OBG talks to President Tsakhiagiin Elbegdorj

Interview: President Tsakhiagiin Elbegdorj

With a new investment law in place, what are the next steps for your administration to ensure the long-term stability of investments in Mongolia?

TSAKHIAGIIN ELBEGDORJ: Mongolia is a country that is capable of fixing past mistakes. It is an open country, and we need investments if we want to avoid capital shortages, currency depreciation and inflation. Improving the legal environment in order to attract investments again and regain the confidence of investors is therefore one of the priorities for my administration. This is why we have adopted the new investment law, in an effort to improve the legal environment and investment climate and make them stable over the long term.

Mongolia is located between China and Russia, two of the biggest markets in the world. Having these as our immediate neighbours has already proven to be of great advantage to our country, given our vast natural resources. This will continue to be the case as long as we can effectively and efficiently make use of our strategic location. Therefore, another important way to ensure the long-term stability of investments is to guarantee constructive and prosperous relationships with our neighbours by establishing good communication channels. With regard to China, for example, I met with President Xi Jinping in September 2013 to discuss relations between our countries and ways to improve cooperation in the future. It was a frank, open meeting. We are both interested in developing large-scale projects in Mongolia, in a win-win scenario, in infrastructure, railroads, power stations and mine deposits.

Good relations with Russia and China will therefore help stabilise the investment climate in Mongolia, and this in turn will have a positive effect on overall levels of foreign direct investment in the country.

Are there mechanisms being put in place to ensure the eradication of corruption in the long term?

ELBEGDORJ: When I was elected in 2009, my first priority was to reform our judicial system to eradicate corruption from our political establishment. In the past, the judiciary system had served and protected whoever was in power, not the interest of the people and their rights. This proved to be a breeding ground for corruption across different economic sectors and political levels. To change that, Mongolia has had to focus on enforcing the rule of law and on showing this determination to the public, both at the national and international levels. In the last few years we have seen good results. In its corruption perceptions index, Transparency International ranked Mongolia 94th in 2012 – an advance of 26 places from 2011. For 2013, we reached 83rd. This is an achievement, though much more needs to be done to eradicate corruption in the long term. Moving forward, we will continue to seek international collaboration in this regard. For example, we are working with the World Economic Forum through the Partnering Against Corruption Initiative to ensure that this is no longer part of our society in future.

Was there a specific goal behind the initiative “From Big Government to Smart Government”, and what results can we expect in the short term?

ELBEGDORJ: This ambitious, nationwide campaign was announced with an aim to bring more confidence to our people, our businesses and those who want to invest in Mongolia. There are several ways in which we can achieve this and prove that a smart, competitive, efficient, research-based and service-oriented government that is ruled by law can exist in our country.

First, we need to separate business from the state. This means decreasing the number of state-owned enterprises (SOEs), as they discourage business. A private company will see growth opportunities shrink if competing with an SOE, which might be supported by a politician who can interfere in policymaking. For this reason, I will focus on restricting the government’s operations in the business environment. A new law will be enacted to prohibit the establishment of new SOEs. At the same time, existing SOEs will undergo a series of reforms, including privatisation, to separate them clearly from public service, adopt the best corporate governance models, explore and use other means of investment and financing, and make their annual performance subject to parliamentary scrutiny. It will be no easy task. Seventy years under socialist rule has shaped our mentality in such a way that many Mongolians today think the government is responsible for every aspect of their lives at all costs. However, in a true free market economy, the state does not compete with private businesses, and we will work to achieve this.

Another matter we want to address is restructuring the process by which licences and permits are issued. If a real need for a new license and permit arises, these should be initiated by law. Let us have only the parliament approve them according to a certain procedure. The goal is to stop favouritisms within the government and focus on setting the standards by which permits and licences will be granted.

Last but not least, we want to ensure that there are no public officials in government who act illicitly. To this end, we need to bring the process of impeachment not only to parliament, but also to local administrations. Smart government needs to be run by smart, honest people, and I will carry out specific reforms to achieve this. Mongolia is at a stage where it needs action, decision and implementation. We need to show that Mongolia is determined to work on all issues affecting the growth of the country and the well-being of its citizens.

To what extent will industrial diversification take priority over mega-mining projects in Mongolia?

ELBEGDORJ: To diversify our economy we have to focus on adding value to the raw materials that we find naturally in our vast land. For example, we can develop the copper industry throughout its value chain. We can melt copper in Mongolia, and from that make copper wires. From copper wires, we can make microchips. This is how to diversify our economy: by making use of what we already have and by focusing on adding value internally before exporting. On a related note, Mongolia is highly dependent on Russian oil. To get away from this dependency, Mongolia must capitalise on its real potential to add value to the coal sector by implementing new technologies to produce oil. To this end, we are working to introduce coal-to-liquid technology and produce oil locally. From oil, a number of additional products can be derived, and so this would be another sector to diversify our economy. Having additional sources of oil will also help different industries grow and expand, serving the purpose of diversification.

How do you respond to those who argue that government-related expenses in Mongolia are too high? What can be done to reduce these?

ELBEGDORJ: Even today, almost half of our GDP is consumed by government. This is understandable given our close relationship with the Soviet Union in the past and the fact that Mongolia is a young democracy. In a free market economy, however, the government ought to invest its resources back into the country for everyone’s benefit. If we want a smart and efficient government, we need to reduce its consumption to 40%, to 30%, even to 20% of GDP. The spare money could be used more wisely in areas such as health and education, or to add more value to our industrial productivity.

What is the government doing to reduce socioeconomic disparities between rural and urban areas?

ELBEGDORJ: We need to focus first on development of infrastructure. Mongolia’s land mass is vast, and we need to invest heavily in our infrastructure, both hard and soft. We must also invest in health and education, especially in remote areas, and bring more private investments. The truth is that in Mongolia businesses can flourish in a variety of sectors, and investments in other areas are needed. It is up to us, as Mongolians, to create the right environment for this to become a reality. Also, we need to see that every Mongolian benefits from the developments in our country. That will be a substantial future target for this government.