Mongolia, a vast, sparsely populated country almost as large as Western Europe, is at once strikingly poor and strikingly rich. Its GDP per capita falls just below that of war-torn Iraq, and Ulan Bator has some of the worst air pollution ever recorded in a capital city. At the same time, Mongolia sits atop some of the world’s largest mineral reserves, worth trillions of dollars, and its economy, already one of the world’s fastest growing, could expand by a factor of six by the end of the decade as those reserves are developed.

As the government undertakes the long process of opening up the country’s mineral wealth, Mongolia is nearing a familiar turning point for resource-rich but developmentally poor countries. However, a unique and dynamic set of environmental and cultural factors set it apart from places like the Democratic Republic of the Congo, Nigeria, Bolivia, and Afghanistan, as it works to avoid the pitfalls of the “resource curse.”

Nearly 40 percent of Mongolians are herders whose livelihoods are irrevocably intertwined with their environment. Herding has been an economic and cultural mainstay of rural life since the days of Genghis Khan. Children as young as five race horses for miles across open grassland in the Naadam, Mongolia’s annual national festival. The winning jockeys are celebrated and the winning horses idolized. Mongolia’s reverence for its nomadic roots extends all the way to its 20-year-old constitution, which enshrines livestock as “national wealth” to be protected by the state.

But today, the livelihoods of families reliant on grazing livestock are under threat from a climate that is becoming increasingly harsh and unpredictable. Mongolia is feeling the effects of climate change “perhaps more rapidly than any other place in the world,” proclaimed the vice chairman of parliament this year. Desertification is driving the Gobi Desert to expand by 10,000 square kilometers every year – enough to fit the state of Delaware two times over.

Compounded by increasingly harsh winter storms, the changing climate is driving herders to relocate to Ulan Bator and other cities in search of better opportunities. That migration is adding to sprawling slums, cook stove-driven air pollution, and a public health crisis that the president himself has called a “disaster.” These changes are set to have a uniquely powerful impact on a national identity that is interwoven with the herding tradition.

Navigating the country’s mineral wealth is not, therefore, just a matter of avoiding the standard pitfalls – corruption, inequity, and environmental destruction – of the resource curse; lawmakers will also have to contend with preserving a way of life that has defined Mongolia for centuries.

Every Mongolian a Millionaire?

Estimates for Mongolia’s mineral wealth range from $1.3 trillion to $2.75 trillion in the 10 biggest mines – and those amounts reflect just the 27 percent of the country that geologists have mapped so far. While mining has long been a part of the country’s economy, the past few years have seen the industry explode as massive gold, copper, and coal deposits in the country’s south have been opened to foreign investment.

Oyu Tolgoi, a copper and gold mine, was opened up to Canada-based Ivanhoe Mines (and its majority shareholder, global mining giant Rio Tinto) in 2009 following six years of negotiations with the government, which owns a third of the mine. OT, as it is called, is scheduled to open next year and has already drawn more than $4 billion in foreign investment in construction – just shy of Mongolia’s entire 2009 GDP.

Tavan Tolgoi, the world’s second largest coal deposit, is slowly being opened up to investment as the government negotiates with Chinese, Russian, American, South Korean, and Japanese firms for rights to the deposit’s western block. Meanwhile, state-owned Erdenes Tavan Tolgoi is slated for an IPO next year in advance of expanding its mining operations in the deposit’s eastern block. Populist fears of foreign companies – especially those from China and Russia – gaining too much control over the country’s resources have complicated negotiations; the government has said that if an agreement is not reached by mid-2012, it will begin developing the western block on its own.

Tavan Tolgoi and OT have led Mongolia to “the brink of an investment bonanza that could see its economy double in size every three or four years,” according to the Financial Times. The country’s GDP growth leapt from 6.4 percent in 2010 to 17.3 percent in 2011 in large part because of construction at OT, and on a per capita basis, its mineral wealth is enough to make all 2.75 million Mongolians a millionaire.

In spite of that resource wealth, Mongolia is still very poor. As a satellite country during the Soviet era, Mongolia received as much as a third of its GDP from Moscow; with the USSR’s fall, education, health, and economic policies and programming went largely underfunded, resulting in a striking paradox that mires development today.

Education and employment offer a case in point. Even though more than 90 percent of Mongolians have attended school through the secondary level, there is a mismatch between the skills they learn and the skills the changing labor market demands, resulting in a well-educated but unemployed population where 1 in 10 are out of work. More than a third of the country lives in extreme poverty with a daily income of less than $0.40, and overall poverty rates have remained stagnant for decades.

Winters of White Death

Although pastoralism has been a mainstay of life in Mongolia for centuries, the past 20 years have seen an explosion both in the number of herders and in the size of individual herds. As former Soviet limits on herd sizes were lifted, Soviet factories shut down, and access to cheap Soviet goods like meat and dairy dried up, Mongolians turned to the countryside in record numbers.

Herders took on more animals as a way to hedge against uncertainty, including harsher, longer, and more volatile winter storms, or dzuds (literally meaning “white death”). From 1990 to 2010, the country’s livestock population jumped from 10 million to 40 million, ultimately outnumbering Mongolians by a factor of more than 14.

These larger herd sizes are exacerbating environmental changes already underway. Mongolia’s average annual temperature has risen three times faster than the global average, and almost the entire country – 90 percent – is vulnerable to desertification. Taken together, climate change and overgrazing have degraded more than two-thirds of pastureland.

The 2009-2010 winter is proof of the combined toll that climate change, growing herd sizes, and dzuds can have on rural Mongolians. A dry spring and summer left little surface water or grass for livestock to eat or drink by winter, so they were more vulnerable to storms, which were the worst in living memory. According to the UN, the winter impacted nearly one-third of Mongolians and contributed to higher rates of malnutrition, a 35 to 40 percent increase in infant mortality rates, and double the usual maternal mortality rates. By the end of the season, 17 percent of livestock had died off and more than 20,000 herders had given up on rural life and moved to urban areas instead, according to UN estimates.

The lure of mining jobs and basic services like schools and hospitals (few and far between in the countryside) add to the pull that Mongolia’s few cities exert over herders. Once in the cities, though, herders often end up living in slums made of gers, traditional felt yurts. In Ulan Bator, 60 percent of residents live in ger districts that are almost completely disconnected from the city’s infrastructure and lack even the most basic sanitation services. Slum conditions are so bad that Dave Lawrence, a career development worker writing for the World Bank’s East Asia and Pacific blog, wrote that “nowhere else in the world do so many people live as if they were refugees from war or a natural disaster.”

According to a 2009 World Bank report, the slums – where families keep warm during sub-zero winters with little more than coal-fired cook stoves – are a driving force behind pollution levels that surpass even those of China’s notoriously polluted skies. In 2010 the World Health Organization announced that Ulan Bator had “the world’s worst air pollution” – an unexpected distinction for the capital of one of the world’s most sparsely populated countries (second only to Greenland).

Pollution levels across the city reach their highest in the overcrowded, impoverished, and coal-heated slums during winter months. Mortality rates are an estimated 24 to 45 percent higher than what they would be if pollution levels were in line with international air quality standards, according to World Bank projections. Pollution levels peak during cooking times, suggesting that those responsible for cooking and other household chores – often women and girls – bear the brunt of indoor exposure.

A Struggle to Balance Mining and the Environment

The mining boom adds another layer to the country’s delicate environmental balance. Mongolia is naturally susceptible to food insecurity (the proportion of undernourished has hovered around one-quarter of the population for the past two decades), and water access in particular plays a large role.

One-third of Mongolia’s provinces fall “well below the international norm that defines absolute water scarcity,” according to the UN Development Program, and more than half of the population lives without access to clean water. Mining is exacerbating both problems as unlicensed operations pollute scarce above-ground supplies (which are frozen half the year), while large-scale works divert the primary underground sources.

“My greatest fear is we won’t have water,” Mijiddorj Ayur, a 76-year-old herder in the Gobi, told NPR in May. “I don’t care about the gold or the copper, I’m just afraid there won’t be water.”

Even in the northern part of the country, which has yet to see a mining boom on the same scale as the south, water remains contentious. In September 2010, a group of four activists armed with hunting rifles shot at foreign-owned mining equipment stationed along the country’s longest river, which feeds into Lake Baikal. Based on an environmental protection law banning mining operations near headwaters, the riverside mine was illegal; however, weak enforcement meant the law was easy to ignore.

The incident is emblematic of a problem that even the country’s mining regulators acknowledge. “The principle of the [headwater] law is right,” Tamir Tegshsaikhan, an official at the country’s mining regulator, told EurasiaNet after the 2010 incident. “The government adopted the law with a view to protect the environment, but the implementation side has many issues.”

The Only Path Out of Poverty?

Corruption, which runs rampant throughout the government, makes implementation all the more difficult. A 2005 USAID report showed that Mongolians saw corruption as one of the top three challenges facing the country, following poverty and unemployment. That same report found that “by far the most problematic characteristic of Mongolia’s corruption is that it takes place at an elite level and involves a conflict of interests between the state and private sectors.”

With that warning, the prospects for equitably and safely developing the mining industry appear bleak, especially given the extreme reliance on the industry as Mongolia’s best chance at prosperity. The country’s standing in Transparency International’s annual corruption perception index offers further cause for concern – since Mongolia first entered the index in 2004, its ranking has dropped from the 85th least corrupt country in the world to 120th in 2011, placing it alongside the likes of Iran and Kazakhstan (worth noting is the fact that during those years, 37 countries were added to the index).

Corruption is front and center in domestic politics this year after the former president, Nambaryn Enkhbayar, was arrested following allegations that he misused public funds while in office. While observers agree that Enkhbayar, like most public officials, likely enriched himself while in power, the case against him is seen as so politicized and poorly handled that it has become a lightning rod for criticism of the current government.

Because of the corruption case, Enkhbayar was barred from running in the country’s recent parliamentary elections, which took place on June 28. The elections were billed as the answer to two key questions surrounding the mining industry: first, how should the government redistribute revenues given the country’s widespread socioeconomic troubles? And second, to what degree should lawmakers welcome foreign investment? The Democratic Party, which won the most votes but fell short of a majority, announced last week that it would form a coalition government with Enkhbayar’s Justice Coalition, which struck a strong nationalist tone during the elections; concerns about resource nationalism in the new government are reportedly already growing among mining companies.

“Exploiting Everything Is Not Development”

Perhaps unexpectedly, the country’s lawmakers acknowledge the precariousness of its current situation. Mongolia “is in a critical stage of our development,” said Prime Minister Sukhbaatryn Batbold last October at an Asia Society Forum. Reinforcing his concern, another senior government official said in 2010 that “it’s a question of whether we become Nigeria or Chile.” Lawmakers take study trips to places like Chile, Canada, and Norway, which have managed to balance resource wealth with socioeconomic advancement. “We don’t want to reinvent the wheel,” Batbold said.

To that end, lawmakers have taken noteworthy strides towards ensuring the resource boom leads to healthy development. Parliament passed anti-corruption legislation barring lawmakers from making campaign promises about jobs or money, and the major parties agreed to a ban on cash handouts in advance of the recent elections. The government established two funds with mining revenues, one to make payments to the country’s poorest residents and the other to subsidize prices for basic goods when markets are volatile. And there is an active civil society: When lawmakers failed to make payments from the Human Development Fund, for instance, massive protests spurred them back into action.

While these measures offer hope for Mongolia’s future, whether they can be successfully and effectively implemented remains to be seen. In advance of last month’s elections, lawmakers found ways to skirt the cash handout ban through a buy-back program where the government paid Mongolians $760 each in exchange for their shares in the state-owned mining company. This pattern will have to change if Mongolia is to develop over the long term while avoiding the dangers of the resource curse and protecting a fragile but nation-defining landscape.

Tsetsegee Munkhbayar, one of the four herders involved in the 2010 shooting protest and the 2007 recipient of the Goldman Environmental Prize, warned that in a place like Mongolia, where so many depend on the land for their living, protecting the environment will be an essential part of ensuring that the mining industry is able to contribute to a brighter future for his country.

“Exploiting everything,” he said, “is not development.”