BCM UPDATES
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.
PANEL DISCUSSION
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
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