World Bank identifies three opportunities to diversify Mongolia’s economy

World Bank: Policy reforms could create thousands of jobs and diversify Mongolia’s mining-dependent economy

ULAANBAATAR — Mongolia can attract private investment in three sectors—cashmere processing, solar and wind power, and exploration for minerals needed in the energy transition—to reduce its heavy dependence on mining and promote private sector-led growth, according to a new study by the World Bank Group.

The World Bank published its Country Private Sector Diagnostic (CPSD) for Mongolia on September 10. Its key findings were presented to representatives of the government, private sector, investors and development organisations at the “Unlocking Private Investment for Mongolia’s Economic Diversification” event held in Ulaanbaatar on October 6.

The World Bank estimates that implementing the policy and regulatory reforms required in these three sectors could attract several hundred million dollars in private investment and create thousands of jobs. These are not guaranteed investment amounts, however, but projections of potential outcomes if the proposed reforms are carried out.

The need to diversify an economy dependent on mining

Over the past several decades, Mongolia has shifted from an agriculture-based economy to one centred on mining. According to the World Bank’s CPSD report, Mongolia’s economy grew by an average of 3.8 percent annually between 2015 and 2024, with mineral extraction serving as the main driver of growth.

The expansion of mining played an important role in Mongolia’s classification as an upper-middle-income country in 2024. However, economic growth, government revenue and exports remain heavily dependent on the mining sector.

For Mongolia, long-term growth therefore depends not only on increasing mineral extraction, but also on turning existing raw materials into higher-value products, developing new export sectors and improving the reliability of the energy supply.

The World Bank study says these challenges can be addressed by increasing private investment, and proposes reforms to reduce the specific barriers facing each sector.

Cashmere: Mongolia supplies 40 percent of the world’s raw material but captures little of the value

Mongolia accounts for approximately 40 percent of the global supply of raw cashmere. Yet domestic participation in the cashmere value chain remains relatively limited, despite the sector being one of the country’s biggest opportunities for industrial development.

According to the World Bank, only around 20 percent of Mongolia’s raw cashmere is processed domestically. Most processed cashmere is exported not as finished goods, but as semi-processed fibre.

In other words, Mongolia supplies a significant share of the raw material to global markets, while other countries capture much of the higher value generated through finished-product manufacturing, branding and sales.

The World Bank estimates that shifting from yarn, fibre and other semi-processed products to finished goods, including ready-made garments, could increase the value generated from the same amount of raw cashmere by more than 200 percent.

The report says this would require policy reforms including improved quality standards for cashmere fibre, better pricing mechanisms and greater access to finance for producers.

If these measures are implemented, the cashmere sector could attract around $150 million in private investment and create up to 5,000 jobs by 2030, according to the World Bank. One advantage is that the raw material for cashmere production is sourced from rural areas, creating potential for jobs and income growth beyond Ulaanbaatar.