Tag Archives: Development

Mongolia Continues Cooperation with China on Mutual Free Trade Zone



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Chinese news media is reporting that China and Mongolia are beginning a new process of conducting a feasibility study regarding development of a new Free Trade Zone (FTZ).

This comes in the contest of the second China-Mongolia Expo, held in Hohhot, the capital of China’s Inner Mongolia region. The conference will occur in late September, and will serve as a forum to discuss issues of mutual cooperation and development between China and Mongolia.

Mongolia’s trade with China in the first six months of 2017 has been USD $3.1 billion. This is a 44.2% increase year-on-year. China mainly exports gas, diesel, food, machinery and equipment to Mongolia, and imports natural resources, fur and raw materials.

Talk of the new FTZ comes after the China-Mongolia Cross-border Economic Cooperation Zone (CECZ) was announced in 2015. The CECZ is a 18 square kilometer  territory evenly divided along the China-Mongolia border. The CECZ is intended to facilitate import/export processing, logistics, warehousing, and e-commerce.

The increase in economic cooperation between China and Mongolia is a core part of the wider China-Mongolia-Russia economic corridor, which seeks to facilitate integration of Mongolia with the economies and infrastructure of China’s northern territories and Russia’s far east.

Mongolia Presidential Election Maintains Divide Between Presidency and Parliament



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The people of Mongolia have just completed the election of the President of Mongolia. Battulga Khaltmaa, of the Democratic Party, is the victor. Mr. Khaltmaa follows Ts. Elbegdorj, also of the Democratic Party in serving as President. This will continue the previous dynamic of a Democratic Party President serving concurrently with a parliament dominated by the Mongolian People’s Party (MPP).

Mr. Khaltmaa achieved his win with 50.6% of votes cast, with a voter turn-out estimated at 60%. The MPP candidate received 41.2% of the vote, while 8.2% of ballots were returned in protest with no selection, a practice expressly allowed by the Election Law of 2015.

The MPP continues to hold a supermajority in parliament. Therefore, they will retain the capability to override any potential veto by Mr. Khaltmaa of proposed legislation. Still, his presence at the top is expected to force some concessions on the part of the parliament. Mr. Khaltmaa will be primarily responsible for foreign policy, and negotiations of treaties with foreign governments.

During the campaign, Mr. Khaltmaa advocated for state involvement in the economy, and management of natural resources. He has framed his pending presidency as a necessary balance against the MPP dominated parliament. It is expected that a period of adjustment will follow the election in which the parliament and Mr. Khaltmaa learn to work together and set boundaries.

Mr. Khaltmaa is called a Nationalist by Bloomberg. His campaign has promised to increase public access to wealth from Mongolia’s large resource mining projects. He has also promised to reduce trade imbalances Mongolia has with Russia China, a task which may be easier said than done. Even so, the rhetoric has not been overly hostile to foreign investment and the election is not expected to derail Mongolia’s recent efforts to revitalize its mining boom, or efforts to diversify its economy in the agricultural sector.

Mongolia’s Economic Diversification



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Strategically located between Russia and China, Mongolia provides rare opportunities for savvy business leaders and investors to start new businesses and expand existing ones. In recent years, Mongolia has suffered economic hardship, as can be seen from the stark drop in GDP growth over the past few years.

As a consequence, the country has embraced economic evolution. Political and business leaders have been forced to seek ways to fuel the economy, not only from mining which was the backbone of Mongolia’s economy for many years, but also from other sectors such as agriculture, renewable energy and tourism. At the same time, a global wave of technology and entrepreneurship have impacted the way Mongolians think and do business, spurring bold initiatives and a reaching out to the international community.

According to the World Bank, while livestock provides subsistence, income, and wealth for nearly half of Mongolia’s population, only 7 % of exports consist of raw livestock materials and primary processed products. This is in stark contrast with statistics for the mining sector, which only employs 5% of the workforce but has produced nearly 90% of Mongolia’s exports since 2000. This imbalance has spurred the Mongolian government to initiate policies and programs that support export-oriented enterprises outside the mining sector.

However, small and medium sized enterprises, which make up more than 80 percent of registered businesses in Mongolia, lack the knowledge, skills, capital and networks to effectively develop and distribute products that can compete in international markets. Therefore, foreign talent, expertise, capital and connections and investment, are well sought after in the country.

In order to decrease the economic vulnerability and meet the needs of the majority of Mongolian society who are dependent on non-mining, agrarian sectors, Mongolian government has been obliged to diversify Mongolia’s economy. In doing so, in addition to export-oriented support policies and programs, Mongolian government has introduced various programs and policies supporting import substitution.

In addition to macro-economic motivations, a strong societal need for food security has led to the opening of a large variety of food factories. Many of them have been formed in partnership with foreign companies and experts who have the sophisticated technical skills to complement their Mongolian partners’ local knowledge.

In this country of vast territory, patriotic people and thirst for advanced technologies and international connections, savvy investors and business people will discover many opportunities.

Bank of Korea Assisting with Modernization of Mongolia’s Foreign Exchange Policy



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The Bank of Mongolia, signed a cooperation agreement on June 21, 2017 with the Bank of Korea. The agreement solidifies plans by both organizations to cooperation regarding development of a comprehensive strategy for development of the foreign exchange market in Mongolia.

The Bank of Korea has been conducting a study on Mongolia’s foreign exchange market. The results of the study are expected to have an important impact on development of foreign exchange regulations and growth of the foreign exchange market in Mongolia.

Major complaints about the current state of the foreign exchange market in Mongolia include the lack of transparency in the process and inefficient operations. The study will draw on the Bank of Korea’s past experience in managing foreign exchange issues in Korea to set out a road map for Mongolia.

The plan is expected to help stabilize the exchange rate of the Mongolian Tugrug, which will facilitate a better environment for foreign investment and domestic economic growth.

Renewable Energy Program Means New Opportunity for Mongolian Economy



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According to The World Bank, a new renewable energy project is to be launched in Mongolia, utilizing over $50 million in loans and grants from international organizations. The project is a part of the World Bank’s efforts to assist Mongolia’s long term path of sustainable development.

Playing off the government of Mongolia’s plans to produce 30% of the country’s energy via renewable sources by the year 2030, the new project will focus on providing financing for renewable energy investments in Mongolia.

Mongolia is a vast, open country with abundant solar energy and wind energy potential, waiting to be taken advantage of. One key aspect of the program is the construction of the first large scale solar power plant in Mongolia, designed to supply electricity throughout Mongolia’s western regions.

Another important aspect of the program will be the revamping and renewal of Mongolia’s electricity distribution grid, which currently operates inefficiently resulting gin losses of up to 25% of energy transferred on the network.

Sustainable development and efficient electricity distribution are key to promoting long term economic growth in Mongolia. The new funding will go toward providing new opportunities for businesses and families in Ulaanbaatar, as well as throughout the rural areas of Mongolia. The project will also provide funded needed to attract foreign companies with renewable energy technologies to Mongolia.

Mongolia’s Role in the New Silk Road



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When China held its Belt and Road Forum for International Cooperation in Beijing May 14 to 15th, China’s President Xi Jinping welcomed Mongolia’s efforts to help link the European and Asian economies.

China welcomes cooperation with Mongolia in areas of trade and investment, agriculture, industrial growth, and energy development. President Xi suggested that China Belt and Road Initiative complements Mongolia’s own Prairie Road development initiative. Cooperation is also important to promote a China, Mongolia, Russia economic corridor.

President Xi advocated for a study of establishing a Free Trade Zone on the Border wth Mongolia, and increasing economic cooperation between the countries, including cooperation on major mineral industry programs and infrastructure.

Prime Minister Erdenebat of Mongolia indicated cooperation with China is a Priority for Mongolia, and said China’s Belt and Road initiative is important for promoting development in Mongolia. According to Erdenebat, Mongolia may play an important role as a link between Europe and East Asia.

Mongolia is well placed between major powers Russia and China to serve as a conduit for economic and cultural exchange. Mongolia suffers from a lack of population compared to its large southern neighbor, however, Mongolia’s rich mineral resources mean Mongolia will be able to generate foreign interest and income for years to come. With budgetary reform in Mongolia well underway, further integration with China and Russia is one more positive development for the future of the Mongolian economy.

MONSTAT Improves Mongolia’s Data and Statistics Capability



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After the financial crisis in 2008 and a series of harsh winters, Mongolia took a few years to recover. As part of the recovery, the government set out a wide reaching development strategy, and setting 6 development goals. The government quickly realized that implementation of its strategy would relied heavily on up to date data and statistics. It recognized that Mongolia needed to improve and modernize its internal statistic generation and analytical capabilities in order to effectively implement its new strategic development plan. Mongolia’s old state statistics system was oriented to service the old state lead planned economy from years past. It required a major reorientation to address the needs of the emerging market economy.

The government of Mongolia approached the World Bank for assistance in implementing a new statistics system under a reorganized National Statistical Office (NSO). The World Bank worked with the government to develop the Strengthening of the National Statistics System of Mongolia (MONSTAT) project, designed to generate and distribute, meaningful, accurate and current statistics data, to promote evidence based law making in support of the government’s strategic development agenda.

The first step was to improve institutional, regulatory and policy framework for statistics collection, as well as to put in place higher standards for statistics collection and recording. Personnel knowledge and skill also required improvement, particularly as to survey techniques and data collection methodology. New technology was acquired and implemented to bring operations into the information age. The project introduced data management and quality standards of the EU.

As a result of the efforts of MONSTAT, use reliability and user satisfaction regarding statistics generated by NSO has increased. NSO has explored and implemented new ways to make statistics information available to the public and to researchers. NSO has implemented systems to improve inter-agency cooperation in data-collection and sharing.

The MONSTAT project and the improvements to the NSO are positive examples of Mongolia’s continuing development. The project has provided valuable information to a rage of government agencies, NGOs, and international organizations, working collectively to make lives better for Mongolians and to build a positive environment for foreign investment. With these improvements to the NSO, foreign investors are better able to develop business plans which rely on internal Mongolian statistics.

Mongolian Free Trade Zones



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In 2016, matters related to Free Trade Zones (FTZ) came under the power of the Deputy Minister. There are three FTZ in Mongolia: Zamiin-Uud, Altanbulag and Tsagaannuur. The Law on FTZ was revised in 2015 to enabled and promoted the cooperation between private entities and public authorities in developing FTZs.

Altanbulag Free Zone in Selenge province covers 500 hectares of land. Since the establishment of Mongolian FTZs, MNT 35 billion has been allocated by State Budget and 77 per cent of the budget was invested to the infrastructures of Altanbulag Free Zone. At the moment only Altanbulag has drawn investment from private entities, which totals MNT 6.2 billion.

Zamiin-Uud Free Zone in Dornogobi province covers 900 hectares of land. In 2010, Development of Zamiin Uud infrastructure project started with soft loan of the Government of China which totals USD 58.8 million. The project performance is 95 per cent. As of this day, 23.6 hectares of land are in possession of 13 private entities for the purposes of trade, service, hotel, manufacture, storage, logistics and gas station.

Tsagaannuur Free Zone in Bayan-Ulgii province covers 708.4 hectares. 115 hectares are in possession of 5 private entities.

The Deputy Minister Khurelsukh Ukhnaa has stated that the Free zones are in need of accelerated foreign and domestic investment and noted that the Parliament and the Government should start establishing joint FTZ areas with bordering countries. Deputy Minister Office and Ministry of Foreign Relations are working on research and assessment and negotiating with Chinese authorities about a potential new joint FTZ.

Mongolia Tax on Gasoline and Diesel Fuel



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We continue to introduce various Mongolian taxes to be aware of. The Law on Gasoline and Diesel Fuel Tax was adopted on June 2, 1995, yet only came into force on  June 6, 1995.

According to this law, the tax is levied on all types of gasoline and diesel fuel whether produced within the territory of Mongolia, or imported into Mongolia. This tax is levied on every ton of fuel calculated as follows.

Gasoline up to 90 octane will be taxed at 20,350 MNT per ton, while gasoline with octane over 90 will be taxed at 25,700 per ton. Diesel fuel will be taxed at a substantially lower rate of 2,140 MNT per ton. This suggests the government recognizes the importance of diesel fuel in economic activities such as logistics and transportation of goods.

This tax is different and in addition to the tax levied on petroleum and diesel fuel in accordance with Law on Excise Tax. The purpose of the Excise Tax is to limit harm to the society or reduce the worst effect of the products as like as international standards. The excise tax on petroleum and diesel fuel is expected to be increased on July 1, 2017 and October 1, 2017 respectively.The tax on gasoline and diesel fuel produced on the territory of Mongolia is levied by the National tax offices and the tax on imported gasoline and diesel fuel is levied by the Customs offices in accordance with the amounts above.

Several changes to Mongolian taxes have been ratified recently by the Mongolian Parliament as a means to raise additional revenue in hopes of improving the state budget. The new implemented tax on gasoline and diesel fuel is primarily intended to raise revenue.

Mongolian Public Officers May Soon be Subject to Dismissal



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We have already provided an overview of the new Law on Imposing Liability on Selected and Appointed High Ranking Government Officials, we would like to follow that with a closer look a few specific provisions in the new draft.

The law will set forth the legal basis and official procedures imposing disciplinary actions, political and moral accountability on officials including the President of Mongolia, the Parliament Speaker, the Deputy Speaker of Parliament, members of Parliament, the Prime Minister, Cabinet members, and officials appointed by the Parliament, or appointed by  provincial governors or Chairmen of local representative councils.

Officials in violation of legislation, oath or code of conduct or who fail to perform his/her duties will be subject to disciplinary actions depending on the nature of the violation committed. The said actions will be in form of warning the said official individually or warning among public. Furthermore, other disciplinary actions will be taken pursuant to other applicable legislations.

For the political accountability, officials in violation of the Constitution, legislation and code of conduct, will be dismissed or recalled, or his/her right to hold government high ranking position will be subject to 2 or 4 year restriction.

Furthermore, the law categorized ethics accountability as type of accountabilities in order to develop political culture in Mongolia, and aims to make officials feel greater regret for poor performance or taking advantage of their position and voluntarily assume accountability. However, if an official was subject to ethics accountability, he/she will be exempted from political accountability.

Chapter two of the law clearly states grounds for dismissal of President of Mongolia subject to overwhelming majority voting of members attended in Parliament session.

Chapter three states grounds and procedure for dismissal of the Parliament Speaker and the Deputy Speaker of Parliament and dismissal subject to overwhelming majority voting of members attended in Parliament session. Moreover, Parliament members elected from constituency will be dismissed according to majority voting of total members attended in Parliament session based on request by voters.

Chapter four includes wider grounds for dismissal of Prime Minister, Cabinet members and officials appointed by the Parliament, dismissal subject to discussion and majority voting of members attended in Parliament session and regulates other relevant issues. Furthermore, the chapter states basis for dismissal of aimag or city Governor.

Chapter five states basis for dismissal of chairman of the Citizen’s Representative Khural of aimags or city and issue on dismissal will be decided according to majority voting of total representatives attended in meeting.

Chapter six regulates matters regarding public statement, informing officials about dismissal, conducting investigation, discussing about dismissal, imposing liability on officials, reporting and informing public about compensation of damage incurred to state due to breach of law by officials.

This new law which clearly outlines procedures for dismissal of public officials will be a significant improvement over the current situation in which misdeeds by public officials are not adequately addressed. We expect this new law will go a long way to reduce or eliminate any feeling by public officials that the does not apply to them due to their position of authority.