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Transcript of 'Mongolia Competitiveness: Where are we heading?' guidebook
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MONGOLIA`S COMPETITIVENESS:
WHERE ARE WE HEADING?
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MONGOLIA`S COMPETITIVENESS:
WHERE ARE WE HEADING? July 2012
www.ecrc.mn
WHERE ARE WE HEADING?
“You can`t manage what you don`t measure” is a well nown adage. Unless you are able to measure some-
thing you do not now if it is getting better or worse. You cannot manage the improvement of a system if you do
not measure to see what is getting better and what is not. With this in mind, we have produced the Mongolia in
World Competitiveness Report for the second consecutive year in order to measure where Mongolia is ranked
compared to other countries in the world.
The inaugural report, published in 2011, enabled Mongolians to see where our country stood and what our
strengths and weaknesses were. This second report affords the opportunity to compare Mongolia to other na-
tions and to observe the results of the previous year.
At a glimpse, Mongolia’s competitiveness has improved over the last 12 months. For instance, the country’s
overall competitiveness score was 24 in 2010 and in 2011 it increased to 28. However, in terms of ranking,
Uraine (which was raned in 15th position last year) is now raned above Mongolia with a score of 33, a sig -
nificant improvement of 24 points over the last year. As a result, Mongolia is now ranked in the last place in our
country selection.
Now it is time to focus on determining how Mongolia should move forward and continue to improve its na-
tional competitiveness since this country now has a better understanding of where it stands in the world. Today,
Mongolia is at a critical point; either it becomes a developed nation that efficiently allocates its natural wealth
or suffers from a ‘resource curse’ with rampant inequality and an unstable political environment. We can learn
from the tragic eamples of Nigeria and Zimbabwe and, in equal measure, from the good eamples of countries
like Singapore and South Korea. So, where are we heading?
It is clear that Mongolia is entering into a new economic era of growth due to the mining sector boom.
Properly defining the challenges and choosing the right development path is a collective responsibility for all
Mongolians. The Economic Policy and Competitiveness Research Center (EPCRC) has therefore defined the
five main challenges for the country’s competitiveness.
1. Exchange RateAn economy must have a strong immune system. A creative and innovative private sector creates the back-
bone of such economic immunity. Despite this fact, local businesses have struggled to survive year after year
due to the unstable political environment, strong inflation, and high interest rates.
Government spending rose by 56 percent in 2011 and is budgeted to rise by a further 32 percent in 2012.
However, most of these expenditures are no different than short-sighted cash handouts and are not aimed at
long term development projects in infrastructure, education, health, or fighting red-tape. An increased amount
Otgochuluu Ch.
General Director of EPCRC
PREFACE
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MONGOLIA`S COMPETITIVENESS:
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of money in circulation creates high demand. For instance, the trade sector experienced 43 percent increase in
2011. On the other hand, the supply side could not meet with the increased demand resulting in 17.3 percent of
inflation in March 2012. Although the bank of Mongolia took reformative action by raising the policy interest rate
to 13.25 percent, it remains another obstacle for business operators.
Income from mining sector Inflation Policy rate Long term investment Employment
What is the Solution?The central ban should be a guardian of the monetary values. Unless the central ban clearly defines if
it intends to manage the internal or the external value of national currency, Mongolia may be left with nothing
while chasing two wor intensive goals at the same time. Nowadays the public’s faith in the central ban has
diminished due to confusion over whether the central bank is fighting against inflation or to repair the exchange
rate, whereas in any country, the main capital of the central bank is its reputation and reliability.
2. PopulismOur survey results show that as the 2012 election approaches, expectations of instability in the political en-
vironment will increase. More importantly, it is said by many that the future of big projects in Mongolia depends
on which political party wins the election.
During the last parliamentary election, political parties promised citizens more than the economy could
afford. In order to realize these promises, the government is distributing handouts in the form of Erdenes
Tavantolgoi`s shares and MNT 1 million cash handouts to pensioners and disabled citizens. Such populist elec-
tion promises further fuel high inflation and have negative impact on state budgets and the overall economy.
Election promise Populist policy Apathetic thinking Economic exhaustion
What is the Solution?We applaud the recent policy decisions aimed at increasing budget responsibility and banning cash-hand-
out promises. In order to increase the efficiency of the policy implementation arms of the parliament, specificallythe government and its agencies, it is important to learn from the experiences of other countries where civil
organizations are heavily involved in advisory roles. In addition an independent juridical system, a central bank,
and a national audit authority should be all developed and strengthened.
3. Brain DrainHuman capital is the most valuable asset in any organization and rapidly expanding companies in Mongolia
prioritize the training of their personnel. Today, as the mining sector is booming, mining companies are attract-
ing and retaining the majority of our talented labor pool by offering significantly higher salaries. This results in
a shortage of capable labor force in other sectors, which is draining capabilities and skills across all other parts
of the economy.
While enterprises are lacing in silled labor, Mongolia’s unemployment rate has reached a staggering 10
percent. Even though the country produces over 36,000 university graduates each year, only about 36 percent
of them get jobs. It has been found that these graduates are not silled enough to meet many employers’ re -
quirements; a “silent war” for eperienced and silled employees has started across the labor maret.
Salary level in the mining sector Labor force in other sectors Economic diversification Dutch
disease
What is the Solution? It is important to reform the tertiary education system and eep on sending Mongolia’s brightest students
abroad for higher education. There is also a need for a policy which supports the development of quality edu-
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MONGOLIA`S COMPETITIVENESS:
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cation standards which meet employer requirements. For instance, in Chile, higher education institutes are
non-profit organizations, yet there are private-sector representatives on the governing board to provide direct
input about what skills and abilities businesses need from university graduates. This model could be adopted
in Mongolia.
4. Bureaucracy and Corruption
Mongolian business owners face bureaucracy and government agencies at every step of the way when
registering their entities, getting loans from banks, undertaking audits, and submitting to inspections/customs
services. They need to prepare numerous official letters and collect many signatures which become a significant
burden on time and effort. In addition, when business owners deal with government agencies, they often en-
counter many unwritten laws all the while corruption remains embedded constant part of the system. Currently,
one in four employed persons in Mongolia works in the public sector and it has been found that the younger
generation prefers to wor in the “safe and easy” public sector rather than tae riss in starting their own busi -
nesses.
Procedures Corruption Cost of running business Underground economy Price
What is the Solution?Customs and tariff policies need to be more flexible. Red-tape should be reduced by eradicating many of
the inefficient and unnecessary paperwork that is part of the existing process. This will result in less interaction
between business and government agencies, but with a greater degree of organization when implemented prop-
erly. Greater automation and the roll-out of e-services would be helpful in creating such a framework. The time
and money that business owners save will become drivers of real economic growth and will assist an overall
increase of tax revenues of the government. We can take example on Georgia, where their recent increases in
economic growth largely result from reforms in business procedures. Courageous decisions by the government
are needed to enact these reforms and reduce the number of business procedures.
5. Mining MongoliaIn 2011, a massive 89 percent of Mongolia’s eports came from the minerals sector, with 92 percent of this
exported to China. As the Oyu Tolgoi and Tavan Tolgoi projects start production, these numbers will keep on
increasing. But there are some permanent risks: What if the commodity prices fall? What if China decides to
purchase fewer minerals from us in the future?
Mining’s growth is putting stress on other sectors. At the same time, due to huge investments made into the
mining sector, the importation of mining related machines and equipment is increasing. As a result, the trade
deficit has reached USD 1.7 billion which is equal to 35 percent of the overall GDP.
Mining export Exchange rate Other sectors
What is the Solution?Creating a national wealth fund would enable mining revenues to be effectively invested in other sectors.
For example, instead of cash handouts, giving vouchers verified by this fund to energy producers, public trans-
portation companies, and end-users would support these sectors without raising inflation. Introducing new and
efficient technologies into the meat and dairy processing sectors would be a significant step, and the develop-
ment of further trade agreements by the government will also assist this process. The liberalization of strate-
gically important sectors, particularly the energy and the aviation sectors, should continue to occur gradually
while attracting foreign direct investments and creating more jobs.
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MONGOLIA`S COMPETITIVENESS:
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MONGOLIA IN WORLD COMPETITIVENESS
The EPCRC manages the annual publication of the Mongolia in World Competitiveness report, produced in
conjunction with Institute for Management Development (IMD) and its World Competitiveness Yearboo (WCY)
publication. The objective of the report is to analyze Mongolia`s competitiveness compared with 14 other econo -
mies selected by the EPCRC and covered by the WCY. In addition, a profile of Mongolia`s competitiveness wascreated to portray the main features, strengths and weaknesses of the Mongolian economy.
The overall raning is calculated on the basis of the 248 evaluation criteria included in WCY (132 Hard and
116 Survey data) and 83 additional criteria presented for bacground information.
By looing at the Mongolia in World Competitiveness-2011 report, Mongolia`s overall competitiveness score
has improved from 24 in 2010 to 28 in 2011. However, the ranking shifted one level below the one of last year
and Mongolia rans in 15th position after Uraine.
MONGOLIA IN WORLD COMPETITIVENESS SCOREBOARD
2011
SINGAPORE 1
MALAYSIA 3
QATAR 2
KOREA 4
CHILE 5
THAILAND 6
KAZAKHSTAN 7
MEXICO 8
RUSSIA 9
SLOVAK REPUBLIC 11
SLOVENIA 12
BULGARIA 13
PERU 10
UKRAINE 14
MONGOLIA 15
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MONGOLIA`S COMPETITIVENESS:
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Macro-economic evaluation of the domestic
economy
ECONOMIC PERFORMANCE
SINGAPORE 1
MALAYSIA 3
QATAR 2
THAILAND 4
MEXICO 5
CHILE 6
PERU 7
KOREA 8
RUSSIA 9
SLOVENIA 11
BULGARIA 12
SLOVAK 14
UKRAINE 13
KAZAKHSTAN 10
MONGOLIA 15
SINGAPORE 1
CHILE 3
QATAR 2
MALAYSIA 4
KAZAKHSTAN 5
KOREA 6
THAILAND 7
BULGARIA 8
PERU 9
RUSSIA 11
MONGOLIA 13
MEXICO 12
SLOVENIA 14
UKRAINE 15
SLOVAK REPUBLIC 10
Extent to which government policies are
conducive to competitiveness
GOVERNMENT EFFICIENCY
COMPETITIVENESS FACTOR RANKINGS
Competitiveness Factor Ranings presents an overview of Mongolia`s performance in the four major dimen-
sions of competitiveness (See Anne 1). Mongolia rans in 15th posit ion for Economic Performance, 13th place
for Government Efficiency, 15th also for Business Efficiency and 15th for Infrastructure.
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MONGOLIA`S COMPETITIVENESS:
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ANNEX 1. ECONOMIC ASSUMPTIONS FOR COMPETITIVENESS FACTORS
I. Economic Performance
1. Prosperity of a country reflects its past economic performance.
2. Competition governed by market forces improves the economic performance of a country.
3. The more competition there is in the domestic economy, the more competitive the domestic firms are
likely to be abroad.
4. A country`s success in international trade reflects competitiveness of its domestic companies (provided
Extent to which enterprises are performing in
an innovative, profitable and responsible manner
BUSINESS EFFICIENCY
Extent to which basic, technological, scientific and
human resources meet the needs of business
INFRASTRUCTURE
SINGAPORE 1
MALAYSIA 3
QATAR 2
THAILAND 4
CHILE 5
KOREA 6
KAZAKHSTAN 7
SLOVAK REPUBLIC 8
PERU 9
RUSSIA 11
MONGOLIA 15
UKRAINE 12
BULGARIA 14
SLOVENIA 13
MEXICO 10
SINGAPORE 1
MALAYSIA 3
KOREA 2
SLOVENIA 4
QATAR 5
RUSSIA 6
CHILE 7
SLOVAK REPUBLIC 8
UKRAINE 9
THAILAND 11
BULGARIA 12
MEXICO 13
PERU 14
KAZAKHSTAN 10
MONGOLIA 15
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MONGOLIA`S COMPETITIVENESS:
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there are no trade barriers).
5. Openness for international economic activities increases a country`s economic performance.
6. International investment allocates economic resources more efficiently worldwide.
7. Export-led competitiveness often is associated with growth-orientation in the domestic economy.
II. Government Efficiency
1. State intervention in business activities should be minimized, apart from creating competitive conditions
for enterprises.
2. Government should, however, provide macroeconomic and social conditions that are predictable and
thus minimize the external risks for economic enterprise.
3. Government should be flexible in adapting its economic policies to a changing international environ-
ment.
4. Government should provide a societal framewor which promotes fairness, equality and justice whileensuring the security of the population.
III. Business Efficiency
1. Efficiency, together with ability to adapt to changes in the competitive environment, are managerial at-
tributes crucial for enterprise competitiveness.
2. Finance facilitates value-adding activity.
3. A well-developed, internationally integrated financial sector in a country supports its international com-
petitiveness.
4. Maintaining a high standard of living requires integration with the international economy.
5. Entrepreneurship is crucial for economic activity in its start-up phase.
6. A silled labor force increases a country`s competitiveness.
7. Productivity reflects value-added.
8. The attitude of the workforce affects the competitiveness of a country.
IV. Infrastructure
1. A well-developed infrastructure including efficient business systems supports economic activity.
2. A well-developed infrastructure also includes information technology and efficient protection of the en-vironment.
3. Competitive advantage can be built on efficient and innovative application of existing technologies.
4. Investment in basic research and innovative activity creating new knowledge is crucial for a country in
a more mature stage of economic development.
5. Long-term investment in R&D is likely to increase the competitiveness of enterprises.
6. The quality of life is part of the attractiveness of a country.
7. Adequate and accessible educational resources help develop a nowledge-driven economy.
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MONGOLIA`S COMPETITIVENESS:
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Four Competitiveness Factor Rankings divide into 20 sub-factors. It is possible, at a glance, to determine in
what areas of competitiveness an economy excels or has particular weaknesses and to make comparisons be-
tween the economies. These rankings provide a more detailed examination of specific competitiveness issues
and, in addition to the factor rankings, can be used, for example, to evaluate the business environment, support
international investment decisions, or assess the impact of various public policies.
Mongolia`s best sub-factor ranings are for its International Trade (7th), International Investment (8th), Pub-
lic Finance (9th), Societal Framewor (9th) and Attitudes&Values (9th). The country`s weaest sub factors com-
prise: Domestic Economy, Institutional Framework, Finance and Basic/Technological/Scientific Infrastructure.
Economic Performance
14 Countries Average
Business Efficiency
I n f r a s t r u c t u r e
G
o v e r n m e n t E f f i c i e n c y
MONGOLIA
Basic Facts
Capital Ulaanbaatar
Land area (m2 ‘000) 1,564.1 (2010) -
Echange rate (per $) 1360.56 (2010) -
Population (millions) 2.78 (2010) 13
GDP ($ billions) 6.1 (2010) 15
GDP per capita ($) 2,182 (2010) 15
Real GDP growth (%) 6.1 (2010) 8
Consumer Price Inflation (%) 10.1 (2010) 15
Unemployment rate (%) 9.9 (2010) 13
Labor force (millions) 1.15 (2010) 14
Current Account Balance (%) -15.3 (2010) 15
Direct Investment
Stocs Inward ($ billions) 2.8 (2009) 15
Flows Inward (% of GDP) 27.9 (2010) 1
D o m e s
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Rank
COMPETITIVENESS - OVERALL
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MONGOLIA`S COMPETITIVENESS:
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1.3.06 Direct investment flows inward (%) 1
1.2.23 Tourism receipt (%) 4
1.3.08 Direct investment stocs inward (%) 4
1.2.22 Terms of trade index 5
1.2.21 Trade to GDP ratio 6
1.2.13 Eports of commercial services (%) 8
1.2.02 Current account balance (%) 15
1.5.01 Consumer price inflation 15
1.1.21 GDP (PPP) per capita 15
1.1.20 GDP per capita 15
1.2.24 Exchange rates 15
1.3.01 Direct investment flows abroad ($bn) 15
1.4.02 Employment (%) 15
1.2.08 Eports of goods ($bn) 15
1.3.07 Direct investment stocs inward ($bn) 15
1.2.12 Eports of commercial services ($bn) 15
STRENGTHS WEAKNESSES
Government Efficiency Government Efficiency
Economic Performance Economic Performance
Business Efficiency Business Efficiency
2.3.07 Exchange rate stability 2
2.4.20 Redundancy costs 3
2.4.01 Tariff barriers 3
2.2.09 Consumption tax rate 4
2.4.15 Start-up days 5
2.4.21 Labor maret fleibility (inde) 5
2.5.03 Ageing of society (S) 6
2.5.05 Social cohesion (S) 72.2.11 Employer`s social security contribution rate 7
2.1.02 Government budget surplus/deficit (%) 7
2.5.04 Ris of political instability (S)15
2.3.10 Government decisions (S) 15
2.4.09 Subsidies (S) 15
2.3.04 Country credit rating 14
2.3.06 Foreign currency reserves ($bn) 14
2.4.18 Unemployment legislation (S) 14
2.4.11 Competition legislation (S) 14
2.4.08 Goverment subsidies (%) 13
2.3.03 Interest rate spread 13
2.4.02 Customs` authorities (S) 13
3.2.03 Remuneration in services professions ($)1
3.2.01 Compensation levels ($) 1
3.2.19 Attracting and retaining talents (S) 2
3.2.10 Employee training (S) 2
3.2.15 Female labor force (%) 3
3.5.04 Fleibility and adaptability (S) 7
3.4.07 Entrepreneurship (S) 7
3.5.03 National culture (S) 8
3.3.04 Investment risk 15
3.2.17 Silled labor (S) 15
3.2.18 Finance sills (S) 15
3.1.10 Small and medium-size enterprises (S) 15
3.2.23 Competent senior managers (S) 15
3.1.11 Productivity of companies (S) 15
3.1.04 Labor productivity (PPP) 15
3.1.01 Overall productivity (PPP) 15
3.4.06 Customer satisfaction (S) 15
3.1.09 Large corporations (S) 15
Infrastructure Infrastructure
4.2.03 Fixed telephone tariffs 1
4.2.01 Investment in telecommunications (%) 2
4.2.11 Fixed broadband tariffs 2
4.2.05 Mobile telephone costs 2
4.5.01 Total public ependiture on education (%) 3
4.5.06 Higher education achievement (%) 6
4.4.08 Medical assistance 8
4.4.26 Climate change (S) 7
4.1.24 Electricity costs for industrial clients 8
4.2.07 Connectivity (S) 8
4.5.03 Pupil-teacher ratio (primary education) 15
4.4.10 Human development index 15
4.2.13 Internet bandwidth speed 15
4.2.14 Information technology sills (S) 15
4.2.10 Internet users 15
4.1.04 Access to water (S) 15
4.2.15 Qualified engineers (S) 15
4.1.16 Water transportation (S) 15
4.1.05 Access to commodities (S) 15
4.4.24 Pollution problems (S) 15
COMPETITIVENESS BALANCE SHEET
The Table below highlight the strengths and weaknesses by Competitiveness Factor and underline where
Mongolia performs best and worst in the four dimensions of competitiveness.
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MONGOLIA`S COMPETITIVENESS:
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DECLINES
The criteria below highlight the 25 biggest Improvements and the 25 biggest Declines in the overall perfor-
mance of the economy. As they are determined by the largest percentage changes in the value of each criterion
from one year to the next, it is worth reflecting on where rankings have come down and where have improved
to consider ‘lessons learned’ and continue moving forward in similar fashion.
2010 2011
1.3.04 Direct investment stocs abroad (%) 0.12 3.07
1.3.03 Direct investment stocs abroad ($bn) 0.01 0.13
1.1.14 Real GDP growth -1.6 6.1
1.3.05 Direct investment flows inward ($bn) 0.44 1.69
1.1.15 Real GDP growth per capita -3.49 4.38
1.3.06 Direct investment flows inward (%) 10.38 27.88
4.2.09 Computers per capita 70 156
2.1.02 Government budget surplus/deficit (%) -5.43 -0.49
2.1.10 Ta evasion (Survey) 1.30 2.43
1.3.08 Direct investment stocs inward (%) 37.68 66.95
2.3.06 Foreign currency reserves ($bn) 1.29 2.09
1.2.08 Eports of goods ($bn) 1.90 2.90
2.4.20 Redundancy costs 9.0 4.3
1.3.07 Direct investment stocs inward ($bn) 1.95 2.82
3.2.17 Silled labor (Survey) 1.68 2.40
4.1.17 Maintenance and development (Survey) 1.9 2.7
4.5.11 Educational system (Survey) 2.5 3.5
4.1.18 Energy infrastructure (Survey) 2.0 2.9
1.1.20 GDP per capita1,540.2 2,181.7
2.3.11 Transparency (Survey) 1.8 2.5
2.3.09 Adaptability of government policy (Survey) 2.0 2.7
4.3.21 Intellectual property rights (Survey) 1.9 2.6
3.3.05 Baning and financial services (Survey) 3.4 4.7
2.5.01 Justice (Survey) 1.7 2.3
3.2.21 Foreign high-silled people (Survey) 2.8 3.7
2010 2011
1.4.06 Unemployment rate 3.34 9.90
2.2.10 Employee`s social security contribution rate 4.36 9.80
4.2.22 High-tech eports (%) 7.51 0.80
1.2.02 Current account balance (%) -8.12 -15.34
4.3.17 Number of patents in force 113.9 36.6
1.5.01 Consumer price inflation 6.3 10.1
4.1.24 Electricity costs for industrial clients 0.060 0.087
4.3.19 Researchers and scientists (Survey) 3.08 2.16
1.3.14 Relocation threats of R&D facilities (Survey) 6.18 4.81
2.4.19 Immigration laws (Survey) 5.77 4.54
1.3.02 Direct investment flows abroad (%) 1.29 1.02
2.5.04 Ris of political instability (Survey) 3.18 2.59
1.2.13 Eports of commercial services (%) 9.84 8.03
4.4.26 Climate change (Survey) 5.93 4.93
3.2.10 Employee training (Survey) 8.12 6.92
4.4.10 Human development index 0.7 0.6
3.2.20 Brain drain (Survey) 3.1 2.7
3.3.17 Venture capital (Survey) 2.6 2.2
2.4.08 Government subsidies (%) 11.6 13.1
3.1.10 Small and medium-size enterprises (Survey) 3.1 2.7
4.3.18 Scientific research (Survey) 2.4 2.1
3.4.06 Customer satisfaction (Survey) 6.0 5.3
2.4.04 Public sector contracts (Survey) 6.1 5.4
4.2.20 Technological regulation (Survey) 4.3 3.8
4.3.23 Innovative capacity (Survey) 4.8 4.3
COMPETITIVENESS EVOLUTION
IMPROVEMENTS
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MONGOLIA`S COMPETITIVENESS:
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In competitiveness theory, it is important to capitalize on the strongest competitive advantages that the
country possesses. Therefore, it is important for Mongolia to identi fy 20 strongest criteria that is those with high-
est standardized values (STD values).
* STD Values = [(economy`s value) - (average of 14 economies)] / standard deviation
Number NameEconomy`sValue
Economy`sRank
Average
Value
1.3.06DIRECT INVESTMENT FLOWS INWARD (%)Percentage of GDP
27.88 1 4.75
4.5.01TOTAL PUBLIC ExPENDITURE ON EDUCATIONPercentage of GDP
7.1 3 4.7
3.2.03REMUNERATION IN SERVICES PROFESSIONS ($)Gross annual income including supplements such as bonuses, US$
- 1 -
4.2.01
INVESTMENT IN TELECOMMUNICATIONS (%)
Percentage of GDP 1.58 2 0.81
2.3.07ExCHANGE RATE STABILITYParity change from national currency to SDR, 2010/2008
0.009 2 0.100
4.2.11FIxED BROADBAND TARIFFSMonthly fee (residential), US$
8.46 2 23.86
3.2.01COMPENSATION LEVELS ($)Total hourly compensation for manufacturing worers (wages + supplementary benefits), US$
1.39 1 6.53
4.2.05MOBILE TELEPHONE COSTS
Mobile cellular tariffs - US$ per minute local call, off-net (pea)0.09 2 0.25
2.4.20REDUNDANCY COSTSNumber of weeks of salary
4.3 3 12.2
4.2.03 FIxED TELEPHONE TARIFFSUS$ per 3 minutes local call (pea) 0.01 1 0.12
1.2.23TOURISM RECEIPTS (%)International tourism receipts as a percentage of GDP
5.41 4 3.18
3.2.15FEMALE LABOR FORCE (%)Percentage of total labor force
47.11 3 41.74
1.3.08DIRECT INVESTMENT STOCkS INWARD (%)Percentage of GDP
66.95 4 55.95
3.2.19(Survey)
ATTRACTING AND RETAINING TALENTS
Attracting and retaining talents is a priority in companies8.13 2 6.26
3.2.10(Survey)
EMPLOYEE TRAININGEmployee training is a high priority in companies
6.92 2 5.65
2.5.03(Survey)
AGEING OF SOCIETYAgeing of society is not a burden for economic development
6.08 6 4.57
2.5.05(Survey)
SOCIAL COHESION
Social cohesion is a priority for the government6.91 7 5.74
3.5.04(Survey)
FLExIBILITY AND ADAPTABILITYFlexibility and adaptability of people are high when faced with new challenges
6.62 7 6.28
4.2.07(Survey)
CONNECTIVITYConnectivity of people and firms (telecom, IT, etc.) is highly etensive
7.63 8 7.27
4.4.26(Survey)
CLIMATE CHANGE
Climate change is being sufficiently addressed by the government 4.93 7 4.54
20 STRONGEST CRITERIA
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MONGOLIA`S COMPETITIVENESS:
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Besides capitalizing on strengths, it is interesting to underline how the improvement of weaknesses could
impact the overall raning of Mongolia. Forty Weaest Criteria and “What If?” Simulation identify the 40 weaest
criteria overall, by selecting those with the lowest STD values. The Simulation shows that Mongolia`s overall
ranking would increase from 15th position to 11th if its 40 weakest criteria values were replaced by the average
values of the 14 selected economies.
Competitiveness Simulations help policy makers focus on and prioritize the key competitiveness issues
facing the economy.
Simulated Ranking Changes 15 11
Number NameEconomy`sValue
Economy`sRank
Average
Value
2.4.08 GOVERNMENT SUBSIDIES (%)To private and public companies as a percentage of GDP
13.11 13 2.61
3.3.04 INVESTMENT RISkEuromoney country ris overall (scale from 0-100)
36.01 15 68.96
4.5.03PUPIL-TEACHER RATIO (PRIMARY EDUCATION)Ratio of students to teaching staff
31.15 15 18.74
1.2.02 CURRENT ACCOUNT BALANCE (%)Percentage of GDP
-15.34 15 3.97
3.2.17(Survey)
SKILEED LABOR
Skilled labor is not readily available2.40 15 5.58
1.5.01CONSUMER PRICE INFLATIONAverage annual rate
10.1 15 3.2
4.4.10HUMAN DEVELOPMENT INDExCombines economic - social - educational indicators / Source: Human Development Report
0.62 15 0.77
1.1.21GDP (PPP) PER CAPITAEstimates; US$ per capita at purchasing power parity
3,589 15 24,237
2.3.04COUNTRY CREDIT RATINGRating on a scale of 0-100 assessed by the Institutional Investor Magazine 36.4 14 68.1
4.2.13INTERNET BANDWIDTH SPEED
Per internet user (bps)0.78 15 24.50
3.2.18(Survey)
FINANCE SKILLS
Finance skills are not readily available2.64 15 6.10
4.2.14(Survey)
INFORMATION TECHNOLOGY SkILLSInformation technology skills are not readily available
5.07 15 7.25
1.1.20GDP PER CAPITA
US$ per capita2,182 15 17,641
4.4.12 ENERGY INTENSITYCommercial energy consumed for each dollar of GDP in kilojoules
31,056 14 13,044
3.1.10(Survey)
SMALL AND MEDIUM-SIZE ENTERPRISESSmall and medium-size enterprises are not efficient by international standards
2.68 15 5.15
4.2.10INTERNET USERSNumber of internet users per 1000 people / Source: Computer Industry Almanac
126 15 513
4.1.04(Survey)
ACCESS TO WATER
Access to water is not adequately ensured and managed3.12 15 7.39
4.2.15(Survey)
QUALIFIED ENGINEERSQualified engineers are not available in the labor market
4.05 15 6.39
4.1.16(Survey)
WATER TRANSPORTATION
Water transportation (harbors, canals, etc.) does not meet business requirements1.72 15 6.23
3.2.23(Survey)
COMPETENT SENIOR MANAGERS
Competent senior managers are not readily available2.43 15 5.20
40 WEAKEST CRITERIA
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Number NameEconomy`sValue
Economy`sRank
Average
Value
1.2.24(Survey)
ExCHANGE RATESExchange rates hinder the competitiveness of enterprises
2.99 15 5.48
3.1.11(Survey)
PRODUCTIVITY OF COMPANIESProductivity of companies is not supported by global strategies (supplies, offshoring,outsourcing)
2.89 15 5.71
4.5.04 PUPIL-TEACHER RATIO (SECONDARY EDUCATION)Ratio of students to teaching staff 20.80 13 14.40
3.1.04 LABOR PRODUCTIVITY (PPP)Estimates: GDP (PPP) per person employed per hour, US$
4.99 15 21.70
1.3.01 DIRECT INVESTMENT FLOWS ABROAD ($BN)US$ billions
0.06 15 9.76
4.1.05(Survey)
ACCESS TO COMMODITIES Access to commodities (basic resources, food, etc.) is not adequately addressed
4.40 15 7.53
3.2.12LABOR FORCE (%)Percentage of population
41.24 14 52.12
4.4.24POLLUTION PROBLEMSPollution problems do seriously affect your economy
2.81 15 5.10
4.4.11(Survey)
HEALTH PROBLEMS
Health problems (sicnesses, AIDS, alcohol, drug abuse, etc.) do have a significant impact on
companies
3.19 15 5.84
1.4.02EMPLOYMENT (%)Percentage of population
37.18 15 49.21
3.1.01OVERALL PRODUCTIVITY (PPP)Estimates: GDP (PPP) per person employed, US$
9,653 15 45,725
4.1.19(Survey)
FUTURE ENERGY SUPPLYFuture energy supply is not adequately ensured
2.69 15 5.54
4.4.05LIFE ExPECTANCY AT BIRTHAverage estimate
68.0 12 74.1
4.1.18(Survey)
ENERGY INFRASTRUCTUREEnergy infrastructure is not adequate and efficient
2.85 15 6.12
3.3.11STOCk MARkET CAPITALIZATION (%)Percentage of GDP
10.20 14 67.51
3.4.06(Survey)
CUSTOMER SATISFACTIONCustomer satisfaction is not emphasized in companies
5.31 15 6.90
1.4.06UNEMPLOYMENT RATEPercentage of labor force
9.90 13 5.74
4.2.04MOBILE TELEPHONE SUBSCRIBERSNumber of subscribers per 1000 inhabitants
842 14 1,161
4.2.12BROADBAND SUBSCRIBERS Number of subscribers per 1000 inhabitants
13.43 15 116.43
4.2.23(Survey)
CYBER SECURITYCyber security is not being adequately addressed by corporations
2.77 15 5.36
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MONGOLIA`S COMPETITIVENESS:
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Mongolia is now one of the fastest grow-ing economies in the world. Indeed, in 2011 the
country experienced GDP growth of 17.3 percent.
The mining sector is however the only engine of
Mongolia`s growth and constitutes 30 percent of
GDP, 90 percent of exports, and 80 percent of
foreign direct investments (FDI). One day, Mon-
golia’s reserves of gold, copper, coal and other
minerals will be depleted. In order for the nation
to prosper in the future, alternative sources of
economic growth must be utilized.
While Mongolia is placing all of its efforts into
HUMAN DEVELOPMENT
FROM NATURAL POWER TO BRAIN POWER
The “What If?” Simulations` results show how much, if at all, the country`s competitiveness would
be enhanced if policies were focused on improving the particular competitiveness issues measuredby these criteria. By looking at the 40 weakest criteria, the three main issues of human development,
labor market and energy sector can be highlighted. In other words, if we can overpass these three chal-
lenges, Mongolian competitiveness would be improved considerably. Therefore, in order to address
the importance of these issues, the EPCRC provides features and talks to officials to cover how policy
makers are focused on solving the particular problems.
THREE COMPETITIVENESS CHALLENGESFACING THE ECONOMY
the mining sector with fears that commodity pricescould drop tomorrow, some resource-poor coun-
tries such as Singapore are capitalizing by means
of technical innovations. For example, high-tech
and cutting-edge products accumulate 49 percent
of Singapore`s total eports. As for Mongolia, in
2009 export of products with high-tech content
fell to 0.8 percent from 7.51 percent in 2008. In-
deed this country is exporting low-priced natural
resources and importing high-value finished prod-
ucts.
Since the end of 1980’s OECD member coun-
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MONGOLIA`S COMPETITIVENESS:
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tries have experienced acceleration in economic
growth thanks to production and management of
knowledge in the frame of economic constraints.
In last two decades not only members of OECD ,
but also developing countries such as Malaysia,
Singapore, South Korea have successfully shifted
into the knowledge based economy.
“Competitiveness is shifting today from tan-
gibles to intangibles, from tons of goods to bytes
of information. Competitiveness is entering the
nowledge economy” pointed out Stephane
Garelli, Professor at IMD and Director of the
World Competitiveness Center.
Knowledge today is recognized as the driver
of productivity and economic prosperity. Since
other countries started investing in knowledge,
rather than in mineral wealth, Mongolia should
seek to develop intellectual resources by invest-
ing in human development.
According to the United Nations Development
Program’s Human Development Report for 2010,
korea had a human development inde (HDI) of
0.88, Singapore 0.85, and Mongolia 0.62; rank-
ing Mongolia last. HDI measures the average
achievements of a country in three basic dimen-
sions of human development: length and quality
of life, level of education, and combined primary,
secondary, and tertiary gross enrolment ratio. Inthe following section, the framework for effective
development of human capital shall be examined
in full.
For the past two decades the technological
revolution, specifically the advent of computers,
telecommunications, and Internet, has had a pro-
found impact on the competitiveness of nations.
Therefore, today’s infrastructure cannot only be
considered in the traditional terms of roads, trains,
and airports. Technological, scientific, health, en-
vironmental, and educational infrastructures are
becoming ey assets for a nation`s development.
In order to improve human development this na-
tion must pay attention to the fore-mentioned soft
infrastructures. As of today, Mongolia ranks in
15th position for Scientific and Technological In-
frastructures.
Though science and technology are very im-
portant for national growth, health and education
are equally important areas of focus for further de-
velopment. An Executive Opinion Survey showsthat the health problems in Mongolia do have a
HUMAN DEVELOPMENT INDEX
Health and Environment 4.4.10
2010
Combines economic - social - educational indicators/ Source: Human
Development Report
KOREA
SINGAPORE
SLOVENIA
SLOVAK REPUBLIC
QATAR
CHILE
MEXICO
MALAYSIA
BULGARIA
PERU
RUSSIA
KAZAKHSTAN
UKRAINE
THAILAND
MONGOLIA
indexRanking
PUPIL-TEACHER RATIO (PRIMARY
EDUCATION)2008
Education 4.5.03
Ratio of students to teaching staff
QATAR
MALAYSIA
UKRAINE
THAILAND
BULGARIA
SLOVAK REPUBLIC
KAZAKHSTAN
SLOVENIA
RUSSIA
PERU
SINGAPORE
KOREA
CHILE
MEXICO
MONGOLIA
Ranking
PUPIL-TEACHER RATIO (SECONDARY
EDUCATION)
Education
ratio
2008Ratio of students to teaching staff
RUSSIA
SLOVENIA
QATAR
KAZAKHSTAN
UKRAINE
BULGARIA
SLOVAK REPUBLIC
MALAYSIA
PERU
SINGAPORE
MEXICO
KOREA
MONGOLIA
THAILAND
CHILE
Ranking
4.5.04
ratio
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MONGOLIA`S COMPETITIVENESS:WHERE ARE WE HEADING? July 2012
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significant impact on companies, additionally, the
average life expectancy in Singapore is 81 and in
Mongolia, only 68. It is hard to talk about human
development when a country’s citizens are not
“sound mind in and in body.”
Considering education systems is a more
complicated matter. As of 2009 Mongolia has
spent about 7.1 percent of its GDP on education.
This is a relatively high figure compared with Rus-
sia, 4.7 percent, and Singapore, 3.3 percent. Only
Malaysia and Uraine outran Mongolia with 7.2
percent of their GDP being spent on education. At
first sight Mongolia appears to invest quite a large
part of its capital in education, but further exami-
nation reveals the truth. If the total public expen-
diture on education is considered on per capita
level, it amounts to USD 110 , which is a very low
number compared to other countries. Qatar is in
the lead with the USD 2,389, followed by Slovenia
with USD 1,394 and Singapore with USD 1,197.
“Primary and secondary schooling are ey to
the future” wrote Stephane Garelli. So it is impor-
tant to know how effective the basic education
system which should create “competitive” citizens
in the future is. By 2008, the average Mongolian
primary school teacher had about 31 students;
meanwhile in Qatar and Malaysia they had only
12 and 14, respectively. The average student toteachers at primary schools in the 14 selected for-
eign countries was 18 and only 14 for secondary
school teachers. This data suggests that Mongo-
lian teachers are in charge of significantly more
students compared to the global standards.
To conclude, it is difficult to say that the coun-
try is developing when population is unable to live
healthily and access education, even with high
economic growth. While Mongolia is struggling to
determine how to build railroads to mining sites,
so that mining companies can transport minerals,
competitor nations are achieving their economic
units with human resources and investing in their
education.
Though the mining sector`s hyper growth is
inevitable for Mongolia in a short term, if Mongolia
does not invest part of its mining revenues in de-
velopment of human capital, all evidence of such
growth may eventually disappear.
do have a significant
impact on companiesdo not have a significant
impact on companies
HEALTH PROBLEMS
2011
Health and Environment 4.4.11
Health problems (sicknesses, AIDS, alcohol, drug abuse, etc.)
SINGAPORE
MALAYSIA
SLOVAK REPUBLIC
CHILE
THAILAND
KOREA
QATAR
SLOVENIA
BULGARIA
MEXICO
UKRAINE
PERU
KAZAKHSTAN
RUSSIA
MONGOLIA
Ranking
LIFE EXPECTANCY AT BIRTH
2008
Health and Environment 4.4.05
Average estimate
SINGAPORE
KOREA
SLOVENIA
CHILE
MEXICO
PERU
QATAR
SLOVAK REPUBLIC
BULGARIA
MALAYSIA
THAILAND
MONGOLIA
RUSSIA
UKRAINEKAZAKHSTAN
Ranking age
HIGH-TECH EXPORTS (%)
2009
Technological Infrastructure 4.2.22
Percentage of manufactured exports
SINGAPOREMALAYSIA
KOREA
KAZAKHSTAN
THAILAND
MEXICO
RUSSIA
BULGARIA
SLOVENIA
SLOVAC REPUBLIC
CHILE
UKRAINE
PERU
MONGOLIA
QATAR
%Ranking
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The EPCRC talks to B.Ganbat, Director of Depart-
ment of Innovation Policy of the National Developmentand Innovation Committee (NDIC).
-What should we do in order to shift to a knowl-
edge based economy?
-I think it starts with interpreting correctly what a
knowledge based economy is. It can be defined as
creating national wealth by producing goods and ser-
vices based on new knowledge and technologies.
Questions lie: “Does Mongolia has the poten-
tial to shift into a knowledge based economy? What
should be done firsthand in order to achieve this?” are
open to us today. For instance, if no new economically
valuable knowledge is found by science, shifting to a
knowledge based economy cannot be done. However,
new knowledge and technologies are mostly being im-
ported to Mongolia directly via foreign investments.
Moreover, in today`s time where the mining sector is
prevailing it may even threaten the national security in
the long run. Therefore, Mongolia must also become
a country which develops not only mining enrichment
but also agriculture and high technology sectors. In
order to do that, we need to develop and follow amodel suitable for the specific features of Mongolia
and come up with the right strategy to implement the
model in practice. Then develop an educational pol icy
that supports all of the above.
Science and educational sectors are considered to
be the knowledge sector of the country. Since wheth-
er a country can develop depends on the knowledge
sector, educational and scientific institutions need to
be reliable nowledge sources. Unfortunately, our
educational and scientific sectors have had very little
innovation in this regard. Even though Mongolia has
many people who have attained a tertiary education,
what we need today is not merely quantity, but alsoquality. Specifically, we need to pay attention to pre-
paring engineering, technology, and natural sciences
professionals. Today, almost 90 percent of all higher
education institution graduates are humanities and
social science majors.
-Since the adoption of the Law on Science and
Technology in 2006, the state budget allocation
to this sector has been increasing. Has this trend
been fruitful?
-Since 2007, investment the science sector
has been continuously growing and this year it has
reached MNT 20 billion, but it is still not enough. Even
though the Law on Science and Technology specifi-
cally states that the state budget allocation for sci-
ence and technology sector must be 1.5 percent of
the country`s GDP, this is merely a statement and has
not been verified in real life. For instance, the MNT 20
billion allocated for 2012 is a mere 0.17 percent. If the
allocated budget is lower than 0.2 percent, it is usually
considered by scientists that the science and technol-
ogy sectors of the country are no more than a symbol.
The number has to be at least 0.6 percent in order to
anticipate first stage results, and if it reaches 1 per-
cent, then results suitable for the country’s economic
condition can be expected. Countries which have de-
veloped knowledge based economy have raised this
number to 4 percent.
In order to understand the results of our tech-
nological sectors, we need to pay attention to some
specific aspects of nowledge sector. Usually, tech-
nological research starts with funding being granted
and ends with a prototype being developed. The pat-
WE CAN DO IT IN THE COMING TWO DECADES
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ent is obtained and a final report is provided to who-
ever paid for the research. Academic research, on the
other hand, is evaluated based on whether the study
is published in a high-impact professional journal and
the number of quotation of the article. In Mongolia,
the number of patents granted per year range from
120-160 and most of them are registered at the Intel-
lectual Property Office of Mongolia; there is no pat-
ent registered at the international level for commercial
purposes. New products used through license agree-
ment in an economically beneficial manner are almost
nonexistent. As for academic research, very little has
been published in acclaimed professional journals
most of it is research in Mongolian studies, religion,
history, language, culture, paleontology, archeology,
and the like. Based on this, one can easily conclude
that the science and technology sectors` contributionto the country`s development is unsatisfactory.
-What is the reason behind it?
-First of all, one of the primary reasons for the
not so fruitful outcome of our science and technology
organizations is that the scientists and researchers`
salaries are very low. Secondly, laboratories and their
working conditions are unsatisfactory. Thirdly, the
methods of operation and cooperation of our scien-
tific institutions with other sectors within society are
backwards.
Moreover, all science and technology sector ac-
tivities are funded solely by the state budget. On the
other hand, in the U.S. and other industrialized coun-
tries, 70 percent or more of these kinds of research
are financed by the private sector. The reason why
the private sector of Mongolia does not approach sci-
entific research institutions is that the two sectors do
not have a history of cooperation or a trust in each
other. Additionally, scientific institutions` research
only goes as far as the laboratory level, not bridging
the gap between laboratory and practical utilization.In this regard, a lot needs to be accomplished; more
investments and new forms of cooperation with indus-
tries have to emerge.
-Will the situation get better as the government
has approved the Law on Innovation?
-For a long time, Mongolia has been lacking the
legal environment to support the development of new
kinds of production processes and industries based
on creating and utilizing economically beneficial
knowledge. In order to create exactly that kind of en-
vironment, we have worked on drafting the Law on In-
novation for 2 years and the Parliament has approved
this law on May 22nd 2012. By approving this law, the
above-mentioned investment issues, or lack thereof,
can be solved by establishing venture capital and in-
novation funds to create investment mechanisms that
promote innovation. Furthermore, the legal environ-
ment for developing the infrastructure of innovation
shall be created so that science parks, incubators,
and technology transfer centers shall be able to oper-
ate.
-You mentioned that the salary of scientists
and researchers is low and their working condi-
tions are poor. What needs to be done in order
to encourage them to improve their effectiveness
and to develop economically beneficial intellec-
tual property?
-This law states that unless the funding agree-ment specifies otherwise, results of research devel-
oped with state funding, such as technology and prod-
uct patents, is owned by the researcher so that he/she
can use it in practice and production. By doing so, the
researcher has the opportunity to establish a start-up
company and sell his product in the market and take
the profit for himself. This in turn would encourage re-
searchers to do more studies. The U.S. Bayh-Dole Act
of 1980 started the second academic revolution. Many
researchers and scientists published their works and
used them in the market. It was an academic boom.
So, the Bayh-Dole Mongolia is about to emerge.
-Many doubt that Mongolians will be able to
sell computer chips produced at home in the inter-
national market. Can Mongolia really develop high
technology?
-I am 100 percent confident in that possibility. If
Mongolia wants to survive in the 21st century world as
a competitive nation, there is no other way but to do it.
Capital and labor intensive industries are not suitable
for a scarcely populated country like Mongolia. De-veloping only those sectors is a bit on the backwards
side. For instance, by only developing the mining sec-
tor, we cannot compete with other countries. Coun-
tries such as Israel, Singapore, Norway, South Korea
and Finland are some of the countries which showed
that developing knowledge based industries can pro-
vide a country with sufficient benefits to sustain its na-
tional security, increase its level of competitiveness,
and globalize in 20 short years. I believe we can also
do the same in the coming two decades.
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LABOR MARKET
THE LABOR MARKET PARADOX
EMPLOYMENT (%)
Employment 1.4.02
2010
Percentage of population
Ranking %
QATAR
SINGAPORE
THAILAND
PERU
KAZAKHSTAN
RUSSIA
KOREA
SLOVENIA
UKRAINE
SLOVAK REPUBLIC
CHILE
MEXICO
BULGARIA
MALAYSIA
MONGOLIA
UNEMPLOYMENT RATE
Employment 1.4.06
2010
Percentage of labor force
%
QATAR
THAILAND
SINGAPORE
MALAYSIA
PERU
KOREA
MEXICO
KAZAKHSTAN
SLOVENIA
RUSSIA
CHILE
UKRAINE
MONGOLIA
BULGARIASLOVAK REPUBLIC
Ranking
The World Ban reports that Mongolia’s for -
eign direct investment reached USD 5.3 billion
in 2011 (almost 62 percent of GDP). Such an
amount has never been seen before by Mongo-
lians, with 85 percent of it going solely into the
mining sector. As world mining giants like Rio
Tinto, Vale, and Peabody Energy are operating
in this country, Mongolia ought to obtain not just
financial investments but also skills and knowl-
edge from these long-standing companies. In
other words, foreign investments should also be
used to ensure the transfer of skills to the local
workforce. However, the situation is reversed;
foreign mining companies are taking the best
worers out of other sectors’ human capital. This
in turn is causing shortages of capable labor
within domestic companies and as a result their
competitiveness is decreasing.
The Executive Opinion Survey included in
the Competitiveness report shows that Mongolia
is already facing a human resources shortage.
The private sector has expressed that not only
are capable workers with IT and finance skills
not readily available but also the process of find-
ing and hiring qualified engineers and competent
senior managers is difficult to accomplish. The
non-stop advertisements for hiring employees
in television channels, newspapers, and radio
programs reveal that a high demand for labor is
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FINANCE SKILLS2011
Labor Market - Availability of Skills 3.2.18
Finance skills
CHILE
MALAYSIA
SINGAPORE
RUSSIA
KAZAKHSTAN
THAILAND
QATAR
SLOVAK REPUBLIC
MEXICO
KOREA
SLOVENIA
UKRAINE
PERU
BULGARIA
MONGOLIA
Ranking
are not readily available are readily available
INFORMATION TECHNOLOGY SKILLS2011
Technological Infrastructure 4.2.14
Information technology skills
SINGAPORE
MALAYSIA
SLOVAK REPUBLIC
RUSSIA
QATAR
CHILE
KOREA
BULGARIA
SLOVENIA
UKRAINE
KAZAKHSTAN
MEXICO
THAILAND
PERU
MONGOLIA
Ranking
are not readily available are readily available
HIGHER EDUCATION ACHIEVEMENT (%)
2008
Education 4.5.06
Percentage of population that has attained at least tertiary education for
persons 25-34
SINGAPORE
KOREAKAZAKHSTAN
PERU
CHILE
MONGOLIA
SLOVENIA
BULGARIA
RUSSIA
QATAR
MALAYSIA
MEXICO
SLOVAK REPUBLIC
THAILAND
UKRAINE
Ranking %
present. Demand aside, the supply side of this
issue can also shed some light onto th is problem.
Mongolia stands 6th among our 15 compa-
rable countries in terms of the number of people
between the ages 25-34 who have a higher ed-
ucation degree. While only 25 percent of young
adults in Russia have attained tertiary education,
that number reaches 32.7 percent in Mongolia.
It’s surprising to see that there is a good supply of
human resources but the private sector is still fac-
ing skill and labor shortages. Employers explain
this trend by the fact that higher education institu-
tions do not create the capable workers that are
needed. Thus, every year over twenty thousand
college graduates enter the unemployed stratum.
As of 2011, among the 35,847 college gradu-
ates of that year, only 12,975 found jobs and theremaining 64 percent were left behind. As new
graduates have inadequate sills for effective ad-
aptation into the labor maret, a “silent war” for
experienced and skilled employees has started.
Even though private colleges are criticized
for producing “the unemployed with diplomas” by
being socially irresponsible business in the edu-
cational sector, they are not the main reason be-
hind the problem. As of today, 101 colleges and
universities are educating 172,798 students, but
most of them (104,101) are attending the 15 state
universities. If the state budget allocation to edu-
cation is increasing every year, why is the quality
of the “products” of universities not improving?
“Only 6.8 percent of our university funding
comes from the state and the remaining comes
from the students’ tuition, but 70 percent of it goes
out to teachers as salary. So there’s no room for
improving the study environment or the facilities”
says S. Tumur-Ochir, Director of the National
University of Mongolia at the 2011 Mongolia Eco-nomic Forum. It’s time to study whether the pur-
pose of the state funding is being met and to take
a good look at the structure of higher education to
preference quality over quantity when it comes to
educating. There is a need to adopt the practice
of having business sector representatives on the
governing boards of higher education institutions
in order to provide direct input about what skills
and abilities businesses need from university
graduates. Chile has successfully implemented
such a policy.
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SKILLED LABOR2011
Labor Market - Availability of Skills 3.2.17
Skilled labor
MALAYSIA
SINGAPORE
THAILAND
SLOVAK REPUBLIC
RUSSIA
MEXICO
QATAR
KAZAKHSTAN
SLOVENIA
CHILE
UKRAINE
KOREA
PERU
BULGARIA
MONGOLIA
Ranking
is not readily available is readily available
LABOR FORCE (%)
2010
Labor Market - Availability of Skills 3.2.12
Percentage of population
QATAR
SINGAPORE
THAILAND
PERU
RUSSIA
KAZAKHSTAN
SLOVENIA
KOREA
SLOVAK REPUBLIC
UKRAINE
CHILE
BULGARIA
MEXICO
MONGOLIAMALAYSIA
Ranking
%
QUALIFIED ENGINEERS2011
Technological Infrastructure 4.2.15
Qualified engineers
CHILE
SINGAPORE
MALAYSIA
SLOVAK REPUBLIC
QATAR
THAILAND
MEXICO
KOREA
PERU
RUSSIA
SLOVENIA
KAZAKHSTAN
UKRAINE
BULGARIA
MONGOLIA
Ranking
are not available in
the labor marketare available in the
labor market
On the other hand, as the economy grows
the shortage of skilled workers is becoming the
most difficult issue. While 70 percent of college
students are studying in universities and only 30
percent of them are attending vocational educa-
tion and trainings, when it comes to finding a job,there is a clear need for the opposite. Thus, peo-
ple with college degrees are reluctant to work in
construction or as miners yet they do not have the
qualifications to wor in the fields of their interest.
As of today, even though the Law on Voca-
tional Education and Training was approved in
2010 and the system of supplying skilled labor to
employers has been created, it has been difficult
to keep up with the market demand. Oyu Tolgoi,
Tavan Tolgoi, as well as other huge mining proj-
ects and big infrastructure projects such as the
government implemented New Development pro-
gram, need even more skilled workers. However,
according to the World Bank report, skilled work-
ers compose only 20 percent of the workforce of
the country and most of them are already drawn
into the mining sector.
Due to the shortages of skilled workers, it
is essential for construction and mining compa-
nies to obtain workers from abroad. According
to kh.Ganbaatar, Vice President at Mongolian
Employers` Federation, in 2011 or in Employ-
ment Support year, the private sector created
over 72 thousand new jobs for Mongolians and
60 thousand for foreigners. And this year over 50
thousand Chinese worers are epected to “be
imported” while the number of unemployed reg-
istered with the Labor & Social Welfare Service
increased by 51.6 percent to 58,400, according to
the NSO (National Statistical Office).
While businesses are failing to find enough
skilled laborers and capable personnel andhave no other option than to import workers
from abroad, Mongolia’s unemployment rate has
reached almost 10 percent. Human capital is the
most valuable asset in any organization and the
development of a country depends on the citi-
zens’ employment and related capabilities. Thus
the labor market must receive special attention.
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The EPCRC tals to kh.Ganbaatar, Vice Presi-
dent at Mongolian Employers` Federation (MonEF)
and Vice-Chairman of National Employment Commit-
tee.
-What were the achievements of Employment
Support Year?
-The labor market in Mongolia is just becoming
formed. It seems that over past 20 years we have
been busy changing policy in the fields of politics and
economics and have not have time to pay attention
to the more important human development consid-
erations and labor markets. But recently the govern-ment has created a new legal environment for creat-
ing new jobs and supporting employment. Legal and
policy reform could be inferred from the 2010 Law on
Vocational Education and Training and the 2011 Law
on Employment Promotion. Renovation of the legal
environment regarding employment and labor was the
most important achievement of the 2011 Employment
Support Year, more than just creating new jobs. In
general, as a result of 2011, 73,000 Mongolians were
able to secure long-term jobs. Additionally, 2012 was
announced as the Year of Supporting Citizen`s Par -
ticipation and Family Development, which also aims
at reducing poverty and unemployment by invent-
ing new structures of financing such as low interest
rate loans for small and medium enterprises, changes
that are the contributors to job creation. Generally
due to the economic growth, the employment rate will
increase and MonEF reach data shows that by 2016
there will be about 160,000 new jobs created.
-Mining and construction sectors are growing
at a furious pace, prompting employers to com-plain that the deficit of skilled workers is becom-
ing the most difficult issue...
-As the above mentioned Law on Vocational Edu-
cation and Training’s framewor suggests, the gov-
ernment is collaborating with Millennium Challenge
Account, Asian Development Bank, and other donors.
Roles and responsibilities of educational organiza-
tions and employers are now clear; cooperation with
each other is absolutely needed. Employers have full
rights to cooperate with vocational education orga-
nizations and observe the education process, give
hands-on opportunities to the students, and examine
their post-graduation abilities. Within this frameworkwas established the public and private sector partner-
ship, the National Advisory Board for Vocational Edu-
cation and Training, in addition to other regional and
local boards.
The government aims at ensuring that skilled la-
borers possess the relevant training to meet the de-
mand of employers and though they will be spending
money from the national budget, donors will have to
help as well. Therefore, employers should put 0.5-1.5
percent of their wage-fund into the Vocational Educa-
tion and Training Fund in order to prepare their em-
ployees with the skill sets they need. If an employer
does not do so, it is a shame. For instance, Oyu Tolgoi
is investing about MNT 30 billion in training and edu-
cation as well as upgrading two educational centers to
prepare the 3000 workers they need. I just want to say
that employers, like Oyu Tolgoi, must pay attention on
education in order to get their desired workers.
-Only 36 percent of 36,000 graduated students
in 2011 were able to find jobs. On the other hand,
employers cannot find component staffs as theyneed and often criticize that colleges and univer-
EMPLOYERS SHOULD BLAME THEMSELVES,NOT THE GOVERNMENT
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sities are pursuing quantity over quality. What
do you think about the increase in public expen-
ditures on higher education, which has not given
significant improvement in the skills of students?
-The private sector is always for increasing pub-
lic expenditure on education. However those invest-
ments should be spent towards a demand driven edu-
cational system. As of today, most Mongolians do not
understand that people should choose their career
according to the market demand. That could be one
reason of the low employment rate among graduates.
On the other hand, universities enlist as many stu-
dents as possible in order to make a profit. If we look
at the educational system as a pyramid, the bottom
part of the pyramid must consist of a large quantity
of skilled workers and as you go higher the number
of higher educated professionals such as economists,
lawyers, and doctors should decrease. As of today,
this pyramid`s top is pointed downwards in Mongolia.
Therefore, we made a proposal to the Ministry of
Education, Culture and Science about inventing new
recipient rules based up on labor market demand. For
example, we need to do a study on how many accoun-
tants or construction engineers will be needed tomor-
row, and then we should train them. The Minister gave
a positive reaction on that and promised to review the
new law on Higher Education. Moreover, there is a
need to revamp higher education curriculum in orderto ensure that students possess the relevant skills to
meet the demand of employers and align our educa-
tion with international standards.
-Human resources have become a constant
challenge for domestic companies as the high sal-
aries of mining companies have lured away many
of their competent staffs. What should we do in
order to prevent “brain drain” caused by mining?
-There should be a Mongolian national salary
policy and within this framework three stakeholders,
the government, trade union and employers, should
discuss and agree on each sector`s standard salary.
No matter where the personnel work: public, private,
or a company with foreign capital; there must not be a
big salary gap. For example, if an electric engineer in
foreign-owned company gets a salary of MNT 1.5 mil-
lion, in order to keep engineers at state owned CHP 4
they should give a competitive salary. Of course there
should not be a too strong regulation and bonuses
should be able to vary.
I
Create a stable and predictable legislative and
administrative environment.
II
Ensure speed, transparency and accountability
in the administration, as well as the ease of doing
business.
III
Invest continually in developing and maintain-
ing infrastructure both economic (road, air, tele-
com, etc.) and social (health, education, pension,
etc.).
IV
Strengthen the middle class: a key source of
prosperity and long-term stability.
V
Develop privately-owned medium-sized enter-
prises: a key element of diversity in an economy.
VI
Maintain a balanced relationship between
wage levels, productivity and taxation.
VII
Develop a local market by promoting private
savings and domestic investments.
VIII
Balance aggressiveness on international mar-
kets with attractiveness for added-value activities.
IX
Counterweight the advantages of globalization
with the imperatives of proximity to preserve social
cohesion and value systems.
X
Always return the tangible signs of success-
ful competitiveness to the people by providing a
higher level of prosperity for all.
ANNEX 2. THE GOLDEN RULES OFCOMPETITIVENESS
Source: IMD
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ENERGY
ON THE WAY TOWARDS AN ENERGYPARADISE
Many believe that Mongolia`s vast coal deposits
and large untapped wind, solar, and water energy
resources will transform the country into an “Energy
Paradise.” However, the research paper titled “Base-
line Paper for Low Carbon FDI into the Electricity
Sector of Mongolia” conducted by EPCRC and co-organized with Mongolia Economic Forum`s sub-
session “Coal or Wind?” shows that more needs to
be done in order to a achieve such high expecta-
tions.
Mongolia is now experiencing rapid economic
growth, which has resulted in a dramatic increase
in energy consumption. The economy is expected to
grow even faster as Oyu Tolgoi and Tavan Tolgoi
become operational and ambitious projects such as
The New Development Program (including 100,000
Household Housing) starts. However, etensive min-
ing production and large scale reconstruction will not
happen without meeting the resulting energy needs.
As of today, the country’s pea in energy de-
mands have been met thanks to imports from Rus-
sia, as well as China provinding power to a number
of mining companies operating in Gobi region. How-
ever, the imports have been problematic due to the
fact that Mongolia’s neighbors are not able to give
guaranteed supplies at reasonable prices.
For example the power plant at Oyu Tolgoiis scheduled to be built by 2017, until then power
must be imported from China to conduct the proj-
ect. However, Ivanhoe Mines announced that if talks
of importing energy fall through, the company may
have to build a temporary power plant which would
undoubtedly delay commercial production. Though
China eventually agreed to supply, this exampledemonstrates how Mongolia is becoming more de-
pendent on energy imports, especially for mining.
Mongolian energy consumption is estimated to
increase approximately by 1500-3000 MW by 2015-
2030, in comparison to the current 857 MW total ca-
pacity of country`s thermal power plants. Moreover
due to age, deterioration, and unreliability of the
equipment, the actual available power capacity may
be significantly lower.
The Executive Opinion Survey shows that busi-
ness owners do not believe that future energy supply
is adequately ensured and are afraid of potential en-
ergy shortages. According to the Mongolia in World
Competitiveness Report, Mongolia ranks at the 15th
position out of the 15 comparable countries in terms
of energy infrastructure and future energy supply.
It is clear that the country needs to increase en-
ergy supply by creating new capacity. Therefore,
a long-awaited CHP-5 is to be built on site of CHP
3 in Ulaanbaatar. The construction of first section,
which will have 450 MW electricity and 587 MWthermal capacity, is expected to be completed by
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ENERGY INTENSITY
2007
Health and Environment 4.4.12
Commercial energy consumed for each dollar of GDP in kilojoules
SINGAPORE
PERU
SLOVENIA
CHILE
KOREA
MEXICO
SLOVAK REPUBLIC
QATAR
THAILAND
BULGARIA
MALAYSIA
RUSSIA
KAZAKHSTAN
MONGOLIA
UKRAINE
Ranking kilojoules
FUTURE ENERGY SUPPLY
Basic Infrastructure 4.1.19
2011Future energy supply
is not adequately ensured is adequately ensured
SINGAPORE
MALAYSIA
SLOVAK REPUBLIC
THAILAND
KAZAKHSTAN
KOREA
SLOVENIA
PERU
QATAR
RUSSIA
BULGARIA
CHILE
MEXICO
UKRAINE
MONGOLIA
Ranking
ENERGY INFRASTRUCTURE
Basic Infrastructure 4.1.18
2011Energy infrastructure
is not adequate and efficient is adequate and efficient
SINGAPORE
QATAR
MALAYSIA
SLOVAK REPUBLIC
KOREA
THAILAND
SLOVENIA
CHILE
KAZAKHSTAN
PERU
MEXICO
RUSSIA
BULGARIA
UKRAINE
MONGOLIA
Ranking
2015. Moreover, in order to meet this growing de-
mand and start exporting energy, Mongolia needs
to build power plants at Tavan Tolgoi, Shivee Ovoo,
Baganuur, Aduunchuluun, Khotgor, Boorooljuut and
Chandgana coal deposits. However, there might be
an even bigger problem than energy supply.
According to the World Health Organization
(WHO), Ulaanbaatar rans as the most polluted cap-
ital in the world. If the WHO considers particulates
over 20 micrograms per cubic meter to be danger-
ous, in Ulaanbaatar that level is 14 times higher than
the limit and reached 279 micrograms. The green-
house gas produced by each person is alarming be-
cause of the aging and deteriorating coal-fired power
plants, which dispense a huge level of emissions.
Therefore, if this country wants to slow down air pol-
lution, Mongolia needs to start considering cleaningup the energy sector.
In 2005, Mongolia’s parliament approved the Na-
tional Renewable Energy Program, which aims at in-
creasing the country’s renewable energy share from
20 to 25 percent by 2020. And in 2007, a Law on
Renewable Energy was adopted. As a result, large
scale private sector activities have been initiated like
the development of the Mongolia`s first wind energy
park. Newcom Group is working to put into operation
a wind farm in Tuv aimag`s Salhit Mountain with
a capacity of 50 MW, which would supply almost
5 percent of the country’s electricity when it starts
operating in November of 2012. If Newcom Group
successfully completes its wind power plant, it shall
lead to many other projects for renewable energy.
However, experts warn that there might be more bar-
riers than opportunities for private investors. Lack of
infrastructure and uncertainty in the regulations re-
main major problems.
For example, Newcom Group has purchased
31 huge turbines from General Electric. As each
wind turbine weighs 240 tons and its basement
weighs 1000 tons, transporting them is a big prob-
lem. “Transporting huge equipments by dirt road is
etremely difficult, as the road from Zamiin Uud to
Choir is not completed yet” says B.Byambasaihan,
CEO of Newcom Group. D.Samdan, senior engineer
and an expert at MCS International said that it took
two years to transport equipment for the Uhaa khu-
dag thermal power plant.
In order to improve renewable energy sector and
introduce advanced coal technologies, foreign directinvestments are vital for Mongolia. However, the
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POLLUTION PROBLEMS
Health and Environment 4.4.24
2011
Pollution problems
SINGAPORE
MALAYSIA
CHILE
SLOVAK REPUBLIC
SLOVENIA
QATAR
THAILAND
RUSSIA
KOREA
UKRAINE
BULGARIA
KAZAKHSTAN
MEXICO
PERU
MONGOLIA
Ranking
do seriously affect the
economy
do not seriously affect the
economy
ANNEX 2. COMPETITIVENESS - A DIVERSITY OF THOUGHTS
Scholars and institutions have been very prolific in proposing their own definition of competitiveness.
This diversity is an indicator of the popularity of the subject but also of its multifaced nature.
Definitions of Competitiveness
A field of economic knowledge, which analyzes the facts and poli-
cies that shape the ability of a nation to create and maintain an envi-
ronment that sustains more value creation for its enterprises and more
prosperity for its people.
The set of institutions, policies and factors that determine the level
of productivity of a country.
Competitiveness is relative and not absolute. It depends on share-
holder and customer values, financial strength which determines the
ability to act and react within the competitive environment and the po-tential of people and technology in implementing the necessary strate-
gic changes. Competitiveness can only be sustained if an appropriate
balance is maintained between these factors which can be conflicting
nature.
A firm is competitive if it can produce products and services of
superior quality and lower costs than its domestic and international
competitors. Competitiveness is synonymous with a firm`s long-run
profit performance and its ability to compensate its employees and
provide superior returns to its owners.
Source
IMD`s World Competitiveness
Yearboo, 2003.
World Economic Forum, Global
Competitiveness Report, 2004-
2005.
Feurer, R. and K.Chaharbaghi,
“Defining Competitiveness:
A Holistic Approach,” Manage-ment Decision, 1994, Vol.32,
pg.58.
Report of the Select Committee
of the House of Lords on Over-
seas Trade, 1985
state monopoly, strong regulation, and fixed prices
scare investors. As a result, the country`s energy
sector with its power plants dating back to Soviet
times, is lagging behind global development.
As the EPCRC`s research findings suggest,
there is an urgent need to transform energy tariffs
into market principles. A more liberalized market
scheme would help prevent the high risks of oper-
ational failure of the state controlled power plants
and would create a more attractive environment for
investors. “It is vital for Mongolia to liberalize the en-
ergy sector,” said D.Zorigt, the Minister of Mineral
Resources and Energy at the Mongolia Economic
Forum. “As a result, more reliable and modern tech-
nologies would be introduced to the sector and en-
ergy supply would be ensured.”
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The immediate and future ability of, and opportunities for, entre-
preneurs to design goods worldwide whose price and non-price quali-
ties form a more attractive package than those of foreign and domestic
competitors.
National competitiveness refers to a country`s ability to create,
produce, distribute and/or service products in international trade while
earning rising returns on its resources.
Competitiveness includes both efficiency (reaching goals at the
lowest possible cost) and effectiveness (having the right goals). It is
this choice of industrial goals which is crucial. Competitiveness in-
cludes both the ends and the means towards those ends.
Competitiveness implies elements of productivity, efficiency and
profitability. But it is not an end in itself or a target. It is a powerful
means to achieve rising living standards and increasing social wel-fare - a tool for achieving targets. Globally, by increasing productivity
and efficiency in the context of international specialization, competi-
tiveness provides the basis for raising peoples` earnings in a non-
inflationary way.
Competitiveness should be seen as a basic means to raise the
standard of living, provide jobs to the unemployed and eradicate pov-
erty.
Competitiveness is the degree to which a nation can, under free
trade and fair market conditions, produce goods and services which
meet the test of international markets, while simultaneously maintain-
ing and expanding the real incomes of its citizens.
Industrial competitiveness is the ability of a company or industry to
meet challenges posed by foreign competitors.
The ability to produce goods and services that meet the test of in-
ternational markets while citizens earn a standard of living that is both
rising and sustainable over the long-run.
Supporting the ability of companies, industries regions, nations
or supra-national regions to generate, while being and remaining ex-
posed to international competition, relatively high factor income and
factor employment levels.
Competitive advantage at firm level is the ability to consistently
and profitably deliver products and services which customers are will-
ing to purchase in preference to those of competitors.
European Management Produce
and Market, 1991
Scott, B. R. and Lodge, G. C.,US Competitiveness in the World
Economy , 1985, pg.3.
Bucley, P. J. et al, “Measures of
International Competitiveness: A
Critical Survey,” Journal of Mar-
keting Management , 1988.
Competitiveness Advisory
Group, (Ciampi Group). “Enhanc-
ing European Competitiveness”.First Report to the President of
the Commission, the Prime Min-
isters and the Heads of State,
June 1995.
Competitiveness Advisory Group,
“Enhancing European Competi-
tiveness”. Second Report to the
President of the Commission,
December 1995.
OECD, Technology and the
Economy: The Key Relation-
ships, 1992, pg.237.
US Department of Energy.
The First Report to the President
and Congress, 1992.
OECD, Industrial Competitive-
ness: Benchmarking Business
Environments in the Global
Economy , 1996
Department of Enterprise, Trade
and Employment, Uk.
Source: US National Competitiveness Council
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THE ENERGY SECTOR HAS A BRIGHT FUTURE
EPCRC talks to T.Tserenpurev, Chairman of
Energy Regulatory Committee.
-What changes are expected after the
amendments and updates of the Law on En-
ergy?
-Due to social development and market con-
ditions, some legal changes were required in
the energy sector. Therefore, on December 10th
2011, the parliament amended the Law on En-
ergy, originally introduced in 2001. Within this
framework, policy and institutional changes hap-
pened; among them was the transformation of the
Energy Regulatory Agency into the Energy Regu-
latory Committee. I can also tell you specifically
about changes in tariff and regulations that came
from our organization.
Because energy tariffs in Mongolia are lower
than the global average, the power plants can not
carry out technological overhauls, and as a result,
they can not reduce their expenses and are fallinginto debt Therefore, it is necessary to gradually
increase tariffs in order to create attractive condi-
tions for investors.
Energy tariffs used to be fixed by the ex-
pense-based methodology. Now, thanks to the
new amendment, it will be fixed based upon the
idea that investors will be able to justify their in-
vestments. This move may potentially make the
sector more financially viable.
Consequently, according to the Parliament
resolution #72 passed in December 2010, energy
tariffs are increasing step-by-step to match mar-
ket demands and by 2014 the sector will operate
without incurring losses.
-The Executive Opinion Survey shows that
business owners don`t believe in future en-
ergy supply. Will we face an energy shortage?
-Even if some people say that Mongolia will
face energy shortage, we are still fulfilling our
main obligations of supplying consumers with re-
liable supply of electricity and heating. Of course
the energy consumption has increased due to the
country`s development, especially during the last
3-4 years. But we have a precise plan to meet this
growing demand.
For example, the CHP 5 tender is now at its
final stage and by 2015 when the construction of
its first section will be completed, we will produce
450 MW of electricity and about 600 Gcal of heat.
Currently CHP 4`s capacity have epanded by
40 MW and we are talking about installing an ad-
ditional 100 MW capacity. By 2013 the thermalpower plant in Darkhan will also be expanded by
30 MW.
Moreover, the Energy Resource program suc-
cessfully put into operation a 18 MW power plant
in Uhaa Hudag. We also built new blocs of 3
MW at the Dalanzadgad power plant. As for the
east area, the plan to epand Dornod`s Choibal -
san power plant by 100 MW was announced. And
in order to connect consumers of Zavkhan and
Gobi-Altai aimags with reliable sources of energy,
a 60 MW power plant will be built near Mogoin
Gol coal deposit.
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MONGOLIA`S COMPETITIVENESS:WHERE ARE WE HEADING? July 2012
-Mongolian energy consumption is esti-
mated to increase approximately by 1500-3000
MW by 2015-2030. How will this demand be
met?
-In 2010 we made an announcement to the
government and the National Security Council
about increasing energy demand and its sup-ply. Due to large scale projects, such as 100,000
Household Housing program in Ulaanbaatar, 310
MW of power and 700-800 Gcal of heat will be
needed. Due to the planned metallurgical com-
plex in Erdenet and Darkhan and the industrial
park at Sainhsand, 1,000 MW of capacity will be
needed in central area according to the WorleyP-
arsons. CHP 5 will supply central area. Moreover,
the government granted a license for a new 600
MW thermal power plant in Chandgana Tal coal
deposit, which will be operational by 2015. In Tuv
aimag`s Bayan soum`s Buuruljuut we will also
build a 600 MW power plant. And we granted a
new 300 MW license in Tsaidam.
The 600 MW power plant at Tavan Tolgoi and
the 400 MW at Oyu Tolgoi will fully supply the ar-
eas demand even with Tsagaan Suvarga. Since
the western area has no ambitious demands, the
24 MW power plant at Khushuut coal deposit and
the 36 MW power plant that will be built in Khotgor
are enough.
-Oyu Tolgoi announced that the problems
encountered while dealing with China would
delay commercial production projects. Even if
the problem is now resolved, doesn`t it show
that Mongolia became more dependent on en-
ergy imports?
-Currently we import electricity from Russia in
order to cover the peak load and regulate the grid
frequency. In 2011 200 million W/h of electricity
were imported, and that amount is expected to
grow this year. Concerning Oyu Tolgoi, accord-ing to its investment agreement, the project will
import the power from China until its own power
plant is finished by 2016.
Talks of importing electricity from China have
reached an agreement. The construction of a 220
kV line at the southern border is completed and
the connection in Inner Mongolia will be built by
July 2012. Therefore, there will not be any power
supply problem at Oyu Tolgoi. It is estimated that
Oyu Tolgoi`s power demand will be 100 MW at
first stage, and will reach 310 MW in peak of pro-
duction
-How do you see prospects of private sec-
tor involvement into the energy sector?
-As the country develops, Mongolian compa-
nies become more capable. The Law on Conces-
sions adopted in February 2010 created a favor-
able legal environment to increase private sector
participation, especially, in regard to domesticand foreign investors. For example, it is within
this framework that the Mogoin Gol power sta-
tion project is being implemented. Also CHP 5`s
construction and Dornod power plant`s epansion
will happen within the framework of the Law on
Concessions. Generally, private sector role in the
energy sector is likely to expand further.
-As much of the machinery and equip-
ment in electricity sector dates back to Soviet
times, power plants are a considerable cause
of Ulaanbaatar`s air pollution. What is the
government`s strategy to support the low car-
bon new capacities?
-I think we are in the transition period as the
energy sector is entering a new stage. The CHPs
which were constructed in 1960-80`s do have
served their purpose. Therefore, it is time to in-
troduce new modern technologies. There is more
than one way available to drastically improve ef-
ficiency and reduce harmful emissions. For ex-
ample, CHP 5 will be reducing its pollutants by
97-99 percent.
There are already power plants which are
more efficient and economical, which consume
less water, with fewer personnel and have high-
er capacity. For example, in Korea, China, and
Japan only 200 people work at a thermal power
plant with a capacity of 600-1,200 MW, which is
similar to our CHP 4 where 1,400 people work. In
other words, with the benefits of new techniques
and technologies they are able to save on work-
ers’ salary. Therefore, the private sector will bevery active in terms of introducing modern tech-
nologies.
As for renewable energy, hydro power plants
Durguun 12 MW and Taishir 11 MW are being put
into operation and supplying its customers with
power. Newcom Group`s Salhit power par will
be operational by November of 2012. In addition,
there are a number of great projects such as two
50 MW wind parks at Sainshand and Choir. We
aim at increasing the renewable energy share to
20-25 percent by 2020, as stated by the National
Renewable Energy Program