Mongolia, Money, and More Money
I recently read a fascinating [to me] article in Bloomberg Markets magazine regarding mining in Mongolia. To sum it up in simplest terms, a very large multi-national corporation has a very large copper mining project going on there. (And some other smaller companies too.) The company, Rio Tinto, stands to make a great deal of money over many years off this project. It is one of the largest known copper deposits, if I recall correctly.
In an interesting case of corporate responsibility and working with the government and the people of the country, Rio Tinto not only paying the country for permission to be there, plus paying taxes, and employing many local nationals, they are going a few steps beyond that. For instance, Rio Tinto paid taxes in advance.
Did you know Mongolia is a democracy? It's true. It is. And that's what makes the next part more interesting.
Mongolia has been giving money to its citizens. Forget taxes. Rio Tinto is paying all of that. The government is just giving money to its people. Payments, free money, cash. For nothing. This is the "payment" Rio Tinto makes in exchange for taking their copper.
Keep in mind this is a country where most people outside of the large capital city live in yurts with no electricity. They have retained their nomadic, hunting, and gathering lifestyles. And now the government is giving them an extra $11,000 a year.
And following the history of pretty much every case of free handouts ever, now the people want more. They were given money, and they liked it. And now they want more free money.
This is a democracy. The president has to run for re-election. So naturally he's campaigning and telling the people what they want to hear. "We're going to make that big bad corporation pay up! Give us more money! They can't just come in here and strip our land while our people live in yurts! No!"
The president even held a big special legislative meeting where he gave a chilling speech. He made it clear that the government was going to move in and have more control over the mines. And that the companies would pay up. And the government would give the people more.
A few days later, he had the bank accounts of Rio Tinto frozen. He claimed it was because they didn't pay their taxes that year. The company pointed out he was right, they didn't pay them in that year, because, at the country's request, they had paid all of their taxes in advance! Their accounts were then unfrozen.
A president had that much control. No checks or balances. No oversight. So one to remind him of this large multi-national contract and its details.
Or maybe he knew full well what the contract said. (Not knowing about the millions and millions in advance taxes that the government relies heavily upon is a pretty big "oopsie.") And he was just campaigning.
Granted his campaigning and presidential style have a strange Hitler and Stalin propaganda vibe to them.
This situation (which may have progressed further by now- I was reading an article from May) is a fascinating one.
This isn't a case of a big bad company coming in and taking advantage of a poor, undereducated country. In fact, if what I have read is true, the company is actually doing things right. It has employed many of the locals, provided education opportunities for locals to go abroad, is showing environmental safety concern, and let's not forget those advance taxes. Those taxes which are pretty much just straight to the pocket payments of every citizen of the country.
Has there ever been a case in the history of the world where a government has moved in, taken over commercial operations (particularly ones that have proven to be lucrative), forced its people to become dependent upon them (the government), and it turned out well?
Where does this leave the corporation? Do they cave and let the government take over? (Hand over the keys and say, "Sure, you drive!") Has any company ever done that? Sold out to a government and walked away from profits?
There are some interesting similarities to copper and Mongolia to oil in the Middle East, particularly Saudi Arabia. In Saudi the people do not pay taxes. The government makes so much money off of oil that it gives money to its citizens. It's true. Just for being a Saudi male, you are given money. Plus they have family money. This (combined with other cultural issues there) has led to an interesting problem with laziness and education. What incentive do the men have to work or get a decent education if the government is just going to give them money? (And these are not people living in poverty. These are wealthy people.)
There will likely never be a war with Mongolia over copper the way there has been with government controlling oil and lands in the Middle East.
But it is an interesting discussion.
What responsibilities does the corporation have to make the government happy? Many investors have been looking to Mongolia as the next big pay day- what is their moral responsibility? (Or is it even a safe investment anymore? Does anyone think the government won't ruin the situation?)