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Entries in crisis (11)

Wednesday
May022018

Investigative Journalism: Haiti Assignment | 1996

Former colleague from Canada's Id Magazine, photographer Phillip Smith (now an epic web guru/Digital Product Developer based in Palo Alto, California), was going through his archive of photo journalism and dug up the following two photographs from our Haiti assignment in 1996. The stories from that assignment can be read here: http://www.davidsouthconsulting.com/stories/2015/6/12/state-of-decay-haiti-turns-to-free-market-economics-and-the.html

Reporting from Port-au-Prince, Haiti for Id Magazine in 1996.
© David South Consulting 2018 
Tuesday
May012018

Billy Bragg at Bank of England | 19 April 2018

On 19 April I had the pleasure of (briefly) meeting legendary musician Billy Bragg as he addressed the One Bank Flagship Seminar at the Bank of England, located in the financial heart of London's City, a centre of the world's economy. The topic of his seminar was accountability in the 21st century and you can read the transcript here: https://braggiesblog.wordpress.com

Or watch the livestream here: https://www.youtube.com/watch?time_continue=6&v=r6zGgR-PeO4

It was an unusual step for the Bank to take (having a popular musician address the men and women of London's financial sector) and seems to indicate a desire to open up to the outside world the inner workings of this powerful and historic financial institution (founded in 1694). Read more about the Bank of England's history here: https://www.bankofengland.co.uk/about/history

Billy Bragg speaks with youth at the Bank of England.

© David South Consulting 2018
Tuesday
Jan232018

Mongolia Update - Coverage of 1998 Political Changes | 1999


Editor and Writer: David South

Researcher: G. Enkhtungalug

Publisher: UNDP Mongolia Communications Office

Published: February 1999

Background: Mongolia Update - Coverage of 1998 Political Changes was a one-off special edition of Mongolia Update to help explain a politically turbulent year where three governments and three prime ministers came and went. At the time, Mongolia was in the grips of a severe crisis, called one of "the biggest peacetime economic collapses ever". By 2012, Mongolia was called the "fastest growing economy in the world". It is proof the foundations for Mongolia's recovery from crisis were laid in the late 1990s. The success of the peaceful transition stands in stark contrast to many other international interventions post-2001. 

This is an unofficial publication of UNDP. Views presented in this document do not necessarily reflect those of UNDP. Mongolia Update is provided as a service to those who are interested in the rapid changes taking place in today’s Mongolia.

A note about Mongolia Update: The Mongolia Update has proven to be one of the more popular documents produced by the UNDP Mongolia office. Since the autumn of 1997 UNDP has been able to offer two more frequently updated sources of information: the UNDP homepage and our monthly newsletter, the Blue Sky Bulletin (available from our office if you are not already receiving it). Please use the United Nations Homepage at http://www.un-mongolia.mn to keep abreast of the latest political, economic and social developments in Mongolia. Mongolia Update is an unofficial document of UNDP and is designed to periodically keep our partners outside of Ulaanbaatar apprised of issues in the country. 

A year of political divisions
Who is who in the cabinet
A government of technocrats

Background — a year of political divisions

Divisions in the ruling Democratic Coalition Government in 1998 led to the fall and rise of three governments and three prime ministers. From the beginning of 1998 cracks within the Coalition intensified. A number of Democrats were dissatisfied with the system whereby the Prime Minister and the Cabinet were not parliamentarians, but "experts" appointed from outside and perceived to be aloof from Parliament. On January 15, 1998, after several weeks of wrangling Parliament ruled that under the Mongolian constitution MPs could serve as Cabinet ministers. It was to prove a fateful decision for the year-and-a-half old M. Enkhsaikhan Government.

A faction within the Coalition Government became more vociferous, with its complaints that the Democrat’s election promises would not be fulfilled without better coordination between the Government and the Parliament. Things came to a head when the General Council of the Mongolian National Democratic Party (MNDP) called for the resignation of its own Government. The move was led by the 35-year-old Speaker of the Parliament and MNDP caucus leader Ts. Elbegdorj - a natural Prime Minister in a Government of MPs. After a joint meeting of the ruling councils of the Mongolian Social Democratic Party (MSDP) and the MNDP, Prime Minister Enkhsaikhan handed in his resignation to Mongolian People’s Revolutionary Party (MPRP) President Bagabandi. The new Prime Minister, Ts. Elbegdorj, was sworn into office on April 23, vowing to chart the same economic course as his predecessor. While trying to form his Cabinet, Elbegdorj quickly ran into trouble.

The opposition MPRP was emboldened, exploiting the fissures in the Democratic Coalition. They started to launch attacks against the new Government. Elbegdorj’s attempts at forming a Cabinet were delayed as one candidate after another was rejected.

The Cabinet was not composed until May 28, when 28-year-old CH. Saikhanbileg became Education Minister - the fifth nominee put forward for the post. The new Government faced an opposition boycott of Parliament by the beginning of June, in the wake of the merging of a state bank with a private bank amidst charges of conflict of interest. On July 25 Ts. Elbegdorj and his entire Cabinet resigned after losing a no-confidence vote in Parliament. The Elbegdorj cabinet continued to work as an acting Government. The murder of prominent democrat and minister of infrastructure S. Zorig shocked the nation October 2. Poised to become a candidate for Prime Minister, Zorig was axed to death in his apartment by two assailants. The crime remains unsolved and grabbed international headlines in what had been seen as the most peaceful country making the transition from communism to democracy. In November the Constitutional Court ruled MPs holding Cabinet posts as unconstitutional. This effectively reversed the aforementioned Parliament decision of January 15, 1998. Throughout the year opinion polls showed a growing weariness and disillusionment creeping into the body politic over the political indecision.

By December a compromise Prime Minister was found, in the form of the mayor of the capital city, Ulaanbaatar. On December 9 Prime Minister Narantsatsralt took office. As 1998 turned into 1999, Narantsatralt was still trying to have his Cabinet approved by both the Parliament and the President.

External economic turmoil started to have its affect on Mongolia in 1998. Many thought the country could ride out the Asian crisis unscathed, but Prime Minister Ts. Elbegdorj admitted in June it was unavoidable. Copper prices, Mongolia’s largest foreign currency earner continued to plummet to record lows. Prices for cashmere and gold, major exports for Mongolia, also declined. The picture for the domestic economy had some bright spots in 1998, with inflation under control and an expansion in the informal service sectors. The Government’s Green Revolution campaign was able to significantly boost the production of vegetables by encouraging home gardening. The economy was still supported by foreign aid, which totaled US $205 million in commitments for the year.

Instability in Russia has also had an impact on Mongolia. For example, in May Russian coal miners blocked the Trans-Siberian train that passes through the capital Ulaanbaatar on its way to China. In August a severe benzene shortage prompted the reintroduction of rationing. At its worst all gas supplies for the country were pulled back to the capital, leaving many stranded and unable to drive cars and run gas-powered electricity generators. The delays were due to job actions by Russian workers. Russia accounts for 30 per cent of Mongolia’s imports and 13.5 per cent of its exports. On the plus side, foodstuffs from Russia became cheaper with the decline of the rouble.

Who is who in the Cabinet

Prime Minister R.Amarjargal, 38 year old Moscow educated economist. He graduated from Economic Institute of Moscow as an economist and a teacher in 1982 and  earned a master’s degree at Bradford University in 1994-1995. 

1982-1983, he was an instructor in Mongolian Trade Union, 1983-1990, he worked as a teacher in Military Institute, 1991-1996 has served as Director of the Economics College. He was a popular Foreign Relations Minister before resigning with the entire cabinet on July 24, 1998. A member of MNDP, he speaks fluent Russian and English.

Finance Minister Yansangiin Ochirsukh. Born in Ulaanbaatar, economist Ochirsukh graduated from the Mongolian National University and did postgraduate work at Columbia University in the United States. He worked as a lecturer and researcher at the University before moving to the Mongol Bank, where since 1997 he has been in charge of foreign exchange and reserve policy. A member of the Mongolian Social Democratic Party, he speaks Russian, English and Chinese.

Minister of External Relations Nyamosoriin Tuya, 40, was born in 1958 in Ulaanbaatar. Studied in the Institute of External Relations in Moscow, Russia in international journalism. From 1984 to1985 she studied French culture and civilisation at the Sorbon University and did a Masters degree on the " Theory of Democracy" at Leeds University, England. Ms.Tuya speaks English and French. Married with two sons and a girl, she worked as editor of the foreign programming service of Mongolian Radio. After 1996, she was working as Head of the Department for Common Policy at the Ministry of External Relations.

Minister of Environment Sonomtserengiin Mendsaikhan, 39, was born in Ulaanbaatar, and completed degrees at the Mongolian State University and the State University of Irkutsk, Russia in mathematics. S.Mendsaikhan speaks German and Russian. Married, he has a daughter. Started his career as a math teacher at an Ulaanbaatar school, he also worked as a lecturer at the Mongolian State University and later become general secretary of the Social-Democratic Party. From 1992 to1993 he worked as a manager in the Unuudur (Today) private newspaper. From1993 to 1997 he worked as a private company director, and in 1997 he was assigned as advisor to the Parliament’s Speaker.

Minister of Defence Sh.Tuvdendorj, 32, graduated from the Army Academy of Mongolia and the Otgontenger Language School. He worked as an army officer, technician and laboratory engineer at the State Telecommunications Utilisation Committee. He started a political career in 1994, working as secretary in charge of local affairs. In 1997, he was elected as general secretary of the Mongolian National Revolutionary party.

Minister of Agriculture Choinzongiin Sodnomtseren, 46, was born in Ulaanbaatar and is married with three children.After attending Mongolian State Agricultural University, he acquired a Ph.D. in Saint Petersburg, Russia. He also has a Ph.D. degree in veterinarian sciences.

While spending many years of his career on research studies, he worked as a lecturer at the State agricultural University. Sodnomtseren became later Principal and Rector of the State Agricultural University.

Minister of Health and Social Welfare Sodoviin Sonin. Born in Ulaanbaatar in 1956, S.Sonin graduated from the Medical University of Irkutsk and Mongolia’s State Administration and Management Development Institute. A doctor and professor of medicine, he has taught surgery at the Mongolian Medical University, worked at the Central Clinical Hospital and served as a department chair at the Ministry of Health and Social Welfare. Since 1991 he has headed the Asian Development Bank-backed Health Sector Development project. Sonin, who speaks Russian and English, does not belong to any political party.

Minister of Infrastructure, Gavaagiin Bathuu, 39, born in Hujirt county of Uvurhangai province. Married with two sons and a daughter, he graduated from the Economics Institute of Harikof, Russia as an auto engineer and economist. He speaks Russian and English. He started his career as a repairman and dispatcher at the state auto-engineering company.From 1986 to 1992, he worked at the Ministry of Infrastructure as an officer and senior officer and from 1992 to 1996 he worked as Director of Shunklai Company. Since1996 he was working as a head of the Department for Road and Transportation at the Ministry of Infrastructure.

Minister of Justice, Logiin Tsog, 47, was born in Ulaanbaatar. He graduated from the State University in Irkutsk, and from the Social Science Academy in Russia. A lawyer with high education in politics, he speaks Russian and English. He worked as the prosecutor for the department at the Ministry of Justice. From 1988 to 1989, he worked as inspector at the Mongolian Revolutionary Party’s Inspection Committee. From 1990 to 1991, he was assigned as the Head of the Standing Committee of the State Baga Hural (parliament of that time) on legal issues. From 1991 to 1996 he was general director of the "Golden Button" Co. Ltd and in 1996 he was elected as general secretary

Minister of Enlightenment A.Battur was born in 1965 in Hovd aimag. Battur is a career diplomat who graduated from Russia’s Institute for International Affairs and completed a postgraduate course at France’s Institute for International Affairs. He worked as an attaché in the Foreign Ministry between 1989 and 1992, and spent 1992 to 1996 as the cultural attaché at the Mongolian Embassy in France-where he also worked with UNESCO- before returning to senior administrative positions at the Ministry in 1996.

A member of the Mongolian National Democratic Party, he speaks English, French and Russian and is married with two children.

A government of technocrats

By January 15, 1999 Mongolia had its first complete Government in six months. All nine members of the Mongolian Cabinet have been approved and appointed. Like Prime Minister Narantsatsralt, they are not Members of Parliament. Since all nine Cabinet Ministers were chosen for their experience, many expect a more stable course to be charted for the remainder of the Democratic Coalition’s term in office (until 2000). However, the new Government might experience the same sort of complaints the Enkhsaikhan Government received, when Parliament accused those ministers of being aloof. It is also unclear if the MPRP will continue to offer a vigorous opposition. For the time being its seems the political forces have exhausted themselves and there is a genuine desire for stability in 1999. The new Government is expected to follow the same reform directions of the two previous Democratic Coalition Governments and details will emerge over the coming weeks.

© David South Consulting 2018  
Wednesday
Jan102018

US-Mongol Construct 2000 Business Prospectus: Building a New Democracy | 2000


Researcher and Writer: David South

Consultancy: David South Consulting

Publisher and Client: USAID

Published: 2000

Background: This excerpted text is from a business prospectus prepared in 1999 for USAID to promote construction opportunities in Mongolia to the US construction industry. At the time, Mongolia was in the grip of a severe crisis, called one of "the biggest peacetime economic collapses ever". By 2012, Mongolia was called the "fastest growing economy in the world". It is proof the foundations for Mongolia's recovery from crisis were laid in the late 1990s.

“No other Asian country enjoys more political freedom today than Mongolia. And no other Asian country has shown greater commitment to open markets. But Mongolia has received little reward for its efforts.” Fortune Magazine, December 1998

Discover a New Democracy

Mongolians are some of the highest per capita donor recipients in the world: On average US $50 per person. The vast majority of this aid is targeted at infrastructure projects. Mongolia in 2000 is an opportunity waiting for American business. Democratic, with a free market economy, the country offers regulatory freedom, a belief in the private sector setting standards and a pro-Western attitude friendly to American companies. 

Mongolia's history is marked by the rise and fall of cities, the ebb and flow of political and economic systems. The country has experienced being the largest empire for its time in the 13th century, to being occupied by foreign powers. Economically and socially the country has lived through feudalism, communism and now, capitalism. The one thing that has remained stable throughout this rich history has been the nomadic way of life. Livestock remains to this day a major pillar of the economy and contributes to one of the country's major foreign currency earners, cashmere wool. 

After over 70 years of communist rule, Mongolians finally turned their backs on communism and robustly embraced free markets and democracy in 1996 with the election of the Democratic Coalition. A gradual opening up of the country had begun under the ruling Mongolian People's Revolutionary Party after the collapse of the Soviet Union and under pressure from peaceful public demonstrations.  

After the fall of the Soviet Union, the country suffered what many economists have called the largest peacetime economic collapse in the 20th century. 

While it is a fact that Mongolia's economy is severely underdeveloped, both in terms of infrastructure and diversity, it is also true the country is the freest in Asia. As Fortune Magazine noted in a December, 1998 issue, "No other Asian country enjoys more political freedom today than Mongolia. And no other Asian country has shown greater commitment to open markets. But Mongolia has received little reward for its efforts." Mongolia, for American business, offers a win-win situation, an opportunity to join in the building of a strong democracy in Asia while tapping the rich resources, both natural and in human capital. American businesses can enjoy a regulatory environment that is more flexible than in the United States, and a government that lets businesses do what they do best: serve the needs of customers and make money. 

Youthful

A Bright Young Future

Demographically, Mongolia is a very young country. A by-product of high birth rate policies during the communist period, 60 per cent of Mongolia's population are aged between 1 and 24, with 37.6 per cent between the locally accepted definition of youth of 15 to 34. In 1998 the New York Times Magazine called Mongolia "The youngest place on earth". Even a cursory glance at the streets of the capital, Ulaanbaatar (population 600,000), will reveal a young population taking their fashion and cultural cues from the West, and who hold correspondingly Western aspirations to own homes and start businesses. Mongolia enjoys exceptionally high rates of literacy ( 96 per cent), post-secondary enrolment (65,089 students in 1998) and the urban population quickly embraced Western consumer products as they became available. 

Growing

The Construction and Environmental Services Industry in Mongolia

Today, Mongolia officially has 100 architectural and engineering design companies and over 500 construction companies. Of these, 40 are considered large operations with their own in-house design and engineering outfits, or who have a close relationship with one or more companies that either manufacture or import construction materials. The country is a rich resource for raw materials for the construction industry, but this vast wealth remains under-utilised. According to geological surveys spanning the decades from 1930 to the 1990s, over 200 deposits were discovered that could be tapped for construction materials. 

At the beginning of the 20th Century, there were few permanent standing structures in Mongolia, apart from Buddhist monasteries and royal palaces. At the beginning of the 20th Century most Mongolians lived in the round ger felt tent. It wasn't until the communist revolution that construction of sedentary dwellings and buildings in the country picked up pace. In 1924, three years after the 1921 revolution, the State Committee for Construction was established (by 1926 it became the Construction Department of the Ministry of Industry), and undertook the large-scale construction of buildings based on European designs. 

From the 1960s the construction industry in Mongolia emerged as the country industrialised. Mongolia received aid from both China and Russia up to the Sino-Soviet dispute, and both countries were the main funders for construction projects. Many buildings in the downtown of the capital were built by the Chinese government.

Up until the election of the Democratic Coalition in 1996, all construction activities were conducted under the direction of the state. Building booms took place in the 1970s and 1980s as the communist government tried to meet the demand for apartments and other facilities. At its peak in 1989, the construction sector made up 10 per cent of the gross national product. With the collapse of the Soviet Union at the end of the 1980s, many building projects in Mongolia ground to a halt as Soviet subsidies were withdrawn.  Across the country it is possible to see the empty shells of apartment buildings, holiday resorts and half-built sports stadiums.

The Mongolian People's Revolutionary Party, under popular pressure for a change, began to gradually make the shift to free markets and democracy. The first state privatization programme began in 1993 under the direction of international experts. It wasn't until the election of the Democratic Coalition in 1996 that significant reforms were taken to fully introduce a free market economy. And it wasn't until 1997 and 1998 that the fruits of these measures started to appear.

The construction industry was fully privatised in 1998, with companies becoming limited or wholly owned entities. There now exists a mix of private and public companies in this sector. All of the companies are in the early stages of learning how to work and prosper in the free market.

The legacy of working under a command economy has left many companies ill-equipped and under-funded, many not operating at full capacity or not at all.

The private sector has shown itself to be capable of initiating real estate development projects, most commonly the building of private apartments, shopping complexes and small hotels.

Weaknesses in management and financing do lead to long delays, poor quality and in some cases, the abandonment of a construction project mid-way.  According to the State Statistical Office, the construction sector shrank from 1991 to 1994. In 1994, activity increased 26 per cent from 1993. Since then the gross national product has averaged growth of 3.3 per cent, but still has not caught up with the rate at the end of the 1980s. 

The environmental services sector has received a significant boost from international donors working in Mongolia. Various donor funded projects are building and renovating facilities using energy-efficient technology. These donors have also conducted training workshops and education campaigns for local construction companies. Being a very cold country, awareness is high over the financial and environmental benefits of energy-efficient techniques. Construction techniques, however, are weak and Mongolia has a long way to go in utilizing these technologies efficiently.  

It is a misnomer to think most Mongolians are wandering nomads. In fact the majority of the population of 2.4 million now live a sedentary lifestyle in small towns or in the big cities of Ulaanbaatar, Erdenet and Darkhan. Under communism these urban centres were economically dependent on state enterprises, many of  which now have either gone bankrupt, idle or have been privatized. There is currently a significant migration to the capital from these economically devastated communities. Officially the government was able to track 6,518 people, mostly between the ages of 18 and 39, moving to the capital in the first half of 1998 – a 60 per cent increase on 1997. Unofficial migration to the capital is believed to be far higher. 

At present a majority of the population still live in ger tents or sub-standard makeshift wooden housing. The construction industry cannot meet the high demand for modern housing, with amenities like running water, toilets and electricity.

“The business atmosphere in Mongolia is inviting and [our] partnership has faced very few obstacles while entering the market. Based on our positive experience here, we plan to continue and expand our presence in the Mongolian marketplace.” Mrs. Bolormaa Reiner, Representative Johnson and Johnson-Mongolia

Foreign Aid

Economic Prospects for the Country

Large donor community

Along with the collapse of the Soviet Union, Mongolia also lost significant economic subsidies, which contributed to the severe crisis of the early 1990s. The World Bank has estimated these subsidies reached a third of Mongolia's GDP in the late 1980s. Since then international donors have played a key role in helping to restructure the Mongolian economy to adapt to the demands of a market economy.  

Infrastructure has always been a weak point for Mongolia, and it was considered the most isolated and underdeveloped of the former Soviet bloc countries. International donors have placed infrastructure development at the top of their agendas. Since 1997 foreign aid in the form of grants and loans has hovered around US $250 million, with the vast majority of this aid going towards infrastructure development. Priority areas are highways and transportation, power stations and communications. By sector the aid breaks down as follows: 30 per cent to mining, 27 per cent to energy, 19 per cent to transport, eight per cent to communications, five per cent to social security and three per cent to other areas. The donor community and the Mongolian government want to dig the country out of decades of underdevelopment, which currently hampers the budding private sector from becoming more sophisticated. 

These large-scale infrastructure projects offer enormous opportunities for US firms experienced in working in cold-weather conditions. There are also opportunities to develop world class office space for these international donors, something that is currently lacking in Ulaanbaatar.  

Foreign investment to date

Actual large-scale foreign investment to the country has been slow coming and still doesn't represent a major economic opportunity. The major players in direct foreign investment outside of development aid have been Mongolia's old neighbours, Russia (20 per cent) and China (33 per cent). This decade the country has attracted US $200 million in foreign investment and registered 840 jointly owned or wholly owned ventures.

New-found affluence

It is estimated that around five per cent of the capital's population fit into a middle or upper income category. The late 1990s have seen the emergence of a new breed of affluent Mongolians. Many of these affluent Mongolians struck it rich trading in once-unobtainable consumer products or servicing the expanding foreign community. This class of traders have developed a sophisticated taste for all things Western – Mercedes Benz cars, four-by-four jeeps and western fashions. Vehicle registrations have steadily risen since the introduction of a market economy. In 1996 the number of vehicles was 65,020; by 1997 it was 70,088. 

New home owners

In 1998 50,000 families became homeowners as a result of privatization of apartments. All the apartments are of Soviet era and do not meet the aspirations of the growing middle class. Many of these new homeowners immediately set about renovating these apartments, installing modern appliances and furniture. A significant minority is renovating apartments with the intention of selling them on to wealthier Mongolians or foreigners. The high number of renovations and additions to buildings in the capital is also indicative of other things: the economy has changed and existing buildings do not meet the new demands, and that people have money to pay for the renovations. 

Business Opportunities

USAID has identified the following opportunities in the Mongolian construction sector:

- Donor-funded projects: Large-scale infrastructure projects that are funded by loans or grants from international donors, are a safe bet. These projects require management and technical expertise that is often difficult to find locally. This includes projects that require an international tender.  

- Fully funded foreign projects: Any project requiring a building that meets international standards. International companies have little choice when it comes to finding adequate office or retail space.

- Low-cost labor: The Mongolian workforce is highly literate and often speak a second language, usually Russian amongst older workers, and English amongst the young. Unemployment levels are high in Mongolia and workers are keen to get a job. Generally salaries are as follows:

- Manager: US $250

- Accountant: US $200

- Engineer: US $150

- Secretary: US 100

- Driver: US $100

- Qualified worker: US $100

Source: FIFTA

- Donors: Many large-scale projects are directly funded by donor grants or loans and therefore are a low-risk, reliable source of income. At the June, 1999 donors meeting in Ulaanbaatar, US $320 million was pledged, the largest amount in eight years of donor funding. Most of these pledges are targeted at “hard” infrastructure and private sector development. 

- Imports rule: Imported construction materials dominate the marketplace and will continue to do so for the foreseeable future. Many of the materials are poor quality and from China. American companies can attract customers with their obvious advantages in both quality and innovation.

- Large resource base: Mongolia's large wealth of mineral resources is inefficiently utilized, with many mines and factories working under capacity or not at all. These resources could be tapped to produce construction materials locally for the domestic market, or more lucratively, for the booming Chinese market hungry for resources. 

- Very cold country: Mongolia's capital, Ulaanbaatar, is the coldest capital in the world. Mongolia's winters dip below minus 40 Celsius, and for those who live in apartment buildings, this can be a difficult time. Many apartments are inadequately insulated, and dip below zero when the central heating system is disrupted due to poor maintenance. There is an urgent need for high-quality aluminium and plastic windows and doors. Budgets are tight in Mongolia yet many organizations spend vast sums to heat buildings. It has been proven that during the course of the winter heating costs can be reduced from Tg 4,200 (US $4.20) per square metre, to Tg 280 (US $0.28) in an energy efficient dwelling. 

-  Windows are expensive: Mongolia must import all windows and glass products. When the cost of freight is added, windows become an unnecessarily expensive portion of any construction bill. This is a business opportunity for any company who can domestically produce glass products and windows at a cheaper price than imports. A National Code for Insulation of Buildings is being revised and none of the existing windows and doors meet this requirement.

- No chemical industry: While Mongolia exports oil to China for refining, the country does not have a domestic chemical industry, and consequently plastic and rubber is imported for construction purposes. Stone tiles like marble are currently also imported from outside, despite this resource being available in Mongolia.  

- Central heating and water unreliable:  For those who live in apartment buildings, the regular disruptions to both the water and heating supply are not only inconvenient, but also bad for business.  Technology that can by-pass relying on the central system (common to many Soviet-era cities, this system is wasteful and subject to regular breakdowns), is urgently needed. Alternative energy sources like solar power and wind can bring electricity to those who are not on the grid.  

- Free trade zones: The towns of Sukhbaatar (Russian border) and Zamyn-Uud (Chinese border), both served by rail, are the focus of Mongolian government attempts at increasing cross-border trade. At Zamyn-Uud Japan has upgraded the customs house facilities and trans-shipment facility. On the Chinese side, a major trading market has been constructed and a boom is taking place based on trade with Mongolia.  

“Arthur Andersen has had representation in Mongolia since 1993. We have been very active in the development of the accounting and auditing profession in Mongolia. January 1999, Arthur Andersen opened Arthur Andersen Mongolia Audit LLC.” Mr. C. L. Ruddell, Representative Arthur Andersen-Mongolia

What Do Mongolians Say They Need?

In interviews conducted by USAID, Mongolian government officials and construction companies detailed what they felt were the most urgent priorities: 

- Education and training: The vast majority of engineers and managers in the Mongolian construction industry received their training under communism. They were trained to work under a centrally planned economy, and will need to learn how to thrive in a free market situation where there are no guarantees. The Construction Training Institute currently only offers courses to managers and engineers. Its curricula is out-of-date and awareness of modern construction techniques and standards is weak. Exposure to computer-assisted construction methods is urgently required as well as training in foreign languages. 

- Awareness of International Standards: No Mongolian companies can offer state-of-the-art consulting on construction projects. 

- Licensure, apprenticeships and guilds: Standards are very weak in the construction sector and there is not a highly developed mechanism to ensure construction managers, engineers and workers meet a minimum qualification.     

- Being Earthquake-proof: While the National Design Codes and Regulations do stipulate that buildings must meet minimum requirements against earthquakes (Mongolia is located in a seismically active region, and severe earthquakes have happened), most buildings post-1989 fail to meet these requirements. 

- Weak infrastructure: Developing the transportation infrastructure of Mongolia will be key to future improvements in the economy. The rapidly developing Chinese economy offers many opportunities to Mongolia if roads and highways can be upgraded.  

- Better coordination and promotion: Working with FIFTA or the Foreign Investment and Foreign Trade Agency, Mongolian companies seeking foreign investment for projects need to improve their networking and presentation skills.  

Obstacles and Market Risks

Corruption: While Mongolians will tell you corruption has reached all levels of government, it is important to keep in mind it does not come close to the levels of corruption found in other former Communist countries. Foreign businesses do not suffer from harassment or intimidation by criminal gangs. 

Inexperience with the free market: Foreign businesses and travellers to Mongolia do experience difficulties communicating Western business concepts like consumer rights and service. It has to be said that over the past three years this has changed considerably for the better, and continues to improve as Mongolian businesses learn the importance of the axiom "the customer is always right". 

Differences between Mongolian and US standards: While Mongolia's regulations and laws are different from those in the US, it is important to keep in mind that the regulatory environment in Mongolia can be much freer in some areas. Also, many of the new laws have been drafted based on US laws and Mongolia's constitution was written upon the advice of US legal experts. 

Harsh climate: The long cold winters do present problems for some foreign businesses not used to working in cold-weather climates. This is also an area where American companies are at a specific advantage. 

Financial instability: Mongolia has had a number of serious banking crises since the early 1990s. Many private and public banks are insolvent due to bad loans. This can lead to long delays to construction projects and/or non-payment of salaries.   

Contract bidding: Only those contracts that are directly commissioned by the government will be subject to an open bidding. Private sector work is usually not subject to open bidding or design competitions. 

Downtime: Since Mongolia does no international corporate presence in the capital, any technical problems to equipment or software can involve downtime and delays as parts or repairs are sought in China. It is important to take this into consideration when establishing an operation in Mongolia. 

Advantages of Working in Mongolia

- Regulatory freedom

- Private-sector driven

- Market economy taking off

- Democratic

 Privatization of Land: Can I Own Land in Mongolia?

The dual legacies of communism and nomadism have made the issue of private ownership of land in Mongolia a thorny one. The government has passed the necessary legislation to make owning land in urban areas possible. However, inexperience with the concept of owning property and the laws that govern this make buying land risky. It is advisable to get a reliable local partner and to use the services of a law firm that knows the Mongolian situation. Long-term leases are available and might be a good option. 

Mongolian Government 

Financial commitment to date: 

The Ministry of Infrastructure Development has developed projects to encourage the production of construction materials locally. Due to financial constraints these projects have not been implemented. They include projects on cement, glass and paint production, rock processing, lime extraction and road development.

Government plans:

At this time the Mongolian government has not been able to develop a long-term strategy for the development of the construction sector. There are no specific policy incentives directly supporting real estate and housing development. The Ministry of Infrastructure is looking to the private sector to offer direction and guidance. 

Future Opportunities

The Tumen River Project: The eastern portion of Mongolia is included in a major trade zone development project initiated by the United Nations Development Programme. The Tumen River Area Development Programme (TRADP) is focusing foreign investment and infrastructure upgrading on eastern Mongolian, North-East China, the Democratic People's Republic of Korea and eastern Russia. This region has cumulatively attracted US $961 million from 1991 to 1997, with Mongolia's second biggest trading partner, China, making significant development gains.  While the Democratic People's Republic of Korea has been a thorn in the Project's side, both Mongolia and China are keen to push ahead with improving infrastructure and trade links. It is impossible to ignore the fact that China has made significant gains and that trade links with Mongolia continue to tighten. 

A feasibility study is currently underway on a railway link from Arxan, China to Choibalsan, Mongolia, and possibly on to Ulaanbaatar. As donors begin to fund these projects it would be prudent for American businesses to start building a relationship in the region to take advantage of future contracts. 

Commercial Street 2005: The City of Ulaanbaatar, Mongolia's capital and commercial centre, has drafted the blue prints for the construction of a modern commercial and business centre for the next millennium. Commercial Street 2005 will offer infrastructure and services that match global standards. The current Soviet-era infrastructure of Ulaanbaatar is an impediment to future growth and is unsuitable for Mongolia's new market economy. 

The project covers 20 hectares of 1 km length in a historically vibrant part of the city. The city will pay for the engineering and infrastructure works for the complex and local businesses will pay for the construction of secondary buildings. Commercial Street 2005 is looking for foreign investment to participate in the building of a food supermarket, trade and service complex, a twin-towered international trade and service complex, a banking centre, a business centre and renovations to nearby apartment buildings. It is estimated the project will create 10,000 jobs and would cost an estimated US $100 million. 

Darkhan: With a population around 55,000, Darkhan is as-yet an untapped opportunity. Located north of  Ulaanbaatar and close to the border with Russia, Darkhan is linked by a good road and rail. Along with the mining town of Erdenet, Darkhan has a modern infrastructure. Having been trained to work in the former state industries that once dominated the city, the population is well-educated and skilled. Today, coal mining and agriculture are key to the economy. The city is potentially a good stable base for accessing the Russian market.

Getting started

Registering prior to undertaking construction work is relatively simple. The Government Agency for Construction issues three degrees of licenses. The first license is for small projects, the second is for small to medium-sized projects, and the third is for large-scale projects anywhere in Mongolia. As the project develops the company is obligated to notify and allow local building inspectors to enter the site. 

Residency Permits

All foreigners wishing to remain in Mongolia for more than 30 days must apply to the State Centre for Civil Registration and Information for a temporary residency permit or a short-term residency permit. 

Temporary Residency Permit

The applicant must present to the State Centre for Civil Registration a request issued by FIFTA. FIFTA will issue such a request to any agreed foreign investor immediately. Permits are generally issued within a couple of days and are valid for a period of time from three months to one year. A temporary residency permit can be renewed an unlimited number of times. Each renewal will re-validate the permit for a period from three months up to one year, as requested by the investor. 

Short Term Residency Permit

This non-renewable permit is issued to foreigners who plan to spend no more than 90 days in Mongolia. Applicants are required to present a written request from a Mongolian or foreign organization stating the activity in which the person will be engaged and the reason the permit is needed. In case of an exploratory visit by a potential investor, a letter from the home company will suffice. 

Entry Visas

Investors may apply for single-entry and multiple-entry visas at the Foreign Ministry's Chancellery Building in Ulaanbaatar or at Mongolian diplomatic missions in other countries. 

Single-Entry Visas

A single-entry visa is valid for three months from its date of issuance and entitles the bearer to enter and stay in Mongolia for 30 days. A letter of invitation or applicable work papers are required. This type of visa is issued at the Ulaanbaatar airport or land border-crossing point. 

Multiple-Entry Visa

A multiple-entry visa entitles the bearer to enter and exit Mongolia an unlimited number of times and is valid for a period of six months to one year. For the issuance of this type of visa, an official letter stating the reason for travel and a copy of the certificate of the organization must be submitted by the investor. 

(Source: FIFTA)

Infrastructure facts

Airports – Mongolia has 81 airports, of which 31 can be used year-round. Only eight are paved. 

Roads and highways – Mongolia has 1,531.7 km paved roads.

Railway – Mongolia has 1,750 km of rail track, mostly a north-south line reaching from Russia to China, with spur lines to the copper mining city of Erdenet and the coal mining city of Baganuur. A short line goes from the eastern city of Choibalsan to Russia. 

Registered trucks - 25,473 (1998)

Major infrastructure projects (1997-1999)

USA 

Mongolia energy sector project - US $45,500,000

World Bank

Mongolia coal project - US $35,000,000

Transport rehabilitation project - US $32,313,000 

Asian Development Bank

Telecommunications - US $24,381,000

Power station rehabilitation - US $38,277,000

Ulaanbaatar heat efficiency project - US $29,487,000

Provincial towns basic urban services project - US $7,695,000

Road development - US $22,499,000

Ulaanbaatar airport project - US $37,524,000

Japan

Road construction (1996)  - (Yen) 11,590,000

Rehabilitation of power plant IV (1995) - US $46,000,000

France 

Rehabilitation and extension of UB telephone network - (F Franc) 25,000,000

Germany

Telecommunications - (DM) 10,000,000

South Korea

Thermoelectric power plant in the Gobi desert - US $8,000,000

Upcoming major infrastructure projects

Asian Development Bank 

Improving Ulaanbaatar heat efficiency (until 2002) - US $39,785,000 

Japan

Building of rural schools - US $20,000,000

In 1998 Tg, 208 billion was invested in Mongolia, of which Tg 57.2 billion was on construction/major improvements

Source: State Statistical Bulletin

Construction trends in Mongolia show that in-country production of materials has suffered greatly. 

Building doors and window

Tg 417.8 million in 1989

Tg 2.9 million in 1998 

Bricks (million pieces)

172.8 (1989)

18.9 (1998) 

Cement (in thousand tons)

512.6 (1989)

109 (1998)

On a positive note, sales of furniture went up

Tg 34.7 million in 1989

Tg 185.2 million in 1998

US-Mongol Construct 2000: Building a New Democracy was published by USAID. It helped lay the foundations for a construction boom in the mid-2000s.
© David South Consulting 2018  
Thursday
Oct262017

Information Accelerates Crisis Recovery and Development | 1997

The United Nations Information Shop (UN Info Shop) was established by UNDP Mongolia in 1997 and was managed by the UNDP Mongolia Communications Office. Context is everything. At this time, Mongolia was still recovering from the chaotic and turbulent transition from Communism to free markets and democracy begun at the start of the 1990s, called by some "one of the biggest peacetime economic collapses ever" (Mongolia's Economic Reforms: Background, Content and Prospects, Richard Pomfret, University of Adelaide, 1994). There was a thirst for information: access to the Internet was still limited and access to mobile phones was just the preserve of the rich. As a legacy of the past, information, especially that about the outside world and the country’s true economic and social conditions, was restricted. During the years of Communism, even simple travel from one place to the next was strictly regulated. 

While today we can take it for granted that the Internet, and mobile and smart phones, deliver the world’s information in seconds, this just was not the case in the late 1990s in Mongolia. 

The UN Info Shop quickly became a crucial resource for students (many schools and universities were nearby) and it became a first stop for many wishing to access the Internet. It also substantially raised the profile of the UN in the country as the public could, for the first time, enter the UN building and discover what the UN was doing in the country. They could also visit the UNDP Mongolia Communications Office and meet its team. 

P. Dagmidmaa reads the Human Development Report Mongolia 1997 in the UN Info Shop.


An announcement in the Blue Sky Bulletin about the launch of the new journal Cooperation South.
The UNDP Mongolia Communications Office Team 1998 outside the UN Info Shop in the capital, Ulaanbaatar: David South, Bayasgalan and Bayarmaa.Many initiatives grew from the talented and dynamic UNDP Mongolia Communications Office team. Here are links to some of them: 

Ger: Mongolia's First Web Magazine 

© David South Consulting 2017