will include an estimated $5.9 million in bilateral funding to Mongolia managed by DFAT.
Mongolia’s economic growth has followed the commodity cycle, driven by the rise and fall of mineral prices and private sector led investment in the mining sector. The mining sector now accounts for almost 20% of GDP and the majority of exports and, if managed well, is central to the country’s goals to reduce poverty. Australia’s aid program aims to promote well-governed, efficient public and private sectors that help Mongolian communities to benefit from resource-driven growth. Our areas of investment are where Australia has a comparative advantage and are aligned with the development objectives identified by the Government of Mongolia.