Mongolia’s economy has been growing fast in the past years on the back of the mining sector, also with the intervention of FDI. In your opinion, what other sectors should be developed in order to diversify Mongolia’s economy and to attract foreign investors?
For the near future, the mining sector will lead Mongolia’s growth. Companies from all over the world are coming here to invest their money in our mines. Things thus standing, I believe that the Government should not push further foreign investment in the mining sector, because FDI in that business represent already the 85% of the total.
Mongolia cannot rely on a one-business-based economy. I believe our Government should be more proactive and forward thinking. As I said, the mining sector contributes to our economy’s growth producing 20% of the state revenue but we should start promoting other sectors which, by the way, have high potential such as construction, road, energy, and water business.
Furthermore, our road business is necessary for supporting the mining business. Lack of adequate infrastructure is an impediment to the development of the mineral industry as it has a negative impact on the competitiveness of our products when we compare them with the same products coming from Australia or other producer countries. The cost of Mongolian coal is too high due to our poor infrastructures.
Tackling poor infrastructure is vital for a developing country like Mongolia.
Besides modernising infrastructures, the Government should implement reforms in order to improve the energy sector, which I consider to be the other key sector in our country.
What is Mongolia doing nowadays to attract the attention of foreign investors?
Mongolia experienced a first wave of FDI back in late nineties, after the democracy revolution and transition to a market economy. At the beginning of 2000, the country was considered appealing by foreign investors but, in 2009, the economic crisis stopped the incoming flow of FDI. FDI dropped dramatically between 2009 and 2012 (they decreased approximately by 30%). Recently, the Parliament passed the new investment law. The latter is expected to reverse the slowdown that Mongolia’s economy suffered in the past few years and to increase the inflow of FDI. Therefore I have positive expectations and look forward to a second wave of foreign investment in 2014.
Mongolia’s road network is underdeveloped and requires massive infrastructure investments, particularly in the transport sector. What do you think are the priorities in this matter and how is the Government operating to provide Mongolia with an adequate infrastructure system?
In Mongolia we have a huge need for infrastructure. We have to modernize our current system and create more. There is an imminent necessity to build more road and railways. I consider road infrastructure to be a key instrument in fostering regional development. An adequate infrastructure system will have positive impacts also on sectors like mining, for example, by facilitating the transportation of metals.
The Government has recently approved the “National Development Strategy” (NDS) which has assigned ambitious goals for the road sector. In particular, it targets the paving of the entire national paved road network (11,250 km) by 2021. Mongolia plans to quadruple the paved road network and this implies a major expansion in the quantity of civil works delivered annually by the sector. Together with Ulaanbaatar’s urban development plans, this would require building about 1,000 km of new roads each year, against an average of 100 km per year during the past decade.
Another important project is the construction of Ulaanbaatar’s underground. The project has already been approved in UB city administration and this project will be finished by 2021. The cost of this project is $1.5 billion and Ulaanbaatar will have an 18km-long underground transportation.
This particular project will sharply decrease the traffic, making also transportation safer for people. Our capital city suffers because of horrible traffic. Studies say that in 2030, the Mongolian population will increase by 1.7 million people. Therefore it’s easy to understand the importance of an adequate logistic system to be implemented nation-wide of 1.5 square km per person but half of the Mongolian population live in Ulaanbaatar.
Would you share with us an ooverview of the environment in Mongolia and the future business opportunities?
Over the past 20 years, Mongolia has transformed itself from a socialist country to a multiparty democracy with a sound economy. Nowadays, our country is experiencing a major transformation, driven by the exploitation of our vast mineral resources which share in GDP today stands at 20 percent, twice the ratio of a the past decade.
The economy grew by 12.4% in 2012, which was an outstanding performance if compared to the 6.4% GDP growth recorded in 2010. Analysts say that our economy is expected to grow at a double digit rate over the period from 2013 to 2018. Mongolia can take a great advantage from his geographical location. Our country lies between two huge markets: Russia and China. We can be the bridge between them.
However, in order to play our role in the international economy, infrastructure sector requires urgent and substantial investments to renew existing capacities and build new ones. Plus Mongolia is rich of mineral resources and, if we use them wisely, there will be plenty of opportunities for everyone to set up profitable businesses. Finally, legislation is encouraging FDI by creating a more business-friendly environment.
To ensure sustainable and inclusive growth, Mongolia will need to strengthen institutional capacity to manage public revenues efficiently and allocate its resources effectively among spending, investing, and saving. All this is strictly related to our political stability. In this regard, president Elbegdorj's re-election provides continuity that will encourage foreign investors.
How, in your opinion, should the private and public sectors be working together?
I think what we need is political stability. For instance, the previous Government had approved a Development Program but the new Government cut the all budget. As long as the situation is not stable, we will not be able to attract foreign investment. I believe that the Government should work on all the following issues. The regulation of transportation should be modified. Restricting heavy transportation has a negative impact on competitiveness: the bigger the trucks are, the more cost efficient is distribution for companies.
Our country lacks highly qualified professionals. Education is needed on road sector manpower. We have around 800 engineers in the country, three times less than required. In Mongolia we still work using Russian technology, which was developed back in the 60s. We need to switch to modern technology. With 800 engineers using obsolete Russian technology we go nowhere.
Also I consider the implementing of a transparent bidding system an urgent matter. We still feel the threat of corruption. Cases of bribery have been reported, saying that new companies willing to participate in new project auctions were asked to pay a “tax” to governmental organisation. And, apparently, this “tax” could be between 3 to 10% of the value of the project. If this is the situation, the country should definitely intensify the control in this matter.
Finally, I hope that the Government will improve its supervising system not just during the construction, but also after the work has been concluded. Sometime we hear about problems registered a short time after the end of the construction. In this case, it’s not just a Government’s task. Companies’ work should be more accurate and they should implement control system over their projects.
What do you consider your competitive advantage?
The advantage that we have over other companies is that we have a very professional workforce. We employ young and passionate people, highly qualified engineers and we constantly aim to create a positive and stimulating working environment for our employees.
In our company, we try our best for our team to be satisfied and to have the possibility to grow within the company. During winter, from November until March, we do internal training courses. We are conscious of the importance of investing time and resources in training the employees. They are the real added value in any company. Last year, in November, I summoned all our engineers who work out of UB. We spent three entire days training and planning together future steps that the company would take. After those three days, they sent me a feedback. Well-trained people are the key factor for success.