OBG talks to E. Jargalan, CEO, Erel Group

Interview: E. Jargalan

What can be done to address the current seasonality of Mongolia’s construction sector?

JARGALAN: Mongolia’s construction sector must find ways to work throughout the year, even if ours is the coldest capital in the world. Utilising precast concrete can be part of the solution. This material was previously used in the Soviet period, however the market will need to adapt to its modern uses, as new techniques in dealing with it have developed since then. One advantage of precast concrete is that it can have all of the necessary insulation, wiring and plumbing fitted in the slabs at the factory, thus improving construction efficiency and cutting the time and cost of building projects. In fact, we estimate that a 30-40% reduction in the cost of Mongolian real estate development can be achieved with the use of precast concrete.

Our group recently renovated an old factory which used to supply 80% of Mongolia’s precast concrete in the 20th century. The factory will cater to the growing demand for this product that Mongolia is experiencing in its current phase of development. It will also help the construction industry sustain employment throughout the year, as workers will be able to prepare the foundations, groundwork and basic infrastructure of a building during the summer and then, using precast concrete, will be able to continue working on the rest of the project throughout the winter months.

Where do you see potential for growth in the Mongolian construction sector over the coming years?

JARGALAN: People expect to be able to live in apartments and have their basic needs covered, such as hot water, electricity, sewage disposal and heating – all done in an environmentally friendly manner. The industry as a whole, involving both the public and private sectors, has a responsibility to satisfy these expectations through continuous development. To this end, the government is stimulating growth in the construction sector, despite lower levels of foreign direct investment (FDI) in the country, with measures such as the granting of soft loans to cement suppliers. Although such measures might be effective in the short term, more long-term measures are needed in order to mitigate the negative impact of possible downturns in FDI. In any case, given the strength of demand for more housing in Mongolia, our expectation is that the sector will continue to grow over the coming years.

As for the luxury segment, this is a product of the boom period that Mongolia has been experiencing in the last couple of years. However, the demand for luxury apartments will be soon satisfied, given the size of our population and economy. Therefore, in the long term, the biggest growth opportunities will come from projects for middle-class Mongolian families that combine affordability with a decent amount of living space.

How do you see cement prices evolving in Mongolia, and what can be done to stabilise them?

JARGALAN: Mongolia currently produces around 30-40% of its cement locally, and the rest is imported mainly from China. Customs and logistical bottlenecks can make cement a scarce product during the peak season. Therefore, there is considerable potential for companies to invest and grow as local cement producers.

This investment in local production capacity, together with the growth in the use of precast concrete, will help to stabilise Mongolian cement prices in the future.

What is your assessment of construction companies’ adherence to international safety standards?

JARGALAN: Mongolia’s health and safety regulations in the construction sector are strong. The challenge, however, lies in implementing them, especially in factories. We need to instil the importance of safety as a priority in every factory, and companies should budget for health and safety implementation measures. All of us in the private sector need to make a concerted effort to prioritise safety in each of our activities, but there also needs to be supervision by the government to make sure that everyone adheres to the regulations.