Economic Forum 2013 aims to establish Mongolian brand

In his opening speech at the fourth annual Mongolia Economic Forum, which began on Monday, Prime Minister N.Altankhuyag spoke about creating a new global brand in Mongolia. The prime minister pointed out that some countries represent a brand themselves, such as Scotch whisky, Italian cuisine, French wine, Swiss watches and Japanese cars. Mongolia has yet to establish its own brand and unique signature in the world market. He remarked that he hopes Mongolia’s ‘brand’ will be the natural or organic agricultural products through which the Mongolian nomadic culture has been able to endure for centuries.

The Mongolia Economic Forum 2013 opened under the banner ‘Mongolian Brand and Opportunities’. More than 1,000 delegates participated in this year’s event, with delegates from the private sector, public organizations, and research institution as well as political figures. Participants discussed the opportunities and challenges facing Mongolia’s economy.

The prime minister noted in his speech that although Mongolia’s level of resources per capita is ranked among the world’s highest, most of Mongolia’s mineral products, meat, leather and cashmere are exported as raw materials, with no added value.

“Despite its vast mineral wealth and increased mining activity, Mongolia is a country of agriculture,” he said. He said the reform government aims to diversify the economy and decrease reliance on the mining sector. He explained that this would be achieved through major shifts in economic policy that would support national producers in creating a Mongolian brand under which to launch their products on the world market.

“Mongolia should develop a rainbow-like economy, rich in size and diversification,” said the prime minister.

“It is very important that the state, entrepreneurs and civil society sit together to exchange ideas and information … If Mongolians could produce goods themselves, they could become the main driver of unstoppable growth in this country,” he said.

Prime Ministe N.Altan­khuyag drew upon the example of Chile, which successfully utilized its revenue from copper mining to develop a successful wine industry and to become a world famous brand. Chile managed to increase its wine output 20-fold, increasing from a 30 million USD industry to a 600 million USD industry. N.Altankhyag said that Mongolia is fully able to realize such feats and that branding is no longer a dream but an achievable target that should be striven towards by Mongolian businesses.
At the moment, around 90 percent of Mongolia’s exports are mining based products and only 30 percent of these products are processed.

The Guest of Honor at the event, Ms. Lakshmi Venkachatalam, Vice President of the Asian Development Bank (ADB), noted in her speech that Mongolia has achieved remarkable feats by implementing the Millennium Challenge, and that the ADB is proud to be a key partner in helping Mongolia to realize its developmental potential.

“When Mongolia joined the ADB some 22 years ago, its people were enduring economic hardships, like many transitioning economies. Currently, Mongolia’s medium term economic prospects are regarded as very favorable due to the country’s abundant natural resources. In the short term however, the deteriorating global economy has had a negative impact on exports. As a result, we’ve seen deteriorations in Mongolia’s external and fiscal balance … Experiences of other resource-rich nations have suggested that they are at the risk of performing less well on human development indicators than more modestly endowed countries, unless they take the right steps at the right time,” she said.

Ms. Venkachatalam observed that mining is an extremely productive industry, but provides high salaries to a small number of people, which makes it hard for other sectors to match offers. She also noted in her speech that the mining sector produced 90 percent of Mongolia’s exports last year, 17 percent of government revenue, 18.6 percent of GDP, but less than 2 percent of new employment.

According to ADB figures, Mongolia faces significant challenges, such as high levels of poverty (around 30 percent of the population last year); high inflation (around 14.3 percent last year) which was represented by increasing food prices, particularly meat prices; and growing external risk. Ms. Venkachatalam said that double digit inflation is expected to continue due to strong demand for goods and services and external risk will persist, so advised that “diversification of the economy, with further private sector participation, is needed to mitigate such risk and ensure high sustainable growth and inclusive development.”

“High reliance on mining can diminish the competitiveness of other sectors as it pushes up the exchange rate and labor costs … Services, in contrast to the mining sector, are labor intensive and generate many jobs. Mongolia has significant potential to diversify its economy, if it can take advantage of its excellent human resources, rich livestock and plant resources … Branding will enable Mongolia to diversify its economy,” she added.

Lastly, Ms. Venkachatalam emphasized the importance of reliable infrastructure for long term sustainable and inclusive development.

In his speech titled ‘National Brand and Mongolian Development,’ the Economic Development Minister N.Batbayar revealed how he promoted the Chinggis bonds to other nations and how Mongolia was received with welcoming arms by powerful nations of the world.

“I believe Mongolia can not only brand its products, but become a global brand nation. We have vast lands, rich with mineral wealth. Some countries have already drained their natural resources but we are just beginning to explore them. Last year Mongolia successfully released its first government bonds, named after our Great Chinggis Khaan, worth 1.5 billion USD. When we ventured to promote our bonds to other nations, we told them that Mongolia has the eighteenth-largest land size — land that is full of mineral wealth; our two great neighbors are up to 500 times larger in population so we are well-positioned for trade; we are the descendants of the great Chinggis Khaan; we are citizens of a democratic Mongolia; we value human rights; and we protect private property through the rule of law. And we asked them to work with us and they agreed. When we offered to sell 1.5 billion USD of bonds, they proposed to buy 15 billion USD of bonds. This indicates the rising global interest and the enormous potential Mongolia has. We promised those that purchased our bonds that we would use this money for great development … The time of Mongolia to establish its name and brand has come. Agriculture and animal husbandry are the brands of Mongolia,” said N.Batbayar.

Dinosaurs expected to be a big tourist attraction

According to travel and tourism industry representatives, although Mongolia enjoys numerous tourist attractions such as untouched natural wonders and rare paleontological finds, the travel and tourism sector of Mongolia has experienced nothing but neglect from the government in the past. But at the Mongolia Economic Forum 2013, tourism was undoubtedly one of the most popular topics of discussion, with many saying that given the inflow of foreign investment and increasing attention directed at Mongolia the tourism sector has enormous potential. It was also noted that dinosaurs are expected to be a big tourist attraction in future.

The Fukui Prefecture Dinosaur Museum of Japan was held up as an example of a successful tourist attraction. The museum contains fossil skeletons of 70-million-year-old dinosaurs and attracts many thousands of tourists each year. It is one of the largest paleontological museums of the world, but Japan has far fewer fossils than Mongolia.

Parliament Member Ts.Oyunbaatar said at the Economic Forum that in 2000 Japan proposed building a dinosaur museum in fossil rich Umnugobi Province in southern Mongolia. The MP remarked that Mongolia could enjoy the same interest from tourists as the Japanese museum and attract tourists by the thousands, if not millions, if the government paid attention to this sector and took decisive action to develop this sector.

All the participants in the discussions agreed that Mongolia has vast potential, with its many wondrous sights and scenery, but many said that until now the private sector has been keeping the tourism industry going, with no tangible support from the State.

The Minister of Culture, Sports and Tourism, Ts.Oyungerel, noted that the government is implementing major programs, including establishing a tourism and travel route, to promote and develop the sector. She added that the successful recovery of the smuggled Dinosour Bataar fossil last year, a retrieval operation led by President Ts.Elbegdorj, helped to promote Mongolia and its fossil wealth. According to Minister Ts.Oyungerel, around 800 publications worldwide reported on the incident. The dinosaur skeleton will be returned to Mongolia before May 18 (Museum Day).

“We want to present the dinosaur fossil to the children of the country on June 1, Children and Mothers’ Day, as a present,” said Minister Ts.Oyungerel.

It was noted at the forum that currently the only festival in Mongolia that receives a large budget from the State is the National Naadam Festival, celebrated in July. Naadam attracts many tourists and is a chance for foreigners and expatriates to learn about Mongolian culture and tradition. Other festivals, such as the Ice, Snow, Eagle, and Camel Festivals, do not receive much funding from the State, if any. Minister Ts.Oyungerel explained that the reason for this is that Naadam has a set date and place, which is consistent, but the others don’t. The minister has proposed making a set calendar of all the festivals held in Mongolia so that they can all receive funding from the State. This calendar will be implemented by June, she said. The minister therefore urged travel and tourism companies and provincial governments to notify the ministry, by April 15, of the festivals and celebrations that they organize.
“The calendar will help advertise festivals and will attract tourists and travelers to take part in the events and learn about Mongolia, just like Naadam,” said Minister Ts.Oyungerel.

Marketing of tourism and travel was a big issue that many forum participants spoke about. Some suggested that establishing a marketing department adjacent to the ministry, because promotion and marketing are essential to the sector.

Minister Ts.Oyungerel said that the State has budgeted 1 billion MNT for marketing this year. According to the minister, 500 million MNT will be spent on promotion, 200 million on international tours and expos, and 300 million on regular advertisements. More specifically, the ministry has made a 360 million MNT contract with National Geographic Traveler magazine. The magazine will update Mongolia’s corner of its magazine and website daily. The Minister encouraged tourist companies and provinces to cooperate with the magazine, adding that compiling detailed information about tourist attractions in the country will help the ministry to formulate a nationwide master plan of travel routes.

Branding the Mongolian meat and dairy industry

Branding the Mongolian food industry was one of the main topics at the Mongolia Economic Forum 2013.

At the forum, the Minister of Industry and Agriculture, Kh.Battulga, emphasized that the meat and dairy industries, which produce 10 percent of Mongolia’s domestic food production, are the most likely sectors to become a Mongolian brand.

Minister Kh.Battulga expressed his concerns about the low level of domestic processing, noting that only 7 percent of domestic meat and 9 percent of domestic dairy products are processed in Mongolia. Thes concerns were echoed in comments made by the Deputy Minister of Industry and Agriculture, S.Tuvaan.

“The meat industry that has been around for many millennia has still not progressed from its traditional methods. Last year’s survey indicated that there were 40.9 million livestock in Mongolia. Eight million are slaughtered for domestic meat consumption, which is around 220,000 tons of meat. Only 3,000 tons are processed in a factory and exported. This is not enough. Our short term goal is to begin a continuous supply for Erdenet and other province centres,” said Deputy Minister S.Tuvaan.
The need for standardization of meat and dairy products was raised by many forum participants, who said that the only way to establish a brand and export products successfully is to maintain consistent quality, which requires standardization.

The State Secretary of the Ministry of Industry and Agriculture, N.Zoljargal said at the forum, “Last Saturday, a number of policies to incentivize herders who provide meat and dairy products to domestic processors, was approved … We are working to introduce European standardization methods by marking the cattle so that the origin of meat and dairy products can be traced. This program has been ongoing for some years now and we hope that this method will be accepted by international standard makers by May.”

Food Development Institute Specialist and Secretary, D.Tsedendamba suggested that the State, private sector, science, and research institutions work together to brand the Mongolian meat industry.
“In branding products, the method of operation and production is of vital importance. Mongolia’s meat and dairy products are purely organic and ecologically healthy. The tried and tested method used widely around the world is the cluster method. This is a method in which the small, medium, and large enterprises collectively set a goal, with the government providing support from all sides, and science and research institutions providing technical and technological advice. National companies lack capacity when they want to reach out to the international markets. Therefore, companies need to cluster and the government needs to provide visible support for there to be a Mongolian brand,” he said.

D.Jadamba, Executive Director of the Meat Union said at the forum, “We need to work at full capacity first. Currently there are 44 meat factories producing 150 types of products. Collectively, they are able to produce 140 million tons per day but they are working at only 10 percent capacity. To increase capacity, they need new technology and equipment, which will require funding of at least 200 billion MNT. If this equipment is exempt from value added tax, it would help a lot. As for support from grants, the State can’t give herders 200-300 MNT per kg but they grant 2,000-3,000 MNT per kg for wool and leather. If this is the case, the meat industry cannot establish itself, let alone create a brand.”
The discussion concluded with agreement on the introduction of the cluster method for the meat and dairy industry, the main driver of food production in the country.

Wool, cashmere, and leather industry ‘already producing Mongolian brands’

According to representatives of the wool, cashmere, and leather industry, this industry provides the most jobs in Mongolia, and producers such as Gobi Cashmere have begun penetrating the international market with their designer cashmere clothing made in Mongolia, with the result that the industry is ‘already producing Mongolian brands’.

Officials noted at a press conference at the forum that only 10 percent of domestically produced animal skin and wool become domestically-produced final products, such as clothing or construction material. The state has issued bonds worth 300 billion MNT to the wool and cashmere sector, and the leather industry has been given 200 billion MNT in circulation capital. But Mongolia Economic Forum participants expressed agreement on Monday for the notion that further government support is necessary to establish more brands in this sector.

Member of Parliament S.Ganbaatar criticised Mongol Bank’s high interest rates, which he believes are burdening producers. He noted that one way the State can support private sector development is through loans, but current commercial bank interest rates are no less than 14 percent. He added that high ranking officials of Mongolia go around the world selling bonds, but if they made trade agreements and sold domestically processed goods to other countries instead, Mongolian brands would be established.

A program to restrict the exportation of raw wool and leather will be implemented this year. Wool producers will have to complete the first stage of processing before they are able to export their wool. Presently, between 3,300 and 3,600 tons of washed wool are exported each year. Producers said they want all their exports to be processed. By 2017, the government aims to export only final products.
At the forum, leather producers claimed that livestock in Mongolia endure all four seasons, hence their skin makes the highest quality leather. Leather producers noted that world-renowned German brand, Mercedes Benz, uses high quality yak leather imported from Tibet for their car interiors, but with the Tibetan yak slowly dying out, such manufacturers will have to look for other producers, and Mongolia is perfectly suited to meet the demand.

Biggest risk is political risk, says President

On Tuesday, the second day of the Mongolia Economic Forum 2013, the President of Mongolia Ts.Elbegdorj gave a speech criticizing the lack of competitiveness in Mongolia and the country’s political instability, noting that the biggest risk facing the economy is the political risk.
“At last year’s forum, I concluded that the State itself has become the biggest risk. And I think this needs to be addressed once again,” he began.

The president noted that all the international rating agencies and statistic collectors say the same thing ¬ that the political state of Mongolia is uncertain and is becoming unfriendly to do business with.
“Change and progress are happening slowly, currency is still an issue, and the inflation rate is still an issue. The MNT has no power, although our economy is growing; we have plenty of livestock but meat prices are rising; and we are endowed with a stupendous amount of coal but we import energy. Officials want to do as they please on their whim. Today, the issues are handled differently depending on who holds the power and who is elected, and not with the best solutions. Investment has slowed down substantially, even stopped, and in other cases is flowing out, all due to political instability,” said the president.

“The economy fell significantly last year and this is a big sign. Dropping from 17 percent GDP growth to 12 percent is a big sign that something is wrong… There needs to be an integrated policy that includes transportation, production, infrastructure, and everything.”

“The job of the politician is to set policies – it is not a field where one makes profit. We are at a point where the ministries are trying to build railways and roads. The private sector should do it. It’s a business opportunity.”

According to the president, Mongolia ranked 93rd out of 140 countries on a global competitiveness report, with a score of 3.9, which has not changed for two years. Compared to similar developing nations in the region, Mongolia ranked 15th out of 15 countries for three consecutive years.
“The number one reason is political instability, followed by infrastructure, and education,” said President Ts.Elbegdorj.

The president urged officials to standardize and quantify so that Mongolia is able to know where they are in terms of development, and how much it has progressed. “The State is not officials nor politicians, but rights, laws, and discipline,” he said.

“Mongolia is facing a trend and the recent government bonds attest to that,” said the president. “Furthermore, Mongolia will be discussed on the World Economic forum which is another indication of the growing interest and aknowledgement from international economic circles.”

The president acknowledged that political transparency has improved significantly, with Mongolia moving up 26 places on a global corruption index, from 120th in 2011 to 94th in 2012. Mongolia leads the world in its corruption decrease. “This needs to be maintained,” said Ts.Elbegdorj.

Finally, he encouraged companies to release public offerings to increase public participation and inclusiveness. “This will benefit the entire nation, not just a select few that form the oligarchy.”

‘Dutch Disease’ can be prevented in Mongolia

Guest of honor at the Mongolia Economic Forum 2013, Mr Wim Kok, former Prime Minister of the Netherlands, shared his experience in overcoming the so-called “Dutch Disease,” a phenomenon in which the exploitation and export of natural resources has a damaging effect on the economy as a result of currency appreciation. It comes about due to a sudden increase in foreign direct investment and results in resource rich nations experiencing high inflation.

The name ‘Dutch Disease’ came about from the experiences of the Netherlands. During the early 1960s, the Netherlands discovered a vast reserve of oil and experienced enormous foreign direct investment that inevitably increased the exchange rate and labor costs. This effectively decreased the competitiveness of the nation, as other sectors could not match the salaries offered by the oil industry and went out of business. As a result, the Netherlands had to take measures such as setting wage ceilings, which caused many worker strikes. The country begun regaining its economic strenght in mid 90s.

According to Mr Wim Kok, Mongolia has experienced some symptoms of Dutch Disease, but it has several regulations that effectively prevent the ‘disease’ from getting out of control, such as fiscal debt ceilings.

To prevent Dutch Disease, Mr Wim Kok advised Mongolia to diversify its economy and limit debt. “Mongolia’s GDP growth is promising. GDP growth is important, but not enough. Economic growth must be inclusive and fair, and the growing income inequalities and disparities should be reduced as much as possible. Social justice and ecological sustainability are key elements for the society as a whole. Furthermore, the inflation rate has to be mitigated,” said Mr. Wim Kok.

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