Mongolia Economy
Mongolia Economy Development in the transport and logistics sector is known as one of the determining factors for economic growth and foreign direct investment. According to international experiences in cross-border trade, when the total cost share for transport and logistics is below 12 percent, then that Business environment is seen as favorable. However, in Mongolia's case this cost share is estimated at 18-24 percent depending on the category of goods being traded and transported. Under development in the transport and logistics sector has become the main constraint, limiting both domestic and international investment. An urgent need has been recognized to establish logistic facilities at Zamiin-Uud, the point at which the narrow- and wide-rail lines meet, connecting Mongolia to China and East Asian countries. A second meeting of the Consultative Council on Investment Climate and Private Sector Development took place on 23 October and requirements to establish a logistic facility at Zamiin-Uud was a focal issue discussed at these meeting. The General Director of the Tuushin Company, N. Zorigt, explained in his report that the existing lack of development at Zamiin Uud, including, insufficient goods carriages and locomotives and limited capacity at the transshipment facility, was causing extensive delays and extra costs to transport goods, leading to negative economic impacts. He went on to say that during 2007 a total of 11 freight-forwarding companies had been required to pay demurrage fees/ fines for delayed shipments and the return of empty containers amounting to around USD 900 thousand. "In July 2007 about 450 carriages transporting cement were delayed at Zamiin Uud for 16-35 days, consequently increasing the retail price of cement on the Ulaanbaatar market by 76 percent. Taking into account the fact that cement quality decreases by 50 units for every 14 days' delay, the quality of that consignment by the time it reached its market was 502,100 units lower than the quality specified on the label. This has certainly negatively affected the quality of construction" he noted. In a recent study the average time delay for goods at various points at Zamiin Uud was estimated at 23.5 28.2 hours for vehicle inspection with loads, in addition to 34.2 hours for vehicles queuing in China waiting to reach the Zamiin Uud border crossing point. The rail-to-rail transshipment facility was built at Zamiin Uud during 1995 with a grant from the Japanese Government. However this facility is inadequate. Vehicle delays with loads waiting to be processed at an estimated cost of Tgs 70 120 thousand per day and. assuming a vehicle waits for about 20 days, this would increase the cost of the goods by Tgs 1.4 2.4 million. Furthermore, in order to have goods transshipped quickly, traders had started paying 'unofficial fees' and these extra costs are included in the retail price to end users. "This lack of development in the transport and logistics sector has negatively affected not only the domestic economy but May also affect, Mongolia's economic prosperity leaving the country outside the network of international trade and transport. For example, news has been spread that some Chinese companies previously investing in Erlian aiming at the Russian market, have not invested further, but are moving their new investments to Manchuria and Urumqi" said N. Zorigt. The Mongolian Government has formulated a national program 'Transit Mongolia' aiming at leveraging sustainable economic growth by addressing this underdevelopment and using the 'currently feasible' geographic advantages of Mongolia and the issue of establishing a larger logistics facility at Zamiin-Uud is part of the action planned within the national program. The National Committee on Trade and Transport Facilitation, established in 2006 had requested an Economic Policy and Competitiveness Reform (EPCR) project to provide financial assistance to conduct a pre-feasibility study on establishing an enlarged logistics facility at Zamiin Uud. The EPRC invited participation by international experts during March of this year and the pre-feasibility study has been completed and presented to stakeholders. In addition, the EPRC had drawn up a general engineering plan to expand the customs inspection site at Zamiin Uud, and a business model and plan for a vehicle to rail transshipment facility at Zamiin Uud is in progress. Despite these actions and measures taken to establish an extended transport and logistics facility at Zamiin Uud, the process is proving slow. N. Zorigt, General Director of Tuushin Company and T. Zanashir, General Secretary of the Mongolian Freight Forwarders Association, suggested creating an institutional structure or entity to: represent the interests of public and private sectors: be responsible for the concerted management and coordination of all activities, as well as the implementation of specific projects. N. Zorigt and T. Zanashir believe this is necessary as the existing institutional structure is weak and separate activities conducted by various agencies are not well coordinated. The Consultative Council on Investment Climate and Private Sector Development has submitted its recommendations on the issues discussed and has advised assigning to the Minister of Finance and the Chief of the State Property Committee the tasks of: establishing a State-owned legal liability entity for State-ownership participation: approving its initial paid up capital investment, and directing its activities to determine the functions of and to establish a public-private partnership for the Zamiin Uud logistics facility. This proposed legal entity should be extended to become a business-oriented entity with State-ownership participation in the form of a 'private-public partnership' operation. The Consultative Council also discussed the existing foreign trade situation in Mongolia and the need for a Single Electronic Window (SEW). In order to comply with foreign trade requirements, companies involved in export and import are required to obtain various types of licenses, permits and certificates and to go through various controls, including customs control and specialized inspections. For this purpose trade representatives have to visit all relevant agencies, submit various requests, applications and declarations, together with a large number of attached documents. These procedures also require companies to make various types of payments and many are duplicate. The setting up of a Single Electronic Window would abolish these duplicate activities and would allow foreign traders to submit their documents and requests and receive necessary information at a one-stop source. Agencies would also have an opportunity for direct information sharing, for single submission and synchronous processing of documents and for issuing of e-licenses. The Government adopted the national program to establish SEW and implementation of the program has progressed successfully. However, the creation of a legal environment to introduce and implement SEW, determine the structure for a separate legal entity, as a private-public partnership company, and the selection of strategic partners and potential investors has not yet been finalized. The Finance Minister, S. Bayartsogt, said that issues relating to SEW and the Zamiin Uud logistics facilities have been included in a draft for the new Government action plan and that the Government would cooperate closely with the private sector. The first meeting of the consultative Council had been held before the Parliamentary Elections and third meeting is planned for January next year. Prime Minister S. Bayar, whilst chairing the second Consultative Council meeting, had suggested discussing the Minerals Sector policy at the next meeting, advising that Government was making every effort to have the new Minerals Law adopted in November. B.Ooluun THE MONGOL MESSENGER |
