The Business Council of Mongolia’s (BCM) March Monthly Meeting was held on March 28 at the Shangri-La Hotel, with Chairman B.Byambasaikhan hosting for an audience of around 100 members and invited guests. The topic of the meeting was the “Study on the role of government based on the principles of the Mongolian Constitution for sustainable social development.”
BCM Board Member and CEO of Clean Energy Asia Mr. Orchlon opened up the third meeting of the year. Orchlon was also recently named as one of Forbes' Asia 30 Under 30.
In 2018, BCM held comprehensive board elections to elect the 15 members of the Board of Directors. “BCM is the most well-placed platform to be able to unite and align the public sector with the private sector with the policymakers,” he stated.
As part of BCM’s mission to build this alignment at the Board level, six Working Groups, all headed by Board Members, are being driven vigorously and energetically. An update on the activities of these Working Groups will be emailed to members next week.
The BCM currently has 256 members, with a current renewal rate of 78% thus far for 2019.
New members also received their Certificate of Membership after the presentation and panel:
- Bank of China - (website)
- Mobicom Corporation - (website)
- Global Outsourcing LLC - (website)
- Media Group LLC - (info)
- ItZone LLC - (website)
- Nomin & Advocates LLP - (website)
- CoverHill LLC - (LinkedIn)
The key objective of this meeting was to present the results of an eight-month study by TUS Solution LLC and hold a discussion on the results.
PRESENTATION ON “ANALYSIS AND OUTLINING OF THE CONSTITUTION OF MONGOLIA BASED ON SYSTEM MODELING”
Click here for full presentation (Mongolian only)
Background on systems analysis
Mr. D.Jargalsaikhan presented the results of the study named above. Jargalsaikhan is on the BCM’s Board of Directors and chairs the Economic Freedom and Competitiveness Working Group. He is also the Chairman of TUS Solution LLC as well as Founder and Chairman of the Young Researcher Support Foundation.
In 2017, a smaller-scale study on the same topic produced interesting results, which prompted the Director of TUS Solution to broaden the study to see if the results held. The team working on this more recent studied comprised an eclectic group of professionals from various fields: philosophy, sociology, psychology, public health, theoretical mathematics, political science, business, and law.
Most studies on the Constitution of Mongolia are conducted by lawyers and other legal experts. Studying the Constitution from a systems analysis viewpoint is something novel which has rarely been considered. To use the metaphor of a house, when something malfunctions in the house, we form or already have a mental image of what or where the problem lies, and perhaps how to solve the malfunction. Like a house, the Constitution is an abstraction of interrelated ideas that is unique from and greater than the sum of its parts.
The study was an attempt to form a sort of “mental image” of society and the constitution, perhaps something Plato might call the “ideal state” of the “form” of the Constitution of Mongolia – something which can never be reached but something which we must continually strive for.
As a humble disclaimer, Mr. Jargalsaikhan noted that this study was the first of its kind and that there can be areas of improvement on future investigations.
Certainly a complex and intricate topic to grasp, and at times reading off like aWittgensteinian treatise, but highly useful nonetheless.
The 5 axioms of a living system:
- Having a unified purpose
- The purpose has to be realized through actions and/or duties to undertake
- The results and performance of the activities undertaken to realize the purpose must produce information or data for the concerned parties
- Information and data on results and performance must be measurable
- The system’s realization of its purpose is continually improved through corrections on impediments and malfunctions
The study had two key objectives:
- To identify the base reasons for societal distortions we see in Mongolia today
- To create a visual model of how society is to operate according to theConstitution of Mongolia (in presentation linked above)
There is the key phrase and "mission" in the preamble of the Constitution, "aspiring toward the supreme objective of building a humane, civil and democratic society in the country." So how well is that aspiration being realized today?
Results of the study
The study produced 11 conclusions:
- The phrase in the constitution "aspiring toward the supreme objective of building a humane, civil and democratic society in the country" satisfied the criterion of a unified purpose of the citizenry.
- The concepts in the Constitution contain the logical foundations to constitute a social system capable of fulfilling its purpose
- The various representatives of the state – president, parliament, government, judges, prosecutors, and regional administrations – are not being properly governed in accordance with Article 19.1 of the Constitution.
- Of all the organizations tasked with representing the state in order to implement the goals of the Constitution, only the Constitution Court is being governed in accordance with Article 19.1.
- The duties of political parties and their activities in order to realize the goals of the Constitution before the people are not defined by the Constitution nor other laws.
- Because there are no laws defining the measurement and evaluation of participants that are to fulfill the "mission," there is no agreed-upon method of measuring the performance or implementation of the "mission."
- Because there are no laws tasking an organization or entity with the monitoring of participants that are to fulfill the "mission," no such monitoring has been conducted on the performance and results of the "mission."
- Because the efficiency to be achieved by the various organizations and officials representing the state in order to fulfill the "mission" of the Constitution is not defined through performance and results pertaining to the objectives, there is no incentive for these participant units to strive towards the "mission."
- Because the criteria for evaluating the "mission" stated in the Constitution is not defined, it presents the opportunity for organizations and officials whose duty it is to represent the state to operate outside of the directive laid out in Article 19.1.
- Because the criteria, information, and duties necessary to the entities representing the state to find the reasons for hindrances they face and are bound to face and fulfill the “mission” are not defined in the law, it is not possible to find and point out the base reasons for such hindrances of the past and potential hindrances in the future.
- Because it is not defined in the law how the participant units that are to fulfill the “mission” are to enable the citizenry to discuss the planning and reporting of the provision of citizens’ rights stated in Article 16 and duties of the state laid out in Article 19, the opportunity for citizens to participate in the planning and oversight of the fulfillment of the “mission” is restricted.
After the presentation, a panel discussion was held to discuss the study. Moderating the panel was B.Bolor-Erdene, Founder and Editor-in-Chief of trends.mn, and the panelists were:
- B.Enkhbayar, Former Deputy Minister of Justice and Internal Affairs
- D.Jargalsaikhan, BCM Board of Member and Director of TUS Solution
- S.Erdenebold, President of the Democratic Youth Union
- O.Mashbat, Political Researcher
With the political backdrop of the controversial legal amendment recently initiated by President Battulga and swiftly ratified by parliament, many panelists alluded both directly and indirectly to the turn of events in the political scene, generally in dismay.
One of several things that the panelists agreed on was the need for legal reform, whether that be in the form of constitutional amendments or making sure subordinate laws align with the constitution. "There are labor unions in Mongolia whose 'constitution' is older than our national Constitution," said one panelist.
Given the variety of backgrounds among the panelists, people saw the issue from different angles. Whereas a businessman or economist anticipates risks or hindrances, the lawyer generally looks in hindsight, saying "here is where we went wrong." However, lawyers do not possess a monopoly on discussion of the Constitution, stated Enkhbayar.
The first organization to implement systems engineering comprehensively was the US Department of Defense, and the second was NASA. However, systems modeling can be harnessed to improve the effectiveness of any organization big or small, or in the case of the study, society as a whole.
One tangential topic raised by Erdenebold was the surge of online fake news, trolls, and other such thing which have an effect on society, and the capacity to influence elections. We must be very aware of this and the challenge this presents for democracies, he stated.
As mentioned by Erdenebold, in the end, the checks and balance and separation of powers must be ensured by the constitution, and that if this is lost, generations may suffer as a result.
The BCM would like to extend our appreciation to all the presenters, panelists, and attendees of the Monthly Meeting.
The Business Council of Mongolia’s (BCM) May Monthly Meeting was held on May 16 at the Shangri-La Hotel, with Chairman B.Byambasaikhan hosting for an audience of around 150 members and invited guests. Mr. E.Orchlon, CEO of Clean Energy Asia LLC, BCM Board Director, and Vice Chair of the BCM’s Economic Freedom and Competitiveness Working Group, opened up this meeting on the “Competitive Edge of Mongolia.”
In June, the BCM is taking a delegation to Singapore to meet with Asian business associations, such as the Singapore Business Federation and Singapore Manufacturing Federation. In addition, there will be a Singapore-Mongolia business dialogue with our BCM members.
If you have not already signed up for this trip, we highly encourage you to do so, as it will be a great opportunity to expand your business horizons.
A Knowledge Sharing Session was held on Friday with John Bell, CEO of Khan Bank.
The Tumen Shuvuut Factory tour taking place May 24 tour has been fully booked. The BCM will continue to organize more business tours for our members in the future.
New and renewing members also received their Certificate of Membership after the presentations and panel:
PRESENTATION BY B.LAKSHMI: “COMPETITIVENESS OF MONGOLIA – GLOBAL RANKING”
Click here for presentation (English)
Mrs. B.Lakshmi is the Director of the Economic Policy and Competitiveness Research Center (EPCRC), a national think-tank established in 2010 that aims to conduct surveys and help build a competitive Mongolia using globally accepted research methodologies.
"Competitiveness of Nations is a field of economic theory, which analyses the facts and policies that shape the ability of a nation to create and maintain an environment that sustains more value creation for its enterprises and more prosperity for its people.“ - Stephane Garelli, Professor at IMD, Director of the World Competitiveness Center.
Why are Rankings Important?
- Benchmark globally
- Highlight competitive strengths & target weaknesses
- Set goals and targets
- Promote the country / Attract investments
- Determine outward investment strategy
- Promote international standing
- Learn from others
The EPCRC is affiliated with the IMD World Competitiveness Center, working to help collect data for its annual World Competitiveness Yearbook. In 2018, the 30th edition of the survey was published, ranking 63 countries based on 340 criteria. Mongolia ranked 62nd out of 63 countries overall.
Countries are given a score from 0 to 100 on these four factors. Mongolia's scores are as follows:
The EPCRC also publishes a domestic provincial competitiveness report annually, which seeks to evaluate the relative competitiveness of the 21 provinces. In its 2018, Orkhon Province ranked 1st, and Arkhangai Province came last. For UB, the EPCRC publishes a District Competitiveness report as well. Details on these rankings can be found in the presentation linked above.
10 Golden Rules of Competitiveness:
- Stable and predictable legislative environment
- Ease of doing business
- Investing in infrastructure
- Strengthening the middle class
- Develop privately-owned medium-sized enterprises
- Maintain a relationship between wage levels, productivity and taxation
- Promote private savings and domestic investment
- Balance aggressiveness on international markets with attractiveness
- Counterweight the advantages of globalization
- Always return the tangible signs of successful competitiveness to the people
PRESENTATION BY A.BILGUUN: “COMPETITIVE EDGE OF THE RESOURCE SECTOR OF MONGOLIA”
Click here for presentation (Mongolian)
A.Bilguun is the CEO of the Mongolian Investment Banking Group (MIBG) and Chairman of the Mongolian National Mining Association.
In general, nations themselves don’t really compete directly with one another; it’s their companies that are competing with one another. The US-China trade dispute is a matter of the respective governments arguing in the interests of companies that operate in their territories.
Mongolia’s GDP per capita growth has been exceptionally slow since 1990 compared to neighboring countries. Only Kyrgyzstan has been slower. The average income per capita is USD 387 per month (about MNT 1 million). During the mining boom, income per capita jumped from USD 253 per month in 2010 to USD 410 per month in 2012. Mongolia’s GDP is about the same as Netflix’s revenue.
Moreover, about 1.69 million citizens receive some kind of government welfare, such as child benefits, pension, disability benefits, etc.
The reason for such dismal figures, in Bilguun’s opinion, is the well-intentioned but poorly executed policy of the government to force economic diversification. Although not a bad thing, what has happened is the government has forcefully brought down mining’s share of GDP.
In 2018, the market capitalization of Mongolian companies on international stock exchanges fell by 40%, while the global mining sector fell by 23%.
“Since 2009, Mongolia has not provided a big, major reason to invest in the country, though there may be lots of small reasons,” Bilguun said.
As for mining, it’s not the level of taxation that is impeding investment and growth, it’s the instability of the legal and regulatory environment that is the key issue.
There were two statistical correlations Bilguun showed which were most telling. The first was the negative relationship between FDI and monthly disbursements of unemployment benefits - meaning when one rises, the other falls, and vice versa.
The second was the relationship between state budget balance (as a percentage of GDP) and the value of the tugrik against the US dollar. In 2016, the budget deficit as a percentage of GDP was at a peak high of 15.3%, that same year, the MNT depreciated from 1,970 MNT to 1 USD to 2,470 MNT.
PRESENTATION BY CH.ANAR: “BECOMING INTERNATIONALLY COMPETITIVE IN THE FINTECH SECTOR”
Click here for presentation (English)
Ch.Anar is the Founder and CEO of AND Global.
Mongolians are quickly building a Fintech sector with international scalability. AND Global is the parent company of LendMN. There is also LendPinoy (Philippines).
“We have been able to cultivate teams that are agile and innovative by combining sector specialists and technology experts.” The company boasts over 200 Mongolian talents and 6 nationalities.
Young people are ambitious and have massive potential. To build a truly disruptive Fintech sector that is internationally competitive, we must begin to train professionals and executives on par with international standards. “Mongolia is not quite ready to compete internationally,” Anar said.
Though there many talented Mongolian working at international companies, there are few at the senior management level. Anar’s conclusion is that we must address the low level of development of things like capacity to conclude major agreements, lead multinational companies, and other some bigger than big issues.
PRESENTATION BY D.GANKHUYAG: "COMPETITIVE EDGE OF THE RENEWABLE ENERGY SECTOR"
Click here for presentation (Mongolian)
D.Gankhuyag is the CEO of Gobi Green Energy.
The energy sector is a strategically vital sector for any nation. Mongolia’s total installed energy capacity was 1,240 MW in 2017, with about 11.8% coming from renewables.
Mongolia has a major ambition of becoming a renewable energy exporter, and reaching export levels comparable to coal and copper, which currently comprise the majority of exports. Renewables will be a key driver of economic diversification.
There is also the North-East Asia Regional Power Interconnection initiative, which Mongolia is aiming to play a key role in. Mongolia has a comparative economic advantage, given its vast solar resources and lower costs. This presents great opportunities to attract foreign investment. By 2036, the aim is to have an installed capacity of 100 GW. This regional initiative is also considered in China’s Belt and Road initiative.
According to estimates, Mongolia has 1,100,000 MW of wind potential, and 5,000 TW of solar potential. Around 2,500-3,000 hours of sunlight hours per year can be captured.
In order for these ambitions to be realized, many issues must be tackled: power lines and other infrastructure, storage, tariffs, and legal and regulatory matters.
PRESENTATION BY B.ARIUNAA: “COMPETITIVE EDGE OF MONGOLIAN CASHMERE”
Presentation not available to the public
B.Ariunaa is the Deputy Director of Sales at Gobi Corporation.
Gobi was established in 1981, and is the world’s number one cashmere coat producer. The company had 2,113 employees in 2018, and a domestic market share of 71% and export market share of 63%. Globally, Gobi is in 13 countries and 40 cities.
Mongolia and China (mainly Inner Mongolia) account for 93% of the global raw cashmere market, producing 18,500 tons of raw cashmere in FY 2018. Global cashmere output has been stable over the last 3 years. Mongolia produced 9,500 tons of raw cashmere in 2018 (48% of global supply).
Mongolian companies Gobi and Goyo have 2.5% of the global market share. China’s Erdos has 27%.
Mongolian cashmere is recognized internationally for its superior quality, and Mongolia provides the widest color range. However, only 15% of Mongolian raw cashmere is processed until end product domestically. The remaining 85% is exported to China, Italy, the UK, and other countries.
In 2017-2018, the price of raw cashmere rose 25% year-over-year. Over the next five years, the industry is forecasted to grow 3.86% annually.
The major issue faced by domestic manufacturers is the fact that the cashmere sourcing season occurs once a year in spring, and is a cash-heavy process. Mongolian manufacturers must compete with international bidders that have large cash reserves.
After the presentations, a panel discussion was held, moderated by E.Orchlon, CEO of Clean Energy Asia. On the panel were:
- Ch.Anar, CEO of AND Global
- B.Ariunaa, Deputy Director of Sales at Gobi Corporation
- A.Bilguun, CEO of MIBG and Chairman of the Mongolian National Mining Association
- D.Gankhuyag, CEO of Gobi Green Energy
- B.Lakshmi, Director General of the Economic Policy and Competitiveness Research Center
Open question to the panel: You have studied the competitiveness of Mongolia and its various sectors. In your respective sectors, do you see a specific Mongolian competitiveness edge?
Ariunaa: Made in Mongolia is a major advantage, especially when compared to sentiments around Made in China. Since China makes a great deal of clothes sold all over the world, people like to see something different.
To Anar: Is there a “Mongolian fintech” brand?
Anar: Competition in fintech is fierce. Fintech of course is the coupling of finance with IT and technology. When it comes to Mongolians, I think there are many who are creative and come up with new and good ideas. Mongolians are also generally good at math. There are many talented Mongolians working in Silicon Valley for major firms. As for weaknesses, I would say Mongolians lack a certain determination or tenacity - that drive to go through with something until the end. When it comes to thorough execution of a plan or perfecting an idea or product, I have observed that the Japanese and people who studied in Japan show excellence in this regard.
Bilguun: Mining is a sector in which many things have been tried and has garnered experience somewhat. We have companies listed on foreign stock exchanges. Mongolian mining’s advantage is that it can offer higher returns on investment that many other sectors cannot offer. For example, around the time of the Lehmann Brothers’ collapse in 2008-09, Turquoise Hill’s share price was around $2.30, and after the investment in OT, it jumped to $12. Mongolian mining companies can offer 20-30% returns on investment, or even 40-50% if it’s a really good year. Secondly, there is the potential of attracting more investment and delivering value upon the discovery of new deposits.
Gankhuyag: Energy is unique in that it is a commodity that is not transported by vehicles. To transport energy you must build power lines and other infrastructure. Mongolia’s key advantages are our geographic location and renewable energy resources such as wind and solar. Furthermore, many nations around the world have set goals and made pledges to reduce fossil fuel consumption, including neighbors such as Japan and Korea, who plan to transition to 100% renewables in the future. We have massive potential to export renewable energy. One downside is that Mongolia is not considered a significant factor in these regional discussions, so we can’t really set the agenda.
Lakshmi: The government has good intentions in saying that they want to support manufacturing and economic diversification; however, the infrastructure necessary, both hard and soft, to properly support these things is not there. Say you want to establish a factory. You have to buy the land, lay down infrastructure, and say you do all the physically necessary things. Then there’s the inefficient, bureaucratic process of applying for so many different special permits, and then you go seek a loan, and so on. Confronted with this, many choose to simply import a product and sell it, which is much is easier and perhaps more profitable. This does not bode well for any wish to bolster domestic manufacturing.
Secondly, there are some cultural downfalls in Mongolia, certain things that cannot be quantified easily. We can speak highly of individual talents, skills, and knowledge, but we are not as good when it comes to teamwork, and being supportive of one another. This is observed in export sectors where there are a few major players in the market. There is no unified marketing strategy within a sector that promotes Mongolia as a whole.
Question for Anar: Regarding special permits, your companies operate in multiple countries. Compared to Mongolia, how is the licensing process in other countries?
Anar: Of course there are differences. In Mongolia, we have about 10 permits to operate. One good thing is the Bank of Mongolia and Financial Regulatory Commission have become more open to new things. Compared to how it was a while ago, much has improved. In Singapore, there are few regulations regarding fintech. However, if you are operating in accordance with current laws, they are generally accepting of things and will not hinder you much. That’s why many fintech companies are being established in Singapore. Compared to the Philippines, Mongolia seems less bureaucratic to me. However, compared to Singapore or Switzerland, there is much that can be improved in Mongolia too.
QUESTION AND ANSWER
After the panel discussion, a brief audience Q&A was held.
Question from audience member Bilguunnaran: If you had to pick one or two things that you think Mongolia should really focus on to promote the country internationally and boost competitiveness, what would they be?
Bilguun: If you want people to invest in you, you have to offer higher returns. This is something we can do, and it’s really not that difficult a thing to do. We have to realize what economic returns we can offer, and play to our strengths and comparative advantages.
Lakshmi: I think our biggest downfall is we are not supportive enough of one another and must become better at working as a team. This goes for the individual level, departmental level, and even at the organizational level. Companies should work better with another. Take the constant controversy surrounding OT. It’s only a few loud voices that are stirring controversy. Yet, who among us are unifying our voices in support of OT? It isn’t there. Sure, in terms of individual talent and skill, there are many things we as Mongolians can be proud of, but when it comes to teamwork and cooperation, we have to do more and do better. This is the most important thing I believe.
Question from journalist Enkhtsetseg for Ariunaa: Given that Tavan Bogd is a major stakeholder in both Gobi as well as Goyo (two biggest cashmere companies), how does that work when it comes to the operations of the two companies? Are you going to be cooperative or competitive?
Enkhtsetseg, journalist at Mongolian Economy magazine, asks a question.
Ariunaa: In general, we will compete in some areas and cooperate in other areas. When it comes to the international market, we will cooperate. For example, if we get a mass order from abroad that cannot be fulfilled in time by our manufacturing capacity, we can cooperate there for the benefit of Mongolian cashmere as a whole. We are going to compete when it comes to target markets, however. Gobi is going to target the more classic style, while Goyo will go more for newer styles.
PRESENTATION BY B.TSEND-AYUSH, DIRECTOR OF THE INVESTMENT PROMOTION DIVISION OF THE NATIONAL DEVELOPMENT AGENCY
Click here for presentation
The NDA established an MoU with the BCM. Tsend-Ayush provided an introduction to the kinds of works the NDA has been doing recently, such as at the One-Stop Service Center for investors. The BCM and NDA also cooperated in creating a booklet for investors filled with key information on doing business and investing in Mongolia, which was given out to members during the meeting. The booklet contains information on investing, procedures, taxation, and more in English.
In the future, other important informational material will be produced, such as investing abroad from Mongolia or investing in Mongolia from abroad.
After the meeting was adjourned, members were treated to a networking reception at the IKiGAi Japanese restaurant.
Full house at IKiGAi
BCM AND AMCHAM INTRODUCTIONS
From left to right: BCM Chairman Byambasaikhan Bayanjargal; Speaker of Parliament Zandanshatar Gombojav; Chairman of AmCham Oybek Khalilov
A joint Monthly Meeting was organized by the Business Council of Mongolia (BCM) and the American Chamber of Commerce in Mongolia (AmCham) on Monday, 4 March 2019 at the Shangri-La Hotel, with the newly-appointed Chairman of the State Great Khural (Speaker of Parliament) Mr. Zandanshatar Gombojav as the guest of honor.
The BCM’s purpose is to serve its members to ensure economic freedoms and property rights as enshrined in the Constitution of Mongolia are protected, by engaging with the public, its members, and the government.
AmCham and the BCM have worked closely in the past year, especially regarding corporate income tax and other tax reform issues.
Chairman of AmCham Mr. Oybek Khalilov congratulated Speaker Zandanshatar on his election to the highest office in the legislative body.
AmCham strongly advocates for private sector-led growth. Mongolia’s economy today is highly dependent on exports; however, with its geographical location, natural resources, and well-educated young population, the country has huge potential to advance other sectors of the economy, noted Mr. Khalilov. Sectors with high potential include agriculture, tourism, finance, cashmere, renewable energy and ICT. AmCham Mongolia fully supports Mongolia’s initiative on the Mongolia Third Neighbor Trade Act to be discussed by the US Congress, which will advance bilateral commercial relations by boosting jobs, increasing duty-free exports of Mongolian cashmere products, and empowering women in Mongolia. Mongolia produces a third of the world’s raw cashmere. AmCham also advocates full implementation of the US-Mongolia transparency agreement.
SPEECH BY CHAIRMAN OF THE STATE GREAT KHURAL MR. ZANDANSHATAR
To start off, the Chairman of the State Great Khural (Speaker of Parliament) gave an update on the current economic climate. The government and parliament are making efforts to make the business and investment environment more stable and protect the interests of investors, he said.
A brief update on the current economic situation:
- GDP growth 6.9% in 2018
- The Bank of Mongolia purchased 22 tons of gold
- The government recorded a budget surplus of MNT 11 billion after 11 years of deficit
According to IMF’s Extended Fund Facility review, Mongolia’s economy is recovering, but we are aware of risks associated with commodity prices
The government has begun large-scale projects such as the oil refinery and the wastewater treatment plant.
This spring the Tavan Tolgoi railroads and other road projects will also commence.
The government has adopted the Three-Pillar Development Policy, which shall be the cornerstones of development:
- Governance reform through better accountability and effectiveness in the rule of law. Lawmakers are currently striving to strengthen the democracy through constitutional amendments.
“In other words, we are trying to build a great wall of democracy” in this region. Governance reform will be evaluated based on the World Bank’s Worldwide Governance Indicators.
- Economic reform through economic diversification
- Social reform – from welfare state to a productive society
“Listening to investors’ needs is an important part of our economic agenda to create a more predictable and stable investment and trade environment,” said the Speaker
The government has established the Investment Protection Council (IPC), which features a regular consultation mechanism and addresses grievances of investors. This is in part due to the transparency agreement with the US. This mechanism prevents the adoption of laws pertaining to business and investment without prior consultation with the private sector.
With assistance from the World Bank, the government is implementing Public-Private Dialogue (PPD).
Another project in the works is the “Digital Parliament Project,” which comprises three components:
- e-information – comprehensive information on current affairs and law-making process in parliament
- e-participation – an online forum facilitating two-way discussion on draft laws
- e-voting - introducing a mobile app with all Mongolian laws and government publications, and will soon publish an English version of the website and forum
The Speaker requests cooperation of the BCM and AmCham in assisting to build the capacity of parliament to translate draft laws and other government documents.
In line with investment policies, the National Development Agency and World Bank Group are working on investment reform mapping: comprehensive analysis and assessment of current investment and legal environment of Mongolia.
A One-Stop Service Center for investors was recently established, providing foreign investors with legal and market information and assisting with registration of legal entities and residence permits. In the future, the center will also provide info regarding customs and taxes.
The Speaker wrapped up by saying “To conclude, let me express my concern about the rule of law. I believe that laws on investment are much dependent on trust. The only guarantee of gaining confidence is to ensure that the laws and rules are clear and enforced. Each case must be handled according to the law without any interference. In brief, it is a matter of the strong rule of law. Therefore, it is essential that officials at all levels of office, all levels of public service strictly follow ethical standards and norms, be committed and accountable, and adhere to the principles of fairness and justice. That is why Parliament announced this year as the Year of Citizen-Centered Public Service. Taking this opportunity, I would like to assure that both parliament and government continue to pay special attention to continuous improvement of the legal and regulatory environment for investors.”
QUESTION AND ANSWER
Question from BCM Chairman Byambasaikhan: There has not been much news about the IPC recently. I understand there has been structural changes. Since you were the Chair of the IPC in the past, would you brief us on recent IPC activities and future plans?
Speaker Zandanshatar: IPC operations are continually improving, but we are planning to submit a new law on investment. An extraordinary session of parliament is planned for mid-March, during which legislators will debate the Law on Investment and General Law on Taxation. In the future, we plan to start an independent body for foreign investment protection. Before 2012, we used to have the Foreign Investment Agency, responsible for protecting FDI in Mongolia. The IPC’s activities have not slowed down and are improving.
Question by Jay Liotta from MahoneyLiotta: Mongolia made the choice in the 1990s to have an independent, private sector-driven economy. We have seen great strides in development since then, but in the last 10-12 years, we have seen an erosion of that with legislation making it difficult for private sector growth. Most recently, we have seen the growth of state-owned enterprises and a big drive for the state to create jobs. Has Mongolia given up on an independent, private-sector driven economy?
Speaker: Since the 1990s, Mongolia has been striving to establish democratic institutions in the public sector and a market-oriented economy. In recent years, Erdenes Tavan Tolgoi has been a big player in the economy as a state-owned enterprise, due to the commodity prices. In such a small economy, the contribution of major SOEs may look significant. Erdenet and ETT are paying almost 30% of the total tax income of Mongolia. That is why the role of SOEs is increasing. However, compared to China and other economies, the government and parliament are still eager to promote our private sector. Parliament is planning and extraordinary session in March, where we plan to discuss the Law on Concessions, Corporate Income Tax Law, and Personal Income Tax Law. These laws are aimed at supporting and promoting the private sector. Most importantly, we will create a 1% tax environment for small and medium-sized enterprises.
The government is set on issuing an IPO for Erdenes Tavan Tolgoi. There are also discussions regarding a potential IPO for Erdenet Copper.
The top priority at this moment is to ensure economic recovery and overcome the financial difficulties (debt burdens). That is why the role of government is increasing.
Question from Randolph Koppa of TDB: We see some pending legislation that causes some worry. With the 22 tons of gold purchased by the central bank, with the trade surplus, and increase in foreign investment, why would there be a consideration in the currency laws to control through the central bank the inflows of foreign exchange from exports, which would effectively dismantle the two-tier banking system?
Speaker: The central bank is implementing banking sector reform in cooperation with the IMF, and the government is also paying greater attention to money laundering to address suspicious cash flows. Recently we acknowledged that we don’t have sufficient information about export payments from overseas. On the other hand, we want to introduce have a liberal economy, but also want to control money laundering, so the question is how to strike a balance in these two things.
Question from Byambasaikhan: Parliament is currently is currently in the process of discussing amendments to the Law on Renewable Energy. This sector has been able to attract over half a billion dollars of real investment, and I understand that the current drafts in discussion will significantly change the system that allowed this private investment money to come in without any government guarantees purely on the back of strong power purchase agreements. Many companies are concerned that the change in rules will affect the flow of investment into the renewable energy sector. When is the Law on Renewable Energy going to be discussed or passed?
Speaker: It is a difficult question because I don’t know when the government will submit these bills on renewable energy. I do know that we are not capable of paying subsidies to renewable energy companies in these times of national difficulties. The government is debating this issue. On the one hand, we have to stick to our policy to support renewable energy; on the other hand, we have to calculate the financial burdens on the state budget.
Question from Chairman of AmCham Khalilov: In 2013 the US-Mongolia Transparency Agreement was first introduced, and was then ratified in 2017. What were the latest steps in terms of the implementation of the Agreement?
Speaker: I mentioned in my speech about the Transparency Agreement and digital forum. We are trying to form our legislative process during the extraordinary session in March. I would to cooperate with BCM and AmCham to translate bills and laws in accordance with the transparency agreement. Currently we do not have sufficient capacity in parliament to do this. Most importantly, we will introduce the e-parliament project, where will have e-information, e-participation and e-voting applications. In this regard, the business community, BCM, AmCham, etc. can participate in the debate concerning draft laws. Draft laws which get adopted will be available immediately in digital form; however, translations will take some time.
Comment and question from Chairman Byambasaikhan: Your proposal to work together with BCM is welcome, and we can establish a task force comprised of our members to work on this. You mentioned about constitutional amendments in the works. Lots of businesses are anxiously waiting for time frames, as we don’t want to have false expectations.
Speaker: Political parties and scholars reached the conclusion that constitutional amendments are necessary to strengthen our democracy. At this moment, most political parties, scholars, and civil society organizations are involved in this process. We also conducted deliberative polling, receiving 5.6 million opinions from 350,000 thousand citizens. For two years we did a lot of listening. We are now preparing a declaration for constitutional amendments, calling on all stakeholders to give us their comments and thoughts. After 2-3 years of hard work, we have almost finished drafting the constitutional amendments. These will provide better checks and balances of constitutional powers. I hope we will start discussions on constitutional amendments by May, and that is why we are calling an extraordinary session of parliament in March. In the end, parliament and the people of Mongolia will decide on these constitutional amendments.
Question from EBRD Country Director Irina Kravchenko: It sounds encouraging for international and private investors, and we would like to see results through these reforms announced. We understand the difficulties the economy has faced and are glad to see it recovering. Honoring agreements made in whatever sector is crucial for investment stability. There is some worry about changes to regulations regarding renewable energy, not only regarding new investments, but also old ones?
Also, how is the progress regarding the development of public-private partnerships? International debt is still high despite reductions. Are there any considerations in the government to push forward these structures? You have huge investment needs which cannot all be resolved through sovereign lending or soft loans and concessional loans.
Speaker: I would like to thank you Irina and the EBRD for the continued support for Mongolia through soft loans for the private sector. This spring, we start major railroad and road projects, so this year will be a very constructive year for Mongolia. Regarding public-private partnerships, we are now working with the National Development Association, which will submit to us a package of laws to support our business community. It will be the first law covering PPPs. There will be a bill on social responsibility, and we have already received a bill on professional associations. In order to have a united voice of business communities, we need to strengthen our chambers of commerce and professional associations.
The government and parliament are listening to the business community, but the business community need to unite their voices and consolidate opinions, sometimes advocating for contradictory things. The question of PPPs will be debated in parliament in the autumn session.
The BCM and AmCham would like to extend our appreciation to Speaker Zandanshatar, and to all the attendees of this joint special Monthly Meeting.
The Business Council of Mongolia’s (BCM) April Monthly Meeting was held on April 17 at the Shangri-La Hotel, with Chairman B.Byambasaikhan hosting for an audience of around 110 members and invited guests. Chairman and CEO of MobiCom Corporation and Chair of the BCM’s Growth and Innovation Working Group Tatsuya Hamada led this meeting on the topic of“Digital Transformation – Experience and Outlook.”
The meeting was opened with the signing ceremony of a Memorandum of Understanding between the BCM and the National Development Association (NDA). This cooperative endeavor between the BCM and NDA is an effort to enhance protection of the legal interests of investors, improve the investment climate, exchange information between the organizations, introduce international experience, as well as create a handbook for investors.
In addition, the BCM has taken on the role of Coordinator for the Public-Private Dialogue Council established under the Investment Protection Council, and will facilitate discussion of pending proposals by government and parliament. The BCM will actively represent the interests of the private sector and raise issues faced by investors to government organizations. Thus, Chairman Byambasaikhan urges members of the BCM to reach out and relay their messages and concerns concerning business and investment in Mongolia.
BCM Chairman B.Byambasaikhan (left) and Director-General of the National Development Agency B.Bayarsaikhan (right) upon signing the MoU. (Photo by GoGo News)
New and renewing members also received their Certificate of Membership after the presentations and panel:
- Erel Group - (website)
- Espresso Italiano - (Facebook)
- DBM Asset Management - (website)
- Sant School - (Facebook)
- Sfeco Consulting - (website)
- Specialized Career Consulting - (website)
SPEECH BY TATSUYA HAMADA: “SETTING THE SCENE – LESSONS FROM MONGOLIA”
Photo by GoGo News
Mr. Tatsuya Hamada is the Chairman and CEO of MobiCom Corporation, and also serves as the Chair of the BCM’s Growth and Innovation Working Group.
Nowadays, there is no business management and no business executive who is not interested in digital technology and digital transformation. “Digital transformation” is often shortened as “DX.”
Even in Mongolia, digital transformation is not something we anticipate for the future – it is something that is in progress right now. Historically, DX was greatly accelerated in 2008, spurred by the Lehman shock. Many start-up companies sprung up, such as in IT and fintech, especially on the West Coast of the US. This occurred not only in finance, but a variety of areas. DX is the transformation of traditional business by harnessing IT to achieve lower costs and higher performance, efficiency, and productivity. It does not simply mean “a transition from analogue to digital.”
One reason why corporate executives are paying increasingly greater attention to DX is to boost competitiveness. For example, Company A operates at a large scale, with many employees and lots of paperwork, which is expensive. Company B, although smaller, utilizes automation, smart technology, and digital transformation and augmentation. Company B is the company of the future.
Digital disruptors such as Uber and Amazon started business with limited resources. However, these players today are dominant, and changing the market. Power balance and positioning in the market are shifting drastically.
In China, every day fewer and fewer people use physical cash. Even debit and credit cards are becoming less common. Everyone simply uses their smartphone for payments and transactions.
However, the speed of technological development is too fast for regulators to keep up with. Therefore, these and such other topics will be discussed in Mr. Hamada’s Growth and Innovation Working Group's meetings to come.
PRESENTATION BY B.TSEESUREN: “DATA DRIVEN ORGANIZATION”
Click here for full presentation (English-Mongolian mix)
Photo by GoGo News
B.Tseesuren, PDEng, is the Senior Vice President of IT Zone, which joined the BCM as member this earlier this year.
The most important aspect of DX is data. Data is the foundation of all DX, and there is no DX without data. Today, data and DX is something the business sphere must delve into comprehensively. It is no longer a concern of only IT engineers and computer scientists, but every company and manager.
Mr. Tseesuren gave the example of DBS Bank, which was named the world’s “Best Digital Bank” by Euromoney in 2016 and 2018, beating giants such as Citi, BBVA, and ING. The goal of a business should not be to become a large company just for the sake of being big, but to operate like a start-up, despite employing 22,000 people. A “22,000-employee start-up” must be customer-obsessed, data-driven, take risks and experiment, be agile, and be an adaptive and learning organization.
DBS engaged in innovation programs such as idea vaults and hackathons, enabling easy access to data for experimentation and testing of new ideas
“Can your people conduct such experiments? Does your business have easy access to data?” he asked.
The speaker continued on to elaborate on the Gartner Maturity Model for Data and Analytics. What level is your business?
The majority of Mongolian companies have yet to reach Level 3 of the model. Companies must invest in D&A systems and instill the culture in their workplaces as soon as possible, he said.
In traditional business, sifting through data was a question of weeks or longer, such as when producing a report. Modern organizations must transition to a unified data and IT infrastructure, such that vital information can be produced within minutes, even seconds, or in real-time.
Note: IT Zone has expressed willingness to cooperate with BCM members who are interested. In addition, the company is organizing Data Forum 2019 on May 15, 2019. More information will be published soon.
PRESENTATION BY B.MUNKHZORIG: “DIGITAL TRANSFORMATION: A NOVEL USE OF DIGITAL TECHNOLOGY TO SOLVE TRADITIONAL PROBLEMS”
Click here for full presentation (English)
Photo by GoGo News
B.Munkhzorig is the Director of MobiCom’s IT Division.
Using the first real image of a black hole published last week, Mr. Munkhzorig explained just at what level of digital technology the world has reached. Something which has only been in the minds of physicists and drawn from imagination for a hundred years has been captured in real life by an array of telescopes comprising a global network of radio telescopes.
Before delving into the topic of DX and the Fourth Industrial Revolution, Munkhzorig explained what is not DX:
- is NOT analytics. DX is using quality data to question your assumptions and challenging the status-quo.
- is NOT about data capture and storage. DX is about data consumption to improve decision making, compliance, and operations.
- is NOT an IT initiative. DX is focusing on the business goals and outcomes and not the technology.
- is NOT an outsourcing initiative. DX is having a simple, scalable, and flexible digital infrastructure to serve the business effectively.
According to Forbes, 84% of DX initiatives in business enterprises fail.
One misunderstanding many people have is that technological advancement itself puts companies or industries out of business, but that is not the case. It is more because of the inflexibility of businesses – a lagging behind the times, or perhaps even a refusal to adapt to new realities – that entire industries begin losing out.
The presentation features many concepts described through easy-to-understand illustrations, such as the agile scrum, design sprint, digital capability vs. leadership capability, and more.
PRESENTATION BY U.KHOSJARGAL: “BUSINESS PROCESS RE-ENGINGEERING”
Presentation not available to the public
Photo by GoGo News
U.Khosjargal is a Project Director at Golomt Bank.
The first question you should ask yourself is “why do we do business?” And the type of digital transformation you implement will depend on the answer. Some would say for profits, to create a new products, to feed our family, etc.
After you answer the question of why, ask yourself how? The path is different for each company, and the answer to how is your company strategy to realize its vision and mission.
“If you can’t measure it, you cannot improve it,” he said. You can have great goals, such as cornering this percentage of the market, or this amount of profit, and other objectives; however, without harmonization of your business process and improvements based on KPIs, this is not possible.
"Reengineering is the innovation based fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service, and speed," according to Michael Hammer.
Regardless of the role of the actor, the other actors in a relationship must consider the interests of the others. The company may think of its profits, productivity, and being the best. The employee is concerned more about salary and benefits, personal fulfillment, or their reputation. Speed, prices, and quality are the most important things to a customer. Business partners care most about reliability, adhering to standards, and satisfaction with a partnership. As with many in things, the key is balance.
In addition, business process re-engineering is not a linear process, but a circular, continual process. After a business initiates a change and implements a redesign, there must be monitoring and improvements, which in due time should result in the envisioning of a new process.
PANEL DISCUSSION: “OPPORTUNITIES TO TRANSFORM YOUR BUSINESS”
After the presentations, a panel discussion was held, moderated by U.Unenburen, Chairman of Bitmonex, a cryptocurrency exchange. On the panel were:
- U.Khosjargal, Project Director at Golomt Bank
- B.Munkhzorig, Director of the IT Division at MobiCom
- B.Solongoo, Co-Founder and Partner at Avinex Partners LLP
- B. Tseesuren, PDEng, Senior Vice President at IT Zone
Question for Munkhzorig: Are there ways to accelerate your pace of digital transformation? I went to a Starbucks in South Korea and they told me, “Sorry, we don’t accept cash.” Is this possible in Mongolia?
Regarding MobiCom’s “Candy” program, what were its goals, and what were some challenges?
Munkhzorig: It may be difficult right at this moment, but I don't see why this can't happen here in Mongolia. All the soums in the aimags are connected to the internet. There's really nothing hindering a transition into digital payments.
Regarding the MobiCom’s Candy program, MobiCom first introduced a digital payment scheme in 2010, called MobiExpress. Back then, people really were not ready for such a thing. Perhaps they did not trust it; perhaps they didn’t understand why they should make transactions through their phones. That was nine years ago.
Today things are much different. People see how the world is changing. Banks have introduced mobile payments, and for people it makes sense that a bank would introduce such applications.
As for our Candy scheme, it began as a loyalty program in 2014, and in 2017, it became a digital currency. Last year, we received licensing from the Bank of Mongolia for it to become a formal digital currency.
But to answer your question, it has not reached the levels that we had hoped for when we first initiated it. There are various reasons, which are working on. In any case, I certainly believe the time has come for Mongolia to transition to digital payments and gradually do away with physical cash.
Question for Solongoo: I want to ask you about the legal environment related to digital transformation. Also, last year the EU introduced the General Data Protection Regulation (GDPR). Where is Mongolia in comparison?
Solongoo: The core foundation of digital transformation is definitely data. In Mongolia’s case, we give away our data to companies. However, our privacy laws are quite outdated. The 1995 Law on Personal Secrecy is the main law governing data provision and usage. Understandably, today this law is inadequate when it comes to the various issues related to personal privacy and data. Questions such as what data can be used, how it is to be stored, what data can be transferred, to whom, by whom, and other such legal questions are rather vague. The recent law that entered force in the EU, perhaps you received many emails around December regarding changes to various companies’ privacy policies, is in my opinion the most comprehensive modern regulation that seeks to protect the interests of individuals.
There is the need for improved regulatory schemes for data privacy in Mongolia. For example, everyone uses the personal Registration Number for everything, and we provide this unique identifier to anyone and everyone without thinking twice. We must be able to register individuals at the state and government level and prevent fraud, while at the same time protecting their private, personal details.
Question for Tseesuren: Today we talk about this data, that data, big data, and all types of data. We talk about AI. Is there AI in Mongolia? What advice would you give to effectively harness data and make prudent decisions?
Tseesuren: AI is still not common, not just in Mongolia, but in the world in general.
People say “we don’t have data” or that they have too little data. Yet, they conduct numerous transactions. At the very least, you need to have data to submit necessary financial and tax reports. What they lack is not data, but experience. Any business or operation has data to be observed. The culture of data capture and observation has not been instilled in the business culture.
Question for Khosjargal: We frequently see organizations and departments run in an unprofessional manner. We see mistakes that were easily preventable, or taking too long on something needlessly. Is business process re-engineering something that is only for large companies? Can BPR be implemented in SMEs?
Khosjargal: Size does not matter when it comes to process re-engineering. Something that has become more common internationally is the joint venture structure, especially among SMEs. They form a shared space among one another.
Let me use a small dental clinic as an example. The operator is a capable dentist, has good customers, and runs a stable business. Yet, the dentist spends 30% of his or her time actually performing dentistry, and the other 70% on other things. The dentist is not a lawyer, not an accountant, or a specialized inspector, so he or she spends much more time on those issues, which detracts from the core business. However, there are technological, cloud-based solutions to such problems. You can utilize external legal counsel, or have external accountants draw up your finances. This is something we are looking into for Mongolia. Many of the 50,000 legal entities operating in Mongolia stand to benefit.
BPR is not necessarily something that a large company implements by spending lots of money. Whatever business you operate, you have customers or clients. In order to improve your operations, any company in any industry can implement the principles. So something SMEs who are members of the BCM can do is create a shared space to resolve issues such as the one mentioned in my example.
QUESTION AND ANSWER
After the panel discussion, a brief audience Q&A was held.
Question from Khosjargal (audience member with the same as the panelist): A visa for South Korea is taking up to 70 days to be processed on occasion. They explain that many applicants submit falsified documents. Is this a satisfactory explanation? What are your thoughts?
Khosjargal: As a banker, people often ask me in dismay why the exchange rate is depreciating. Basically, it is a reflection of how the world values us. Part of the answer is related to this, when it comes to visa issuance wait periods for South Korea. Perhaps there could be procedural or bureaucratic aspects related to the internal operations of their Embassy; however, South Korea is a very developed country, and data usage and analysis is highly developed there. I don't think the problem is so much related to processing or data analysis at the Embassy of South Korea. Contrarily, it is more related to Mongolia's international standing. Of course, there may be some operational areas that could be improved.
Munkhzorig: Even in this situation concerning falsified documents, there are potential tech solutions. In future, blockchain technology will make it so it is virtually impossible to submit falsified documents. The technology is there. However, this is easier said than done. The regulatory framework is not there yet.
On an unrelated note, the moderator asked a few moments ago about AI. It is not something brand new in our time. It goes all the way back to the 1950s. Perhaps you know about an IBM computer beating chess master Gary Kasparov. AI just means an analysis of a situation based on an algorithm written by humans and acting accordingly. It seems like every company is talking about pursuing AI in these past 2 or 3 years. The reason why is because of big data. There is simply a lot more data for even simple algorithms to process. Even in our network operations, we employ what could be called AI. It analyzes signals and makes adjustments accordingly based on the situational reading. It's not some incomprehensible, overly technical thing.
Question from Wayne Thompson: Do you think the general public of Mongolia will perceive DX as a threat to labor, and general worker roles, careers, and so forth? How should we avoid that with the language and rhetoric we use as tech leaders?
Tseesuren: Whenever a new change is coming, people get worried. The main leadership should be the private sector. When people get better service and more options from the private sector, that would help. However, the government should also play a role, such as with e-government initiatives. That would help the public to understand the benefits.
A lot of people have they fear that they will be replaced by robots or by software. How do we avoid that, and keep the message clear that this is service improvement?
For example, a hundred years ago, people were worried about mass production - that mass we would be cast out on the street. I think it is a similar situation here. The whole of society has been improved. Digital Transformation and the Fourth Industrial Revolution will significantly improve our lives. In 50 years, we will live in a completely different society. There may be some misperceptions along the way, but we can just go, and I think we will see the positives.
- End -
Digital Immigrants vs. Digital Natives
The BCM would like to extend our appreciation to all the presenters, panelists, and attendees of the Monthly Meeting.
The Business Council of Mongolia’s monthly meeting was held on Wednesday, 30 January 2018 at the Shangri-La with BCM Chairman B.Byambasaikhan hosting for an audience of around 120 members.
Today’s meeting focused on the Mongolian resource sector and expectations for 2019.
This was the first Monthly Meeting of 2019. The BCM’s membership drive is going well, with a renewal rate of 73% currently.
The BCM would also like to extend congratulations to Vice Chairman Cameron McRae on the birth of his child.
2018 was a transformative year for the BCM. Some of the major changes include:
- In July 2018, BCM had a Board retreat, after which the process of renewing mission statement of the organization began. The mission statement now reads as follows: “To deliver value for the public, the members, and the employees by advocating economic freedom and property rights provided by the Constitution of Mongolia and protecting and promoting the common lawful interests of members for a fair, stable, and internationally competitive business environment.” (BCM Charter, Article 1.6)
- To realize this Vision, BCM will strive for the following (Article 1.8):
- To equip members with an information platform that provides up-to-date policy and business research, training and knowledge sharing
- To develop and promote economic and sector policy recommendations through engagement with the BCM members, the government and the wider public
- To provide networking and other services that support doing business in Mongolia
In addition, each Board member will also serve as either as Chair or Vice Chair of a Working Group as follows:
- Banking, Finance and Capital Markets Working Group
Chair: R. Koppa, TDB
Vice Chair: D. Hulan – Tavan Bogd Group
- Economic Freedom and Competitiveness Working Group
Chair: D. Jargalsaikhan, Gund Investment/TUSS Solution
Vice Chair: E. Orchlon – Clean Energy Asia
- Energy, Infrastructure and Connectivity Working Group
Chair: E. Temuulin, PwC Mongolia
Vice Chair: Ts. Tumentsogt – Ministry of Mining and Heavy Industry
- Growth and Innovation Working Group
Chair: Tatsuya Hamada – Mobicom Corporation
Vice Chair: Jon Lyons – Erdene Resources Corp
- Resources and Environment Working Group
Chair: Armando Torres, Oyu Tolgoi LLC
Vice Chair: P. Gankhuu – Erdenes Mongol
- Tax/Legal/Ethics Working Group
Chair: B. Solongoo, Avinex LLP
Vice Chair: D. Munkhtushig – Rio Tinto Mongolia
- The BCM Secretariat has also been strengthened, with the hiring of three new Directors. They are:
- S.Ganzorig - Director of Policy and Planning
- B.Javkhlan - Director of Working Groups
- D.Sayan - Director of Board Affairs
The BCM invites companies to renew membership and for new companies to become members. BCM is a platform, and how you want to use this platform is up to you without limits.
PRESENTATION BY THE CHAIR OF BCM’S GROWTH AND INNOVATION WORKING GROUP MR. TATSUYA HAMADA, CEO OF MOBICOM: “TOWARD SMARTER SOCIETY”
Click here to view the full presentation.
In 2019, the BCM will operate six Working Groups. The Growth and Innovation Working Group is a new working group chaired by Chairman and CEO of Mobicom, Mr. Tatsuya Hamada. Mr. Hamada has been in Mongolia for three years, hailing from Tokyo. His expertise is in information and communication technology (ICT).
“Innovation” is a term with broad meanings. However, the Working Group will strive to realize three things: 1) to educate and inform business entities, the government, and the public of the potential opportunities and challenges for research and development; 2) to promote and advance the benefits of business growth and innovation in Mongolian society; 3) to enable organizations to grow and innovate, not limited to those sectors ordinarily thought of as innovators (e.g. start-ups).
Many start-ups are initiated by young people, often just after school or university. Unfortunately, they lack experience, knowledge, and resources. In that case, we would like to support them, thereby supporting Mongolia’s economy from the bottom-up.
The world is undergoing a digital transformation, with things such as AI, RPA, blockchain, Internet of Things, Fintech, Industry 4.0, and Omni Channel. Google AI has defeated chess grandmasters. Fintech has revolutionized digital finance.
As for blockchain, many people think it is related only to bitcoin and other cryptocurrencies. However, its applications are much broader than just coins, which are only a part of its massive potential.
7 key objectives:
- Digitalization of services, processes, and business operations
- Infrastructure, both physical and virtual
- Digital financial services "fintech"
- Information and data security (storage, protection, secure privacy)
- Resource efficiency (people, energy, water, etc.)
- Roles of investment and public policy
- Intellectual property protection
Actions to be planned for the Working Group:
- Intake of interested BCM members into the Working Group
- Education/awareness raising session in March
- Events for key objectives (BCM Summit, ad-hoc)
- Dialog, guidance, and advisory for governmental organs
As a first step, the Growth and Innovation Working Group needs members. Thus, any and all interested individuals are encouraged to reach out. The first meeting will be held very soon, at which the Working Group will discuss what areas to focus on. Upon deciding that, goals and objectives will be set.
PRESENTATION BY P.GANKHUU, CEO OF ERDENES MONGOL, ON THE “LEGAL ENVIRONMENT OF ASSET MANAGEMENT”
Click here to view the full presentation (Mongolian only).
Erdenes Mongol, established in 2007, is a fully state-owned holding company for major state-owned enterprises, including ownership of Mongolia’s 34% stake in Oyu Tolgoi through Erdenes Oyu Tolgoi. A full list of companies under its umbrella can be found in the presentation linked above.
Mining is responsible for 22% of GDP and 72% of foreign investment. It also accounts for 74% of manufacturing and 90% of exports.
In addition to operation of state-owned assets, the company also implements management of assets, especially of strategic deposits. Furthermore, Erdenes Tavan Tolgoi will also issue 2 million additional preferred shares by 2024.
Work was initiated by regulators to clarify the legal environment, with Erdenes Mongol providing comments on what needs to be fixed. BCM Board member Solongoo is also engaged in this effort, noted Mr. Gankhuu.
The biggest focus of operations right now is the IPO of Erdenes Tavan Tolgoi, which will be conducted on the Hong Kong Stock Exchange.
Erdenes Mongol’s strategic objectives for 2018-2023 include 4 points:
- Hold licenses for strategic deposits and act on behalf of the government regarding government-owned stakes in such deposits
- Undertake projects and programs in energy, infrastructure, logistics, and processing industries
- Implement prudent asset management, attract investment, and finance projects
- Implement good corporate governance and ensure sustainable development
Another important goal is to export more value-added products, instead of export raw commodities.
The government has issued a directive to Erdenes Mongol last year to establish an investment fund.
There have been many impediments to growth and development, many of which can be attributed to an unclear legal environment. The company has been engaging government bodies to make the law clearer, eliminate contradictions and overlaps.
Erdenes Mongol will also be the head company which will be in charge of a sovereign wealth fund, which has been talked about for many years, but looks to be finally realized. However, the bill and other questions of legalities are still under development by lawmakers. As such, input from business and the public is still being considered by lawmakers.
PRESENTATION ON “RESPONSIBLE MINING” BY MR. ARMANDO TORRES, CEO OF OYU TOLGOI
Oyu Tolgoi is the single biggest investment in the mining business in the world. “OT is a showcase of best practices,” said Mr. Torres. The Brazilian CEO has been working in the mining business for 29 years, in countries all over the world.
Mr. Torres also serves as the Chair of the BCM’s Resources and Environment Working Group. Based on the charter of the Working Group, there are three elements of focus: 1) Defining and understanding the concept responsible mining, and sharing best practices; 2) Advocacy – how we build a platform that advocates for business interests; 3) Public relations – how we work to educate the public and stakeholders.
There are six criteria in the Responsible Mining Index:
- Economic development
- Business conduct
- Lifecycle management
- Community wellbeing
- Working conditions
- Environmental responsibility
Mr. Torres went on to outline how OT fulfills each of these criteria at Oyu Tolgoi:
- The company has spent USD 8.7 billion in-country since 2010
- Implementing the “Made in Mongolia” strategy
- Largest private-sector employer in Mongolia
- Top taxpayer two years in a row
- The Way We Work is who we are at Oyu Tolgoi and Rio Tinto
- The way we work outlines how we deliver both our purpose and strategy
- We have fair and transparent procurement and HR policies
- At least 75 years of future operation
- Clear roadmap towards the vision.
- Careful and professional planning in every area.
- USD 6.2 million spent on sustainable, long-term projects in 2018
- Spent USD 413 million on procurement from Umnugovi since 2010
- Constructed critical infrastructure for Khanbogd soum, including water, power, roads, healthcare and education
- Over one-fifth of the workforce is from Umnugovi Province
- Safety remains top priority, with an All Injury Frequency Rate at 0.16
- Safest operation in Rio Tinto, winning the 2017 CE safety award
- With legislative change allowing women to operate haul trucks and work in the Underground
- Encourage Inclusion and Diversity
- 88% water recycles, used 0.4 cubic meters of water per ton of ore
- Has rehabilitated a total of 1,557 hectares of land
- Approximately 70 thousand saplings planter per annum
Focus areas of the Resources and Environment Working Group
- Share best practices in responsible mining
- Business associations, the government, and NGOs to work closely together
- Align with the Government of Mongolia
- Communication framework to educate the public on responsible mining and an investment-friendly environment
- Support the GoM at international forums and events to attract future investors
- Focus national forums at sharing best practices and attract potential investors
The challenge of advocacy is to influence regulators and lawmakers to create an environment to success in business and investment. To do this, alliances are important. The question is, what are the groups that can support us in this goal of advocacy? “We cannot be like us and them. We need to move together as ‘we’”, Mr. Torres stated.
On top of success in business and attracting investment, we must relay messages of success to people both domestic and international. Mongolia has experiences to share in best practices, and we must also let the world know of the potential of Mongolia as well as the successes thus far.
PANEL AND Q&A
BCM Vice Chairman Randolph Koppa moderated the panel discussion, with the presenters coming back on stage to answer questions.
When asked when the OT underground mine will be commission, CEO Armando Torres stated that construction is expected to be completed in 2022 or 2023, with sustainable production starting in 2024. An audience member then asked whether Oyu Tolgoi will be one of the projects in Rio Tinto’s big push for more robotics and automation. Mr. Torres replied that before making a large investment in robotics and automation, the company will look to improve efficiency in other ways first. One such focus is on data management and digital transformation. He did note, however, that OT does indeed employ state-of-the-art technology in its equipment, especially ones involved in tunneling and blasting. Regarding the cumulative impacts of mining, as opposed to the impact of one company or project, the CEO stated that one way the company is addressing this is by sharing best practices as a foundation.
Regarding BCM Working Groups, they have worked well in the past to provide information to those who are interested in keeping track of developments in a particular sector or tax issues, and will continue to serve this important function. The number of participants in a Working Group will depend on the interests of the members. As for advocacy, issues that are important would be raised through BCM management and driven in a more centralized approach in cooperation with the Working Groups. For instance, in the past, we established a united front with other business associations to raise a unified voice to lawmakers. Members should be business leaders from member organizations who can add knowledge and drive to the Working Group.
The one strict prerequisite for joining a Working Group is that you must be a member of the BCM.
Working Groups are now more sector-focused. There will be target areas that each Working Groups will take up, which we will then advocate for as BCM to government or to the public. The Working Groups will do the thinking, writing, and recommending. The Executive Committee will decide on what the appropriate advocacy approaches are: whether we use IFIs, embassies, NGOs, etc. We will also look at what we need to do manage our social profile and get messages out to the public – how we can be influential.
Before heading off to networking, Dr. Oliver Schnorr from Euro Khan asked Mr. Gankhuu a poignant question regarding rare earth minerals and the notion that the government plans to nationalize deposits. There is an intergovernmental agreement between Mongolia and Germany to support extraction of rare earth elements. Dr. Schnoor asked what guarantees Mongolia can give to ensure that these investments will be safe and secure.
Mr. Gankhuu stated that “there is no nationalizing” and that the government wants to discuss how they it can cooperate with private companies. Licenses for operations involving rare-earth elements are all owned by private companies in Mongolia. There is an economic committee under the German-Mongolian intergovernmental commission that will work on rare earth elements and other high-tech investments from Germany. Mr. Gankhuu stated that he believes he will head up this committee. These internal issues will be discussed and resolved before the next meeting near the end of May. Finally, he reiterated that right now, the most important thing we have to work on is the legal environment.
The BCM would like to extend our appreciation to all the presenters and attendees.