How I wish I had got a piece of the Mongolian economic miracle

The country's economy is heading to be the world’s fastest-growing this year

An overall view of the central business district as the Ger district continues to expand on October 22, 2012 in Ulaanbataar, Mongolia (Getty Images)

Some years ago, I remember reading a “nib” (what we in the trade call a news in brief item) about the Mongolians opening a stock exchange. I did wonder, quite idly, how I might cash in on whatever growth was bound to come out of this economy. If the experience of Eastern Europe, China and, more intermittently, Russia was anything to go by, then the end of state socialism would mean a huge, though socially painful, rebound in economic prospects. And opportunities for adventurous Westerners.

I couldn’t, however, find an investment trust targeting that far away, mysterious land, and, my Mongolian not being up to much and no bank account denominated in tugriks, I soon gave up on the idea.

I wish I hadn’t. The next I heard from the Mongolian stockmarket was a BBC news report over the Easter break, illustrating a piece about the Mongolian economic miracle. It was a dozy sort of place, with the traders biding their time on their smartphones waiting for any orders to turn up. The turnover that day was $10,000 or so. I suspect it will get much busier before long.

Spurred by its vast, hitherto under-exploited mineral reserves, the Mongolians are likely to be the world’s fastest-growing economy this year. Forecasters say growth could top 20 per cent, or about 100 times what we might see in the UK.

Their geography is helpful, of course – next door to China – and much of it is simply a play on their copper reserves. Mongolia looks to be the “new Kazakhstan”, a vast land mass blessed with an impressive natural endowment and, even better, a relatively small population to share it round.

The point, I suppose, is that even the most economically unpromising country or territory can see its GDP rocket if someone finds oil (1970s Scotland), diamonds (1980s Botswana) or just about everything and anything (1990s Kazakhstan). Otherwise, you find extremely rapid growth in places emerging from civil wars or other conflicts, usually where an orderly exploitation of natural resources or agricultural commodities can resume and conditions are merely returning to normal. Next year, this category of double-digit growers will include Rwanda, East Timor, Bhutan and, of course, Iraq.

The challenge is to convert that short term blessing into a long-term success story. The key, if the oil-rich Gulf states and sovereign wealth funds are any guide, is to invest the proceeds in western, established markets, notably real estate. The Mongols should follow their example; if they do we will soon see a new generation of Mongol hordes, this time invading the nicer parts of Kensington.

Triple trouble and beyond

In a few weeks’ time, we will know if we have entered the dreaded “triple dip”. Needless to say, you may expect some media coverage of this. Much of it will turn on a comparatively tiny calculation, subject to revision and error. If, say, the estimate for growth is just barely positive – 0.25 per cent – it won’t be much of a story. If it is just into the red, and the economy contracts by a little, say again 0.25 per cent, then all hell will break loose: cue synthetic rage from the Opposition and savage headlines from sections of the press.

This is silly. The reality is, in fact, worse than either scenario. What we are facing, it is worth repeating, is a long, broad stagnation, and the longest squeeze on living standards in the best part of a century.

It is fashionable to blame this on the Government’s austerity programme. I think that is only part right; far more important is the long-term (lack of) competitiveness of the British economy.

Our credit-fuelled boom disguised the fact that we simply don’t provide enough of the goods and services that we and our foreign trading partners wish to buy. Fixing that and fostering new industries is the biggest question of all; but it won’t be solved by a temporary cut in VAT or, indeed, by chopping benefits. It is the economic debate that no one seems to want.

Hamish McRae is away