CoverMongolia NewsWire
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Update: Cover Mongolia Fundraising Ideas
Dear subscribers,
To follow up on feedback I got after running the idea with you in last issue:
Suggestions came where a fixed fee structures could be set for companies as there are definitely companies who already pay for such services.
As for individuals perhaps I could ask for Wikipedia style donations, as I would hate to have to cut off people, where I'd like to keep adding quality subscribers.
One other additional idea could be an advertisement banner on the top of the newswire. Anyone have experience in buying banner space?
So folks, what do you think about this structure?
Thank you all who gave me feedback!
Mogi
Mogi: Bloomberg just posted this March 29 article on the web, after being stuck in their terminal due to Easter.
Mongolia's Oyu Tolgoi Mine Gets Continued Funding Through April
March 29 (Michael Kohn, Bloomberg) The board of Mongolia's Oyu Tolgoi copper and gold mine agreed to continue funding the project through April, Mining Minister Davaajav Gankhuyag said in a mobile-phone text message.
The mine, 66 percent-owned by Rio Tinto Group (RIO) and 34 percent-owned by the Mongolian government, is operating on a month-to-month budget and requires approval from the board of directors. International investors currently cash fund the entire project.
Puntsag Tsagaan (Mogi: also the head of the President's office), an Oyu Tolgoi board member, said earlier this month that Mongolia won't approve the budget for the entire year until the company produces a feasibility study for phase two of the project.
Turquoise Hill Resources Ltd. (TRQ), the Rio Tinto unit that controls the mine, says a phase-two feasibility study won't be available until 2014. Costs for phase one of the project totaled $6.6 billion. A 2013 Oyu Tolgoi technical report estimates phase two costs could reach $5.1 billion.
Rio Tinto and the Mongolian government are in talks to remedy several disputes around the project, including alleged cost overruns and management control. Three emergency shareholder meetings have been held this year. A date for the next shareholder meeting hasn't been set.
Change to Aspire Board of Directors
April 2 -- Aspire Mining Limited (ASX: AKM, "Aspire", or the "Company) wishes to advise the resignation of Non-Executive Director, Mr Ross Tromans, from its Board on 31 March 2013.
Mr Tromans currently acts as President and Chief Executive Officer of SouthGobi Resources Limited (HK: 1878, "SouthGobi"). Mr Tromans' resignation follows the recent announcement of a re-commencement of operations at SouthGobi's Ovoot Tolgoi mine in Mongolia.
Aspire's Chairman, Mr David McSweeney said "We fully understand Ross's decision to focus his attention on the performance of SouthGobi Resources."
"We thank Ross for his involvement and wish him all the best in his efforts to re-establish SouthGobi Resources as a profitable Mongolian coal miner".
Winsway: RESIGNATION OF EXECUTIVE DIRECTOR, APPOINTMENT OF EXECUTIVE DIRECTOR AND CHANGE IN COMPOSITION OF BOARD COMMITTEES
April 1, Winsway Coking Coal Holdings Limited (HK:1733) --
The Board announces the resignation of Mr. Apolonius Struijk as an executive director of the Company, the appointment of Ms. Ma Li as an executive director of the Company and a member of the Health and Safety and Environmental Committee of the Company and the appointment of Mr. Ng Yuk Keung and Mr. George Jay Hambro as a member of the Remuneration Committee and the Health and Safety and Environmental Committee of the Company, respectively, with effect from 1 April 2013.
…
Blue Wolf: Annual and Transition Report
April 1, BLUE WOLF MONGOLIA HOLDINGS CORP. (NASDAQ:MNGL) --
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EXPLANATORY NOTE
On December 30, 2012, Blue Wolf Mongolia Holdings Corp., a British Virgin Islands company ("we," "us," "our," or the "Company"), changed its fiscal year end from February 28 to June 30 solely for financial accounting purposes. As a result of this change, the Company's current fiscal year will end on June 30, 2013. This Transition Report (the "Transition Report") discloses the financial results for the four month transition period from March 1, 2012 through June 30, 2012. This Transition Report was prepared pursuant to Rule 13a-10(g)(4) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which permits us to respond to only Items 5, 8.A.7., 13, 14 and 17 or 18 of Form 20-F. The Company intends to file its Annual Report on Form 20-F for the fiscal year ending June 30, 2013 within four months following the conclusion of the fiscal year.
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Item 5. Operating and Financial Review and Prospects
Overview
The following discussion should be read in conjunction with our financial statements, together with the notes to those statements, included elsewhere in this Transition Report. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.
We are a blank check company incorporated as a British Virgin Islands business company with limited liability (meaning the public shareholders have no liability, as members of the Company, for the liabilities of the Company) formed for the purpose of acquiring, engaging in share exchange, share reconstruction and amalgamation or contractual control arrangement with, purchasing all or substantially all of the assets of, or engaging in any other similar business combination with one or more businesses or assets. We intend to effectuate our initial business combination using cash from the proceeds of our initial public offering ("IPO") and the private placement of the sponsor warrants, our shares, debt or a combination of cash, shares and debt.
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Global X to Launch Central Asia & Mongolia ETF (AZIA)
April 1 (Barron's Blog) NYSE Euronext has announced that two new Global X ETFs would begin trading on Wednesday, April 3: the Global X Nigeria Index ETF (NGE) and the Global X Central Asia & Mongolia Index ETF (AZIA).
Both funds will track indexes comprised of 25 stocks, with the AZIA drawing from Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, along with Mongolia.
Of course, these are frontier markets and they're called that for a reason. Here's what I wrote about frontier markets generally on Feb. 9 in Barron's.
There's the outsized growth, sure, but that comes with higher-than-average risks. Most frontier-market stocks trade infrequently, are expensive to enter and exit, and come with idiosyncratic factors that can cause markets to plunge or freeze up completely. It's not a bet for the faint of heart—or an easy market to play. "It makes sense to have some exposure," says David Romhilt, head of manager research for the Americas at Barclays in New York. "But there are real risks in the space."
Read the funds' prospectuses for a discussion of those risks. My favorite comes from the Nigeria ETF.
Cash Transactions Risk: Unlike most ETFs, the Fund expects to effect a portion of its creations and redemptions for cash, rather than in-kind securities. As a result, an investment in the Fund may be less tax-efficient than an investment in a more conventional ETF.
BDSec DAILY TRADING UPDATE: MSE TOP 20 DOWN BY 10 PERCENT FOR MARCH
29 March 2013, Friday (BDSec) – MSE Top 20 declined 0.06% to sit at 15,542.24 points on the last trading day of the month. For the month, the MSE Top 20 lost as much as 10.1 percent.
Remicon (RMC) jumped 2.09% to close at MNT 195, following the news about the trilateral agreement between the Ministry of Construction and Urban Planning, the Authority for Fair Competition and Consumer Protection (AFCCP) and over 50 construction structural steel, cement producers signing an agreement to get soft loan of MNT 370 billion.
On today's bourse, Sor (SOR) tumbled 3.93% to MNT 2,100, HBOil (HBO) plunged 2.86% to MNT 170, Telecom Mongolia (MCH) gave up 2.78% to MNT 1,750 and Baganuur (BAN) lost 2.22% to MNT 4,400.
Download the whole report in PDF
Tavan Tolgoi power plant company to be formed
April 1 (news.mn) The Government reached a decision during Sunday`s cabinet meeting to jointly establish a project coordination company with the private sector. The Government considered the need to build a power plant with a capacity of 450 megawatts based on the Tavan Tolgoi coal mine site. The Cabinet gave the order to the Minister of Energy, M.Sonompil, who will be in charge of the management of the project coordinator company that is to be formed.
According to the decision made by the Government, the Tavan Tolgoi power plant company will be invested in by the Government, with a state stake no less than 34 percent. The Ministry of Energy was granted permission to make changes in the stake ownership.
₮33 billion for road construction to improve Zamiin-Uud border crossing
April 1 (news.mn) Prime Minister Norov Altankhuyag gave the order to intensify construction work to extend the bottleneck transportation load at Zamiin-Uud border crossing and to complete the customs control complex. It is designed to pass trucks through a 2.3 km customs control road due to be completed in June.
Issues surrounding the completion of the construction work were discussed during a regular cabinet meeting on Sunday March 31st.
The Government signed a direct agreement to build the road in Zamiin-Uud by June 15th, financing the project through the Development Bank.
The Government also gave orders to build an 8.7 km road from the customs controlled X ray area to the transit terminal and truck road for October 15th this year.
The Development Bank will be responsibility for financing 33 billion MNT of the project.
RUSSIA EXPRESSES INTEREST IN ACCELERATING ULAANBAATAR RAILWAY TECHNICAL UPGRADE
April 1 (InfoMongolia) The Deputy Prime Minister of Mongolia and Chairman of Russia-Mongolia Intergovernmental Committee, Dendev TERBISHDAGVA received the Ambassador Extraordinary and Plenipotentiary of the Russian Federation to Mongolia Viktor Vasilyevich Samoilenko on March 29, 2013.
At the beginning of the meeting, Ambassador V.V.Samoilenko appreciated for sharing a time and asked for some additional information following the XVI Russia-Mongolia Intergovernmental Committee meeting on Trade, Economy, Science and Technical Cooperation held in December of 2012. Also, Ambassador introduced the upcoming two meetings to be organized between Russian and Mongolian authorities, first – on real assets under Russian authority to take place on April 15, second - on upcoming Board of Directors' meeting of the "Erdenet" Mining Corporation to be held on April 18-20, 2013.
In addition, Ambassador noted that the technical renovation for "Ulaanbaatar Railway" Mongolia-Russian Joint Venture has been discussed 3 years, however the project was approved for implementation, but currently has not been realized, even started. The Ulaanbaatar Railway's transportation is being increased yearly, but income from transnational freight transportation is been declined, hence the agreed technical renovation is necessary to start immediately, stressed Ambassador V.V.Samoilenko.
In reply, Deputy Premier D.Terbishdagva expressed to respond shortly, because following the XVI Russia-Mongolia Intergovernmental Committee meeting there many issues are stored un-answered and this is an opportunity to give comprehensive answers to the Government of Russia during the upcoming meetings. In particular, he emphasized that there positive decisions regarding Russian real assets, and the Government of Mongolia is willing to accelerate Ulaanbaatar Railway's technical renovation and enhance this sector's cooperation at all potential levels.
₮570 BILLION CHINGGIS BOND 1,400 KM ROAD CONSTRUCTION TO CONNECT 6 AIMAGS WITH ULAANBAATAR
April 1 (InfoMongolia) On March 30, 2013, the Government of Mongolia held its regular Cabinet of Ministers' meeting, where in the frameworks of implementation the Action Plan, six centers of Bayankhongor, Dornod, Dornogovi, Dundgovi, Umnugovi and Khuvsgul Aimags (Provinces) were resolved to be connected with paved road to the capital city of Ulaanbaatar in 2013.
Accordingly, the total length of the road for these six aimags is estimated at 1,400 km, which previously was agreed to be financed by "Chinggis" Bond and within the meeting it was resolved to allocate required 570 billion MNT for the construction works through the Development Bank account, also Minister for Economic Development N.Batbayar and Board Director of the Development Bank B.Shinebaatar were permitted to finance the project.
In conjunction, centers of the all 21 aimags of Mongolia will be connected to Ulaanbaatar city by 2016 as part of the Action Plan for 2012-2016.
Areva Mongol to hold press conference Tuesday
April 1 (Montsame) --
Following events are expected April 2:
- Consultation on increasing participation of khoroos for preventing crimes
- PM N.Altankhuyag will get au fait with business incubator center
- Ministry of Mining and National Mining Association will sign a memorandum of understanding
- 1,000 citizens' parade will be organized by NGOs who work for invalids
- A training on disaster protection
- A conference by "Areva Mongol" LLC
- Information about about concert of all stars "We are together"
- An information on safety of construction equipment and renovation of standards by Ministry of Construction and Urban planning.
Link to article (click English and try link again)
BDSec MONGOLIA DAILY DIGEST: MONGOLIA SUPPORTS CASHMERE INDUSTRY
April 1 (BDSec) In line with cashmere being one of the Mongolian brand products, GOM decided to support the technological improvement of cashmere sector by issuing MNT 95 billion loan from Chinggis bond. The "Cashmere Sector's Technological Renovation" project will create 20,000 new jobs and over 200 new (small) cashmere factories. The project will limit raw cashmere export and support export of value-added products.
Amended Draft of Securities Market Law (#4-th item on the list), and Amendment Draft of Strategic Foreign Investment Law (#3 item) will be discussed by the Spring Parliamentary session (udriin sonin p. 5)
• Passing these two laws will have critical effect on Mongolian capital market. Spring parliamentary session will start this Friday, April 5th.
Zamyn Uud's heavy load road is financed by MNT 33 billion (politics p.2)
• The GOM has decided to finance 8.7 kilometer road between customs X-ray area and transshipment area with MNT 33 billion.
• As a result, the customs capacity will increase and will generate easier access for heavy load trucks.
• "Tavan Tolgoi power plant" 34% state owned company is to be founded (www.news.mn/economy)
• GOM has decided to incorporate 34% state owned "Tavan Tolgoi power plant" company with 66% private ownership. The capacity of the plant will be 450 Mwatt.
Mongolia Seeks to Play Peacemaker as North Korea Declares 'War' (Bloomberg)
• Mongolia called for six-party talks to be resumed after North Korea said it's in a "state of war" with its neighbor to the south.
• "Mongolia would like to extend its relationship with North Korea," Prime Minister Norovyn Altankhuyag said at a press conference in Ulaanbaatar with his Japanese counterpart Shinzo Abe.
• "Mongolia can contribute if they initiate any meetings."
• The Japanese leader announced a 4.2 billion-yen ($45 million) loan to upgrade Ulaanbaatar's Power Station No. 4, built by the Soviets in 1981.
• Japan also aims to assist Ulaanbaatar to build its first metro line, a 10 1/2-mile train line with 3.7 miles to be dug underground, according to a press release issued by Mongolia.
• The cooperation agreement also includes the development of a new international airport and Mongolia's first oil refinery.
BoM issues 1-week bills
April 1 (Bank of Mongolia) BoM issues 1 week bills worth MNT 735 billion at a weighted interest rate of 12.50 percent per annum /For previous auctions click here/
Monetary Policy of Mongolia: Will it Finally Hit its Targets in 2013?
March 28 (Mongolian Economy) The Bank of Mongolia has been criticized for several years now for not being able to pursue monetary policies that had effective results. Undeniably, policy targets proposed within the monetary policy, especially with regard to inflation rate were rarely met in the past.
Increasing policy rate as a tool to reduce inflation rate has proven to be not effective. Reasons for this include anomalies of the Mongolian economy which prevent efficient policy rate channeling to real markets. Existence of an informal sector, inefficiencies in product supply chain and large volume of foreign investments inflows can be mentioned among anomalies that influence to inefficiency of the policy rate channel. As a result, bulk of local businesses that most are dependent on local bank loans as means of corporate financing get hurt most, creating discontent in the business environment.
Of course there were a number of reasons to the failure to hit inflation target pertaining not only to the Bank of Mongolia, but also to overall 
macroeconomic factors and government decisions. For example, we all know one of the most cited explanations that the Government was not sticking to the line and pursued pro-cyclical expansionary fiscal policies. Indeed, publicly announced public sector salary and pension increases, as well as generous welfare cash distributions negate Central Bank's efforts to tighten monetary policy and are very quick to have effect on the market.
Is it different for 2013?
The proposed Monetary Policy for 2013 is being discussed at the Parliament, and one can tell that there are no totally new policy directions as proposed by the Bank of Mongolia. Most of the previous policy lines are proposed to be carried on in 2013. The only noticeable difference is that the target inflation rate was clearly pronounced to be at 8 percent, the first time since 2009. And there are reasons to predict that this target rate may actually be met. First of all, economic growth slowing down resulted by lowering commodity prices and shrinking demand for our exports products. As China's growth is decelerated, it also expected that imported inflationary pressures will be minimal.
Most importantly though, the Government is willing to have consented action with the Central bank on managing inflation and inflation expectation, for example, the Law on Structural Budget will be effected from 2013. Moreover, and it has been openly pronounced in the Government's platform for 2012- 2016 that it will not have expansionary policies and cash distributions, and most importantly it will not support overall salary increases, and if salaries need to be increased will be done in an implicit ways so that inflation expectations are not hiked.
If the stage is set to tame inflation rate, it might be not so easy for currency exchange rate targets. It is foreseen that increasing trade balance deficit and conservative foreign investment environment will present challenges for the Central Bank as may lead depleting FX reserves.
Could the Bank of Mongolia do a better job?
The Bank of Mongolia has improved a lot in terms of research base and public information disclosure measures. One can download now most of the banking related data from its official website in a timely manner. To take just one example, inflation sentiment sample study is taken from 1000 respondents as a leading indicator on a monthly basis, and results are publicly accessible.
However, the can be more mindful about the end results the bank wants to achieve strategically for the national economy and financial sector especially in the light of the newly approved Government Agenda for 2012-2016. There should be more efforts done towards improving the efficiency of the financial markets both in terms of bank operations (reducing operational and systemic risk) as well as of financial sector infrastructure. These will help to drive cost funding down, and also improve the efficiency of monetary policy tools of the bank.
More focus can be given to actual economic growth objectives, bearing in mind that non-mining sector growth is not high and sustainable, and that one third of the population is still poor. Mining sector led expansion should be diverted to real economy through seemless and harmless channels. Local real sector businesses are in acute need of affordable source of funding, which will help the country to achieve economic diversification policies and nurture wider middle class.
Equal opportunities to benefit from economic growth and making it accessible should be done not through cash support to selected industries, but through supporting development of institutional investors and investment funds. More action could be taken to transfer informal cash based economy to formal economy.
Mercury leak in Arkhangai Aimag, NEMA takes action
April 1 (news.mn) The National Emergency Management Agency received a report on Sunday that large amounts of mercury had leaked near wells of 2nd sub-station in Erdenebulgan sum in Arkhangai aimag.
State Emergency staff and a working group inspected a tank that had leaked mercury near the wells of 2nd sub-station in a surge.
Emergency staff collected the remaining 2.3 kg of mercury.
A working group lead by the Disaster Protection Service of the National Emergency Management Agency neutralized the soil in the area and took polluted soil and water samples to have it tested in the Central Laboratory of State Specialized Inspection Agency.
Due to such urgent circumstance, the Deputy Prime Minister and the head of the State Emergency Commission, D.Terbishdagva gave orders to the State Specialized Inspection Agency and National Emergency Management Agency to take action to remove any possible danger and risk following the incident.
Following the incident a working group will be established to take responsibility on monitoring the illegal sale and use of mercury and to take actions to avoid the possible leak of mercury.
Re-polling for Songinokhairkhan District's 3rd parliament seat set for March 13
April 1 (news.mn) Re-polling for the Parliamentary Election in 23rd electoral district will run in Songinokhairkhan district on Saturday March 13th.
Citizens in Songinokhairkhan district will vote for one of the candidates Dorlgorsuren Sumiyabazar (MPP) or Lombo Erkhembayar (DP) as their representative in Parliament.
The candidates who won seats in Songinokhairkhan district did not reach the minimum 28 percent required by Election law in 2012. Therefore the candidates who won the highest in the polls are to compete again in the re-polling according to Election law.
Re-polling was delayed twice previously because not enough polls were available.
Mogi: was a very good read!
MIBG Releases Mongolia Quarterly Update
April 1 (MIBG) MIBG is pleased to announce the release of the MIBG Mongolia Quartery Update - Q2 2013. The report provides an overview of the legislative, regulatory, and business environment while highlighting the important changes that have taken place over the past three months. Additionally, we consider the pending issues that will shape the rest of the year and beyond with consideration given to our long term view.
Readers can access the report through the provided link our through the Research section of our website.
Mongolia Quarterly Update - Q2 2013
MIBG: Spring Session Begins April 5th With Incomplete Parliament
April 1 (MIBG) The first year anniversary of the current parliament is fast approaching. However two seats remain vacant due to ongoing disputes. These seats represent the Uvurkhangai Province and the Songinokhairkhan Distrcit of Ulaanbaatar.
The disputes arose due to conflicts with the new election law which was passed last year. In the Songinokhairkhan District, where three seats represent the district, one of the seats was unable to secure the 28% vote threshold required in order to be elected so a new election is to take place. In the Uvurkhangai Province the election campaigns of two winning MPP members were questioned due to accusations of employing minors for campaigning purposes. The accusations were proven and the candidates were found guilty by local court as well as the General Election Committee of Mongolia in October. As a result, the second place candidates who are members of the Democratic Party (DP) were to be sworn in however one of them, Mr. Zorigt, has yet to do so citing a personal decision. However, some local media sources have reported the possibility of Zorigt being sworn in during the spring session. The other DP member, Mr. Batkhuu, was sworn in as a Member of Parliament following a decision of the General Election Committee.
Songinokhairkhan District is represented by three seats, two of which were won by the DP and Justice Coalition candidates. The re-election for the third seat will take place among a MPP and DP candidate, both of whom did not pass the 28% threshold. The candidates are both well known within the community, the MPP candidate is a well known national wrestling champion, Mr. Sumiyabazar (Mogi: also the older brother of sumo champ Asashoryu). While the DP candidate is Mr. Erkhembayar, head of the Songinokhairkhan District DP. The local election committee has proposed that the re-election take place during the Presidential election in order to ensure voter turnout. The Presidential election date is not set yet however it is scheduled to take place in the second half of June.
All things considered, Parliament could be complete by June of this year. However, there are also cases pending in the Uvs Province where the elected MPP members were found guilty of unlawful campaign practices by two levels of district courts. The trial is expected to reach its finale today, the 1st of April at the Supreme Court. If the Supreme Court finds the MPP members guilty of cash handouts and the employment of minors for campaigning purposes then two DP members will take their seats.
Additionally, two other members of Parliament are reportedly being investigated by the Anti-Corruption Agency. They are Mr. Khayankhyarvaa and Mr. Sodbileg, members of the MPP caucus. Mr. Khayankhyarvaa was serving as the Minister of Finance with the previous Government (Mogi: only for a few months when DP exited the coalition government in early 2012) and has reportedly handed out Government benefits on a preferential basis to the District where he ran for re-election. That said, the Anti Corruption Agency has not confirmed the investigation. Mr. Sodbileg is reportedly being investigated for not having complied with campaigning standards having started his election campaign earlier than was legally allowed.
It may yet be a while until Mongolia has a full Parliament. However, it is clear that the new election law is being strongly enforced. Something we expect to carry over into the Presidential elections in June as well. Overall, we believe that the new law and its tough implementation is another strong step forward towards an efficient and representative democracy in Mongolia.
Currently the DP has 33 seats, the MPP has 25 seats, the Justice Coalition has 11 seats, the CWGP has 2 seats, and there are 3 independents bringing the total number of sitting Members to 74. If the pending court decisions and re-elections are won by the DP we could see the party move up to 37 seats. While this could increase their voice and decrease that of the MPP it would still be two seats short of a majority.
MIBG: SEFIL To Be Third Item On The Parliamentary Agenda
April 1 (MIBG) The spring session Parliamentary agenda has been finalized by the Speaker of Parliament, Mr. Enkhbold, with the first 10 items to be addressed as follows:
1. Schedule the Presidential election
2. Approve the budget for the Presidential election
3. Changes to the Strategic Entities Foreign Investment Law
4. Securities Market Law
5. Review of 2013 economic and social development targets
6. Review of 2012 Budget, approve the Government's financial report
7. Law on financial means to improve infrastructure of the Ger districts
8. Approve investment projects to be financed by the state budget between 2014 and 2016
9. Notice of the scope of the 2014 budget and law on budget assumptions for 2015-2016
10. Approve the economic and social development directions for 2014
Government to spend MNT 95 Billion Chinggis funds for Mongolia's cashmere sector
April 1 (Business-Mongolia.com) The Cabinet meeting of Mongolian government held on Saturday, March 30, discussed a number of critical issues related to the Cashmere industry, which leading the creation, development and launch of the Mongolian brand.
The Cabinet agreed to spend MNT 95 Billion from Chinggis Bond for advance payment equals to triens (Mogi: what's a trien?) of required funding of the project aimed "to renew cashmere processing industry equipment and machinery project" and the Minister of Economic Development was allowed by the government to do the financing MNT 95 Billions to project participants, which had planned to renew the processing machinery in 2013. They aimed to process initial stages of technological flow production, dehair and comb in 2013 and to spin next year. According to the project proposal once implemented the initiative will restrain export of cashmere raw materials, increase export of value-added product and generate 20,000 new jobs and result in the over 200 knitting and textile small and medium sized factories to be created in provinces.
In 2012, national cashmere processing companies produced the final products with only 40 percent of 3000 tons of raw cashmere, even though industry has the capacity and up to 40% may have been exported to China. The companies in the cashmere processing sector point to the problems, the high cost of the working capital needed to purchase stocks of raw cashmere and the price competition of traders who export to China in raw form.
Government of Mongolia issued a resolution to support cashmere processing companies as to provide a soft loan for herders and producers. As a result, the whole supply chain of the leather production will be improved, producers will be able to use more local raw materials produced by the herding community, enable to export more value-added products.
Minister of Economic Development, N.Batbayar and Minister for Industry and Agriculture, Kh. Battulga tasked with approving and implementing regulation on soft loan for herders and processors.
Real Estate Market Update Q2 2013: A Construction Sector in Crisis
As spring arrives in Mongolia, so does the normally busy construction season.
March 31 (M.A.D.) Yet, this year, the cranes stand still, the construction sites are eerily deserted and the bulldozers stand abandoned. There is little doubt that there is something wrong, a curious malaise has griped the construction sector. This season will in all likelihood be different to previous ones as a number of recent legal and political developments have made the sheer survival of the sector in general a questionable premise.
The government initially cancelled all construction licenses to verify the legality of how they were obtained. A considerable number of the constructions already underway were cancelled and future developments were put into jeopardy. This was followed by the cancellation of a vast number of land licenses and the seizure by the city of land whose licenses where deemed illegal. Finally during the last winter, the city authorities realised that it could not sustain utility services to the city and as such banned any new connection to the heating, water or electricity grid. The city has further made a number of statements regarding the impending collapse of the public utilities sector for the winter of 2013 / 2014, the lack of drinkable water to supply the city and the constant delays in the start of construction for the essential new power plant.
All of this has to be put into the context of increased political instability in Mongolia, the growing vulnerability of the banking sector and the desertion of foreign investors from Mongolia.
The results of such a convoluted environment have been clear, the little financing that was available to construction companies, either from foreign investors or local banks has dried up nearly completely. Pre-sales in the high-end sector have disappeared while those in the lower to mid-end find it increasingly complicated to obtain mortgages for their clients.
The M.A.D. office has met with a considerable amount of developers keen to source some form of financing as their own standard go-to sources have dried up, a new phenomenon in this normally bullish market. We have further noticed an increase of retail properties for sale on the market, usually from business owners keen to keep their operations continuing and selling off non-operational assets. At the same time we have witnessed a drop of liquidity in residential properties but prices on the other hand do not seem to abate as of yet.
It is clear that some sectors will find it extremely hard to recover while others will bounce back quickly. There is considerable amounts of Grade A and Grade B office supply coming online in the next 2 months while the general uncertainty in Mongolia means that most large scale hotel projects are facing cancellations or delays. We can expect continued uncertainty within the Real Estate Industry until the presidential elections and the Nadaam celebrations are over. We expect the country to return to "business as usual" from august onwards and for the sector to start showing small signs of recovery. We also hope that the government will soon realise the essential need for the market to be better balanced and thus support the supply of new residential and commercial units over the coming years.
Yet, it does not seem that market realities are of much importance to the city government. It has just approved the construction of a new metro system for Ulaanbaatar. While the idea is in principle laudable, it is far from the most functional or efficient rapid transport system for today's UB. Ulaanbaatar lacks the space to build exit and entry points, the city has no idea where the pipes lay underneath the ground and it doesn't have the expertise to undertake such a large scale project, let alone the machinery. The cost to the economy of digging up the main streets of the city for years on end has not been taken into consideration.
It took Almaty 23 years to build a single line (8.5kms) of metro at a cost of 11 billion USD. Yet the Mongolian government thinks it can build 2 lines of 50kms altogether at a cost of barely 1,5 Billion USD within 4 years only. Strangely the south to north line ends up at the current airport, which is planned for closure within 2 years as the new airport takes over. This metro project has every risk of turning into the very definition of a white elephant project.
One saving grace of sorts for the construction companies might well come from the city's renewed desire to re-develop the ger district. If those various projects do go ahead, it will provide construction work of a considerable scale for a number of years. This is of course dependent on the government managing the re-development carefully and learning from the lessons of the abject and utter failure of the "100,000 homes" project.
Despite all of this, 2013 is not all doom and gloom, such market corrections are essential and a slow down in Mongolia's real estate sector could be beneficial. It should be of particular interest to investors looking to make a fundamental play on the market.
The lower levels of supply coming online in 2013 and 2014 along with a consistently growing demand will in all likelihood drive up residential mid-end prices in the city centre, keep demand for retail strong and keep demand of grade A and B stagnant. We are still very excited about the market in general but the importance of strong fundamentals and the risks of investing in off-plan properties are becoming increasingly evident. Mongolia, as with most markets, requires long term investors willing to work through the cycles and invest intelligently.
Mongolian minerals to transform economy
April 1 (BBC) Mongolia, a country characterised for centuries as a nation of nomads and cattle herders, is using mining to transform its economy.
The Mongolian stock exchange is preparing for rapid expansion as the country begins to exploit its mineral resources.
Justin Rowlatt reports.
Liquid Economics
April 1 (E. Zorigt via Mongolian Economy) During the recently held 2013 Mongolia Economy Forum, a break-out session titled "Mongolian Brand and Opportunities" focused on how to take Mongolia as a brand worldwide.
Participants unanimously agreed opportunities existed for branding Mongolia's agricultural products such as meat, milk and dairy products, skins and hides, and cashmere and wool.
"Mongolia has an opportunity. A brand is an endless resource and is the resources fund for our future generations. Thus, our discussion on this issue today means it will be done in the future", said Ts. Davaasuren, a member of the State Great Khural and the chairman of the Standing Committee on Budget.
The prime minister and other delegates expressed their like-mindedness. If there is no water and no grass, there would be nothing for livestock. Mongolia's brand cannot be created without its livestock. This makes water a priority to the country. At the very least, herders need to be trained to use technology to dig wells. There are plans to drill some 6,000 wells beginning this year to create safe water sources for rural people and their 40 million livestock. Officials at the Ministry of Industry and Agriculture said the plan is likely to be delayed until 2020, due to troubles with finding investment. However, there is huge demand.
But the people of the countryside, their livestock and the pastures they roam face difficulties unless this issue is tackled. Construction will require over MNT 100 billion of investment.
At the forum researchers suggested a number of techniques and practices such as making use of surface water from rivers and lakes, building ponds for water collection, and construction of dams and irrigation channels for agriculture.
The Water Footprint
To give some perspective into how much water is consumed during production, one study revealed that production of a pair of jeans required 11,000 litres of water in total.
"The whole world is now focused on how much water is used in unit production", said G. Dolgorsuren, director of the Tuul River Basin Administration and a consulting engineer. "This aims at reducing inefficient water use and consumption while acting as an approach towards water pricing".
"For example, according to a joint study by the international organisations of Asia, Mongolia has the largest water footprint". She added, "According to this criterion, the agricultural products should be more expensive".
Today, Mongolia is listed as the third in the world for its water footprint. How many industrial entities and policy makers in Mongolia know anything about their water footprint? How often is this aspect considered in decision making?
Though officials of the Ministry of Environment and Green Development admitted this was a new concept to the country, they said they were pursuing a detailed study on Mongolia's water footprint. Delegates at the forum said this idea must be specifically linked to how it might affect branding efforts in the country.
The Valley of the Tuul River
One concern for many Mongolians who are directly dependent on and have a great respect for the country's river water is concentrated on the fate of the Tuul River. The State Inspection Agency found the river met the fifth tier of pollution criteria in 2011. Meanwhile 60 to 70 percent of Mongolia's GPD is produced in the Tuul river valley.
Last year, the Law on Water Pollution Fees and the Law on Urban Water Supply and Sewage were approved, but have done little to force people to respect their water resources more and use them more wisely. In any case, the laws are not even enforced very strongly. To do that precise measurement of water usage and ways to identify who is consuming water from where is needed, but water authorities lack the equipment and skills to do so.
The River Basin Organisation was established by the Environment Ministry to help identify who is polluting the country's water sources. Yet, it is difficult for them to fine offenders and collect those fees because they are not able to administer fines without a detailed assessment of the reason for the fine.
"The polluters are varied, including tanneries, car washes, and hairdressers. That's why there should be a fining system that suits each [industry]. We want to carry out a study to calculate this, but we are not able to do so", said Tuul river authority Dolgorsuren.
Both foreign and national legal entities should use water efficiently, and those who fail to do so should be risking have their operations shut down or facing enormous fees.
G. Munkh-Erdem, director of watering and coordination at the environmental ministry said the Law on Natural Resource Utilisation had introduced a number of new concepts for regulation. He said efficient technology should be used for production and water should be recycled using treatment processes that meet global standards, while failing to do so should be at the risk of accepting steep fines.
"It is important that large organisations such as those for mining use water efficiently. They should reuse their water", said Munkh-Erdem.
Companies that are able to comply with this law will avoid harsh punishments and, instead, will receive subsidies and assistance.
Housing projects for the city's ger districts have been included in the urban development plans to span to 2030. Though this sounds like good news to most, it could mean disaster for water supply. Water consumption is far less in the ger districts than in apartments, with water usage ranging eight to nine litres and 100 to 120 litres, respectively. With about 60 percent of Ulaanbaatar's population belonging to the ger areas, the consequences could be dire if they all became apartment dwellers without learning the importance of proper water usage.
Japan offers yen loans to Mongolia
ULAN BATOR, April 1 (The Yomiuri Shimbun) Prime Minister Shinzo Abe told his Mongolian counterpart, Norov Altankhuyag, on Saturday that Japan will offer Mongolia yen loans totaling 4.2 billion yen to renovate thermal power plants in that country.
Japan's offer is incorporated in the agreed-on "Erch Initiative," a set of Japanese economic cooperation policies Abe proposed during the talks. "Erch" means vitality in Mongolian.
During the talks, the two leaders also agreed to cooperate on natural resource development projects in Mongolia, including the Tavan Tolgoi coalfield.
Abe and Altankhuyag also agreed that the two countries will have policy dialogues with the United States, with a cautious eye on China's rising economic and military presence. They confirmed the two countries would accelerate negotiations for a bilateral economic partnership agreement.
Abe said during the talks that Japan expects Japanese companies to participate in the development of the Tavan Tolgoi coalfield, one of the world's largest, in southern Mongolia. In response, Altankhuyag said Mongolia wants to provide a stable supply of coal to Japan for the long term.
Referring to North Korea's nuclear and missile development, Abe said, "We need to urge [North Korea] not to take provocative actions."
He requested Mongolia's cooperation in resolving the issue of North Korean abductions of Japanese, as Ulan Bator has diplomatic relations with Pyongyang. Altankhuyag said his country supports Japan's position.
At a joint press conference, Abe said he explained to Altankhuyag Japan's stance in the bilateral relationship with China that has been strained over the Senkaku Islands in Okinawa Prefecture.
"Although there are specific issues to deal with, China should act in a controlled manner to avoid adversely impacting overall Japan-China relations," Abe said.
Abe separately met with Mongolian President Tsakhia Elbegdorj after the press conference.
Mogi: the author doesn't know the first thing about Mongolia, beware!
Mongolia looks to Japan to get out of China's economic shadow
ULAN BATOR, April 1 (The Asahi Shimbun) A businesswoman found herself rebuffed when she attempted to change her Chinese restaurant in the heart of Ulan Bator to attract the multitude of immigrants from China.
"I wanted to put up a sign in Chinese, but the Mongolian government ordered us not to do so," said the woman, who is from Hebei province in central China.
Anti-China sentiment has grown in Mongolia, a resource-rich, sparsely populated country that is now trying to reduce its economic dependence on its huge neighbor to the south.
Against this backdrop, Prime Minister Shinzo Abe struck a package of financial and technological assistance deals with Mongolian leaders during his visit on March 30-31. It includes possible development of a coal mine and rare earth minerals.
Critics, however, say Japan has been late in making serious inroads in Mongolia. Abe, for example, is the first Japanese prime minister in six and a half years to visit the country.
In the meantime, China has been busy on the economic and diplomatic fronts to heighten its presence in Mongolia.
About 90 percent of Mongolia's exports are coal, copper and other minerals--and almost all of them go to China, according to the Japan External Trade Organization.
An estimated 20,000 Chinese expatriates live in Mongolia, creating what some business executives say is an inexpensive, skilled--and essential--labor force.
"I know the jobless rate in Mongolia is high (9.9 percent), but Chinese workers are cheap and have technical skills," said a 53-year-old Mongolian vice president of a leading construction company that hires about 100 Chinese immigrants each year. "We would not be able to operate without Chinese workers."
However, the influx of Chinese workers has led to resentment among the Mongolian public. Attacks against Chinese immigrants have occurred since the mid-2000s.
"Mongolians feel that Chinese are taking away their natural resources and jobs," said an investment consultant in Mongolia.
The Mongolian government has taken measures to reduce the clout of Chinese businesses.
As the woman from Hebei province knows, the signs of restaurants operated by Chinese in Ulan Bator invariably appear in either Mongolian, which uses Russian Cyrillic alphabet, or English--not Chinese.
Mongolia is also aiming to forge close links with Japan, Russia and South Korea to chip away at China's economic dominance.
Since last May, Ulan Bator has been preparing legislation (Mogi: preparing? It's being reversed) to limit the ratio of investment in core industries, such as mining, of foreign companies.
"We do not intend to regulate all foreign-affiliated companies, but state-run companies working very closely with their governments are posing problems," said a senior official with the Mongolian government's mining department, in a veiled reference to China.
In January, a Mongolian coal mining company announced its decision to terminate a contract (Mogi: not true) with a Chinese state-run aluminum company, which had a large stake in the Mongolian company (Mogi: a stake? Nope) and was a big buyer of coal.
The Mongolian company complained that its Chinese partner had forced down the price for large volumes of coal. (Mogi: not forced, but that it was making a loss under the contract)
Resource-poor Japan has looked increasingly to Mongolia after learning firsthand about the economic risks of relying on China, particularly for rare earths used to manufacture high-tech products.
China, which accounts for more than 90 percent of rare earth production in the world (Mogi: still at 90%?), banned exports to Japan after a diplomatic row erupted in 2010.
The same year, Japan and Mongolia conducted a joint search of rare earth minerals in the south and west of Mongolia. Ulan Bator is calling for a continued joint search to proceed with drilling and processing.
Japan is also the largest aid provider to the country, supplying 211.1 billion yen ($2.22 billion) in official development assistance by fiscal 2011.
But Japan's longtime economic aid has not translated into frequent private-sector exchanges between the two nations. (Mogi: not Mongolia's fault)
In 2012, 17,000 Japanese visited Mongolia, one-20th the number of Chinese visitors. The same year, 8,200 Chinese students studied in Mongolia, compared with about 1,200 Japanese students. (Mogi: huh? 1,200 students in one year?)
"Japan is not benefiting from its official development assistance (to Mongolia)," a tour operator said. (Mogi: huh? It's Japanese firms who never felt self-confident enough to invest here, and why is a tour operator complaining? Because not many Mongolians travel to Japan? You think a population of 2.8 million with average income of $200-300 can afford Japan?)
Exchanges between Japanese and Mongolian top government leaders have also been infrequent. (Mogi: Mongolian leaders actually travel quite often, but not perhaps the other way around. Didn't Elbegdorj, Batbold visit in the last 2 years?)
In contrast, members of the China's top leadership have visited Mongolia almost every year.
On March 27, three days before Abe arrived in Mongolia, a delegation of Mongolian dignitaries, including opposition party leaders, visited China. (Mogi: I believe it was only the opposition party)
Liu Yunshan, the fifth-ranked official of the Standing Committee of the Chinese Communist Party's Politburo, China's top governing body, met with the delegation and called for stronger bilateral ties.
Officials in the finance industry who conduct business with China and Mongolia said Chinese leaders are sturdy diplomats.
Mongolia: The cutting edge of capitalism?
April 1 (BBC News) In the third and final part of Business Daily's Mongolia series, Justin Rowlatt is in the country's capital Ulaanbaatar (Mogi yeeeeay!), where he meets the foreign investors who are keen to do business in the up-and-coming economy. It's a country rich in natural resources, and many businesses are ready for the boom to happen. But, will the promise of astounding growth remain just a promise forever? Justin Rowlatt speaks to Altai Khangai, the head of the Mongolian stock exchange, who explains when real growth may develop, and Laurenz Melchers discusses the difference between doing business in Europe and doing business in Asia.
Mongolia Investments – Newsletter April 2013
March 31 (M.A.D.) --
Dear Clients and Friends,
Ulaanbaatar has just celebrated the official start of spring - which as it happened was heralded in with a snow storm. With the arrival of spring (and eventually summer) we can expect the economy to wake up from its winter slumber and for constructions to start anew. It is a time filled with excitement, gossip and expectations of great things to come.
From a macro perspective, the political instability of the country has dominated headlines throughout the last 6 months, yet there is a feeling of "recovery" currently going through Ulaanbaatar. The Parliament has finally seen the errors of their ways and are now discussing considerable improvements to the controversial SEFIL law as well as a redrafting of the minerals law. It seems that the OT dispute is winding down in anticipation of a start of operations of the mine for June and we might finally see the passing of the much awaited securities law.
The Real Estate market has stagnated for the past few months and we expect 2013 to be crucial with a number of sectors going into "correction" (read: collapse in market value - many distressed properties - bankruptcy of many developers). Notably we have witnessed the withdrawal of nearly every major hotel project, a near collapse of the construction projects of high-end residential outside of the city and a marked slow down in high end retail supply. We also expect to see an oversupply in 2013 of grade A and B office space in the city centre while we expect to witness strong continued demand for mid-priced residential units in the city centre. We also hope to see some real and tangible progress made in the re-development of the ger districts of Ulaanbaatar.
The current situation is a clear sign that we need to stick to the basic fundamentals when it comes to property investments, always making sure that the products we invest in are well suited to the growing middle class, are legally secure and are immune (as much as possible) from the heavy cycles Mongolia goes through. This is why we will only reinforce our strategy of investing in solid - already built only - properties in key areas of the city centre, giving small scale residential developments a preferential treatment. Any property we invest in has to be generating a strong yield (8 to 12%) within 3 months and retain strong market liquidity (6 months max).
For a more in-depth overview of our current views of the Real Estate market please visit our news section or click HERE for this quarter's analysis or HERE for the last quarter's analysis.
Those eagled eyed readers amongst you might have spotted a few strange news titles on this 1st of April. Namely: "M.A.D. to Launch a Premium Airline" - "Superdome UB" and "Catapults for UB". Those are of course our traditional 1st of April Fools day news stories and are well worth a read.
M.A.D. itself has been going from strength to strength over the past year. The 1st quarter of 2013 has seen an extremely strong increase in demand for our short-term rental properties. We are running at close to full capacity with a waiting list for our studios and 1 bedroom apartments. We are thus rushing our last few 40k renovations in order to meet the increased levels of demand. We are also hoping to be able to introduce cleaning services for our tenants in the coming months.
We are further extremely excited to announce that this April we are moving to our brand new offices, all 285 square meters of it, right in the heart of the city, between the State Department Store and the Circus. Our new offices, on 2 mezzanine floors, will enable us to keep growing the company by offering better and more comprehensive services. Our new space can accommodate up to 25 large desks and a conference room that can host 16 participants. We will be recruiting soon for a number of new posts and very much look forward to developing the brand from the established company it is today to a market leader in property investment and management services.
As a sign of our growing strength, visibility and reach, we are happy to announce that since the launch of our ground-breaking "Mongolian Real Estate Report 2013" on the 1st of February, it has already been downloaded over 1,500 times from readers all over the world but mostly in Mongolia and Europe. Our website is now visited by over 45,000 unique visitors per month.
A number of other smaller changes will take place in the company over the coming months. Amongst others, we expect to cease all client (third party) renovation services simply because a renovation takes a considerable amount of time from our management and construction teams, time for which it is hard to demand a fair compensation (and retain investment worthy financials) from our clients and keep working on our own apartments. Conflicts of interest were inevitable and by putting client properties first we constantly delayed the renovations of our own properties.
We will instead concentrate on selling a completed and renovated product to those clients interested in purchasing renovated apartments in the city centre of Ulaanbaatar. We believe that this will improve our brand consistency, allow for a faster turn-around and remove anxiety from investors not sure of what the end-product will look like or how much it will cost. This also allows us to better maximise returns on all aspects of our operations and streamline our sales procedures. While on the topic, we are proud to announce that this week marks the completion of our 50th apartment renovation within the 40k's and 50k's of Ulaanbaatar.
Last and not least, we are happy to say that we are working on putting our full property report readable online directly on our website and in doing so, we would create the biggest Mongolian property resource online for now and for the forceable future. We are also working towards a Mongolian translation of the report but this would take 6 months alone.
With the hope of seeing as many of you as possible in our new offices, we would like to wish you a happy spring and a delightful summer.
Mogi: harsh words, but a necessary one.
Corruption in Mongolia: A Time to Act
March 31 (M.A.D.) Over the past decade, Mongolia has emerged on the international scene as an exciting economy and a viable investment destination.
Along with increased international exposure and investments, comes growing scrutiny of its business practices, its laws, its political stability and of course its inherent levels of corruption.
The rapid development of its mining sector and economy has forced considerable social changes on its population with sometimes dire consequences. With the presidential election campaigns currently under way, a common electoral platform seems to be the fight against corruption. While this may sound (and probably is in many respects) an empty political promise, there seems to be a real underlying desire for change.
On the surface of it, there are some real and tangible efforts being made to ease the strain of corruption, those include the new Law on Conflict of Interest in 2012, as well as the creation of an Anti Corruption Agency. Furthermore the country recently joined the Anti-Corruption Plan of the Asian Development Bank, the Organization of Economic Cooperation and Development, and the United Nations Convention Against Corruption.
Yet, despite those admirable intentions, corruption has now become an accepted fact of every-day life, both within the public and private sectors. Evidence of new wealth is ubiquitous in Ulaanbaatar, where high-end restaurants flank rubble-strewn alleyways and brand-new Hummers tie up traffic on crumbling roads. More than half of the city's 1.2 million residents live in the "ger districts" so named after the traditional Mongolian habitat, which have recently become slum-like sprawls of hastily partitioned properties that lack running water and heating. The population of Ulaanbaatar is increasingly exasperated by the visible corruption of their elite while they themselves struggle to survive.
In a recent Transparency International survey, the two institutions perceived to be the most corrupt are the political parties followed by the parliament and legislature with 84% of respondents stating that both are extremely corrupt. Possibly more worrying is that 73% thought that levels of corruption have increased dramatically over the past 4 years.
Is corruption therefore a hindrance to the business environment and ultimately to the development of the country or could it rather be considered a catalyst to a more efficient private sector?
Corruption used to be a catalyst, something used occasionally to speed up processes, permits and authorisations. Today, corruption is becoming a necessary evil for most individuals and businesses, not only to obtain documents faster but increasingly to obtain things that are altogether illegal (permits, houses, contracts etc..).
Some form of corruption, such as political favouritism, collusion of the private sector with the political classes and conflicts of interest are simply unavoidable due to the country's demographics. With a total population of less than 3 million people, there are barely 60,000 mid-to-high level decision makers nationwide. The government alone employs over half of that group, in such a case, it is simply impossible to maintain a true separation of interest between the public and the private sectors. Conflicts of interest are omnipresent and cannot be eradicated without a considerable increase in the population of the skilled working force.
A further considerable obstacle to the reduction of corruption is the absolute protection of any information that may be considered private to a company or individual. Public domain is still considered an alien concept in the majority of cases. For instance, it is illegal to obtain any kind of information regarding a new construction project, it is illegal to carry out a basic due diligence check on someone without their approval, it is illegal to check the status or shareholders of a company. It is illegal to verify ownership of a property or other assets. Until this heavy cloak of secrecy is lifted and information is made transparent, those that indulge in corruption will always be able to hide behind the screen of protecting their private information.
Mongolia is essentially governed by 15 large oligarch families who control both the private and public sectors. Such families would usually have both controlling stakes in large conglomerate companies and members of the clan within both major political parties represented in Government and Parliament.
Up until recently, those families behaved in the fashion of an oligopoly, setting prices, agreeing on non-competition within industries, trading favours and protecting the interests of one another. Yet, a war within the oligopoly seems to have been started last year and a favourite tool of competition has now become the denunciation to the Anti-Corruption Agency of competitors who have gained an advantage through corruption (as all must have at some point).
This trend is most obvious within our own Real Estate sector where it is practically impossible to build a large scale building without using some form of corruption. If found guilty, the land can be returned to the state, heavy penalties applied or the assets themselves can be seized. Recent examples of such in-fighting are the Children's park of Ulaanbaatar or many of the most recent land seizures around the city.
It may seem like a clean, cheap and efficient way of getting rid of competitors while playing the "shinier-than-thou" card. But it can only truly be played by those that have little to reproach themselves, it may otherwise blow up in revenge denunciations which can cripple an entire industry. This was recently the case when the 4 national airlines declared war to each other with the result that all have suffered considerable damage and all are now under investigation by the Anti Corruption Agency. MIAT, the national airline of Mongolia has recently seen 7 of its top officials placed under arrest for money laundering and embezzlement.
The MCS company, which was previously referred to as the "Mongolian Corruption System" company has quickly become the largest conglomerate in Mongolia with interests in practically every industry. Over the past 5 years they have undergone a transformation and became one of the cleanest and most transparent companies in the country. Ever since then they publicly preach against corruption, not because they are pure-of-heart but rather because it functions as an efficient corporate barrier of entry to other companies within their own sectors of influence.
Those are in actual fact positive steps forward, particularly when taking into account Mongolia's nascent institutions and lack of a strong legal infrastructure to deal with such issues. Yet it is clear that the state still has little capacity to fight institutionalised corruption. There are, for instance, only 16 anti-corruption investigators nationwide, with very few cases actually leading to convictions due to a chronic lack of support from the Government, who has an inherent interest in keeping things relatively quiet.
Politically, it is rumoured that Ambassadorships and Ministerial posts are up for sale, some for up to 3 Million dollars while the official monthly salary is barely above a thousand USD. Once a post is obtained, often sponsored by a conglomerate, it is the duty of that civil servant to direct any business opportunities to that conglomerate. Such a post also brings considerable advantages in terms of influence, referrals and access to state funds and assets. To remove the incentives of corruption, civil servants must be properly remunerated for their posts and dealt with extremely harshly if found guilty of corruption, something that Singapore has demonstrated works well.
The most high profile corruption case in Mongolia was that of ex-president Enkhbayar who was arrested and convicted of corruption in 2012. Enkhbayar and his lawyers argue that the current president, Mr. Elbegdorj, who took office in 2009, engineered the corruption case to keep him from running in the parliamentary elections. There is clearly some truth to that statement but few deny that Mr. Enkhbayar was guilty of mass corruption.
It is often said that Mongolia's high level of political corruption stems from its Soviet heritage. During the Soviet period, the only true form of corruption available was not truly based on monetary gains but rather on the political trade of influence, power and favours. This concept still holds true to this day, with of course the added financial incentive that political posts may bring in a market driven Mongolia.
Another legacy that the Soviets have left behind is a cumbersome, complicated and often complex bureaucracy. While this heavy administration may make sense in an environment where full employment is required and efficiency isn't, in today's Mongolia, it merely helps in furthering corruption. Few citizens are truly aware of their rights and the procedures in place to protect them, fewer still are aware of the laws being constantly enacted. This lack of legal understanding and knowledge is leading to increases of abuse of power by those who formulate those very laws. A true educational effort must be made at all levels.
Mongolia seems to forget the critical role the civil society can play in the fight against corruption. Today, neither the people forced to pay corruption nor those receiving it have any real incentive to amend their ways. A partial solution to the problem could be to financially reward whistle-blowers along with providing them with legal immunity for their involvement in the act, a technique that India has implemented recently with some level of success. If individuals and businesses are incentivised to expose corruption while being immune to subsequent prosecution, those demanding corruption will become increasingly afraid of being framed by those offering to pay it and will become weary of future transactions.
It seems today that systemic levels of corruption within the higher levels of Mongolia society has led to a sad state of affairs where the few investors still willing to invest in the country are those that could be defined as "cowboy investors", institutional players looking for short term gains over true added value. If the people of Mongolia are to prosper and the country is to develop a diversified and sustainable economy, it must make radical changes today. It is maybe time that politicians behave as leaders and show the way forward (and maybe follow up on an electoral promise once in a while - such as making a real effort to reduce corruption).
Mogi: awesome idea
Case Study - Indoor Go Karting in Ulaanbaatar
Exploring the potential to improve the current entertainment void in Ulaanbaatar
March 31 (M.A.D.) With an ever increasing income per capita coupled with a demographically young population, the need for good entertainment options in Ulaanbaatar is increasingly evident. The city currently lacks in entertainment options which are not solely based around food or alcohol, the three cinemas in the city are consistently packed and the single bowling alley is ever more popular. Winters are long, conditions are harsh and a bored youth leads to increases in vandalism and petty crimes.
Go-kart centres can be found the world over in nearly every capital city. It provides for a cheap and fun thrill that is well suited to all ages. In terms of logistics, it is relatively simple to put in place. The location of the go-kart centre does not need to be within the heart of the city but can rather be located within the Khan-Uul or Yarmag districts of Ulaanbaatar (the old factory district) as it has easy access by public transport to the city centre, adequate available land, and easy access to infrastructure.
A go-kart centre would appeal to both young families as well as more mature audiences due to its nature and could additionally be used to host corporate events throughout the year. As it would be indoors, it would be open year round with a number of shifts running through the day as some of the side activities at the centre such as the climbing wall or a skateboarding park would open early while the Go-Karting races could be open until 2am.
A 10,000 sqms plot of land would be required, this would be split between a 5,000 sqms warehouse and sufficient dedicated secure outside parking. The length of track within the warehouse could probably reach 1km, possibly a little more if designed with a mezzanine floor. We estimate the cost of purchase of a suitable plot of land at 500,000 USD, the construction of the warehouse would cost approximately 3,250,000 USD (650 USD per square meter x 5,000 square meters). In addition to this, the equipment is estimated to cost 500,000 USD while the decoration of the centre would probably cost about 150,000USD. This would bring a total cost for the warehouse, equipment, decoration and land of approximately 4,400,000 USD.
Initial Set Up Costs:
Land - 500,000
Construction - 650 * 5000 = 3,250,000
Equipment - 500,000
Decoration - 150,000
Total = 4,400,000 USD
Financially, a go-kart centre of this type would run approximately 12 to 14 karts per race with approximately 30 to 40 races per day during weekdays at a 10USD ticket price per race per kart. During the week-ends (50 days), we expect the centre to run about 60 to 70 races per days. In addition to direct revenues from the races, other streams of revenue can be found in drink and food outlets as well as corporate sponsorships. This would bring in estimated revenues of about 1,750,000 USD per annum.
Estimated Revenues:
Week days * 300 days * 40 races * 10$ * 10 karts = 1,200,000
Week ends * 50 days * 70 races * 10$* 10 karts = 350,000
Other net Income (food, drinks, sponsorships, etc) = 200,000
Total / Year = 1,750,000
In terms of expenses, there are the employees, the power, the maintenance of the go-karts and the equipment, the fuel and other miscellaneous expenses. We expect them to total approximately 600,000 USD per year.
Estimated Expenses:
Employees - 15,000 USD / Month
Power / Utilities - 5,000 USD / Month
Maintenance - 10,000 / Month
Fuel - 10,000 / Month
Other - 10,000 / Month
Total / Year = 600,000 USD
This would thus generate an overall profit of approximately 1,150,000 USD. The land and warehouse would further benefit from considerable capital growth over the years but we have excluded this from the present calculations as it should be treated as a separate transaction.
The above is clearly a very simplified overview of such a proposal that does not include the cost of financing, depreciation, initial built, taxes and so forth but in our opinion it makes financial sense to pursue the idea further and we very much hope that someone does soon.
MONGOLIA-RUSSIA COMMERCE ROUND-TABLE MEETING TO TAKE PLACE IN MOSCOW
April 1 (InfoMongolia) The Chamber of Commerce and Industry of the Russian Federation in association with Mongolian National Chamber of Commerce and Industry is organizing a roundtable meeting themed "Development Challenges on Trade and Economy between Mongolia and Russia" in Moscow on April 18-22, 2013.
The meeting is aimed to increase Russian investments into Mongolia and seek opportunities to involve Russian companies into Mongolian market.
At the meeting, representatives from Russian Foreign Ministry, Economic Development Ministry, Ministry of Energy, Ministry of Industry, Russia-Mongolia Intergovernmental Committee, Moscow Municipal Administration and Russia-Mongolia Friendship Association are to take part.
--
Mogi Munkhdul Badral Bontoi
Cover Mongolia
Email: mogi@covermongolia.mn
Mobile: +976 9999 6779
Skype: mogibb
P Please consider the environment before printing this e-mail.
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