Every time we travel abroad and hear people talk about our country, we always focus on what is being said. It is almost like setting yourself to a specific frequency on FM radio. I have recently attended the sixth Invest Mongolia conference organized in Tokyo and have summarized below what I learned, trying to capture everything I heard there.
Mongolia, and other countries whose foreign exchange reserves are limited, does not have many choices other than competing with others to attract foreign investment and technology. Our government and our private sector have spent the last 20 years touring around the world and visiting the largest cities to demonstrate why investing in Mongolia is a good thing, what business opportunities there are, what advantages will be gained, and how the overall living environment as well as the legal framework are set up.
This conference, which is organized by the Japanese company Frontier on an annual basis, took place in JICA’s Global Plaza building. In total, there were 250 participants, including ambassadors, scholars, journalists, Japanese companies who are looking to do business in Mongolia, and Mongolian businesses who are seeking to establish business partnerships.
At the same time as the conference took place in Japan, a political struggle around dismissing Prime Minister Khurelsukh’s cabinet and disbanding the entire government was reaching its peak in Ulaanbaatar. It was the reason why some invitees, including Minister of Mining and Heavy Industry D. Sumiyabazar, did not take part in the conference. A small group of government representatives, including embassy officials who made it to the conference showed up only in the morning and disappeared for the day without coming back to the event. Some of them gave speeches, but went missing immediately afterwards.
Here is the summary of some of the topics discussed at the investment conference that happened on a shaky day in UB.
Coal exports
Mongolia’s most important industry is mining. However, due to the delay in building a railroad from our biggest coking coal mine to the border, Mongolia is losing 22 USD for every tonne. The cost of transporting coal using trucks is 28 USD per tonne, while the railroad can bring it down to 6 USD.What we are losing each year would have been enough to build 270 km of railway.
The state-owned Erdenes Tavan Tolgoi sells its coal at the mine, so they do not assume any responsibility for transportation. Essentially, it is up to transport companies who they hire and whose trucks they use, which results in an increased number of accidents and fatalities. Our state-owned companies do not have any sense of corporate social responsibility.
Energy Resources, which is a private coal mine, is not only washing coal at their mine site, but also managing the delivery of coal to Ganqimaodu port for 135 USD a tonne and to the east coast of China for 175 USD (having been able to organize transportation within China). Erdenes Tavan Tolgoi sells their coal at their site for 60-70 USD a tonne, which increases to around 100 USD at the border before Chinese companies import the coal, wash it, and sell on for around 150 USD. It means we are losing 50 USD per tonne. In other words, for every 30 million tonnes of coal exported, we are losing 1.5 billion USD. With this money, you can build 4-5 coal washing plants with a capacity to process 15 million tonnes a year.
If there is an intention to offer shares of Erdenes Tavan Tolgoi on the international capital markets, there is unlikely to be much interest to invest in small parts of a state-owned company led by a board of directors who are politically appointed.
Agricultural exports
We need to accurately certify the sources of our products, provide a guarantee that they are organic, improve our productivity, and adopt new technological solutions such as the Internet of Things (IoT) as quickly as possible. Also, there is a need to improve the quality of our agricultural products and step up their packaging.
Transport and logistics
If you arrange a container to be delivered from Japan to Mongolia, it travels on a ship to Busan in Korea and China’s southern coast, then on trucks, and then on trains to Ulaanbaatar. It makes transportation costly and slow. This route is often selected as per DHL’s requirements. Otherwise, if the goods are to be transported via Tianjin, it is required that only one type of product be transported in one container.
A high-ranking official from China committed to allowing painless transit (with less border and customs restrictions) between Ulaanbaatar and Tianjin. What happened to that commitment?
Government policy
There is so much instability in the Mongolian government itself and its policies. The government announces and commissions a large number of competing projects, but none of them end up being fully executed. Even if they are implemented, they end up running deficits due to eventual competition in pricing. There have been years of talk on how a power plant will be built in proximity to coal mines, but it was never realized. The domestic electricity tariff is set by the government at such a low level through heavy subsidies. Due to electricity being too cheap, power plants are unable to accumulate enough capital to upgrade technology and improve the infrastructure for transmission and distribution.
The price of electricity must be at the right level, not forced to a low level, and there is no need to enable subsidies for everyone. These outdated power plants are still operational because Mongolia has good engineers. We need to build a new power plant equipped with new technology.
Capital market
When international large banks and companies look at potential partners in Mongolia, they not only look at their business needs but also the corporate social responsibility those potential partners have. However, it is not clear how Mongolian businesses are contributing to environmental or humanitarian causes or how their social investment works. Despite being a shareholding company, Mongolian businesses do not keep operational reports or the full list of shareholders transparent and accessible. Twenty-eight years later, the foundations of Mongolian Stock Exchange are still being politicized.
Workforce
If Japan enacts their revised law on hiring foreign labor starting from 1 April 2019, there will be a lot of Mongolians who will be heading there. Mongolians can be good workers who are relatively more educated and can learn Japanese to a sufficient level reasonably fast. Even though the Chinese are the largest foreign population in Japan, Mongolia would be at the top if those numbers are compared to the population of their home countries. Another area where we are at the top of the list, followed by Bangladesh, is the number of people who overstay on their visas.
New airport
What happened to our new airport that was supposed to be commissioned two years ago?
The Japanese side completed the construction of the airport on time, but Mongolia did not build the road in time. The decision to choose a company to operate the airport is still being postponed. The original agreement, which went through at least five Ministers of Road and Transport Development (A. Gansukh, M. Zorigt, D. Ganbat, J. Bat-Erdene, and Ya. Sodbaatar) was that it would be a Japanese company.
[Many services and duty-free stores in the Buyant Ukhaa airport are owned by ministers and state officials. Therefore, it will not be resolved any time soon, and the same force to keep their own interests is causing delays in the new airport. It looks like the authorities are once again putting the public interest below their own. – JD]
When will the Khushigt Valley curtains be opened?
2018.11.21
Tokyo, Japan
Trans. by B.Amar