OBG talks to Ayumi Konishi, Director-General, East Asia Regional Department, Asian Development Bank (ADB)

Interview: Ayumi Konishi

What sectors other than mining present big investment opportunities in the medium to long term?

AYUMI KONISHI: With vast markets on its doorstep, Mongolia can benefit greatly from trade, but the key challenge will be to create jobs at home. We have seen that mining can bring rapid growth, but this does not benefit much of the labour force. While exports are currently dominated by the mining sector, we see great potential in the field of agribusiness. With over 40m livestock and the vast majority of its workforce engaged in the sector, Mongolia has great potential to become an organic food producer and exporter. ADB’s support in developing a high-quality line of organic baby milk demonstrated this potential. There are other opportunities in meats, leather, fur, wool and cashmere.

The financial sector, too, has grown substantially in recent years, and the rapid growth of the economy will open many investment opportunities. The sector has come a long way: several first-class banks have emerged and contributed much to the country’s development. Not least, we also see great potential in energy. The best-known example is CHP5, a power plant currently being planned for Ulaanbaatar, but we also see opportunities in coal gasification technology, renewable energies and energy exports to neighbouring countries.

What big infrastructure projects currently take priority for ADB funds? What results are expected?

KONISHI: Infrastructure is vital to economic and social development. By international standards, Mongolia ranks very low for transport and logistics, and ADB has major projects currently under implementation. We recently helped open a new highway connecting Ulaanbaatar to the Chinese border with a travel time of seven hours – less than half the previous time. We expect this can potentially bolster trade and investment, especially once the logistics complex at Zamin-Uud (also ADB-supported) is complete. In the western provinces we are supporting a new highway that will link Bayan Olgii and Hovd to China and Russia. Discussions are on-going between Mongolia, China and Russia on transport routes connecting the three nations.

As for energy, another key area of infrastructure, we hope to support transmission and distribution once the construction of CHP5 begins. Lastly, we are investing in the improvement of urban facilities in Ulaanbaatar and also the development of provincial towns, especially infrastructure for clean water supply, sewer systems, transport, energy and heating.

Which particular areas of Mongolia’s financial sector need more collaboration with international financial institutions (IFIs)?

KONISHI: IFIs can support Mongolia’s financial sector in three areas: financial inclusion, financial stability and infrastructure finance. These are consistent with the government’s financial sector development plans.

Most businesses in Mongolia are small and medium-sized enterprises (SMEs) and many of them have difficulties accessing credit and financial services. The banking sector holds the majority of financial assets, while a large portion of the population remains underbanked. While the mortgage market has grown, its effectiveness is limited in terms of targeting the main population and the poor, or of offering finance options at longer tenors and reasonable rates.

Mongolia’s financial sector can benefit from collaborating with IFIs to safeguard financial stability by developing better oversight mechanisms, expertise and tools. Mongolia’s financial sector, despite a number of improvements, is still very fragile. Credit and liquidity risks are rising, as is the risk from currency mismatches. Institutional capacity and oversight, and regulation by financial supervisors, remain weak. There is excessive use of regulatory forbearance. Furthermore, financial instruments available to private borrowers are few. We think the sector needs a sound financial stability and macroprudential framework, and an expansion of its tool-kit to identify and address potential concerns. These are the areas in which IFIs can be of use to Mongolia.