OBG talks to J. Odjargal, Chairman, MCS Group

Interview: J. Odjargal

What role does the private sector play in pushing for change in areas of policy reform?

ODJARGAL: Mongolia is a young country and a new market economy. In order to facilitate rapid economic growth, all policy and regulatory reforms, particularly legal reforms, must be done swiftly. The private sector is playing an active role in assisting the government with these developments and policymakers have been listening closely to their input. This is important because it shows the government is trying to better understand the private sector’s concerns.

The chamber of commerce and other associations are playing pivotal roles in the dialogue between the private and public sectors. Every year high-level policymakers meet with local and foreign investors to discuss challenges and propose solutions. These annual meetings help a lot with improving our regulatory and policy frameworks. For instance, one of the biggest obstacles to doing business in Mongolia has been the lack of infrastructure, not just in mining but throughout the whole country. The establishment and proper execution of the public-private partnership framework is also very important to the future of the country.

What are the main challenges in attracting investment into the non-mining sectors?

ODJARGAL: The current bottleneck in our infrastructure is a major setback to attracting investment into non-mining sectors. For example, our tourism sector has great potential but will remain limited as long as we lack a proper air transport infrastructure. Similarly, our agricultural sector has big potential, but we cannot export our products to international markets at competitive prices because we lack the logistics and transport infrastructure. The biggest challenge, therefore, is to incentivise and improve the environment for investors in a way that will encourage private local and foreign investment into the infrastructural network.

Due to our geographical position and proximity to China and Russia, our economy has many advantages in different export-oriented sectors. But the question is whether we can harness these opportunities in a competitive manner, as even if we maximise production efficiency, the costs and challenges of logistics and transport will continue to affect our prices.

What is being done to identify potential new sources of growth in the industrial sector?

ODJARGAL: Several feasibility studies have been done to identify potential new sources of growth in areas including value-added industries and technologies associated with coal deep processing, such as gasification. As Mongolia has huge coal reserves, this is a potential means of decreasing our import dependency in liquid fuel. Currently, we import 100% of our gasoline. Also, as an economy driven by commodities, we understand the importance of diversification and the risks associated with overdependence on one sector. If the Chinese economy were to suddenly collapse, Mongolia would suffer greatly. Therefore, attracting investors into our non-mining sectors is crucial if we want to avoid “Dutch disease.”

What is your assessment of the launch of the Development Bank of Mongolia (DBM)?

ODJARGAL: The important thing here is that the management team is led by a foreign entity. This is because the financing of capital-intensive and strategically important projects may give rise to unfair and corrupt practices and create conflicts of interest. If the bank were run by politicians, we would not be able to achieve the consistency we desire, which would hinder project development. To protect ourselves from these risks, bringing in foreign management is important. Politicians have promised citizens cash handouts from mining revenues, which I have not heard of being done anywhere else, but lately they have realised that this is not the way forward. A responsible investment in infrastructure and social security is a better path. In this regard we hope DBM will play an important role in the future.