Introduction

Mongolia is landlocked between the world's most populous country, China, and the world's largest country in area, Russia. Australia and Mongolia have in common low population densities, strong agriculture and mining sectors, and wide open spaces.

Resource-rich, strategically located and outward-looking, Mongolia is the world's most sparsely populated country, with 2.8 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. Following some structural reforms and privatisation, it has since emerged as a developing democracy with one of the fastest-growing economies in the world: in 2012, it is projected to be the third-fastest growing economy.

Growth is driven by agriculture and mining. Agriculture employs around 40 per cent of the population and supports traditional nomadic lifestyles. The mining sector is booming, driven by agreements on large foreign investments in strategic mining projects, such as the $6 billion Oyu Tolgoi Investment Agreement signed in 2009 between the Mongolian Government, Rio Tinto and Ivanhoe Mines Limited. The Oyu Tolgoi copper and gold mine alone is expected to boost Mongolia's economic growth and GDP by 25 per cent or more when production starts by early 2013.

Traditionally dependent on Russia and China, Mongolia has been actively seeking to broaden its international relations and has been pushing a "third-neighbour" policy since the mid-1990s to which Australia responded by strengthening relations, including by promptly establishing a scholarship program. Others to respond included Japan, the Republic of Korea and the United States which made Mongolia a beneficiary of its Millennium Challenge aid fund.

Government, business and people-to-people links

High-level, Australia–Mongolia exchanges have increased since the establishment of the Mongolian Embassy in Canberra in 2008. In February 2011, the Mongolian Prime Minister was the first Mongolian head of government to visit Australia since the two countries established diplomatic relations in 1972. Later in 2011, the Mongolian Deputy Prime Minister visited Australia to study our social welfare systems. Our foreign ministers meet at important multilateral meetings, and reciprocal visits by parliamentarians have increased. Since 2008, 51 Mongolian MPs have visited Australia. Austrade established a permanent presence in Mongolia in May 2011, and an Austrade-managed Australian Consulate-General in Ulaanbaatar opened in March 2012. Diplomatic relations are conducted through the Australian Embassy in Seoul.

While current two-way merchandise trade is modest, Australia has significant and growing commercial interests in Mongolia. More than 650 Australians live in Mongolia with a further 1000 Australians visiting Mongolia on short-term assignments at any time, and 45 Australian companies have a presence in Mongolia. Several large Australian companies are already operating in Mongolia in the mining sector, including Rio Tinto (as a leading investor in the Oyu Tolgoi mine and the mine developer), Leighton Holdings (which is undertaking contract mining and road construction and installing Mongolia's first large-scale wind farm), McMahon Holdings (contract mining) and a number of service providers including legal firms (Minter Ellison, Allens), financial sector firms (Macquarie Bank, CPS Securities, Garrison Capital) and engineering firms (WorleyParsons, SMEC, Calibre Global). The larger resource companies are also creating a pull-through effect for other Australian firms requiring their support services

People movements between Australia and Mongolia remain modest. Over 240 Mongolians have studied in Australia since 1996 under Australian scholarships. In 2011, there were 402 Mongolian student enrolments in Australia, mostly privately-funded. Over the five years between 2005 and 2010, offshore visitor visas granted to Mongolian citizens increased from 281 to 663. These numbers are relatively small, but growing. As of the 20011 census, there were over 1,200 people of Mongolian ancestry resident in Australia, with more than 600 listing their birthplace as Mongolia.

Australia continues to be a large and growing development partner of Mongolia, providing over $63 million in aid since 1995. A key challenge for Mongolia will be managing growing income disparities – about a third of Mongolia's population lives below the poverty line – and the potential hollowing-out of agriculture and other sectors compared to the mining sector. In the next five years, mining-related foreign investment in coal, copper and gold is forecast to exceed US$10 billion. By comparison, Mongolia's GDP (in PPP terms) in 2011 was $13.4 billion. Australian aid is targeted to areas of need, such as delivering water and sanitation facilities for disadvantaged communities and strengthening governance and environmental safeguards in the mining sector.

A significant contributor to expanding people-to-people ties has been the Mongolia Australian Scholarships Program (MASP). The program began in the mid-1990s and continues to be the mainstay of Australian bilateral aid to Mongolia. Many MASP alumni now occupy senior positions in the Mongolian Government and bureaucracy. Australian volunteers (48 in 2011–12) also help to strengthen those ties.

As an active contributor to UN and other peace and security missions around the world, Mongolia is a potential security partner for Australia. Our defence forces will continue to improve their interoperability and effectiveness in coalition operations through cooperation and exposure in multinational deployments and training exercises. Australian and Mongolian defence personnel have previously deployed on coalition operations in Iraq and Afghanistan and peacekeeping operations in Kosovo, Sierra Leone and Sudan.

Towards 2025

Australia is well positioned to advance key interests in Mongolia over the next decade, as Mongolia becomes more active in the region developing stronger ties with its so-called 'third neighbours'. Mongolia is a member of the Non-Aligned Movement, but continues to look to the United States, Japan, the Republic of Korea (South Korea), European Union members and others, including Australia, to expand its trade, investment, development assistance and foreign policy contacts beyond its direct neighbours, Russia and China.

The Mongolian Government faces challenges in managing its two-track economy, with a surge in mining revenues. Mongolia sees Australia as a model for managing its mining economy and mineral wealth. Australia is already working with the World Bank and Mongolia to help local authorities in the resource-rich South Gobi region manage ground-water reserves. Mongolia is a priority country under the Australian Government's Mining for Development initiative, which will provide new opportunities for Mongolia to learn from our expertise in the years ahead.

Large-scale mining projects and local labour requirements are creating great demand for skilled Mongolian workers. As demonstrated by the Mongolia Australian Scholarships Program, train-the-trainers programs can up-skill Mongolian future leaders using Australian standards and build strong people-to-people links. Australian universities with a strong mining focus can also partner with Mongolian institutions to raise learning standards and better equip graduates for the modern mining sector. The opening of the Mongolian Studies Centre at the Australian National University in 2011 is raising awareness of Mongolia among Australian academics, students and the broader community.

The mining sector expansion is also increasing infrastructure needs, including for a new international airport and power station for Ulaanbaatar, urban and rural road networks, and other major public works such as hospitals and schools in Ulaanbaatar and regional areas. Chinese, Russian, Japanese and South Korean companies are all seeking to advance such projects in Mongolia. Australia has considerable comparative advantages in financing, designing, building and operating world-class infrastructure projects in remote and challenging regulatory environments. Australian banks and other financial institutions are well placed to participate in the financing of many infrastructure projects expected over the coming years.

The agriculture sector remains an important element of the country's economy (contributing around 16 per cent of GDP in 2010) and a significant employer. There are opportunities for Australian expertise and equipment to be employed to develop Mongolia's agriculture sector, especially the wool and meat industries. Australia is working with Mongolia to expand cooperation on agriculture as part of a memorandum of understanding signed in 2011 to promote agricultural development and the sharing of information and agricultural technologies, with the aim of improving livestock and crop production in Mongolia.

Australian interests will be best served by supporting Mongolia's commitment, as an emerging democracy and open society, to the rule of law and consistent and transparent good governance. In 2012, AusAID's Public Sector Linkages Program is providing funding to the University of Sydney's Business School to deliver training to improve transparency and accountability in Mongolia's public sector. The Government Partnerships for Development program will replace the linkages program in 2012–13, and will promote partnerships between Australian public sector organisations and their developing country counterparts to enable exchanges of skills, experience and knowledge in support of the strategic goals of Australia's aid program.