OBG talks to Prime Minister S. Batbold

Interview: Prime Minister S. Batbold

What are the top priorities as far as domestic reform and economic development is concerned?

BATBOLD: Mongolia is at a very important stage of development, having gone through a transitional period embracing a new system of democracy and a market economy. During this period we have learnt a lot and we must now progress from this phase towards a more sophisticated democracy. This will be achieved through political reforms, and the strengthening of institutions and civil society. This is also a critical moment for Mongolia’s economic development, with lots of opportunities but also many challenges. People speak of bureaucracy, corruption and income inequalities, where the rich are getting even richer and the poor becoming poorer. These problems must be addressed, but we need to approach these challenges in a proper and institutional manner.

We have a strong democracy with a good balance of power, a functioning parliament and a coalition government. At this period of opportunity, Mongolia needs a strategy to address the issues of unemployment, poverty, bureaucracy and corruption to create a stable and sustainable future. We need a policy whereby all of our citizens get the full benefits of economic potential and growth. If we do not pursue inclusive and progressive development policies we will not be able to address the challenges of an increasing income gap and disproportional distribution of wealth. These could create long-term problems.

An example of our policies is the establishment of a social development fund that will absorb profits from the mining industry. We will use this income to fund health care, housing, a social security network, as well as to create employment opportunities for our population of 2.7m. We will also distribute preferential shares to the people, so that Mongolians have equal opportunities and a share in the mining income. Another example is the social housing programme, which is one of the major schemes of our re-industrialisation. We have studied several cases, from Singapore’s predominantly government-driven initiative, to the private sector-driven model seen in the US. In our case we agreed that partnerships between private companies would be the most suitable option. The success of this project is extremely important, as it will create new employment opportunities and provide affordable housing to low-income families.

In addition, we have launched the foreign-managed Development Bank of Mongolia. For this we chose to collaborate with the Korean Development Bank and their management team, emphasising clarity and transparency. The Development Bank is hugely important as it will provide medium- to long-term credit to strategic sectors and major infrastructural projects and will cooperate with other international development banks and institutions.

How will you calibrate your development plan to maximise opportunities and minimise risks stemming from being a resource-based economy?

BATBOLD: This is a challenge for many countries; we should not try to reinvent the wheel, as we can learn not only from our own experience but also from the experiences of other resource economies. There are many resource-rich countries, of which many have succeeded and some have not. Of course, we must learn from the good experiences and avoid the pitfalls, because this is a very important time for us. We have seen countries like Norway, Canada and Australia bring prosperity to their people. Together with our development partners, investors, and the people of Mongolia, we must work openly and transparently towards a fruitful economic strategy.

We are a landlocked country, and this unfavourable geographic position leads to transport costs that amount to almost 10% of our GDP. Currently, we only export raw materials to China and other markets. Our goal is to set up processing centres and encourage the development of downstream industries so that we process raw materials domestically. This will reduce transit and transportation costs, create jobs and increase the value of our mineral resources.

The establishment of the Sainshand Industrial Park, which will require over $10bn private capital in the next five years, is very important. We hope Sainshand will become a cluster for coking coal processing, metallurgy, coal to gas technologies, copper smelting, oil refining and the production of construction material. The complex will be developed with the most modern technologies and the most up-to-date facilities available. Furthermore, upon completion of the industrial park, we will be able to expand our production capacity and increase the manufacture of income substitute goods in construction, metallurgical and oil-related products in Mongolia.

Do you expect the upcoming elections to affect stability in the business environment?

BATBOLD: The main goal of any party is to develop the nation and ensure the well-being of its people. Within this framework, all political parties should be concerned with improving election laws and working toward a mature and healthy parliament. Partners in a coalition government need to cooperate in order to make progress on industrialisation plans and programmes, always keeping the end result in mind.

There are some disputes between parties, but that is part of being a democracy. We can be united in seeking to ensure the country’s best interests and its future stability. We must also develop open governance, because it is time to move beyond the transition period and make progress. The government’s role is to create a predictable, business-friendly and competitive environment in Mongolia. As a democracy there are different opinions and approaches, but I am sure that all parties and people concerned share the same genuine goals: to have a well regulated business environment and a competitive private sector. In 2012 and onward, regardless of who controls the government, we must build a system that does not depend on certain individuals, policies or parties. We need a system that can be relied upon, with an equitable legal framework and a fair and equal-opportunity approach to sharing wealth. We have already started this process with this government through the introduction of the Human Development Fund. We are aiming to channel the country’s mineral wealth to each and every citizen by investing in health care, housing, education, and pension systems, other social safety benefits as well as by creating employment opportunities.

In which sectors would you like to see greater foreign investor participation, and on what terms?

BATBOLD: This is a very important question for Mongolia because during our transitional period our country did not have the opportunity to put together a strategic plan for economic development, and especially for economic diversification. Our economy is quite vulnerable as it depends on the export of one or two raw materials. We would like to address these issues by diversifying our economy, for which we are introducing new financial and support mechanisms aimed at the non-mining sectors. We have just established the Development Bank of Mongolia and we are introducing new tax regulations and policies designed to support national industries. This includes the creation of value-added and processing centres in Mongolia, so that we do not only export raw materials, but also encourage production, to create more jobs and bringing new technologies. This is our priority and we are now moving in this direction.

We have enormous opportunities and we encourage and invite foreign partners and investors to Mongolia on a fair and friendly basis. Mongolia is a unique place and our countryside is breathtaking. It’s a vast land where you see the contrast of different landscapes in different regions. Mongolia is probably one of the wildest, most untapped countries in terms of nature, but we are also keen to maintain and display our centuries old traditions of nomadic heritage and culture.