36 Asia The Economist November 6th 2021
T
wo poor, fragile, postSoviet democ
racies, two spectacular holes in the
ground. Mongolia’s Oyu Tolgoi, or “Tur
quoise Hill”, is a vast mine in the south
ern Gobi desert, just 80km from the
Chinese border. Kumtor in the Tian Shan
mountains of Kyrgyzstan, operating
since 1997, is if anything even more
remote. Located beside a series of gla
ciers at 13,000 feet above sea level, it is
the world’s secondhighest gold mine.
It is hard to exaggerate the impor
tance of these two mines to their re
spective economies. Openpit extraction
began at Oyu Tolgoi in 2013. The second
phase, a $6.75bn expansion in which
200km of tunnels will reach 1.3km deep,
is expected to treble the output of con
centrate, to over 500,000 tonnes a year.
Once completed, Oyu Tolgoi will be the
world’s fourthbiggest copper mine.
When the contract with Rio Tinto, an
AngloAustralian mining giant, was first
signed in 2009, Oyu Tolgoi was predicted
to add five percentage points to Mongo
lia’s annual economic growth, which, for
a while, it did. The mine has created
15,000 jobs directly and another 45,000
indirectly, for a Mongolian population of
3.3m. As for Kumtor, its owner, Centerra,
a Canadian exploration company, is the
country’s largest private investor. In a
good year the mine generates a tenth of
Kyrgyzstan’s gdpand is the biggest con
tributor to the state budget.
Both mines loom large in national
life. Both foreign operators won sweet,
initial deals when naive young states
opened their doors to foreign invest
ment. Controversy surrounding the
mines was thus inevitable.
Oyu Tolgoi has long been contro
versial. Politicians often accuse Rio Tinto
of fleecing the country. The language
grew sharper six years ago, after a balanceofpayments bust. A renegotiation of
the terms in 2015 is now being challenged
by the ruling party. It claims the deal is
unfavourable to Mongolia, which has a
34% stake in Oyu Tolgoi, and was even
negotiated illegally. Meanwhile, costs for
underground development at Oyu Tolgoi
have overrun by more than $1.5bn, and the
estimated date for shipping the first un
derground concentrate has receded by
over two years. All the while, the govern
ment must service debt incurred when it
borrowed from Rio Tinto to fund expan
sion. The prospect is dawning of no divi
dend for years, if ever (though taxes and
royalties pour in). The government has
threatened to halt development if Rio does
not renegotiate.
The standoff over Kumtor is starker. In
May the president, Sadyr Japarov, who
came to power a year ago in an obscure
struggle that involved his being sprung
from jail, seized control of Kumtor. His
new prime minister, Akylbek Japarov (no
relation), accuses Centerra of corruption,
enriching politicians instead of the na
tional budget. (Centerra has dismissed theallegations as false.)
Accusations of being cheated are
common in poor, resourcerich coun
tries. With Oyu Tolgoi, the standoff is
more easily resolved. First, Rio Tinto is
not widely suspected of corruption (even
though in Mongolia it is endemic). Power
in Mongolia is too fragmented to make
bribery at scale an attractive option to
foreign investors, says Julian Dierkes of
the University of British Columbia—
though what happens to revenues once
they reach government coffers is another
matter. Moreover, a recent independent
review makes it hard for Rio to deny it
bears some blame for delays and cost
overruns. It says it is ready to “explore”
cutting its fees and loan interest rates.
In Kyrgyzstan the situation is bleaker.
There, bribery and corruption are not
incidental to business but central to it.
For all that Centerra boasts of its in
vestments, politicians and gangsters
have long looked to take a cut. Once the
new government has access to the mine’s
cashflow, ask many in Bishkek, the cap
ital, what is to stop officials pocketing it
for private gain?
Foreign investors too often blame
“resource nationalism” for their woes in
host countries. That is selfserving. After
all, the resources usually belong to the
state. It is reasonable for citizens to ask
how best to benefit from them. Neither
Centerra nor Rio Tinto sufficiently en
gaged with the host countries on this
question. Complicating matters in Mon
golia, Mr Dierkes asserts, is the common
belief that there is a “perfect Oyu Tolgoi
agreement out there in the Platonic
heaven”. In Kyrgyzstan, the stakes are
higher yet: not just foreign investors’
trust in a turbulent country, but Kyrgyz
people’s dwindling trust in the ruling
classes.Mongolia and Kyrgyzstan struggle with the blessed curse of mineral wealthBanyan Mine for the taking
Pew Research Centre, an American poll
ster, identified Japan as one of six coun
tries where more than half the population
wants “major changes or complete reform
to the political, economic and healthcare
systems”. (The others on the list were
America, France, Greece, Italy and Spain.)
Mr Kishida does promise bigsounding
changes. He ran his campaign calling for a
“new model of capitalism”, contrasting
himself with Abe Shinzo, a former prime
minister whose “Abenomics” agenda had
mixed results. But no one, from Japanese
business leaders to those on Mr Kishida’s“new capitalism” council, seems to have
much idea what he means by it. Whatever
the changes turn out to be, they are unlike
ly to be radical.
Vagueness pervades Mr Kishida’s other
big agenda items, too. He celebrated his
victory by making his debut on the world
stage, joining other world leaders at the
cop26 summit in Glasgow. Though he
promised an additional $10bn in funding
to support measures for decarbonisation
elsewhere in Asia, he offered little detail on
how Japan plans to reach its own pledge to
become carbonneutral by 2050. On defence, the ldp promised in its
campaign manifesto to raise spending,
possibly even doubling it to 2% of gdp, but
Mr Kishida has yet to say what he would
spend that money on. Nor has he con
vinced the public and the powerful finance
ministry of the need to do so. Little sur
prise, then, that those in Tokyo happiest
about Mr Kishida’s victory are bureaucrats,
who see a pliable figure unlikely to upset
the status quo. Until the opposition gets its
act together, the ldpwillnothave trouble
staying in power. But MrKishida still has to
prove himself as a leader.n