The following in an interview with Dr. D.Batjargal, Professor of Economics and President of the Institute of Finance and Economics about the state of the economy and investment in Mongolia.
Mongolian economic growth reached its highest levels in 2011 and 2012. In that time, foreign investment increased rapidly. But now, the economy’s situation is bleak in Mongolia. How is the economic situation tied to foreign investment?
Historically, from 2010 to 2012, as the amount of China’s coal imports drastically increased, Mongolia rapidly emerged as an important overland coal supplier for China, given its geographic proximity, large coking coal resource endowment, and relatively low mining costs. In those years, the Mongolian economy was growing rapidly – but it was not real economic growth – and it reached 17 percent. Now, economic growth is three percent, but it is not possible to say its a “crisis”, it is just the tide of the economy and how it is treating itself now. Traders of imported goods have called it a crisis because of the reduced purchasing power of import consumers, because prices for imports are raised when the U.S. dollar exchange rate increases.
How can Mongolians attract foreign investment during this difficult time?
I suggest that we shouldn’t see this as the Mongolian economy’s situation for a long time. Here, amazing business opportunities can grow out of global mega projects in the next five years.
The powerful financial institute BRICS has been established within the global economy. The institute is pursuing the fulfillment of mega projects and huge construction projects which are establishing linked infrastructure in Eurasia. Russia, China, and Central Asian countries are working very actively for this. It is possible to understand that these projects will definitely be fulfilled as a result of the political decisions already made by the powerful countries of Russia and China. Therefore, huge projects, huge constructions, and economic growth will take place on a wide scale soon.
First, Mongolia has all the required raw materials for these projects. Second, as for geographic location, Mongolia is situated in the center of the road and region where the mega projects will be realized.
How is the Mongolian state preparing for these projects?
As for infrastructure, Mongolia is investing more in its energy sector. The western road linking Russia and China has become operational. The government has made the decision to construct adjacent railroad linking Russia and China with electrical access.
The construction of a highway linking Eurasia has started. Next year, a bigger airport is about to go into operation in Northeast Asia. A safe road linking North America, Europe, and Southeast Asia is about to pass through Mongolia. Because of the political direction of Middle Eastern countries, Turkey and the Ukraine are facing very serious situations. There is no way to use a new road through the north of Mongolia and Siberia.
As for strategy, a very good situation is developing for the Mongolian economy in the near future. All the raw materials for these construction projects are in Mongolia.
If you could speak to foreign companies, what should they pay more attention to when running a business in Mongolia?
Companies have good opportunities to run a sustainable business in Mongolia when they conclude good negotiations with the state, and when they understand their social responsibilities and the need to run operations responsibly.
A few foreign companies that entered the Mongolian market early were forgetting to be socially responsible in their operations. Local people started opposing the aggressive operations of those companies. That opposition was aggravated, and then began to become a nationwide point of view. At that time, the state didn’t have any experience in cooperating with foreign companies. Now, our state has studied cooperation with them.
Mongolia is a resource rich country, as is Siberia. China is a huge market. China has high growth and moves towards rapid development. Just behind China is a second huge market in India. China is pursuing a policy of making huge investments in South Africa and South America. For this, a country needs a huge amount of raw material reserves.
What kind of business ventures do you suggest for foreign companies?
First, of course, as is well known, a good future for mining companies is waiting here for those who understand the duty of social responsibility. Second, Mongolia has 60 million livestock. If a factory is opened here for the use of raw materials from livestock, it could grow to be highly profitable for producing organic products. Foe example, there are opportunities to process high-nutriment meat, high-butterfat milk products, handmade carpets, and more. In particular, the manufacturing of livestock hide is not well developed in Mongolia. A well established and developed tannery could create good products.
Also, there is a good opportunity to manufacture highly profitable medicinal and beauty products using wild plants and animal-based raw materials, which are being made in Mongolia now. Certainly, for this kind of manufacturing, highly advanced biotechnology solutions are needed.
Mongolia has a lot of things that have not been thoroughly studied. For example, Mongolians have researched just 30 percent of its underground resources. Seventy percent of it is unknown. Geological work hasn’t been completed for this yet.
Mongolians have many thousands of years of traditional lifestyle and nomadic culture which hasn’t been widely shared with the people of other countries. If someone asks me that why this lifestyle isn’t extinct, I would say that the secret is that Mongolians have been living very simply, have stayed healthy, and have been highly adaptive to nature and the environment for many thousands of years. The Mongolian traditional lifestyle does not adore luxury living. You don’t eat much, but you don’t like to be hungry. Mongolians hate insolence and lying. They don’t like people who sleep too much and are too talkative. They like a hardworking person, and they adore nature and Mother Earth.
This nomadic and adaptive lifestyle is attracting people from around the world because trends in tourism have changed. This is also a good idea for running a business. Highly educated people prefer tourism through which they are shown another lifestyle. They want to know, study, and take home necessary life skills from another lifestyle.
My wish to introduce Mongolia, a vast territory and country with a special culture, to the world’s people has led to starting up a project in five soums of Zavkhan Province. The project would introduce the traditional Mongolian lifestyle to tourists, and if tourists are interested, they can participate in all aspects of day-to-day life in nature. The tourist camps would be comfortable and modern for all kinds of tourists. I would establish tourist camps like this in all soums of all the provinces. This is a very new tourism product, and we have completed a feasibility study for the project. We are seeking an investor or partner for this project.
How have Mongolian businessmen studied for cooperating with foreign companies? Do you value the reliability of Mongolian companies?
Mongolian businessmen are understanding what company governance is. Our university established the Company Governance Center at the university campus in 2009. Hundreds of CEOs have participated in our center’s training. They understand that if a good company runs transparent, correct, and socially responsible business with others, the business can run successfully and for a long time. Understanding of this has been adopted well in the Law on Companies also. A few years ago, our companies’ leaders were not understanding well what reliability was. Now, they have changed and understand well that if they run a business poorly, they will have no future. Second, a phrase in Mongolian has been adopted to determine standards for a Mongolian man. It has been translated from “Pacta sunt servanda” in Latin, and it means “agreements must be kept”. If a man doesn’t realize his promise, bad news about him spreads quickly. It is special in a country with a small population, so a Mongolian man values the reputation of his name. Chinese and Korean businessmen are difficult to understand, I think.
What do you think about most Mongolian companies being family-owned and governed?
It is not bad for a developing country’s companies to have family-owned governance, because there is strict supervision and control for the operations carried out. I know that this is the case for a lot of shareholding companies. Greater numbers of shareholders or investors can increase the number of problems a company faces when they can’t make decisions.
Early on, the development of family-owned companies is the bedrock of any successful economy. As times passes, when the company is developed and the family is not able to full supervise the operation, at that time, the company governance should be changed to good governance. If the family-owned company’s operations have good management and a good reputation, we can trust in the company.
Our market is very small, so can investors manage risk?
Why not? There is the major market, for example, China. It is not difficult to export any product to China, and just beyond China is a huge market in India. Also, products can be exported to Central Asia. Russia and Mongolia allow travel without a visa. There is Kazakhstan just 65 km from the western territory of Mongolia. Also, visa-free travel is permitted between Kazakhstan and Mongolia. Also, we can go to forward to Kyrgyzstan and there is no visa requirement. Furthermore, we can go to Uzbekistan, Afghanistan, Iran, and to Iraq. It is said that Eurasian infrastructure and the roads are like one road, one gateway, one development: the Silk Road. It is reported that Russia, China, and Central Asia have determined an economic corridor, which will include the roads, communications, and energy supply. This means that the road will bring us to Middle Eastern countries and to India. Furthermore, the Middle Eastern countries may stop their wars, and there would be the start of huge construction projects. My suggestion is that investors have to enter the market in Mongolia now and develop operations.
Investors have complained that the political situation in Mongolia is a burden.
The most democratic country among all other post-communist countries is Mongolia. The political system is run under this system. It is not the worst. It is not a state-dominated system. Also, Mongolia is a neutral nation. This means that we will cooperate with and relate equally to each country.
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