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Historical Origins of the French School of Economic Warfare

Gagliano Giuseppe

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[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] H [/yt_dropcap]istorically speaking, the promotion of intelligence culture in France has been required to clash with both a problematical and controversial linguistic orientation and a much deeper and more influential attitude: France’s inability or unwillingness to reason in terms of power, and therefore take a position on economic warfare one way or another.

This reticence may be explained by the fact that on more than one occasion in its relatively recent past France has had to ally with its enemy, in this way stripping the word “patriotism” of its meaning. Every time a group committed to the conquest of power allied with the enemy, the French lost faith in patriotic ideals. This happened with the succession of Louis XVIII after Napoleon in 1815, with the support given to Bismarck against the Commune Uprising in 1870, and with the collaboration with Nazi Germany during the Second World War. Also the Colonial Wars and the Cold War contributed to creating a certain disillusionment with patriotism, while the concept of power came to be considered purely as an act of domination at the same time. In any case, not betraying the ideals that lie at the basis of the history of the French Republic – from those underlying the French Revolution of 1789 to those of the Nazi-Fascist Resistance of 1945 (these latter inspired by an economic system of Keynesian inspiration), and not forgetting the spirit and dedication of men who, like General De Gaulle, interpreted national power as autonomy while providing prospects for the economy as well – means empowering a nation that is both strategic and a partner to the nation’s most vital parts at the same time. This is what the experts and supporters of business intelligence in France have been trying to accomplish for the last forty years.

The ‘70s: reticence and defensive action

It is not easy to determine the real date of birth of the tradition of French economic warfare. Even if today it might be ranked among the most prominent on the European continent, in fact, the negative connotations attributed by French culture to intelligence operations, which are unjustly associated with spying, the violation of privacy, and deceitful campaigns, conditioned it and limited its development for a long time. The comparison with the public information policies – defined as a “body of laws, regulations, directives, interpretations and sentences of law that direct and orient the information lifecycle, [which] includes the planning and creation, production, collection, distribution, and disclosure of information” – enacted by the United States government after the Second World War undoubtedly provided an important incentive for French public authorities, which towards the end of the ‘70s began to understand the need to fill the gap that risked seriously penalizing France in terms of national (political) independence and strategic autonomy (in the economic field). It would take more than a decade, however, in order for the imperative of competitiveness in global markets, necessary at corporate level, to be fully comprehended also by the public administration and to take form in an evident expansion of the range of action of government intervention. If up until that moment the management of information throughout its entire lifecycle had been finalized exclusively for the internal purposes of the various institutions, starting from the end of the ‘80s it began assuming central importance in defining the government’s economic policy and creating a fundamental “alliance” between the public and private sectors.

The first to realize the importance of the advantage held by the United States in the management of information for social and economic development, around the end of the 70s, were Serge Cacaly, on one hand, and Simon Nora and Alain Minc, on the other. The former, an information and communication science researcher, published two studies in 1977. One, emblematically entitled Le révolution documentaire aux États-Unis, emphasized the importance of recognizing information as the driving force behind progress as closely linked to extraordinary developments in computer science and its increasing advances in qualitatively and quantitatively analyzing documents on the other side of the Atlantic. Information, even if still masked by the skirmishes of the Cold War that preceded military and space research, was becoming the one most important sector on which world supremacy could be based.

In the wake of these studies, in 1978 the high functionary Nora and the younger political advisor Minc presented the President of the French Republic with the report entitled L’informatisation de la société, which for the first time, together with the acknowledgement of the United States’ ambition for world supremacy in science and technology based on information management, revealed the French fear of such domination and its potential impact on society and the control of power. It is symptomatic that this attitude transpires from a document of political orientation and here lies the origin of the French government action to stimulate the activities of collecting, processing, and distributing information. Nora and Minc, in fact, repeatedly emphasized the government’s role as the holder of a power of influence derived directly from the social contract and national unity based on guarantees, a power that must be applied also to the new technologies and the control of the same. Public intervention in the information field is therefore not only fundamental but even necessary for society in order to avoid the risk of domination concretely posed by US supremacy in the field of information. The words that the two authors used to express this concept are strong indeed: “[…] it is the entire future of the French-speaking world and the identity of France that is being placed at risk” . On the other hand, these considerations were supported by constant reference to real data: the number of computers imported (more than 80% of the entire fleet of French information technology equipment was produced by the USA), but above all the control of the reference databases (seven out of eleven databases controlled by the United States) . This latter element, in particular, is crucially important as databases are essential in economic, technical, scientific, and academic activities, because they are sites of conservation of information that can be accessed only under determined conditions and enable research also from far away. Real power does not come from merely knowing data and information but controlling it, with the possibility to manipulate and decide who else can do this as well. The fact that such power was left nearly exclusively in the hands of foreign powers was therefore deemed a highly alarming loss of sovereignty by Nora and Minc. Hence, these two authors proposed that the government take action and develop a vigorous policy in supporting research, forming a national industry in the information field, and developing telecommunications infrastructure, stimulating these activities from both the juridical and financial points of view.

Analyzing the government’s real situation in the moment that these proposals were made, or in other words, which public institutions were effectively involved in managing information, a fairly varied panorama is revealed. First of all, we see the INSEE (National Statistics and Economic Studies Institute), the nearly exclusive producer and distributor of statistical and economic data and the direct heir to a concept that stood at the origin of the modern state itself, when back in the 17th century, “statistics”, in other words “whatever regards the state”, began supplying an indispensible tool for the exercise of government. As regards instead the management of information on the international situation, every single government department handles the task by itself: the Defense Ministry’s Evaluation and Forecast Center, the Foreign Affairs Ministry’s Analysis and Forecast Center, the Ministry of Industry’s Observatory on Industrial Strategy, the General Commission on the Plan, International Information and Forecast Study Center, and the Ministry of the Economy’s Forecast Directorate. In any case, this picture only confirms what had already been confirmed above: a similar structure was destined exclusively to responding to the needs for information and analysis inside the administration. The comparison with the United States, where the distribution of the information collected by public and private organisms working in the sector in favor of the nation’s economic operators was a well-consolidated practice instead, and economic crises such as the oil crisis of the ‘70s would emphasize the need for imperative of competitiveness that the French government would no longer be able to ignore and that would bring it to modify its structures and methods of action in the information field. Information policy, which was still uncertain , consisted of a system that tended to privilege defensive actions more often than offensive actions, even if performed in the logic of national independence and strategic autonomy. The imperative need for competitiveness clearly revealed all the limits of an approach such as this one.

The ‘80s: the first change

The first attempts at a change of direction in government action were made in the ’80s in the system of aids given to companies: instead of interventions that privileged direct subsidies, a system of indirect aid based more on supporting innovation was adopted. Furthermore, whereas previously government aid was concentrated on the larger industrial groups, the new system was characterized by the shifting of importance to small-and-medium sized companies. These new methods of government intervention associated with the introduction in France of new business strategy tools destined to anticipate the changes in the environments finally succeeded in launching the diffusion of information culture, particularly in regard to scientific and technical information, which in the time of a decade would lead to the effective adoption of a business intelligence policy.

The French Ministry’s Evaluation and Forecast Center may be considered the party most responsible for this new partnership between the government and the nation’s businesses and the important stimulus given to information culture. Envisioned at the start of the 80s by the current Minister of Technology and Research on the model of the above-mentioned Defense Ministry’s Evaluation and Forecast Center and initially directed by Thierry Gaudin and Marcel Bayen, the CPE was dedicated to evaluating research, industrial strategies, and forecasts but above all to so-called “technological monitoring”. This term was rendered popular by Jacques Morin, a technology transfer consultant, to indicate a company function in support of real business activities that represented “[…] the testimony of the determination to supervise the technological business environment for strategic purposes and to identify the threats which – if intelligently anticipated – might even be transformed into opportunities for innovation. It also implies that an internal system of appropriate information exists for the exploitation of the results” .

Comparison with the United States, but also with Japan, where the culture of adapting company behavior to changes imposed from the outside is an integral part of the managerial mentality, continued to be in France’s disfavor. The nation’s delay was once again made clear, especially in regard to its scarce use of databases, which were considered merely as archives and not as active instruments of the monitoring function. Hope arose for the assignment of such function to highly specialized managers capable of developing a strategy, at the very least, as well as substantial information science development in the field of documentation. The environmental monitoring approach had already been anticipated by Humbert Lesca . It consisted in a systematic approach to the company’s openness to the regional, national, and international environment with the explicit intention, from the organization’s bottom to its top, of not being caught off guard by change and evolving along with it or even before it in the implementation of a structured device finalized to receiving the signals coming from outside. The monitoring, according to the definition provided by Lesca, would therefore be a “system by means of which the company scrutinizes its own ‘external’ surroundings and anticipates the changes, as far as possible, [transforming] the raw information it has on its environment into a form of business intelligence serving its own future.”

The Evaluation and Forecast Center was therefore actively committed to monitoring activity at national level and gathering information on the international scene regarding questions of scientific and technical interest, technological innovation, and the multinationals. The beneficiaries of this activity were, above all, a number of sectors deemed strategic, such as materials development, information technology, and biotechnologies. In addition to the development of these skills by itself and directly at the service of the Ministry of Research and Technology, this Center was also involved in distributing its studies and analyses in the private sector, especially to the advantage of consulting companies and other public actors. Its objective was to achieve independence, once again, from the US power that appeared threatening also in the context of strategic studies and monitoring operations, thanks to the spread and activities of its own consultancy companies. The institution halfway through the ’80s of the Aditech Association, the nerve center in the development of business intelligence in France, was the work of the Center’s directors for the purpose of facilitating this activity of external diffusion and the signing of contracts with companies in the private sector.

The famous Study No. 100 written by two experts, Bernard Nadoulek and Christian Harbulot, who made important contributions to the business intelligence in France, was published as part of Aditech research activity. The former was a professor of the French Karate Federation who had begun teaching martial arts at Club Montagne Sainte Geneviève in 1971, in addition to being acclaimed for publishing articles and books about the struggle against power and strategy (a subject on which he became a consultant in 1986), such as Du karaté à l’autonomie politique or Désobéissance civile et luttes autonomes. The latter was a close associate of his, a former Maoist militant and member of the same karate club with whom he signed articles entitled Le Conflit gradué and Affrontements de théâtre et verrou panaméricain. In particular, Christian Harbulot, who would fill the role of aggregating the three prevailing models of intelligence at the time – military, diplomatic, and police – establishing the unity of economic patriotism and society’s revolution through the notion of economic warfare for which business intelligence would serve as a vector. On the other hand, the term “economic warfare” is an expression that was often and willingly used also outside the restricted specialized field of business intelligence in those years, particularly by politicians. One example, Lettre à tous les français written by President François Mitterrand in 1988, even contains a section entitled “Le guerre économique mondiale” in which he emphasized the ferocity of competition between companies in the international market.

It is therefore L’intelligence stratégique that marked the real change of pace, at least in intentions, in the context of business intelligence in France, given that the instruments proposed by its two authors referred entirely to military strategy and ideological warfare. A change in terminology was suggested in order for the strategic actions of the companies and the state to be able to finally shift from a defensive position to authentic offensive action thanks to a new approach to competition based on the study of the dynamics of competitive behavior upon which to establish principles of action for company managers. Practically speaking, this study provided a key to interpretation and a functional method for the development of business strategy devised around three matrices directly inspired by combat techniques . The latter were: direct action on the situation and relationships of force, short-term business plan strategy; indirect action on the system, the protagonists, and relations, mid-term strategy that acts on the scenario in which the company seeks partnerships and alliances but also diversification in regard to competitors; taking anticipatory action on the context, on the rules of the game, and on the forces, and long-term strategy that is merely the business plan.

The ‘90s: the definitive consecration

The second half of the ‘80s had already given significant propulsion to the development of business intelligence in France thanks to the re-launching of a national policy in favor of the aforementioned scientific and technical information, which was further increased by the activity of its leading competitor nations: the United States and Japan. It was, however, the radical change of the international scenario , with the fall of communism, the end of the Cold War and the dynamics of the face-off between the two power blocks that had characterized the international – also economic – relations of the past forty years and the consequent dominance of the mechanics of globalization with its questioning of the autonomy and power of the national state, that led to the definitive consecration of business intelligence in France. The Martre Report, drafted by Philippe Baumard, Philippe Clerc and Christian Harbulot, among others, was the milestone. Published in February 1994, the report from the General Commission on the Plan defined business intelligence as follows: “the aggregate of the coordinated actions of research, processing, and distribution of information useful to economic operators for the purpose of capitalizing on the same. These various actions are conducted legally with all the guarantees of protection necessary for the conservation of the nation’s business heritage, in the best conditions of quality, time, and cost. Useful information is deemed that which requires various decision-making levels of in the company and the community for the development and coherent implementation of the strategy and tactics necessary to achieve determined objectives with the purpose of improving their positions in the context of the surrounding competition […]. The notion of business intelligence implies transcending the single actions designated with the terms of documentation, monitoring […], and the defense of the nation’s competitive heritage and influence […]” . In other words, business intelligence was defined as the chain of operations that range from the collection of useful information from open sources to the transmission of material to the governmental decision-makers assigned to the formulation of strategies for national defense and the reinforcement of the nation as a system, actively involving the private sector. Before presenting the tangible processes to be marshaled by the protagonists of business intelligence in France (the state, banks, companies, and other local agencies), the report summarized a number of previous studies that made comparisons with the business intelligence systems of other nations considered as models and that should inspire in certain ways the future French development in this sense. The United Kingdom and Sweden represented the two precursor nations. The former was the home of intelligence also from the lexical point of view, and there it is immediately understandable and its integration in any system political decision-making is natural. The latter, instead, was strong on the basis of a collective effort at national level and favored by its cultural homogeneity, for the construction of strategic information engineering in which public (university) and private (companies) institutions work together.

As regards Germany, Japan, and the United States, while the institution in the modern sense of business intelligence in the first two nations was traced back to the ‘30s and the presentation of the same reflected the content in large measure of the two works cited in the footnote, in the latter the more recent developments after the fall of communism and fervently desired by the Clinton administration were emphasized, and fervently desired by the Clinton administration, which by that point had made such an investment in economic security as to create an organization dedicated expressly to the purpose, the National Economic Council. France now has nothing to envy to these nations in terms of business intelligence, which in its own way benefits from a certain tradition and history. What has been lacking, however, is the passage to a collective and national information system. This has been hindered primarily by two factors mentioned previously but clearly and incontrovertibly illustrated in the report: firstly, the barrier existing between the administration and the companies, and secondly, a certain passivity in the actions of these latter, which were too often limited to technological monitoring in a defensive and protective sense.

The vocabulary adopted by the authors of the report addresses this second point in a decisive way. Based largely on the works of Christian Harbulot, the use of terms such as “offensive action”, “competitive aggression”, and “power relations”, indicates the hoped for and necessary evolution in the context of French business intelligence while shunning the use of the term “renseignement” due to its negative connotation that nearly always evokes dirty police practices. It is however restricted by the use of the concept of monitoring, which evokes an approach that is insufficiently dynamic that for as much as it is indispensible should also be supplemented by offensive actions in the field. As regards an action intended to overcome the limit represented by the first point, the authors themselves contributed to the construction of business intelligence and the formulation of these new elements of language and disclosed them to the public. One important example is a serious discussion dedicated to the theme “Business intelligence: information at the service of competitiveness” organized in Parliament in June, 1994, by ADIT with the presence of various representatives of the group of the General Commission on the Plan responsible for the drafting of the Martre Report, including Henri Martre himself, Jacques Villain, François Jakobiak, and Bruno Martinet .

A fundamental role was also played by the work begun at the end of 1994 by Philippe Caduc at ADIT and Rémy Pautrat at the SGDN (National Defense Secretary General) with the idea of transforming business intelligence into an object of public intervention. Pautrat, in particular, a former director of the Directorate of Territorial Monitoring and Prefect, attempted to effectively implement his vision of an administration at the service of the companies, given that his objective to create a National coordination structure was inspired by the model of operation of the United States National Economic Council. In the opinion of Pautrat, the efficiency of the state as the producer of data, analyses, and strategies depends on the depth of its awareness of the needs of its industries. For such purpose, together with the ADIT Director, he drafted an action plan composed of ten priority actions, ten new proposals to be added to the four made by the General Commission on the Plan , taking into consideration the international scenario and the development of Internet with greater awareness. In addition to re-appropriating a national approach that for various reasons had been neglected, the other actions proposed by the two experts regarded education and training. These included the institution of organizations ad hoc; the already repeatedly invoked creation of national databases to be marshaled against those managed by competitor nations in order to provide French companies with real knowledge of the sectors in which they operate and information on their competitiveness in foreign markets; and the development of skill centers specialized in Internet technologies, in light of its growing importance. They also included the presence of France in the international moments of standardization in this field, with a similar presence through key roles at the most important international organizations and two research efforts – one that recognized the sources available and their methods of diffusion in the United States and Japan, the other a list of foreign experts in the subject who had lived in France – both innovative and strategic in the sense of possibly anticipating the moves of competitor nations, and consequently, offensive and not merely defensive actions. The coordination of this action plan was entrusted to the CCSE (Committee for Economic Security and Competitiveness), an inter-ministerial structure open to qualified external experts so fervently desired by Pautrat and set up with an agreement signed on February 1st, 1995.

It is above all in the world of education and training, a fundamental field of action indicated in both the Martre Report and the CCSE action plan that concrete developments were made in the second half of the 90s. In order to respond to the new need for specialists capable of integrating business intelligence into company administration processes, thus enabling the challenges posed by global competition and the information society to be faced as protagonists, following a period of support provided from training centers more specialized in the organization of seminars, conferences, and specialization courses, as of 1995 many faculties of economy and commerce and polytechnic schools began providing specialization courses in “business intelligence” and graduate courses in Business Economics and Company Administration. One example is the CESD (Strategic Defense Studies Center) instituted at the University of Marne-la-Vallée for the purpose of promoting the study and research in business intelligence and creating a crucible of ideas regarding defense and security in modern society.

This process led to the establishment of a School of Economic Warfare at the Higher School of Applied Business Sciences in Paris by Christian Harbulot and the former director of EIREL (the Inter-force School of Intelligence and Linguistic Studies) in Strasburg, general Jean Pichot-Duclos, in 1997. For Harbulot, the creation of this school filled two specific needs: the study in greater detail and depth of the dynamics underlying the relationships between economic forces, and the civil applications of information warfare, given that the latter notion was absent from the strategic planning of the companies, administrations and local authorities. The people trained by this school, approximately seven-hundred students since its creation, would become “experts in the management of information and power relations”. Parallel to this development in the educational world and as a direct consequence of the same, publications and research on the subject have increased in the last twenty years. In the world of publication, two aspects were manifested at nearly the same time: a notable increase in the production of French business intelligence as of 1995, with the creation of ad hoc series by the nation’s leading publishers (such as the “Culture du renseignement” series published since 1999 by Harmattan) and a decline in the publication of books written by foreigners on the subject. From the academic point of view, in the past twenty years many Master’s/PhD degree theses have been dedicated to a topic that is interdisciplinary by nature because it embraces subjects that range from history to political science, from law to economic science, and naturally, to information technology and communication. The analysis of this academic production reveals the progress of what might be considered, and what we have tried to represent with this contribution, as a truly and specifically French school of business intelligence.

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Economy

Côte d’Ivoire: Robust growth under the looming threat of climate change impacts

MD Staff

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According to the Economic Update for Côte d’Ivoire, published today, the short- and medium-term outlook for the Ivorian economy remains positive. The economy is expected to maintain a steady trajectory, with GDP growth of 7 to 7.5% in the coming years. Titled “So Tomorrow Never Dies: Côte d’Ivoire and Climate Change,” the report highlights the urgent need to implement measures to ensure that climate change impacts do not imperil this economic progress and plunge millions of Ivorians into poverty.

“The solid performance of the Ivorian economy, which registered growth of almost 8% in 2017, is essentially due to the agricultural sector, which experienced positive climate conditions. The economy also benefited from a period of calm after the political and social instability of the first half of 2017 and from more favorable conditions on international markets,” said Jacques Morisset, Program Leader for Côte d’Ivoire and Lead Author of the report. “The Government also successfully managed its accounts, with a lower-than-expected deficit of 4.2% of GDP, while continuing its ambitious investment policy, partly financed by a judicious debt policy on financial markets.

However, the report notes that private sector activity slowed in 2017 compared with 2016 and especially 2015, which may curb the pace of growth of the Ivorian economy in the coming years. Against the backdrop of fiscal adjustment projected for 2018 and 2019, it is critical that the private sector remain dynamic and become the main driver of growth. This is particularly important in light of the uncertainty associated with the upcoming elections in 2020, which could prompt investors to adopt a wait-and-see approach.

As economic growth in Côte d’Ivoire relies in part on use of its natural resource base, the authors of the report devote a chapter to the impact of climate change on the economy. They raise an alarming point: the stock of natural resources is believed to have diminished by 26% between 1990 and 2014. Several visible phenomena attest to this degradation, such as deforestation, the depletion of water reserves, and coastal erosion. According to the Intergovernmental Panel on Climate Change (IPCC), climate change could reduce GDP across Africa by 2% to 4% by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 billion to 770 billion in 2040.

This report sounds an alarm in order to spark a rapid and collective wake-up call,” said Pierre Laporte, World Bank Country Director for Côte d’Ivoire. “Combating climate change will require prompt decisions and must become a priority for the country to maintain accelerated and sustainable growth over time.”

The report pays special attention to coastal erosion and to the cocoa sector, which represents one third of the country’s exports and directly affects over 5 million people. With 566 km of coast, Côte d’Ivoire now boasts a coastal population of almost 7.5 million people, who produce close to 80% of the national GDP. Two thirds of this coast is affected by coastal erosion, with severe consequences for the communities and the country’s economy.

The Ivorian Government, which is already aware of this challenge and has prepared a strategy to confront it, must expedite its implementation. This would have the two-fold effect of developing a “green” economy and creating new jobs.

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A future of work based on sustainable production and employment

Simel Esim

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On the first Saturday of July each year, the international community celebrates the International Day of Cooperatives. This year’s theme, Sustainable consumption and production of goods and services is timely, as the ILO works towards a future of work that is based on sustainable production and employment models.

As head of the ILO’s Cooperative Unit, I have witnessed firsthand the positive impact of cooperatives’ commitment to sustainable consumption and production.

In Northern Sri Lanka, for instance, after years of civil war, I saw how cooperatives helped build the resilience of local communities.

A rapid assessment at the start of the ILO’s Local Empowerment through Economic Development project (LEED) indicated that cooperatives were the only “stable” structures present in Northern Sri Lanka before, during, and after the conflict. Since 2010, the project has been supporting agriculture and fishery cooperatives by securing fair trade certification for their products and helping them establish market links.

I’ve also listened to inspiring stories from other parts of the world of how cooperatives have joined forces to contribute to sustainable consumption, production and decent work – often through cooperative-to-cooperative trade.

Some of these stories were shared at a recent meeting in Geneva of cooperative and ethical trade movements.

We heard how Kenyan producer cooperatives’ coffee has found its way on the shelves of Coop Denmark and how biological pineapples from a Togolese youth cooperative are being sold in retail cooperatives across Italy. We heard how consumer cooperatives in East Asia have developed organic and ecolabel products, while educating their members about the working conditions of producers and workers, as well as on reducing food waste and plastic consumption. We also shared ILO experiences in supporting constituents in the field.

The emerging consensus from the meeting was that cooperative-to-cooperative trade can help lower the costs of trade, while ensuring fairer prices and better incomes for cooperative members and their communities. Opportunities exist not only in agricultural supply chains, but also in ready-made garments and other sectors.

Cooperatives at both ends of the supply chain have been joining forces to shorten value chains, improve product traceability and adopt environmentally-friendly practices. At the ILO we have been working with our constituents to improve the social and environmental footprint of cooperatives around the world.

As the ILO continues to promote a future of work that is based on sustainable production and employment models, a priority for us in the coming years is to facilitate the development of linkages between ILO constituents and cooperatives. The aim is to encourage joint action towards responsible production and consumption practices, the advancement of green and circular economies and the promotion of decent work across supply chains.

Source: ILO

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Economy

Mongolia’s Growth Prospects Remain Positive but More Efficient Public Investment Needed

MD Staff

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Mongolia’s economic performance has improved dramatically with GDP growth increasing from 1.2 percent in 2016 to 5.1 percent in 2017 and 6.1 percent in the first quarter of 2018. While short- and medium-term economic prospects remain positive, Mongolia faces core structural vulnerabilities that hinder its potential, according to Mongolia Economic Update, the latest World Bank report on Mongolia’s economy launched here today. The report also highlights the importance of improving efficiency of its public investment programs given extensive consequences from the overambitious and unrealistic investment programs implemented in the past.

“Last year was a good year for Mongolia with favorable commodities prices and the successful implementation of the government’s economic recovery program,” said Dr. Jean-Pascal N. Nganou, World Bank Senior Economist for Mongolia and Team Leader of the report. “This resulted in improved fiscal and external balances, triggering a slight decline of the country’s public debt.

The recovery is expected to accelerate with a GDP growth rate averaging more than 6 percent between 2019 and 2020, driven by large foreign direct investments in mining. Other than agriculture, which was severely affected by harsh weather conditions during the winter, most major sectors including manufacturing, trade, and transport are expected to expand significantly. On the back of increasing exports and higher commodity prices, economic growth will continue to have a strong positive impact on government revenue, contributing to the reduction of the fiscal deficit.

The unemployment rate dropped to 7.3 percent in the last quarter of 2017, compared to 8.6 percent a year earlier. Still, it increased to 9.7 percent in the first quarter of this year, reflecting Mongolia’s highly seasonal employment patterns due to difficult working conditions in the winter, especially in construction, agriculture, and mining.

The report highlights possible short- and medium-term risks including political risks, regional instability, climate shocks, and natural disasters. The most critical risk identified is a sudden relaxation of the government’s commitment to full implementation of its economic adjustment program supported by development partners.

In addition, the economy remains vulnerable to fluctuations in global commodity prices and a productivity gap. The best long-term protection against these two vulnerabilities is the diversification of the Mongolian economy.

To create a strong buffer against economic vulnerabilities, the government and donors should give a high priority to economic diversification that helps counter the ups and downs of the mining sector. Investing in human capital and strengthening the country’s institutions are the best way to support diversification, together with sound investments in crucial infrastructure,” said James Anderson, World Bank Country Manager for Mongolia.

The report takes a closer look at public investment programs implemented over the past five years, which surged until 2015, contributing to large increases in public finance deficits and the public debt. Mongolia needs to review and reshape its public investment policies and decision-making processes to improve efficiency of public spending, including clear project selection and prioritization criteria, as well as proper maintenance of existing assets.

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