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| Economy in 1999-2003
Mongolia has made great progress toward its transition to a market based system since the early 1990s. Until 1990, the Mongolian economy was strictly based on the centrally planned model that had been adopted almost six decades earlier. To accelerate the transition process the Government of Mongolia launched a series of reforms starting in 1991. These reforms included: the phased liberalization of state-controlled prices and tariffs, privatization of state owned enterprises, establishment of a two-tier banking system, liberalization of foreign trade, adoption of a floating exchange rate system, implementation of tight monetary and fiscal policies aimed at reducing inflation, adoption and enforcement of laws to encourage fair competition and creating a favorable environment for private sector development. Moreover, a law to regulate social welfare has been adopted as well as development of a broader legal framework. The successful undertaking of initial steps in the transition to the market economy enabled positive economic growth in the last 9 years and reduction of the inflation rate to the single digit levels. Due to restructuring and privatization programs the scale of the private sector expanded, comprising today around 75 per cent of GDP. Macroeconomic stability has been observed in the last several years; however, real economic activities remain fragile, especially from external economic changes. The Government strategies are aiming for further deepening of economic and social reforms in order to facilitate a smooth final-phase transition to a market-oriented economy. Key objectives are the maintaining of macroeconomic stabilization and acceleration of economic growth, deepening of economic reform and economic restructuring as well as fiscal and financial sector reforms, infrastructure sector reform and privatization, national industry development policies, and promotion of export-oriented sectors of the economy. Priority is also given to social sector reform policies and poverty reduction strategies. Governance reform and the rationalization and streamlining of public administration are also important elements of the policy framework.
The reform measures undertaken by the Government at the initial stage of the transition has led to the stabilization of the economic situation and recovery of the economy since 1993. The GDP growth rate increased to 2.3 percent in 1994 from a decline of 9.5 percent in 1992, and has remained positive since then. Importantly, the industrial sector (including the mining sector), which consistently declined at a rate of about 6 percent per annum revived, delivering 20 percent growth in 2002. The change brought up the share of this sector in GDP to 26.6 percent. In the same period, the major economic sector, agriculture, failed to realize its growth potential. The winters and springs of 1999-2002 brought extreme harsh climatic changes; droughts and excessive snowfalls led to Dzud, which took a heavy toll on livestock. The total herd of 33.6 million heads of livestock in 1999 was reduced to 26.1 million in 2001, and 23.9 million by 2002. As a result, agricultural production fell, economic growth slowed and many thousands of herders were hit hard, and left without any sources of income. However, real GDP growth, which was depressed to 1 percent in 2001 by large weather-related losses in livestock, recovered to 3.9 percent in 2002. Such economic growth was sustained by robust performance in the industrial and service sectors. According to an Asian Development Bank report released on April 2003, Mongolia ’s economy is expected to strengthen also in 2003 and 2004 as mining and labor-intensive industries become important sources of economic expansion. Price. In order to enable a complete transformation into a market economy, in September 1996, prices of the State-controlled electricity, energy, heating, fuel as well as some selected consumer products and services were much liberalized. Following price liberalization and tight fiscal and monetary policy pursued over the decade, the inflation rate has declined from triple digits to single digits. Inflation has declined gradually since, 1993; it reached 66.3 percent in 1994, averaged 27 percent between 1995 and 1999. The year-on-year rate of inflation, after having been restrained to 8 percent as of end-2001, fell to 1.6 percent in 2002, reflecting mainly the stabilization of food prices, and the strong currency. Balance of Payments. Mongolia ’s overall balance of payments was largely favorable during 2001-2002. As demand in major export markets slackened, world copper and cashmere prices declined, export performance was lackluster over the last years. With import growth remaining buoyant, the trade deficit widened from 15 percent of GDP in 2000 to 20 percent of GDP in 2002. A sharp increase in official transfers helped finance the surge in imports associated with dzud relief efforts during 2001. Although official transfers declined during 2002, the balance of payments continued to be underpinned by buoyant emigrant’s remittances, increasing foreign direct investment and other private influxes. At the end of 2002, the net international reserves held by Mongol Bank were $225.9 million, which was equal to 17.8 weeks of import coverage. Compared to 2001, the net international reserve increased by 41.1 percent. The reserve increase was partly due to an expansion in gold sales and its price increase, and increases of receipts from interest payments on deposits held outside the country. Fiscal Policy and Government Finances. The budgetary and tax policy of the Government in recent years has aimed at stabilization of the macro economy, limitation of the portion of the public sector financed from domestic financial resources and promotion of the private sector. Within this framework, a package of activities has been undertaken to create sustainable sources of budget revenues, to expand the revenue scope, to optimize the composition of budget expenditures, and to restrict inefficient expenditure and financing. Significant progress has been made over the last two years towards strengthening fiscal transparency and accountability. The new effective system for the monitoring and control over budget entities’ arrears was established in 2002. The rationalization of intergovernmental fiscal relations was one of the key priorities of the Government policy in recent years. Beginning in 2002, taxes were assigned to tiers of government by type of tax rather than tax subject, and a VAT sharing arrangement was introduced to help eliminate regional disparities in local governments’ finances.Because of these measures, the overall fiscal deficit narrowed from 7.7 per cent of GDP 2000 to 6.0 percent of GDP with current surplus of 4.4 per cent of GDP in 2002, paving the way for financial stabilization. Monetary Policy and Monetary Aggregates. A tight monetary policy has been continuously pursued aimed at providing an appropriate growth of monetary aggregates, to reduce the inflation rate, and to ensure a stable tugrik rate. Monetary policy continued to be geared closely to reducing the rate of inflation with single digit rates achieved by the end of 2000. Interest rates are used as one of the key tools of monetary policy in Mongolia . In conjunction with a drastic drop in the inflation rate, the Mongol Bank has pursued a consistent policy towards the reduction of its securities’ rate. The Mongol Bank loan rate has fallen from 47.5 percent at the end of 1997 to 9.9 percent in 2002. Given this drop in the Mongol Bank securities rate and inflation rate, commercial banks are gradually reducing interest rates, but nominal lending rates were still 33.4 percent at the end of 2002, which is a limiting factor for economic growth. The Bank of Mongolia (BOM) has pursued a flexible exchange rate regime since 1998 and limited intervention to smoothing excessive fluctuations. In order to maintain stability of the nominal exchange rate, the policy focus for the last two years was on improving the efficiency of inter-bank operations related to foreign exchange. As a result, by the end of 2002, the average market exchange rate of tugrik against the US dollar reached 1110.3 tugrik, reflecting a slight depreciation of 1.2 percent compared to the end of 2001.Unemployment. Due to economic growth decline during the transition period, unemployment has been rising continually. The average unemployment rate from 1996 to 2001 was 5.6 percent. At the end of 2002, the unemployment rate reached 3.6 percent, decreasing by 2 percent compared with the average of 1996-2001. Private Sector. Due to the successive and decisive policies of the Government, the private sector has become a prevailing sector in the economy from 1995 and today produces 75 percent of total Gross Domestic Production, while it was only 5 percent in 1990. Today there are about forty thousand private entities. Two thousand of these entities are foreign-invested companies. The private sector dominates in the agriculture, accounting for almost 28 per cent of GDP in 2001. This growth has continued through the 1990s as the collapse of state industry has led many people to engage in herding and other informal sector activities. However, this sector has lost its growth potential due to Dzud and animal diseases during the last three years. Over 80 percent of trading activity is also conducted by the private sector, much occurring in small enterprises. Private sector trade accounted for over 20 percent of GDP in 2001. These statistics may understate the informal sector, which by some estimates contributes up to 30 percent of GDP. The private sector accounts for more than 50 percent of industrial production, representing over 20 percent of GDP in 2001. Private sector activity in this group includes gold mining and other mineral extraction, and processing of cashmere and other animal materials and food. Apart from the sweeping political and economical changes, in the country such negative trend as disparities between urban and rural areas, the rich and the poor, increase of poverty and unemployment also became apparent. However, the Government is taking major initiatives to improve the nation’s economic situation. Notwithstanding some difficulties today, Mongolia is among the countries implementing the reform successfully and intensively, according to the report by the World Bank and International Development Agency.
Sixteen commercial banks, more than eighty non-banking financial institutions, around 200 savings and credit cooperatives, 34 broker and security firms, 4 leasing companies and 16 insurance companies are actively participating in and composing the financial sector. Out of sixteen commercial banks two are foreign owned, one is 100 percent government owned, one is a joint venture with government, the share of which composes a little over 17 percent of total assets and the rest are in pure private ownership. The huge portion of the “cake”, as the financial sector is called, is the banking sector. This is due to the size as well as the innovation, and development convergence speed towards the modern banking sector existing in the big and leading economies. Prior to 1991 Mongolia had a one-tier banking system, which was transformed into two-tier and later made possible to establish and develop the third and higher tiers, non-banking financial institutions, savings and credit cooperatives. Transformation into the other system had and brought in itself exposure, experience, and knowledge. Although, the case of Mongolia shows quite vividly that in transition economies the weak emerging financial system might not have an effect on economic growth. With the development of the financial intermediation most of the commercial banks, restaurants and shops, most of the units in the service sector are providing the services on non-cash base, in addition, it is supported by a few ATMs in the city Ulaanbaatar. Lately, out of sixteen banks, two started to provide internet banking services to their customers, which will definitely bring further innovations into not only the banking but also the financial sectors, things like electronic commerce thus, lifting up the mind set of the customary trade policy, and raising new insights into the common known debate on the ‘plausibility’ and ‘non plausibility’ of the free-trade policy, further, the issue of the electronic signature and etc., with the positive side effects on the development of the information technology and communication. Aside from the commercial banks, non-banking financial institutions and savings and credit cooperatives are filling the gap at the micro level and distance in outer reaches of Mongolia . Hence, some are at a certain level, exposing commercial banks to the competition, though this part of the financial sector has been developed lately and at its genesis is not as comparable, in terms of the size, as some small-scale commercial banks. Out of sixteen insurance companies one is an active participant at the Lloyds Market in London, and share their business with one of the biggest reinsurance companies in the world, namely, MunichRe, SwissRe, Willis Weber, Eagle Star, Yasuda Fire and Marine Insurance, Sumitomo and KoreanRe. In order to support the long term investors, to hold on to the goals, the government raised, being precise with the term of the insurance sector, to support the establishment of life insurance companies, the Government of Mongolia is at the final stage of submitting a new draft law on insurance. Aside from this, it also includes the draft law on trust funds, and reform of the pension fund system. Along this line, the supervisory functions are not left. The establishment of the Mongolian Stock Exchange was purely for the privatization purpose, at the start, but as of today, there are more that 400 companies are listed now, and new products, in a very simple form, are protruding into the market with different terms and structure. Out of 650 million listed securities, 72 percent are owned by the government and the rest privately owned ones. In the near future, there are plans to develop a proper mortgage market; hence, the mortgage securities will come up as a new investment instrument into the financial sector. Another point small but worth noting, is the leasing and/or financing services, which enrich the financial sector. Only four registered leasing companies are in business nowadays and operate at the very first stage of the leasing, which is financial leasing. All these make the financial sector more and more complicated than before but simultaneously, it does make it possible to cover the large amount of clients by offering the services to every individual based on their demand, i.e., reaching every single customer individually. In other words, the complication in financial sector itself marginally makes it simpler for those who are served by it.
The fiscal federalism of Mongolia composes a two-tier system as its banking sector, namely, central and local government levels. The intergovernmental transfer system, from the central to the local governments, works in a very simple fashion, which is the difference between local revenue and expenses. The central government revenue is collected through the corporate income, personal income, value added, customs, excise, and gold royalty, taxes and duties. The local government revenue consists of the motor vehicle, immovable property, stamp, land use, natural resource exploration taxes, fees, and payments. The fiscal policy, as being precise, the revenue/taxation policy, is constructed in such a way as to support the foreign investment. It is regulated by the framework of the Foreign Investment Law. Import VAT and customs duty are exempted for the equipment of companies with foreign investment, oil mining companies, and companies with the activity falling into the list of the leading sectors issued by the Government, Also, there is an exemption for the companies producing export oriented goods. There are also not a few nuances concerning the tax credit and exemption in VAT and corporate income tax laws. For example, if the company will export more than 50 percent of its produced goods then company will be exempted 100 percent from the corporate income tax the first three years. For the next three years, it will be exempted by 50 percent. In addition to this there is a special article in the Mineral Resource Law of Mongolia allotting companies, with foreign investment and which are investing every single year at least $2 million with the proper license, to have a choice of a signing the so called “Stability Agreement” with different terms depending on the investment they will put into work. There is a common understanding that favorable environment for foreign investors are when they are treated equally with the domestic companies in terms of taxation. However, the current situation in Mongolia is not just a favorable one but also more than favorable, because joint ventures and companies with foreign investment have more tax credit and exemptions compared to the domestic companies.
Foreign Trade and Foreign Investment Foreign Trade. Since the start of the transition to a market economy, Mongolia has been carrying out a policy to promote foreign trade and foreign investment. With support of donor countries and international organizations, Mongolia strives to find its place in the international arena, renewing its economic system. Compared to other countries n transition, Mongolia achieved tangible results in trade liberalization. Mongolia ’s accession to the World Trade Organization (WTO) in January 1997 highlights its relative success in pursuing economic reforms and developing a new trade regime in line with international trading principles. Accession has allowed Mongolia to become a part of the global trade regime, to access full information on WTO member countries and to benefit from human resource development in the trade field. The foreign trade of Mongolia had been very dependent on former socialist countries, especially from Soviet Union , until the 90s. Today, Mongolia develops foreign trade with over 80 countries of the world and more than 80 percent of the trade turnover goes to Russia , China , the United States , Japan , and South Korea . According to the statistics, in 2002, foreign trade/merchandise/ turnover reached $1214.7 million, of which exports were $524.0 million and the import, $690.7 million. The main export items are: minerals/copper, molybdenum and fluorspar concentrates/, and raw materials and products of animal origin such as meat, cashmere, wool, animal casings, hides and skins, garments, carpets, blankets and others. The imports mainly consist of petroleum products, equipment and spare parts, vehicles, chemicals, foodstuff and consumer goods. Although the total trade turnover increases each year, foreign trade balance remains negative, mainly due to the world price decrease of its key export products such as copper, gold and cashmere. The appropriate legal environment has been created for the establishment of free trade and economic zones. · Stable political environment and open economy; Foreign investment within the territory of Mongolia shall enjoy the legal protection guaranteed by the Constitution of the country and by the international treaties to which Mongolia is a party. The Foreign Investment Law of Mongolia was adopted in 1991. Amendments to the law were made in 1993, 2001, and 2002. The objectives of these changes were to create a more favorable and competitive foreign investment environment. Currently Mongolia entered into agreements on avoidance of double taxation with 27 countries of Asia and Europe . It has been concluded agreements on mutual protection and encouragement of investment with 34 countries of the world. Mongolia joined Washington Convention of 1965 on Settlement of International Investment Disputes in 1996 and the Seoul Convention of 1985 on investment insurance in 1999. In addition, the country is the member of World Bank’s Multilateral Investment Insurance Agency /MIIA/. Since 1990, foreign investments equaling more than $800 million were introduced into the Mongolian economy by 2400 foreign-invested companies of more than 70 countries. Foreign-invested companies created about 67 thousand new jobs for the domestic work force. More than 2500 foreign specialists working in Mongolia are also making an intellectual investment to our country by introducing new methods of management. Many world-famous corporations, such as Caterpillar, Samsung, Sumitomo, Coca-Cola, Itochu, Komatsu, Hyundai, Procter & Gamble, Ford, Mercedes-Benz and others are doing business in Mongolia . Mining, tourism, infrastructure and agricultural processing are now major areas of foreign investment. The 2002 was announced by the Government as the “Year for Investment Promotion”, the objective of which was to streamline investment to priority sectors such as mining, deep processing of agricultural products, tourism and information technology. Within the framework of this Year, “Investors Forum-2002” was organized in Ulaanbaatar in September, involving about 600 participants from 44 countries and more than 400 national investors and business people. Because of complex measures taken within this “Year foreign investors” interest in Mongolia has increased, and a total of $170 million was invested in various sectors of the country, which was equal to the total of all foreign investment in Mongolia from 1996 to 1999. The foreign-invested entities enjoy possible advantages in owning, and using their properties and disposing of their incomes. For example, foreign investors can rent land for 60 years and extend it for another 40 years. In addition, a foreign investor establishes Stability Agreement with the Government of Mongolia. A foreign investor can also carry out a project instead of establishing a business entity. The Foreign Investment and Foreign Trade Agency of Mongolia /FIFTA/, as a government body responsible for the promotion and facilitation of foreign investment, registers activities of foreign-invested companies operating in the territory of Mongolia , expands external relations of the country and renders assistance and services to Investors.
Mongolia has rich mineral resources and the earth exploitation has been intensively increasing in the transition period to the market economy. There are over 8,000 deposits of 440 different minerals in Mongolia , of which about 600 deposits and outcrops of resources have been determined. A total of 181 gold deposits, 5-copper molybdenum deposits, a lead deposit, tin-5, steel-10, iron-1, silver-4, magnesium-1, mica-1, gypsum-3, asbect-3, graphite-3, bitumen-2, coal and brown coal-42, phosphorus-1, fluorspar-42, salt-12, sodium sulfate-10, partial precious stone-6, crystal-9, about 30 underground water deposits and 205 construction materials, including stone, sand, gravel, limestone, marble, plaster, cement and mineral pigment’s raw materials are found. Exploration works were conducted in about 70 percent of the deposits, and the resources of the deposits were evaluated from an industrial mining point of view. Over 200 of the aforementioned deposits are being exploited now, of which 24 are non-ferrous metal deposits, 111 are gold, 34-coal, salt-15 and about 50 are usual mineral deposits. The joint Mongolian-Russian Monrostsvetmet Company is exploiting four biggest mines, which have the capacity to extract 600,000 tons of fluorite a year, seven exploration parts, and a factory with the capacity to enrich and process 500,000-600,000 tons of fluorite annually. A gold mine with 250 liters capacity in two floating drags, which have a power to wash 1 million tons of sand a year, open mining with the annual capacity to extract 100,000 tons of coal and a geological exploration group are operating in the company. The company worked with a goal of increasing the mining production has output and attained the proper results. The production of molybdenum concentrate, cement, lime and production construction, as well as mining of gold and silver was up. The coal exploration is 4716.2 thousand tons in 2002 and it increased by 1.6 percent or 73.1 thousand tons as compared with the previous year. Currently, a total of 94.682 hectares of square have been given to companies and enterprises under 527 licenses to exploit Mongolia ’s minerals, of which 28,000 hectares are being exploited for the mining production. An average of 86 million cubic meters of earth moving was conducted each year and 133 million cubic meter of water was exploited. Forty percent of the total consumed water was re-cycled and 35 percent of the earth moving and 70 percent of the water consumption are allotted to Erdenet ore-dressing plant and other coalmines. Reserves. Mongolia ’s current coal production is approximately 5 million metric tons, which is mostly consumed by domestic power producers. The country is estimated to have potential reserves of 125 billion metric tons. Although many of these reserves have been proven, remain undeveloped due to a lack of infrastructure. Such reserves include the huge Tavantolgoi deposit in the Gobi , which contains over 5,000 million metric tons of coking and steam coal, but lies more than 400 kilometers from the nearest railway. Several of the country’s largest coalmines have been selected for privatization in the near future. These include the Baga Nuur mine, the largest in the country with a design capacity of more than 6 million metric tons per year. These mines are located along the country’s main rail line, and supply coal primarily to power plants in the major cities. Several smaller mines are also slated for privatization. Mongolia is included in the list of ten world countries, which have great natural wealth and coal resources. Distribution. Currently, coal deposits are quite consistently distributed in the territory of Mongolia . There are over 200 deposits, and finds of coal and brown coals were identified in 15 basins and 4 regions, of which about 50 deposits have undergone geological and exploration works. Most of the coal reserves are in Umnugobi aimag and it occupies 65 percent of the total resources. The remaining 35 percent is in Bayankhongor, Selenge, Khentii, Sukhbaatar and Uvs aimags. Exploration. The coal is the basic fuel of the energetic production of Mongolia and about 40 enterprises are extracting coal from 27 big and small deposits. Ninety-three percents of Mongolia ’s electric and heat production is produced by coal and seven percent is produced by the liquid fuel. In 2002, a total of 5307.4 thousand tons of coal was extracted nationwide and 7066.7 thousand Kkal of heat energy. The coal extraction and energy production increased by 3.4 and 7.1 percent respectively against 2001. The Mongolia coal industry is opencast chiefly, which is almost 100 percent economical. But it became clear that this method has an adverse effect on environment. So, a survey on exploiting of natural wealth with the help of advanced technological method is being made in the country in order to protect the environment.
Oil. The oil sector has a high risk for exploration activity and large-scale investment is required to the field. Twenty-two contract fields, covered 538,000 square kilometers area of the total Mongolia ’s territory were selected. Now American, Australian and Chinese oil companies are running their activities on six contract fields under a Production Sharing Contract concluded with the Government of Mongolia. The foreign contracting parties have been drilling twenty-seven oil exploration and evaluation holes since 1993 and spending about $120 million for this purpose. Mongolia began to export oil in 1997. It was testing the extraction of the exploration period. The country extracted and exported about 30.000 tons of oil between 1999 and 2002. In November 2002, Mongolia extracted 14663.3 thousands tons of oil and exported 13740.2 thousand tons to China . US SOKO International and Australian Rock Oil Companies are extracting oil in Tamsagbulag of Dornod aimag and Dornogobi aimag. Excavation officials say Tamsag may have 1.5 billion barrels of oil, and one area of Dornod aimag may contain as much as 50 million barrels of oil. The SOKO International Company, which is developing the 19-22nd contract field of the Tamsag basin under the aforementioned agreement, made 7.4 million investment, drilled four exploration and evaluation bore-holes between 1994-2002 and extracted 300 barrels of raw oil a day. The SOKO International planned to drill four boreholes in 2002, the first two drillings were successfully conducted, the second borehole was drilled into 2227 meters depth and a 21 meters thick oil stratum was revealed. The joint group of the Australian Rock Oil and Chinese Dongsheng companies drilled two exploration holes in 2002 and the first hole was drilled to a depth of 2844 meters. This was the deepest hole in the Dornogobi basin. The second hole was bored to 1.100 meters and a slanting drilling, a first occurrence in Mongolia , is being conducted in the hole. Gold. A total of 18 gold ore zones such as Khentii, Bayankhongor, Kharkhiraa, and Khangai mountain range have been determined in Mongolia . There are 152.6 tons of explored gold reserve in the country, of which 90.6 tons are in the Tuul, Bayangol, Arnaiman, Ult and Toson placers and 62 tons are included in the Boroo, Sujigtei and Tavt basic deposits. According to the 2000 report on exploration of gold cites, the gold reserve increased by 6273.7 kilograms. As a result of the Mongol Gazar and Gachuurt companies’ exploration and research activities, large scale gold reserves of the Kharguit, Shiirt and Zuun Sadat deposits in Tsenkher and Bat-Uul soums of Arkhangai and Uvurkhangai aimags were discovered and registered in the state reserve book in 2002. Over 150 enterprises and organizations were permitted to extract gold, of which 117 enterprises ran their activities in 2001 and extracted a total of 12059.04 kilograms of pure gold and it decreased by 1379.7 kilograms or 11 percent as compared with 2001. In 2002, 121 enterprises and companies extracted 11095.7 kilogram gold and sold it to the Mongolbank. The Altan Dornod Mongol, Shijir Alt, Mongol Gazar, Gachuurt, Erdes Holding, Erel, Mongol-Alt, Khailaast, Undram and Sed companies led other companies by their gold extraction. Six companies – Shijir Alt, Altan Dornod, Mongol Gazar, Khailaast and Undram extracted 59.1 percent of 2002 total sum. The gold extraction of Mongolia increased by 14.7 times in the last 10 years. Also copper ore extraction and concentrate production increased by 30.4 percent, and fluorspar concentrate production increased by 14.6 percent. This sector is leading other fields by its output production and investment amount. The Mongolian government is paying more attention to implementation of the gold program along with intensively controlling the gold extraction process of enterprises and organizations. The gold program is also aiming to improve techniques and technology, and decrease waste. The gold extraction and export of the country have been increasing year by year. Silver. Four independent silver deposits were determined in Mongolia , and exploration works were carried out in the deposits. The main source of silver, reflected in the state reserves statistics, is silver-bearing, non-ferrous metal deposits. Most part of the silver reserve in the state reserve registration is allotted to the Asgat silver-sulfate, the Tuv and Mungun-Undur silver mixed metal deposits. The silver reserve will further be increased during exploration works of soil and mixed-metal deposits. Copper. Most of Mongolia ’s copper reserve is allotted to the Erdenet mining and the Tsagaan Suvarga copper-porphyry deposits. There is much high content copper-nickel and sandstone deposits and finds in the country’s territory. But a detailed survey has not yet been made. As a result of copper exploration, many finds with two percent copper contents were determined. The Erdenet mining extracts 22.23 million tons of copper ore a year and produces 126.7 thousand tons of copper and 1953.7 tons of molybdenum. Also the mining is operating the Erdmin industry, which has a capacity of producing 3.600 tons of cathode pure copper from the unsuitable ore for processing in the technological cycle. As a result of mining research carried out by Ivanhoe Mines Mongolia Inc. Company in Oyu Tolgoi deposit, more than 10 million tons of copper and 500 tons of gold deposits were discovered. However, with more detailed studies going on, the resources may increase. Molybdenum. Most of the molybdenum reserve is in the Erdenet Ovoo and Tsagaan Suvarga deposits. The remaining parts are in the Arin Nuur molybdenum-copper, Undur Tsagaan and Egzur Tungsten deposits. The Tsagaan Chuluut, Zost Uul and Ikh Uul molybdenum finds are located in the central and northern parts of Mongolia . Lead and Zinc. Researched lead and zinc deposits are situated in the country’s eastern part. The main lead and zinc deposits are the Tumurt Ovoo, Ulaantsav, Mungun-Undur and Baits. For infrastructure, those deposits are in the relatively possible zone but the deposits have not been exploited yet. Tin. The Janchivlin, Modot and Elstei tin places were researched and the Nukhet Mountain pass ore deporit was determined as being rich in tin. Tungsten. The tungsten deposits and findings are widely dispersed in the territory of Mongolia . Currently, the Khovd Gol and Ulaan Uul tungsten deposits are being exploited. Iron. Exploration works were made in the Bayangol, Tumurtey and Tumur Tolgoi iron deposits and the deposits’ reserves were determined. These deposits are sufficient to provide the country’s iron manufacture with raw materials. But the issue of discovering new iron deposits with high quality and large-scale reserves has still not been solved. Uranium. Mongolia ’s uranium geological survey was conducted effectively. Currently, the uranium reserves are found in Gurvan bulag, Nemer and Mardai deposits of Dornod aimag. The uranium reserve in the deposit is 49.000 tons. It is observed that the uranium reserve of Gobi region will approximately reach 1.5 million tons. Among the sectors, which exploit resources, mineral and raw material of the Gobi region fuel, energy, ore mines and construction material production are being better developed. Ninety-eight percent of Mongolian energy production is produced by coal and ore mine’s production occupies about 60 percent of the country’s total export output. Fluorite. A total of 597.1 thousand tons of spar is extracted annually by Bor Undur mining under the joint Mongolian and Russian Monrostsvetnmet Company. In addition, spar is also extracted in Befkh, Khar Airag, Urgun and Khajuu Ulaan mines. Industrial sector. With the start of the transition to a market economy, the industrial sector experienced continuing decline throughout the 1990s, except for modest gains in 1998. The Government declared the year 2002 was promoting domestic industry and has taken measures that resulted in a significant growth of almost 20 percent in the processing sector, reversing the declining trend of the past. Shortage of financial resources in the sector was main cause for such a decline of the processing sector. Mining. It is one of the main pillars of the Mongolian economy and produces 30% of the total industrial output and accounts for 65.5% of export revenue. The output of the Mongolia mining sector has increased by about 8 percent a year. Products from this sector account for 9 percent of the Gross Domestic Product. The new Minerals Law of Mongolia, passed in 1997, has greatly improved the legal environment for investors by clearly defining legal rules, simplifying the licensing process and reducing royalty and exploration fees. The Petroleum Law, adopted in 1991 has also provided a favorable legal environment for investors to operate in this field. During the past four years of geological exploration in Mongolia , platinum has been found in Umnugobi, Bayankhongor, Uvs and Godi-Altai Aimags. Mongolia is becoming an interesting region for mineral exploration due to the discovery of platinum. Thus, the Mongolian mining sector is attracting the attention of foreign investors.
A region that may include large amounts of copper was also found, in the areas of Bayankhongor and Gobi-Altai Aimags. Copper, gold and uranium deposits were discovered in Oyu Tolgoi of Umnugobi Aimag and exploration is underway. Canadian Ivanhoe Mines has now raised $160 million in equity financing since discovering high-grade gold and copper porphyry at Oyu Tolgoi (Turquoise Hill) in July 2001. Compared to Erdenet Enterprises, the copper substance is higher there. As of now, about 30 thousand meters straight unless the minerals are identified before reaching that level. Over the past four years, geological cartographical works made in the western and northern part of Mongolia have resulted in the discovery of 33 kinds of mineral resources. Because of the reformed mineral resource law of 1997, many foreign and Mongolian companies began new explorations. Before 1997, about 400 licenses were issued but now there are over 2000 licenses issued among the mining companies. About 15-16 percent of Mongolian territory is involved in mining. The Mongolian mining sector covers 1 percent of copper, 3.3 percent of spar, 1.3 percent of molybdenum, 0.1 percent of steel and 0.5 percent of gold of the world. Erdenet ore-dressing plant – A Mongolian-Russian joint venture is one of the leading enterprises in this sector. In 2002, Erdenet Enterprise produced 4 percent of the GDP, 30 percent of industry and 29 percent of export products. In 1998, when world market copper prices stood at $1574.0 the enterprise took a loss of 22 billion tugrugs. However, in 2002, the copper price fell dramatically to $1559.0 but the enterprise ran a profit of 23 billion tugrugs and paid taxes worth 13 billion tugrugs. This was due to lower expenditures and an increase in productivity through considerable management and worker effort. In 2002, Erdenet Enterprise produced and exported 550 thousand tons of copper concentrates. Due to a fall in the world copper price, exports are decreasing and open mining is becoming deeper, down to 300 meters. Ore levels are decreasing, therefore new technology and creation of refined products will help improve profits. The fleet of heavy trucks “Belaz” and main parts of equipment in the plant are innovative. At present there are 6100 workers and engineering and technical staffs, including 500 specialists from Russia and Commonwealth of the Independent States. In 2001, Erdenet was calculated to have resources for the next 40 years. Energy. The energy sector supplies the capital city of Ulaanbaatar and other large cities and centers of provinces with electricity and heating and 70% of the population with electricity. There are eight power plants, which have a total installed capacity of 838 MW. These 8 power plants create a Central Energy System (CES), which connects 11 provinces centers and 102 soums, Western Energy System (WES) and Eastern Energy System (EES) those connect 3 provinces and 8 soums with electricity. Diesel stations with a capacity of 6400-10700 kW provide provinces of the eastern region, such as Zavkhan, Gobi-Altai, Huvsgul and Bayankhongor with electricity. Ninety percent of thermal power plants in the country use coal as their energy source. The total resource of coal in Mongolia was determined as 150 billion tons. At this moment 200 deposits has been discovered. Fourteen projects have been implemented, of which seven were completed by using loans from donors. Mongolia utilized $390 million in loans and technical assistance in the energy sector for the implementation of 39 projects since 1992. In 2002, the energy sector produced 2761.0 kW/h of electricity and 5419.2 thousands GKal of thermal energy. However, not everyone in the country has access to modern sources of electricity and heat. Some 33 percent of the population currently lack access to electricity and 43 percent lack access to central heating. The program to develop a Mongolian Integrated Power System (MIPS) was approved by the Parliament in June 2002. Establishing an integrated system for Mongolia and developing affordable, cost efficient and reliable access to energy, and developing of renewable energy sources is a key objective of the program. The energy demand in the country is predicted to increase by between 3.5 and 5 percent per year and in order to supply these needs, 65 percent of the total electricity will need to be produced by thermal power plants, 30 percent by hydropower plants, and five percent by wind and solar power. The Government is paying special attention to the electrification of rural areas. For this purposes, within the program “100 000 solar energy gers” some 250 million tugrugs was allocated from the central budget and utilized for the procurement of solar energy sets for herder households. Over 20000 herder families will receive solar power in 2003 under the project. Furthermore, since 2000, a collaboration of the energy sector of Mongolia and the US National Laboratory of Renewable Energy invented a map of Mongolia ’s wind energy. The map indicates that a wind park with the capacity to produce 2.55 million GW of electricity per year is possible. Plans are in place to establish the wind generators across 10 percent of the country. The Government of Mongolia has made a significant investment and technical and technological innovation to the sector. Foreign investment was aimed at ensuring reliable operation of power and the objective to build up a united network, which can provide rural areas with electricity. Under the objective, hydro power plants will be built in Gobi-Altai, Zavkhan, Khovd and Bulgan provinces. The power line network will be extended. For instance, construction of the Ulaanboom hydropower plant started this year with a $13 million loan from the Abu Dhabi Fund (The United Arab Emirates) and should be completed by 2005. Alongside this, structural reform and preparation work to privatize state properties are being carried out in the energy sector.
Construction. In 1989, the construction sector produced over 10 percent of the GDP. Although the construction sector was stagnant during the transitional period, it has started to grow gradually since 1995. At present, there are 830 companies operating in this sector, of which over 600 are in the construction-building field, 135 are in the designing field and 98 companies are involved in the production of construction materials. Simultaneously with the expansion of construction services, a “Master plan to develop the construction sector to 2010” was prepared with the ultimate goal of further developing this sector to international standards, and of providing the population with adequate housing. Within this framework, major construction projects, such as “New century”, “ Moscow district” and “Kyokyushuzan fund” are being implemented to build housing apartment complexes. For 2002, construction installation work was carried out to value of 95.4 billion tugrugs, of which domestic construction entities to the value of 74.7 percent or 71.2 billion tugrugs and foreign construction enterprises to the value of 24.2 billion tugrugs or 25.3 percent. Compared with the previous year, construction installation work by domestic entities increased by 10.4 billion tugrug, foreign construction by 7.8 billion tugrugs. Processing industry. The processing industry consists of wool, cashmere, leather, wood, metal, textile, and food production. The recession of processing industry has been stopped and there was an increase of 22.7 percent in 2001 and 24.3 percent in 2002. The percentage of the processing industry in the overall industrial production reached 34.6 percent. The main cause of continued decline over the past decade in industrial production, in particular for agricultural raw materials processing industries was a shortage of financial resources. The financial constraints led to the in ability of enterprises to secure raw materials, resulting in an underutilization of capacity. A number of measures were taken by the Government to support industrial development. For instance several programs such as “Wool”, “ Cashmere ”, “Leather “are under implementation. The processing of animal-originated raw materials such as leather, cashmere and wool is playing a dominant role processing industry. Mongolia processes about 3.0 tons of cashmere, about 20 tons of sheep wool, around 2.0 tons of camel wool, more than 7.0 million skins in kind and produces more than 30 types of products and supplies to the domestic market as well as exporting de-haired cashmere, scoured wool, processed leather, knitwear, blanket, carpets to more than 40 countries such as USA, European Union, China, Russian Federation, and Japan. One of the biggest companies of the wool and cashmere-processing sector is “ Gobi ” Shareholding Company. This company manufactures and exports more than 60 percent of the wool and cashmere-processing sector. The textile production and its exports have been increased during the last years and it shares about more than 10 per cent of the total exports. Favorable trade conditions given to Mongolia from international organizations encourage exports of textile products. As a result, the export of knitted products has been increasing steadily. Around 20 per cent of knitting
Mongolia has rich mineral resources and the earth exploitation has been intensively increasing in the transition period to the market economy. There are over 8,000 deposits of 440 different minerals in Mongolia , of which about 600 deposits and outcrops of resources have been determined. A total of 181 gold deposits, 5-copper molybdenum deposits, a lead deposit, tin-5, steel-10, iron-1, silver-4, magnesium-1, mica-1, gypsum-3, asbect-3, graphite-3, bitumen-2, coal and brown coal-42, phosphorus-1, fluorspar-42, salt-12, sodium sulfate-10, partial precious stone-6, crystal-9, about 30 underground water deposits and 205 construction materials, including stone, sand, gravel, limestone, marble, plaster, cement and mineral pigment’s raw materials are found. Exploration works were conducted in about 70 percent of the deposits, and the resources of the deposits were evaluated from an industrial mining point of view. Over 200 of the aforementioned deposits are being exploited now, of which 24 are non-ferrous metal deposits, 111 are gold, 34-coal, salt-15 and about 50 are usual mineral deposits. The joint Mongolian-Russian Monrostsvetmet Company is exploiting four biggest mines, which have the capacity to extract 600,000 tons of fluorite a year, seven exploration parts, and a factory with the capacity to enrich and process 500,000-600,000 tons of fluorite annually. A gold mine with 250 liters capacity in two floating drags, which have a power to wash 1 million tons of sand a year, open mining with the annual capacity to extract 100,000 tons of coal and a geological exploration group are operating in the company. The company worked with a goal of increasing the mining production’s output and attained the proper results. The production of molybdenum concentrate, cement, lime and production construction, as well as mining of gold and silver was up. The coal exploration is 4716.2 thousand tons in 2002 and it increased by 1.6 percent or 73.1 thousand tons as compared with the previous year. Currently, a total of 94.682 hectares of square have been given to companies and enterprises under 527 licenses to exploit Mongolia ’s minerals, of which 28,000 hectares are being exploited for the mining production. An average of 86 million cubic meters of earth moving was conducted each year and 133 million cubic meter of water was exploited. 40 percent of the total consumed water was re-cycled and 35 percent of the earth moving and 70 percent of the water consumption are allotted to Erdenet ore-dressing plant and other coal-mines. Reserves. Mongolia ’s current coal production is approximately 5 million metric tons, which is mostly consumed by domestic power producers. The country is estimated to have potential reserves of 125 billion metric tons. Many of these reserves have been proven, but remain undeveloped due to a lack of infrastructure. Such reserves include the huge Tavantolgoi deposit in the Gobi , which contains over 5,000 million metric tons of coking and steam coal, but lies more than 400 kilometers from the nearest railway. Several of the country’s largest coal mines have been selected for privatization in the near future. These include the Baga Nuur mine, the largest in the country with a design capacity of more than 6 million metric tons per year. These mines are located along the country’s main rail line, and supply coal primarily to power plants in the major cities. Several smaller mines are also slated for privatization. Mongolia is included in the list of ten world countries, which have great natural wealth and coal resources. Distribution. Currently, coal deposits are quite consistently distributed in the territory of Mongolia . There are over 200 deposits, and finds of coal and brown coals were identified in 15 basins and four regions, of which about 50 deposits have undergone geological and exploration works. Most of the coal reserves are in Umnugobi aimag and it occupies 65 percent of the total resources. The remaining 35 percent is in Bayankhongor, Selenge, Khentii, Sukhbaatar and Uvs aimags. Exploration. The coal is the basic fuel of the energetic production of Mongolia and about 40 enterprises are extracting coal from 27 big and small deposits. Ninety three percent of Mongolia ’s electric and heat production is produced by coal and seven percent is produced by the liquid fuel. In 2002, a total of 5307,4 thousand tons of coal was extracted nationwide and 7066,7 thousand kkal of heat energy. The coal extraction and energy production increased by 3.4 and 7.1 percent respectively against 2001. The Mongolia coal industry is opencast chiefly, which is almost 100 percent economical. But it became clear that this method has an adverse effect on environment. So, a survey on exploiting of natural wealth with the help of advanced technological method is being made in the country in order to protect the environment.
Oil. The oil sector has a high risk for exploration activity and large-scale investment is required to the field. A total of 22 contract fields, covered 538,000 square kilometers area of the total Mongolia ’s territory were selected. Now American, Australian and Chinese oil companies are running their activities on six contract fields under a Production Sharing Contract concluded with the Government of Mongolia. The foreign contracting parties have been drilling 27 oil exploration and evaluation holes since 1993 and spending about $120 million for this purpose. Mongolia began to export oil in 1997. It was testing the extraction of the exploration period. The country extracted and exported about 30.000 tons of oil between 1999 and 2002. In November 2002, Mongolia extracted 14663.3 thousand tons of oil and exported 13740.2 thousand tons to China . US SOKO International and Australian Rock Oil Companies are extracting oil in Tamsagbulag of Dornod aimag and Dornogobi aimag. Excavation officials say Tamsag may have 1.5 billion barrels of oil, and one area of Dornod aimag may contain as much as 50 million barrels of oil. The SOKO International Company, which is developing the 19-22nd contract field of the Tamsag basin under the aforementioned agreement, made 7.4 million investment, drilled four exploration and evaluation bore-holes between 1994-2002 and extracted 300 barrels of raw oil a day. The SOKO International planned to drill four bore-holes in 2002, the first two drillings were successfully conducted, the second bore-hole was drilled into 2227 meters depth and a 21 meters thick oil stratum was revealed. The joint group of the Australian Rock Oil and Chinese Dongsheng companies drilled two exploration holes in 2002 and the first hole was drilled to a depth of 2844 meters. This was the deepest hole in the Dornogobi basin. The second hole was bored to 1.100 meters and a slanting drilling, a first occurrence in Mongolia , is being conducted in the hole. Gold. A total of 18 gold ore zones such as Khentii, Bayankhongor, Kharkhiraa, and Khangai mountain range have been determined in Mongolia . There are 152.6 tons of explored gold reserve in the country, of which 90.6 tons are in the Tuul, Bayangol, Arnaiman, Ult and Toson placers and 62 tons are included in the Boroo, Sujigtei and Tavt basic deposits. According to the 2000 report on exploration of gold cites, the gold reserve increased by 6273.7 kilograms. As a result of the Mongol Gazar and Gachuurt companies’ exploration and research activities, large scale gold reserves of the Kharguit, Shiirt and Zuun Sadat deposits in Tsenkher and Bat-Uul soums of Arkhangai and Uvurkhangai aimags were discovered and registered in the state reserve book in 2002. Over 150 enterprises and organizations were permitted to extract gold, of which 117 enterprises ran their activities in 2001 and extracted a total of 12059.04 kilograms of pure gold and it decreased by 1379.7 kilograms or 11 percent as compared with 2001. In 2002, 121 enterprises and companies extracted 11095.7 kilogram gold and sold it to the Mongolbank. The Altan Dornod Mongol, Shijir Alt, Mongol Gazar, Gachuurt, Erdes Holding, Erel, Mongol-Alt, Khailaast, Undram and Sed companies led other companies by their gold extraction. Six companies – Shijir Alt, Altan Dornod, Mongol Gazar, Khailaast and Undram extracted 59.1 percent of 2002 total sum. The gold extraction of Mongolia increased by 14.7 times in the last 10 years. Also copper ore extraction and concentrate production increased by 30.4 percent, and fluorspar concentrate production increased by 14.6 percent. This sector is leading other fields by its output production and investment amount. The Mongolian government is paying more attention to implementation of the gold program along with intensively controlling the gold extraction process of enterprises and organizations. The gold program is also aiming to improve techniques and technology, and decrease waste. The gold extraction and export of the country have been increasing year by year. Silver. Four independent silver deposits were determined in Mongolia , and exploration works were carried out in the deposits. The main source of silver, reflected in the state reserves statistics, is silver-bearing, non-ferrous metal deposits. Most part of the silver reserve in the state reserve registration is allotted to the Asgat silver-sulfate, the Tuv and Mungun-Undur silver mixed metal deposits. The silver reserve will further be increased during exploration works of soil and mixed-metal deposits. Copper. Most of Mongolia ’s copper reserve is allotted to the Erdenet mining and the Tsagaan Suvarga copper-porphyry deposits. There is much high content copper-nickel and sandstone deposits and finds in the country’s territory. But a detailed survey has not yet been made. As a result of copper exploration, many finds with two percent copper contents were determined. The Erdenet mining extracts 22.23 million tons of copper ore a year and produces 126.7 thousand tons of copper and 1953.7 tons of molybdenum. Also the mining is operating the Erdmin industry, which has a capacity of producing 3.600 tons of cathode pure copper from the unsuitable ore for processing in the technological cycle. As a result of mining research carried out by Ivanhoe Mines Mongolia Inc. Company in Oyu Tolgoi deposit, more than 10 million tons of copper and 500 tons of gold deposits were discovered. However, with more detailed studies going on, the resources may increase. Molybdenum. Most of the molybdenum reserve is in the Erdenet Ovoo and Tsagaan Suvarga deposits. The remaining parts are in the Arin Nuur molybdenum-copper, Undur Tsagaan and Egzur Tungsten deposits. The Tsagaan Chuluut, Zost Uul and Ikh Uul molybdenum finds are located in the central and northern parts of Mongolia . Lead and Zinc. Researched lead and zinc deposits are situated in the country’s eastern part. The main lead and zinc deposits are the Tumurt Ovoo, Ulaantsav, Mungun-Undur and Baits. For infrastructure, those deposits are in the relatively possible zone but the deposits have not been exploited yet. Tin. The Janchivlin, Modot and Elstei tin places were researched and the Nukhet Mountain pass ore deporit was determined as being rich in tin. Tungsten. The tungsten deposits and findings are widely dispersed in the territory of Mongolia . Currently, the Khovd Gol and Ulaan Uul tungsten deposits are being exploited. Iron. Exploration works were made in the Bayangol, Tumurtey and Tumur Tolgoi iron deposits and the deposits’ reserves were determined. These deposits are sufficient to provide the country’s iron manufacture with raw materials. But the issue of discovering new iron deposits with high quality and large-scale reserves has still not been solved. Uranium. Mongolia ’s uranium geological survey was conducted effectively. Currently, the uranium reserves are found in Gurvan bulag, Nemer and Mardai deposits of Dornod aimag. The uranium reserve in the deposit is 49.000 tons. It is observed that the uranium reserve of Gobi region will approximately reach 1.5 million tons. Among the sectors, which exploit resources, mineral and raw material of the Gobi region fuel, energy, ore mines and construction material production are being better developed. 98 percent of Mongolian energy production is produced by coal and ore mine’s production occupies about 60 percent of the country’s total export output. Fluorite. A total of 597.1 thousand tons of spar is extracted annually by Bor Undur mining under the joint Mongolian and Russian Monrostsvetnmet Company. In addition, spar is also extracted in Befkh, Khar Airag, Urgun and Khajuu Ulaan mines. Industrial sector. With the start of the transition to a market economy, the industrial sector experienced continuing decline throughout the 1990s, except for modest gains in 1998. The Government declared the year 2002 was promoting domestic industry and has taken measures that resulted in a significant growth of almost 20 percent in the processing sector, reversing the declining trend of the past. Shortage of financial resources in the sector was main cause for such a decline of the processing sector. Mining. It is one of the main pillars of the Mongolian economy and produces 30% of the total industrial output and accounts for 65.5% of export revenue. The output of the Mongolia mining sector has increased by about 8 percent a year. Products from this sector account for 9 percent of the Gross Domestic Product. The new Minerals Law of Mongolia, passed in 1997, has greatly improved the legal environment for investors by clearly defining legal rules, simplifying the licensing process and reducing royalty and exploration fees. The Petroleum Law, adopted in 1991 has also provided a favorable legal environment for investors to operate in this field. During the past four years of geological exploration in Mongolia , platinum has been found in Umnugobi, Bayankhongor, Uvs and Godi-Altai Aimags. Mongolia is becoming an interesting region for mineral exploration due to the discovery of platinum. Thus, the Mongolian mining sector is attracting the attention of foreign investors.
A region that may include large amounts of copper was also found, in the areas of Bayankhongor and Gobi-Altai Aimags. Copper, gold and uranium deposits were discovered in Oyu Tolgoi of Umnugobi Aimag and exploration is underway. Canadian Ivanhoe Mines has now raised $160 million in equity financing since discovering high-grade gold and copper porphyry at Oyu Tolgoi (Turquoise Hill) in July, 2001. Compared to Erdenet Enterprises, the copper substance is higher there. As of now, about 30 thousand meters straight unless the minerals are identified before reaching that level. About 15-16 percent of Mongolian territory is involved in mining. The Mongolian mining sector covers 1 percent of copper, 3.3 percent of spar, 1.3 percent of molybdenum, 0.1 percent of steel and 0.5 percent of gold of the world. Erdenet ore-dressing plant – A Mongolian-Russian joint venture is one of the leading enterprises in this sector. In 2002, Erdenet Enterprise produced 4 percent of the GDP, 30 percent of industry and 29 percent of export products. In 1998, when world market copper prices stood at $1574.0 the enterprise took a loss of 22 billion tugrugs. However in 2002, the copper price fell dramatically to $1559.0 but the enterprise ran a profit of 23 billion tugrugs and paid taxes worth 13 billion tugrugs. This was due to lower expenditures and an increase in productivity through considerable management and worker effort. In 2002, Erdenet Enterprise produced and exported 550 thousand tons of copper concentrates. Due to a fall in the world copper price, exports are decreasing and open mining is becoming deeper, down to 300 meters. Ore levels are decreasing, therefore new technology and creation of refined products will help improve profits. The fleet of heavy trucks “Belaz” and main parts of equipment in the plant are innovative. At present there are 6100 workers and engineering and technical staffs, including 500 specialists from Russia and Commonwealth of the Independent States. In 2001, Erdenet was calculated to have resources for the next 40 years. Energy. The energy sector supplies the capital city of Ulaanbaatar and other large cities and centers of provinces with electricity and heating and 70% of the population with electricity. There are 8 power plants, which have a total installed capacity of 838 MW. These 8 power plants create a Central Energy System (CES), which connects 11 provinces centers and 102 soums, Western Energy System (WES) and Eastern Energy System (EES) those connect 3 provinces and 8 soums with electricity. Diesel stations with a capacity of 6400-10700 kW provide provinces of the eastern region, such as Zavkhan, Gobi-Altai, Huvsgul and Bayankhongor with electricity. 90 percent of thermal power plants in the country use coal as their energy source. The total resource of coal in Mongolia was determined as 150 billion tons. At this moment 200 deposits has been discovered. Fourteen projects have been implemented, of which seven were completed by using loans from donors. Mongolia utilized $390 million in loans and technical assistance in the energy sector for the implementation of 39 projects since 1992. In 2002, the energy sector produced 2761.0 kW/h of electricity and 5419.2 thousands GKal of thermal energy. However, not everyone in the country has access to modern sources of electricity and heat. Some 33 percent of the population currently lack access to electricity and 43 percent lack access to central heating. The program to develop a Mongolian Integrated Power System (MIPS) was approved by the Parliament in June 2002. Establishing an integrated system for Mongolia and developing affordable, cost efficient and reliable access to energy, and developing of renewable energy sources is a key objective of the program. The energy demand in the country is predicted to increase by between 3.5 and 5 percent per year, and in order to supply these needs, 65 percent of the total electricity will need to be produced by thermal power plants, 30 percent by hydropower plants, and five percent by wind and solar power. The Government is paying special attention to the electrification of rural areas. For this purposes, within the program “100 000 solar energy gers” some 250 million tugrugs was allocated from the central budget and utilized for the procurement of solar energy sets for herder households. 20 000 herder families will receive solar power in 2003 under the project. Furthermore, since 2000, a collaboration of the energy sector of Mongolia and the US National Laboratory of Renewable Energy invented a map of Mongolia ’s wind energy. The map indicates that a wind park with the capacity to produce 2.55 million GW of electricity per year is possible. Plans are in place to establish the wind generators across 10 percent of the country. The Government of Mongolia has made a significant investment, and technical and technological innovation to the sector. Foreign investment was aimed at ensuring reliable operation of power and the objective to build up a united network, which can provide rural areas with electricity. Under the objective, hydro power plants will be built in Gobi-Altai, Zavkhan, Khovd and Bulgan provinces. The power line network will be extended. For instance, construction of the Ulaanboom hydropower plant started this year with a $13 million loan from the Abu Dhabi Fund (The United Arab Emirates) and should be completed by 2005. Alongside this, structural reform and preparation work to privatize state properties are being carried out in the energy sector.
Construction. In 1989, the construction sector produced over 10 percent of the GDP. Although the construction sector was stagnant during the transitional period, it has started to gradually grow since 1995. At present, there are a total of 830 companies operating in this sector, of which over 600 are in the construction building field, 135 are in the designing field and 98 companies are involved in the production of construction materials. Simultaneously with the expansion of construction services, a “Master plan to develop the construction sector to 2010” was prepared with the ultimate goal of further developing this sector to international standards, and of providing the population with adequate housing. Within this framework, major construction projects, such as “New century”, “ Moscow district” and “Kyokyushuzan fund” are being implemented to build housing apartment complexes. For 2002, construction installation work was carried out to value of 95.4 billion tugrugs, of which domestic construction entities to the value of 74.7 percent or 71.2 billion tugrugs and foreign construction enterprises to the value of 24.2 billion tugrugs or 25.3 percent. Compared with the previous year, construction installation work by domestic entities increased by 10.4 billion tugrug, foreign construction by 7.8 billion tugrugs. Processing industry. The processing industry consists of wool, cashmere, leather, wood, metal, textile, and food production. The recession of processing industry has been stopped and there was an increase of 22.7 percent in 2001 and 24.3 percent in 2002. The percentage of the processing industry in the overall industrial production reached 34.6 percent. The main cause of continued decline over the past decade in industrial production, in particular for agricultural raw materials processing industries was a shortage of financial resources. The financial constraints led to the in ability of enterprises to secure raw materials, resulting in an underutilization of capacity. A number of measures were taken by the Government to support industrial development. For instance several programs such as “Wool”, “ Cashmere ”, “Leather “are under implementation. The processing of animal-originated raw materials such as leather, cashmere and wool is playing a dominant role processing industry. Mongolia processes about 3.0 tons of cashmere, about 20 tons of sheep wool, around 2.0 tons of camel wool, more than 7.0 million skins in kind and produces more than 30 types of products and supplies to the domestic market as well as exporting de-haired cashmere, scoured wool, processed leather, knitwear, blanket, carpets to more than 40 countries such as USA, European Union, China, Russian Federation, and Japan. One of the biggest companies of the wool and cashmere-processing sector is “ Gobi ” Shareholding Company. This company manufactures and exports more than 60 percent of the wool and cashmere processing sector. The textile production and its exports have been increased during the last years and it shares about more than 10 per cent of the total exports. Favorable trade conditions given to Mongolia from international organizations encourage exports of textile products. As a result, the export of knitted products has been increasing steadily. Around 20 per cent of knitting
Communication and Information Technology. In 1234, the Mongol Empire of Chinggis Khaan set up the world’s first long-distance postal transmission system, known as “Morin urtuu” (Horse relay station). Then it could take a letter from Kharkhorum to the Caspian Sea in one week. The horse relay service remained so until 1930s. The modern communication development began in the 1930s with the first international telephone exchange. Those days are gone, but now Mongolia is enjoying another information boom.
The Government of Mongolia recognizes that Information and Communication Technologies (ICT) have an important role to play in the development of the country. They offer a platform for building and applying knowledge; facilitate participation in trade for isolated communities, and small and medium enterprises as well as corporations; are critically important for national competitiveness; and allow for improved delivery of public services. Mongolia Telecom Company (MTC) is the national telecommunications company of Mongolia . MTC is a joint venture between the Mongolian government, which holds 60 per cent of the company, and the Korean Telecommunications Company, owning all remaining shares. The company is planning to expand its services into the areas of cellular phones and internet-services in the near future. Deregulation of the telecommunications market is expected to enhance competition and provide new opportunities for growth. The government intends to privatize a portion of the state-owned shares of the Mongolia Telecom to strategic investor through a competitive tender. Mongolia takes a high place in the international arena with a number of computers and mobile phones per person. The telecommunications network of the country was renovated and installed according to international standards by Alcatel of France, EWSD of Germany and KDD of Japan, with future projects coming from Germany and Korea . The country is connected with more than 150 countries via American Intelsat, Asiasat-1 and Intersputnik satellite links. Moreover, mobile telephone services, paging and data networks, cable TV networks, radio and TV broadcasting, and intranet networks are presently operating in Mongolia.
The Government Action Plan for 2000-2004 aims to provide technical facilities to connect Aimag centers with domestic and international communications and information networks. It is planned to upgrade the automatisation rate to 85 percent and to increase the number of telephone users by 20 per cent by the end of 2004. VSAT satellite communication stations were installed in a number of aimags under the Communications II and III project. As a result of the measures to upgrade and improve communication services all Aimags have now been provided with access to automatic dial, and Internet and e-mail services through dial up tone services. The first- ever cellular telephone service company “Mobicom” was established in 1995 with Japan ’s investment. Since then, digital technology has been introduced to the communication sector of the country in the short term. Any foreigner visiting Mongolia can enjoy using mobile phones within GSM and CDMA systems. Today number of mobile users has reached 256.8 thousand. Nowadays, all aimags, except three, have access to cellular phone service provider in the country, is planning a $5.3 million investment to expand its CDMA system network that will transfer all customers in rural areas currently using the AMPS system. The government of Mongolia supports the introduction of new state of the art information technology to this sector by granting taxation relief. By unofficial estimates, every day there are approximately over 1000 calls from Mongolia to foreign countries and 14.000 calls to Mongolia from Korea, Russia, USA and China, where many Mongolians work and live. New international telephone prepaid cards such as the “Smart” card was recently put into service. Sky C & C Company launched the smart card on May 2, 2002 . The card may be used from any telephone, to over 260 countries. Because of lower costs, higher quality of connections and easier use, the card is called “Smart”. The internet was first brought to Mongolia by DataCom in January 1996. Since then, various internet-based services such as e-mail, internet connections, internet taxing, internet-telephone, e-accounts, e-shopping, and internet café are available to users in Mongolia . The information technology is being introduced in Mongolia rapidly, and the total speed of the outgoing line is reaching 1472 Kbit/s, whereas the incoming is 2592 Kbit/s. There are four main Internet service providers in Mongolia such as Datacom, Micom and Bodicomputer Co., Ltd. The number of internet cafes has reached 80. The Government of Mongolia approved the Medium Term Strategy for the Development of the ICT sector and an Action Plan for its implementation in January 2003. Furthermore, in 2001, Ikh Khural approved the Communications Law and the Communications Regulatory Commission to regulate the telecom sector has been established. Mongolia has made considerable progress in developing its information and telecommunications infrastructure in recent years, particularly in the area of availability of modern basic service and cellular services. The number of main lines grew from 3.5 per 100 inhabitants in 1996 to 5.4 in 2002. The number of cellular subscribes grew from 1800 in 1996 to 235.000 in 2002 with the licensing of two operators. The internet service market fully liberalized and there are approximately 50000 internet users. A number of licensed VSAT service providers also provide various value added services such as managed network services, which allow businesses to utilize ICTs. Approximately 90 per cent of the current fixed network infrastructure is digitized. Further, Mongolia Railways also owns fiber optic infrastructure. This provides the opportunity to provide affordable bandwidth while increasing returns on state owned assets and investments. Mongolia will ensure that the policy and regulatory environment allows for fair and competitive provision of infrastructure and services. The challenge Mongolia faces is to increase rural access to ICT infrastructure and services. As the broadcast media has an important role to play in the development of Mongolia by providing information to its citizens, the equipment of radio and TV studios will be improved and transmission systems and stations for TV broadcasting will be upgraded. Within this framework, Mongolia will start broadcasting the 4 domestic digital TV (including the National TV) and 4 FM radio channels throughout the whole Mongolia , at the end of 2003. In 2002, communication revenue was 38.7 billion tugrugs of which revenue from the population was 14 billion tugrugs. As compared with 2001, the total revenue from communication increased by 4 billion tugrugs, whereas, the revenue from the population increased by 2.2 billion tugrugs. Postal service. Postal service is the most basic means of communications, which has served the public for a long time. Despite other alternative means of communications, the postal service is here to stay. There are 9 business entities that conduct postal activities in Mongolia . To date, the Mongol Post Company is the only 100 per cent state-owned company of the existing 9 postal entities, the other 8 companies being private businesses. Mongolia joined the World Post Organization in 1963. The Postal Law approved by the Parliament of Mongolia in May 2003. According to the law, the first time there will be free and fair competition between the companies
Mongolia is a remote country with limited transport and energy infrastructure, a small domestic market, harsh climate, landlocked geography, nomadic livestock and low population density. High dependency on livestock, which is the main base of the economy, highlights the volatility and risks from nature and weather, that so influences the Mongolian economy. As of 2002, the value added from the agriculture sector was 20.1 percent of GDP. The output of livestock production comprised 78.9per cent of the total output of agriculture. The number of livestock by five types (horse, camel, cattle, sheep and goat) was 23.9 million heads at the end of 2002. The Mongolian food and agro industry sector consists of the processing and food industry, livestock and crop production. Livestock. Livestock is the main livelihood and source of wealth in Mongolia and the country’s economy substantially depends on the production and development of this sector. Approximately 49 per cent of the total labor force is engaged in this sector. Due to privatization processes, some 97.2 per cent of the total livestock is now privately owned. By the end of 2002, 256.6 thousand families owned livestock, some 72.3 per cent of which (185.5 thousands households) are dependent solely on income generated from their livestock. Numbers of livestock per family differ significantly. Some 41.3 per cent of Mongolia ’s territory is comprised of semi-desert areas, which are frequently affected by natural disasters-Dzud and drought. Recent weather patterns have had a very negative impact on agricultural production, following global warming of the climate. Although the total livestock population grew up considerably from 1994 to 1999, huge numbers of livestock died in the last two years Dzud. At the end of 2002, some 23.9 million heads of livestock were counted. The number of surviving young animals in 2000 and 2001 decreased by 1.7 million heads or 19.5 per cent compared to earlier years. This loss caused a dramatic impact on living standards of herders and on rural well-being. Crop. The agricultural land of Mongolia is 130173.5 thousand hectares, of which 217.6 thousand hectares is for crop production. The main grains of crop production are cereals, potatoes, vegetables and fodder. In 2002, 121.9 thousand tons of wheat, 49.1 thousand tons of potatoes, and 38.1 thousand tons of vegetables were harvested. Crop production has also been in difficult situation. As formally registered, there are 1.2 million hectares of arable land in Mongolia . However, in 2001, potato and vegetables were planted on 217.6 thousand ha, while 275.4 thousand ha of the land was left as a fallow. Thus only 497 thousand ha of arable land was used which means that 707 thousand ha was abandoned. Due to declining land utilization wheat production has decreased by 5.9 times compared to 1990 levels; potato and vegetable production are down by 1.8 per cent and fodder and vegetable-by 510 times. In other words, only one fifth of the total arable land was planted and only 30 per cent of domestic flour needs, 38 per cent of potato needs and 46 per cent of vegetable needs have been met through local production. Food. Presently, there are over 1800 small and medium sized business entities engaged in the food industry. Manufacturing and supply of meat, bread, beverages, flour products and salt increased.
Processing of agricultural food products and raw materials is developing in Mongolia . Currently, many small and medium factories and entities manufacturing milk products are established in the aimag, towns and soums. This is a good start for the further development of the milk industry. There is a network of flourmills with total capacity of more than 300.000 tons of flour per year. There is also a network of 8 larger grain storage facilities with total capacity of 250.000 tons of cereals. Mongolia is producing one third of the total domestic consumption of flour. In 2002, Mongolia produced 60.7 thousand tons of flour and imported 96.9 thousand tons of flour. Up to 95 per cent of the flour is imported from Russia and China . Meat and meat product manufacturing has an important place in the food sector with the most potential for the future development. There are 22 medium and large slaughterhouses with a total capacity of about 62.000 tons of carcass meat per year. However, they use only 29 per cent of their total capacity. Meat consumption per person has gradually increased up to 120 kilograms per year. Russia is seen as the basic meat export market for Mongolia . Looking at the 2000 statistics based on the livestock number, Mongolia was able to provide domestic meat consumption and export 19-31 thousand tons of meat in 2001-2004 years. Due to the high import customs tax of Russia , high railway transportation cost and customer monopoly, the price of the exported meat is decreasing annually. Policy and legal framework for food and agro sector: The main objectives of the economic policy for 2003 are to accelerate economic growth, enhance social security services and to deepen the rural development through improvements to economic and financial conditions, promotion of domestic industries with a focus on export production, while providing for sustainable recovery in the agricultural and cropping industries. The primary objective of the food and agro-industry sector is to encourage regional and rural development to provide economic growth and to create a favorable environment for sustainable development of the food and agricultural sector. The Government of Mongolia declared the year 2001 as the year of “Domestic industry promotion”. Mining, wool, cashmere, skins, hides, meat processing, crops and tourism industries have been determined as priority sectors. The Government gives high priority to creating a favorable legal environment for food and agricultural sector development by developing relevant and appropriate laws. It also seeks to effectively use funds, materials and human resources available to the sector. Finally, it seeks to extend methodological and technical support to producers. Land Law: The Constitution (1992) states that foreign citizens, legal persons and stateless persons may lease land for a specified period under the conditions and procedures laid out in law. The Parliament of Mongolia passed the new Land Law in 2002, that was an important step towards ownership and use of land by citizens and organizations, and regulation of relations connected with land ownership and use. The newly approved Law on Land provides the authority to enter into contacts on land lease with foreign citizens, legal persons, governments and international organizations to the Government of Mongolia. In general, land may be leased for at least 15 years and for up to 60 years with a single extension of up to 40 years. In other words, the maximum duration of a lease in any given case is 100 years. Law on Land Ownership: Principles of land ownership by citizens of Mongolia , types and sizes of land to be owned by Mongolian citizens, the power of the local administrations and the procedures for enacting land ownership are regulated by the Law on Land Ownership by Citizens of Mongolia. The Law on Mongolian Citizens Ownership of Land (came into effect in May 1, 2003 ) restricts the ownership to Mongolian nationals. The same restriction applies to foreign nationals who are married to Mongolian citizens. 0.9 per cent of the total area will be privately owned. The privatization of land for private use in urban areas (0.01 per cent of total land) will be done freely to all Mongolian citizens. Families in capital city are entitled to 0.07 ha, aimag centers-0.35 ha and soum centers-0.5 ha of land. Subsequent acquisitions of land will require payment. Individuals that possess land on leasehold terms (including farming) have the preemptive right to purchase it from the state. Specific Government Programs: The Government launched a number of nationwide, medium term programs for the development of specific sectors and for implementation of Government policy. However, due to financial constraints, the implementation of all goals and tasks set for the programs has not been possible. The Green revolution program, started in 1997 and the White revolution Programs from 1999 are well known in the farming sector. Under the Green Revolution, about 45 agro-parks were established, where pilot demonstrations are being implemented. These agro-parks are now merged with the Agriculture Extension Centers.
The most important Government programs are indicated in following table. Name of programs implemented by the Government 1. National program on livestock quality and breeding activities improvement 1997. Development projects with international cooperation The agricultural sector collaborates with and receives welcome assistance from diverse organizations such as the Food and Agriculture Organization of the United Nations, International fund for Agricultural Development, UNDP, World Food Program, World Bank, ADB, European Union Program , Russia , China , USA , Japan and Germany . In 1993-2002, some 31 projects were implemented with a total budget of $144.4 millions. Currently there are 15 projects being implemented in the agricultural sector with a total budget of $85.5 million. The Government aims to consider a balanced allocation and implementation of foreign loans and assistance and to improve the effectiveness of foreign assistance. The Government and the donor community cooperate closely in planning and implementing projects in specific areas of agricultural development that include crop and livestock development, seed production and multiplication, veterinary services and rural development. The membership of Mongolia to the WTO, FAO, Office International des Epizooties (OIE) creates a favorable environment for both export and import of agriculture and husbandry products.
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