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1. EXECUTIVE SUM
Macro economic indicators
Main activities occurred in soc
Laws and policies approved by t
Following laws had bee
agreements such as Law on Proedition), Law on Minimum wag
cultural rights, Ratification o
Amendments on Charter of Inter
agreements, Ratification of Agre
Mongolian livestock program,
GDP growth (percentag
Industrial sector growth
Debt remainder (MNT
Budget balance ( MNT
Unemployment (thous
Inflation (percentage)
Foreign trade turnover
Foreign trade balance (
EC
alf of 2010/
ARY
ial and economic sectors of Mongolia in the f
he Parliament
approved by the State Great Khural. Laws
perty valuation, Law on Concession, Law on, Law on Asset certified security, Law on Eco
additional protocol on international pact,
national Labor Organization, Ratification of L
ement on Project on developing regional auto
General Program on Financial cooperation,
9.VI 1
e) -3.5
(percentage) -6.5
illion ) 2 558.9 2
billion) -35.4 1
nd people) 39.5
6.3
(million US$) 1.656
illion US$) -129.9
NOMIC REVIEW OF
FIRST
National Development and
NDIC 1
irst half of 2010
and international
anking (revisedomic, social and
Ratification of
an and financing
road addition,
Participating in
.VI
5
12.4
882.6
04.6
39.9
11.4
.665
47.6
ONGOLIA
HALF OF 2010
nnovation Committee
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ECONOMIC REVIEW /First half of 2010/ NDIC 2
peace operations (revised edition), Law on Medicine and medical equipment (revised edition),
Accession to Protocol on Agreement on issues involving trade of copyright ownership,
Accession to Singapore agreement on trademark law, Law on Competition (revised edition), Law
on Trademark and geographical indication (revised edition) and Law on Prohibition of granting
of licenses for mineral resources exploration have been approved.
Government policies and activities
Following important policy documents have been approved and are being implemented
by the Government of Mongolia in the first half of 2010.
Government of Mongolia has approved action plan of Business-enabling environment
reform year in February of 2010. In the action plan, goals and activities directed at resolving
difficulties occurring at every step of business are to be implemented in 2010 while actions
aimed at providing stability of business environment at macro level and developing infrastructure
are to be continuously executed until 2011-2012. In doing so, legal environment to conduct businesses will improve, new option for financing will emerge and financial risk as well as
business expenses will decrease.
Government of Mongolia has supborder pointed the Law on Fiscal Budget and has
agreed to present it to the State Great Khural. In the draft law, powers and rights to distribute
public spending for large repairing works, investment projects and procurement are to be given
to local offices. Upon approval, this draft law will determine budget, its principle, framework
and structural classification, define rights and responsibilities of stakeholders in the budget issues
and regulate formation, approval, spending, registration, reborder pointing and monitoring
processes of the budget.
Investment agreement signed among the Government of Mongolia, Ivanhoe Mines
Mongolia Inc LLC, Ivanhoe Mines Limited and Rio Tinto International Holdings have
come into realization. Also, Program to develop South Gobi infrastructure and Action Plan to
implement the Program have been discussed and approved. Purpose of this program is to
establish basic infrastructure in the South Gobi area and supborder point infrastructure
development that is needed for exploring, concentrating and processing mining industries. It will
also set up hard infrastructure for cities and towns that will develop following development of
these industries and establish social infrastructure and basic social services. As strategic deposits
including Tavantolgoi, Oyutolgoi, Tsagaansuvarga, Nariin Sukhait and Shivee-Ovoo start gettingexploited and utilized into economic cycle, annual economic growth is projected to reach 12.5
percent and gross domestic product per capita is to increase to 5250 US$ in 2015 which is 2.7
times higher than that of 2009. Prime Minister of Mongolia, Mr. S.Batbold will chair the Council
responsible for organizing the establishment of Sainshand industrial complex. Large industries
which will have huge impact on national development such as copper smelting, coke-chemical,
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citizens in the first half of this year. In addition, Government has introduced its findings of
survey on whether citizens prefer stimulus money in non-cash form to cash transfer and
2.358.432 people in recurring count have voted to get their stimulus money in non-cash
nationally.
Price of consumer goods increased
Inflation is 11.4 percent at national level and 16.2 percent in Ulaanbaatar city in the first
half of this year. The fact that inflation is relatively high is due to many factors such as impact of
economic crisis, granting of stimulus to all citizens and dzud of last winter as well as the
increase of energy price. For example, in the beginning of this year, Regulating Council of
Energy Regulatory Authority has authorized to increase energy price of electricity consumers by
17.35 percent starting from January 15th, 2010 other than citizens with normal electricity meter.
Moreover, although trading fair for meat was to be organized bi-weekly in spring season and
monthly in other seasons in Ulaanbaatar city in order to improve meat supply, to directly connect
customers with producers and to decelerate excessive price increase, meat price failed to declinesubstantially due to hoof-and-mouth disease, damage of dzud and imperfect distribution system
of meat supply.
97.5 thousand herder families were affected by dzud and 9.7 million livestock lost
As of first half of the year, 9.7 million heads of livestock died unnaturally due to harsh
winter season. 90.7 percent of total lost livestock occurred in Arkhangai, Uvurkhangai, Uvs,
Bayan-Ulgii, Bayankhongor, Zavkhan, Khuvsgul and Govi-Altai provinces. Damage of MNT
63.9 billion occurred to herders as a result of large quantities of livestock loss. Furthermore,
8711 herder families are left with no livestock or with a small number of cattle. Therefore,Government has issued a temporary regulation to re-stock herders with cattle and planned, within
the project, to provide each family with two horses, three cows and 40 sheep all under MNT 40
million. Herders included in the project are to pay back their loans within 5 years of time.
Decision to improve life guarantee of civil service officers was made
Out of 4000 housing quotas for general budget managers to distribute, 3825 quotas from
127 public institutions are granted as of first 3 months this year. 119 citizens have chosen their
housing and signed purchasing agreement out of 787 civil servants who provided applications.
Salary, pension and financial aid for public servants will be increased by 30 percent starting from
October 1st, 2010.
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2. ECONOMIC GROWTH
REAL ECONOMIC GROWTH /First half of 2010/
As of the first half of 2010, GDP reached MNT 1 650.65 billion which is 5.0 percenthigher than last year. When comparing GDP growth with that of the first quarter, it has dropped
by 2.6 units. While industrial sectors surplus value and that of services sector have gone up 8.3
percent and 12.5 percent respectively, agricultural sectors surplus value has gone down 30.7
percent. Decrease in agricultural sector is because surplus value of livestock sector sharply
dropped.
When looking at real economic growth of each sector as of the first half of 2010:
Agricultural sector
Surplus value of agricultural sector has reached MNT 248 billion in the first half of this
year in which it is 30.7 percent lower compared to last year. The most influential factor in this
result is the amount of unproductive lost livestock. 9.7 million heads of livestock have been lost
nationally as of the first half of 2010. Almost half of this, or 4.8 million heads lost, are goats.
Since unnatural loss of big cattle has been high, supplies of livestock products such as meat,
milk, wool and cashmere have dropped. Especially, high level of unnatural loss of goats has led
to sharp drop in supply of the main livestock product cashmere. These factors mainly affected
in the drop of surplus value in livestock-breeding.
Industrial sector
Growth of industrial sector has decelerated 4.2 units to reach down to 8.3 percent in the
second quarter compared to first quarter. However, amount of extracted products in mining
sector is less than the amount exported. For example, 1192.4 thousand tonnes of iron ore have
been exported as of the first half of the year which is 94.4 percent higher than that of last year.
However, extracted amount of iron ore is only 521 thousand tonnes or 26.5 percent less than last
years amount. Therefore, extracted amount is half as much as exported amount.
There has not been any growth observed in construction sector. For instance, amount of
construction building and large repairing works value is MNT 55.9 billion at current year cost as
of the first half of this year which is 16.4 percent less compared to this time of last year.
Services sector
Services sector has showed the highest economic growth and, in the first half of 2010, its
surplus value reached MNT 716 billion that is 12.5 percent more than this time of last year.
Growth in transborder pointation, wholesale and retail sales sectors has largely resulted in
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services sector growth. For exa
percent or 1736.2 thousand ton
MNT 891.3 billion at current ye
year.
In the following months, ecexcluding drop in livestock secto
PRODUCTION OF AGRICU
Food, agriculture and
accounting for about 30.2 perce
percent of labor force with wor
total economy is illustrated in th
Figure 1. Food, agric
Livestock
For Mongolia, pastoral c
with its advantages such as low
clean raw materials of livestoc
reaching 44 million heads. It, o
other side; global warming and
the quality of Mongolias past
livestock and further diminishin
tends to decline as well.
Other s
31,6
alf of 2010/
ple, value of freights transborder pointed has i
es. Total amount sold in whole and retail sale
ar cost and that is an increase of 87.1 percent
onomic growth is to accelerate in the 3rd
and 4t
r.
TURAL SECTOR
ight industry is an important sector for n
t of GDP, over 10 percent of export revenue
places. Food, agriculture and light industry se
following chart.
ulture and light industry (FALI) sectors share in
attle-breeding is quite unique from other coun
cost, energy saving, environment-friendliness
. In recent years, the number of livestock ha
n one side, leads to over capacity for pasture
orldwide desertifications are also bringing ne
ure land. Climate change is degrading quali
output of raw materials and quality of these r
FALI sector
30.2%
Mining
sector
28,2%
ctors
NDIC 6
ncreased by 17.9
s sectors reached
compared to last
h
quarter of 2010
tional economy
nd providing 36
tors standing in
GDP
ries in the world
and ecologically
sharply jumped
land and, on the
ative impacts on
y and health of
w materials also
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For example, health of pastoral cattle cannot meet requirement levels set by the World
Health Organization. Therefore, output and quality of meat fail to meet market demand fully in a
number of ways and because of this, export of meat and meat products are not increasing
significantly.
In 2010, it got severely cold in the winter and large part of homeland was covered withheavy snowfall. In addition, insufficient reserves of grass and supplementary fodder for cattle
made the dzud even more severe and, because of this; unnatural loss of livestock was
comparatively high in contrast to previous years. Nationally, 9.7 million heads of cattle were lost
as of first 6 months of 2010 which is 6.8 times (or 1437.9 thousand heads) more than last years
loss. Of which, 2.9 million losses occurred in western region, 4.2 million in khangai region, 2.1
million in central region and 0.5 million in eastern region.
Table 1. Head count of livestock lost /thous.heads/
Number of livestock lost Percentage in total livestockCattle type 2008.I-YI 2009.I-YI 2010.I-YI 2008.I-YI 2009.I-YI 2010.I-YI
Camel 1.9 1.6 12.8 0.7 0.6 4.6
Horse 101.5 49.3 338.2 4.5 2.3 15.2
Cow 115.9 89.0 550.1 4.8 3.6 21.2
Sheep 540.2 564.2 4053.4 3.2 3.1 21.0
Goat 656.6 733.7 4772.0 3.6 3.7 24.3
Total 1416.0 1437.9 9726.6 3.5 3.3 22.1
Source: NATIONAL STATISTICS OFFICE
A total of 8500 herder families were left with no cattle and over 32 thousand families lost
half of their cattle due to this disaster occurred in livestock sector and poverty in rural areas
increased to a large extent. Ministry of Food, Agriculture and Light Industry and other related
regional administration offices must take actions such as promptly re-stocking herders with
cattle, reassigning members of herder families who lost their livestock in other sectors in need of
work force and organizing implementation of Mongolian livestock program which was
approved by the State Great Khural in order to overcome damages caused in livestock sector,
main pillar of the countrys economy.
In market research of main goods of livestock sector in first 6 months of 2010, sheepskin
is sold cheapest in Bulgan province at MNT 4 thousand and the most expensive in Hentii
province at MNT 8 thousand. Cowhide that is longer than 2 meters is cheapest in Uvs province at
MNT 6 thousand while it is way more expensive in Ulaanbaatar city at MNT 22 thousand.
Orkhon province has the cheapest horse hide at MNT 8.5 thousand while it is MNT 18 thousand
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in Arkhangai province which is the highest in the nation. White cashmere is MNT 53.5 thousand
in Govi-Altai province at its cheapest, but MNT 40 thousand in both Sukhbaatar and
Govisumber province. On one hand, it is good that it supplements cash on hand for herders;
unfortunately, it is a heavy hit for cashmere processing industries which are strategically
important sector of national economy. It further reminds us that taking actions to protect
domestic market is unavoidable.
Agriculture
Under the framework of Atar-III campaign (Cultivation campaign) organized by the
Government of Mongolia, farming sector revived sufficiently to supply domestic flour, wheat
and potato needs fully and objectives set in the Government Action Plan is now possible to be
fulfilled. A total area of 312.2 thousand hectares is cultivated as of the first half of 2010 which is
11.3 percent larger than last year.
Table 2. Cultivation /thous.ha/
Type of sown plants 2009 2010Ups and downs
/ %/
1 Total planted area 280,3 312,2 111,4
2 Grain 251,9 259,0 102,8
3 Of which: Wheat 248,8 249,6 100,3
4 Potato 13,5 13,6 100,8
5 Vegetable 6,4 6,9 107,3
6 Fodder plants, hay 2,8 11,4 399,0
However, bottom heat has sharply increased over normal level in June and July, thus
bringing negative blow on harvest. Especially, preliminary studies show that grain harvest in the
main region of farming, Tuv and Selenge provinces, might fail to give expected amount. Sowing
of fodder plants was increased by 3.9-11.8 times in Khangai, Eastern, Central and Ulaanbaatar
region in case harsh and severe condition of last years winter recurs. Thus, it is important to
consider that organizing efficient products trade is crucial because failing to do so will bring
costly harm for enterprises who will then have fodder reserves kept for over a year.
During the conference on strengthening budget planning process organized by the
Ministry of Food, Agriculture and Light Industry, it was suggested that a guideline with very
comprehensive standards for preparation for the upcoming winter should be formulated and
preparation works of all soums should be verified against reborder points. Such action should
promptly be implemented.
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INDUSTRIAL SECTOR PRODUCTION
As the Government of Mongolia announced year 2009 as the Industrialization
Supborder point Year, one of the many important actions taken is the formulation of
Industrialization Program of Mongolia and its implementation since it was approved by
Government Decree No.299 of September 30th
, 2009.
NDIC is working to improve inter-sector coordination and formulate systematic
development plan and strategy since industrialization of a country is a complex process that
relies on cooperation of all sectors, needs initiative and effort of all citizens as well as their desire
and aspiration.
Following important actions to improve environment for enterprises are implemented
Law on Concession was approvedThe purpose of this law is supborder point public private partnership and increase private
investment in social and economic sector of Mongolia through regulating relations concerning
the organization of tenders for granting investors the rights of possession, operation, creation and
renovation of state and locally-owned properties under concession agreements, conclusion,
modification and termination of concession agreements. Through the law on Concession, it
presents legal environment for private sector to be involved in public private partnership so that
they can provide services for the state through contract agreement, to take up some
responsibilities of the state as well as to construct certain buildings and transfer them to state
ownership after utilizing for a certain amount of time.
Law on legal environment for production and technological park was approvedThere was a major obstacle in establishing production and technological park due to the lack
of law or legal environment specifically regulating requirements, organization, land ownership,
tax breaks and financial assistance for production and technological park. Upon approval of this
law, many advantages are formed. Regional development goals are met, new workplaces are
created in rural areas, production of high technology based value-added products increased,
issues in transborder pointation and logistics sector are improved and competitiveness in
international market is advanced.
Program on South Gobi infrastructure development and the program action plan areformulated
Purpose of this program is to establish basic infrastructure in the South Gobi area and
supborder point infrastructure development that is needed for exploring, concentrating and
processing mining industries. It will also set up hard infrastructure for cities and towns that will
develop following these industries and establish social infrastructure and basic social services.
Within the objective to establish basic infrastructure in the South Gobi area, hard infrastructure
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facilities such as extracting and processing mining industries, power station, electricity grid,
railroad, and concrete auto road will be constructed.
Development Bank is to be establishedDevelopment Bank of Mongolia will be a legal entity with state participation with a right to
provide financial broking services for investment needed in implementing programs and projects
of development priorities set by the Government. Development Bank will supborder point
infrastructure and industrial development and provide financial assistance in introducing modern
technologies that are environment friendly and meeting international standards.
Direction to develop industrialization in rural region is approvedDirection to develop industrialization in rural region is approved and MNT 30 billion from
state budget dedicated for supborder pointing small and medium enterprises has started being
distributed.
State policy on high technology industrial sector was approvedThis document was formulated based upon competitiveness of our country, economic
structure and industrialization researches, studies for future development trend for industrial
sectors and capacity of science and technology sector and development inclination of worldwide
technology, innovation and industrialization. By developing high technology industrial sector,
current situation of raw products taking up large share of export goods will be eliminated and
condition for transitioning from raw materials-based economy to knowledge-based economy will
be created as production of value-added end products increases.
Investment corporation for high technology and innovation, a state-owned LLC isbeing established
Investment corporation for high technology and innovation LLC is responsible for
implementing state policy on high technology, developing infrastructure of the sector, financing
economically important technological and manufacturing projects as well as raising capital.
Draft of Sub-program on supborder pointing national champions was developedWhen looking at international experiences, globally competitive, national leading companies
play exceptional role in countries social and economic developments. Since these companies
become the face of business and production sector and provide noteworthy contributions while
being the leading tax payer, employer and guiding entity for business accomplishment, state
offers policy supborder point. Likewise, the purpose of the program is directed at forming
favorable legal environment for establishing globally competitive national champion.
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Mining and heavy industry
Legal ground for exploring Tavantolgoi deposit is setDraft of Parliament Decree on exploring Tavantolgoi coal deposit was approved upon State
Great Khural meeting and Erdenes Tavantolgoi subsidiary company under state-owned
Erdenes MGL is to be established in order to conduct exploration and export activities. Hence,Erdenes Tavantolgoi subsidiary company possesses the right to distribute 10 percent of
Tavantolgoi shares to Mongolian citizenry on equal terms.
Government decision to establish Sainshand industrial complex was madeConsidering the locations of mineral deposits and the shortest way to export market,
development of industrial complexes is planned to start from Sainshand and later to other
regions. After constructing Sainshand industrial complex, all options such as processing raw
materials coming from strategic mining deposits, developing heavy industry and producing
value-added, internationally competitive products will be possible.
Copper smelting factory is decided to be constructedDraft of parliament decree on constructing copper smelting and processing factory is
approved at State Great Khural meeting of April 29th, 2010. Heavy industrial development base
to add value on products and to increase export revenue will be formed after the construction of
the factory.
Regarding the objective to establish factories for enriching and producing end products
relying upon fluorspar region, a couple of factories have already put into operation. First one is
an enrichment factory by Kevin Invest LLC in Dalanjargalan soum, Dornogovi province withannual capacity to produce 80 thousand tonnes of solid fluorspar with 95-97 percent content and
18 thousand tonnes of concentrated fluorspar. Next one is also an enrichment facility by Yanitai
Uul LLC at Airag soum, Dornogovi province with annual capacity to produce and export 20
thousand tonnes of concentrated fluorspar with 92-97 percent content.
Total production of industrial sector
Total industrial sector production was MNT 754.7 billion at 2005 price as of the first half
of 2009 which was 6.5 percent less than the same time the previous year due to economic crisis
impact. However, in the first half of this year, it reached MNT 845.5 billion which is 12.4
percent higher than last years data.
Increased production of main industrial sector goods such as coal, petroleum,
molybdenum concentrate with 47 percent content, fluorspar concentrate, all types of cattle meat,
milk, flour, alcohol, wine, beer, flavored water, juice, copper cathode, metal cast affected total
industrial output growth.
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As of the first half of 20
statistics, there is growth in ever
Figure 2. Total production of indu
production by 35.8 percent, iron
each.
Figure 3. Total industrial sub-sec
billion /
442.7
484.7
207.1
2
104.9
0
100
200
300
400
500
2009 I-VI 2010
807.0
7
700
720
740
760
780
800
820
840
860
2008 I-VI 200
alf of 2010/
10, when comparing total industrial output wit
sub-sector.
strial sector as of first half of 2010 /a the price of 2
Miningindustrial secto
growth of 9.5 p
compared to th
year. Output o
reached MNT
2005 price. Wh
specific products
and fluorspa
increased by
percent respecti
cooper concent
slowed down by
ore mining by 26.5 percent and zinc concentrat
or outputs of the first half of 2010 /at the price o
The highseen in process
total output of th
MNT 252.7 billi
percent higher t
last year.
While
combed cashmer
gone up, manufa
garments and cadropped in light i
2.7
111.1
I-VI
Mining and
exploring industry
Processing
industry
Electricity and
thermal power
generation, water
supply
4.7
848.5
9 I-VI 2010 I-VI
NDIC 12
previous years
005, MNT billion/
and exploringr has seen a
ercent this year
same time last
the sector has
84.7 billion at
n looking at the
, coal, petroleum
r production
3, 80.2, 35.8
ely. However,
rate production
2.4 percent, gold
e by 10.6 percent
year 2005, MNT
est growth wasing industry as
e sector reached
on which is 22
an this time of
production of
and carpet has
turing of knitted
el wool blanketsdustry sector.
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Table 3. Production of main goods of mining and exploring industries /as of the first half of 2010/
Main types of goods Unit 2008 I-VI 2009 I-VI 2010 I-VI
Coal thous.tonne 4 163.4 5 163.1 9 447.9
Petroleum thous. barrel527.4 598.8 1 078.9
Copper concentrate /35%/ thous.tonne 181.0 180.0 175.6
Molybdenum concentrate
/47%/tonne
2 030.0 2 285.0 2 412.1
Gold kg 6 416.2 4 327.3 2 779.2
Iron ore thous.tonne 68.5 709.1 521.0
Fluorspar concentrate thous.tonne 69.7 53.3 72.4
Zinc concentrate thous.tonne 78.0 64.9 58.0
Source: NATIONAL STATISTICS OFFICE
Table 4. Production of main goods of processing industry /As of the first half of 2010 /
Main types of goods Unit 2008 I-VI 2009 I-VI 2010 I-VI
Copper cathode /99%/ tonne 1 194.6 1 044.5 1 402.0
Knitted garment thous.uni 235.0 278.6 239.5
Combed cashmere tonne 482.8 411.5 551.3
Carpet thou.sq.m 406.1 273.4 311.7
Camel wool blanket thou.sq.m 14.4 29.0 6.8
Sawn wood cu.m
4 994.5 4 484.4 4 109.2Cement thous.tn 69.8 94.2 95.5
Food production
Cattle meat tonne 1 733.0 177.9 1 745.0
Liquid milk thous.l 3 297.2 5 528.0 9 857.3
Flour tonne 27 946.4 39 022.4 70 072.7
Bread tonne 11 050.9 11 807.6 10 438.2
Fine pastry tonne 6 234.3 6 191.0 6 107.0
Noodle tonne 959.6 1 734.1 1 259Flavored water, juice thous.l 21 395.7 21 064.2 22 540.9
Alcohol, wine thous.l 7 268.4 7 714.5 10172.5
Spirit thous.l 3 178.5 2 180.9 2 132.8
Source: NATIONAL STATISTICS OFFICE
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ECONOMIC REVIEW /First
67.7
22.6
9.7
Growth of food product
Total output of the sector reache
of last year and it takes up m
productions of all types of me
increased.
Table 5. Production of electricity, t
/as of the first half of 201
Product
ElectricityThermal power th
Fresh water distribution th
Source: NATIONAL STATISTICS OFF
Electricity, thermal pow
by 5.9 percent compared to last
and steam production increased
decreased by 3 percent.
Figure 4. Sales structure of indust
thermal power and water supply
to higher increase of mining exp
Shares of industrial secto
of explored petroleum, 92.9 pe
garments, 45.2 percent of proc
foreign markets.
alf of 2010/
Mining and
exploring industry
Processing
industry
Electricity, therma
l power generation
and water supply
ion mainly resulted in the expansion of proc
d MNT 124.5 billion which is 39.8 percent hig
re than half of total processing industrial o
at, milk, dairy products, flour, beer and flav
hermal power generation and water supply sector
/
Unit 2008 I-VI 2009 I-VI
il.kW-h 1 683.9 1 746.9ous.gCal 4 197.0 4 148.8
ous.sq.m 33 676.9 32 270.5
CE
r generation and water supply sectors product
year, reaching MNT 111.1 billion. Thereof, el
by 6.5 percent while water purification and w
ial output /percentage/
Total industria
reached MNT 1 914.3 b
half of this year and 66.31 270 billion is sold
markets. Share of mini
industry in total indus
gone up to 67.7 percent
higher than last year
processing industry fel
percent or 5.8 units low
sector went down to 9.7 percent or 3.2 units l
rt and its larger share in sales structure.
r products for export differ from product to pro
rcent of metal ore, 86 percent of coal, 71 p
ssed iron and 5.2 percent of food products
NDIC 14
ssing industries.
er than half-year
tput. Especially,
ored water have
2010 I-VI
1 831.04 620.5
31 287.1
on has increased
ectricity, heating
ter supply sector
l output sold
illion in the first
percent or MNTon international
g and exploring
trial output has
which is 9 units
while share of
l down to 22.6
r and electricity,
wer. This is due
uct. 100 percent
ercent of woven
re exported into
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The number of employed in the industrial sector is 51200 as of the first half of 2010 and
that is 4.7 percent increase or 2 347 more people compared to last year.
Productivity of industrial sector is constantly improving and it achieved MNT 1.4 million
or 8.7 percent increase from this time of last year, reaching MNT 17.1 million. Productivity has
increased MNT 0.5 million or 1.7 percent in industrial sector, MNT 1.9 million or 19.2 percentin processing industry, MNT 0.4 million or 5.2 percent in electricity, thermal power generation
and water supply sector.
Further trend
From looking at the total industrial output during the first half of this year, it is expected to
increase in the second half as well.
As growth occurs in industrial sector, it will then increase economic growth and, taking into
account of this, the year also looks to end with growth in GDP.
Following factors are to positively affect growth of industrial output. These are:
Mining sector growth: Production ofmain mining products such as coal and petroleumare trending upward.
Processing industry growth: Processing industrial sector, especially food production, isprojected to increase substantially.
The reason coal production is increasing is related to the fact that a total of 5 enterprises are
increasing their individual coal production. Tavantolgoi Shareholders Company and Energy
Resources LLC are exploring parts of Tavantolgoi coal deposit located in Tsogttsetsii soum,
Umnugovi province and Mongolin Alt (MAK), Chinhua-MAK-Nariin sukhait and
Southgobi Sands LLC are also exploiting at Nariin Sukhait coal deposit located in Gurvantes
soum.
Table 6. Coal production /thous.tonne/
Name of enterprisesOutput in
2009
Planned
amount in
2010
Increase
from the
previous
year
Output of first
5 months of
2010
1 Tavantolgoi SC 2600.0 2600.0 - 600.0
2 Energy Resources LLC 1400.0 3800.0 2400.0 800.0
3 Mongolin Alt LLC 1600.0 3000.0 1400.0 1400.0
4 Chinhua-MAK-Nariin sukhait 730.0 1100.0 370.0 330.0
5Southgobi Sand LLC 1327.0 2500.0 1173.0 700.0
Total 7657.0 13000.0 5343.0 3830.0
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These companies increased their mined and exported coal this year by 69.8 percent or 5343
thousand tonnes more from the previous year and, Erdenes MGL and QGX companies are
working to export 1 million tonnes of coal each starting from this year.
Although mining sector is experiencing growth, declining production of main goods of this
sector such as 43.2 percent drop of gold and 26.5 percent drop of iron ore production are hurtingthe overall industrial growth.
When observing total industrial output so far till June this year, it is possible for total
output of this sector to grow in the remaining months, hence, increasing economic growth as
well.
BALANCE OF PAYMENTS
Due to financial and economic crisis occurred in 2008, the nations balance of payments
came negative. Increase of foreign trade imbalance deepened as values of mining products
including gold, copper and zinc sharply dropped in the global market and import goods such as
petroleum and food products increased in price.
While first quarter performance of balance of payments in 2009 was negative US$ 28.4
million, it performed positive US$ 10.2 million in the first quarter of this year.
Current account1
According to the 1st quarter performance of this year, both price and volume of the nations
export products had increased 2.4 times more than last year.
Current account imbalance of balance of payments in the 1st quarter of 2010 is 40 percentmore than last years and following factors are mainly responsible.
Value of imported goods has increased by 50 percent. This is due to the increasing amount ofimport including mining production equipments and machineries as well as fuel and gasoline
as the economy is recovering.
The nations services expenses boosted due to enlarged volume of import goods, thusbringing US$ 54.5 million worth of negative services balance in the first half of 2010. That is
12 percent increase in contrast to last year.
Capital account imbalance is also mounting. This is because foreign-invested enterprisestransferred their return of investments out of the country more than they did last year.
1 1st quarter performance is taken into account as mid-year performance of balance of payments is not due untilAugust.
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Fig
Capital and financial account2
In relation to the starting
financial accounts of balance of
investment and long-term loan
payments are positive with US$
it was in 2009. It is mainly th
financial account when compare
the mining sector of the country
However, the fact that
negative US$ 84.3 million is m
monetary tools in the internation
for loan instruments in foreign
,when compared to last year, it
to deepen.
2 1st quarter performance is taken intoAugust.
-61.5
-35.8
-160.0
-140.0
-120.0
-100.0
-80.0
-60.0
-40.0
-20.0
0.0
1-
2008
I. Current acc
1st quarter
alf of 2010/
re 5. Current account / US$ million /
of large project to accelerate economic develop
payments are trending upward in 2010 as inw
se are expanding. Capital and financial accou
36.6 million in the 1st quarter of 2010 which is
e result of 2.5 times increase of foreign dire
d to previous years. Investment value of Oy
lays a major part in such addition.
olume of financial investment in financial ac
ainly because national private enterprises had
al markets more than they did the previous yea
markets by domestic commercial banks has i
ainly affected financial account deficit of bal
account as mid-year performance of balance of paym
-97.0
-135.9
-99.7
-120.1
1- 1-
2009 2010
A. ount Goods and services balance
1st quarter1st quarter
NDIC 17
ment, capital and
rd foreign direct
ts of balance of
twice as much as
ct investment in
tolgoi deposit in
count performed
purchased more
r. Payment value
creased because
nce of payments
nts is not due until
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Figure 6.
Future trend
Current account deficit of bala
As a result of Oyutolgoimachineries as well as fuel a
Due to the increased amount As a result of economic rec
up. Thus, transfer of return
that gross income of current
Capital and financial account i
Since investment on miningto increase significantly.
Loan and grants from intesupposed to increase. Within
dedicated for Mongolias in
from the Government of the
265.0
187.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
1-
2008
II. Capital and fin
1st quarter
alf of 2010/
apital and financial account /million US$ /
ce of payments is looking to deepen.
investment agreement, imported value of
d gasoline heightened.
of import, services expense is also on an upwar
very, income amount of foreign invested ente
of investment into their home countries is goi
ccount of balance of payments is on an upward
comes are on an upward trajectory.
sector is enlarging, inward foreign direct invest
national banks, financial institutions and do
this year, loan of US$ 110 million out of total
rastructure development will be provided acco
eoples Republic of China.
18.4
36.660.5
153.2
1- 1-
2009 2010
1. ancial account Direct Investment
1st quarter1st quarter
NDIC 18
equipment and
d trajectory.
rprises are going
g to increase in
momentum.
ent is projected
or countries are
US$ 300 million
ding to schedule
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3. EMPLOYMENT AND UNEMPLOYMENT
LEVEL OF UNEMPLOYMENT
Number of unemployed citizens registered at the Labor and Social Welfare Services Office
currently in June stands at 39.9 thousand, a rise of 1.1% compared with the same period lastyear. Of the total unemployed workforce, percentage of unemployed women fell by 3.8% in June
from the same period last year
The number of new registrants at the Labor and Social Welfare Services Office has
increased to over 42.1 thousand in June, 2009. World economic crisis is said to be the biggest
contributor to this increased number of registrants. However, as the Mongolian economy is well
underway of rapid recovery, level of unemployed plummeted by 23.9% as of June, 2010 in
comparison to the same period last year. Number of jobless citizens stands at 32 thousand in
June this year.
Of the total number of registered unemployed, 64.1% of citizens were able to find jobs
through the Labor and Social Welfare Services Offices in June last year whereas this figure
stands at 51.1% in the same period this year. The latest figure of 13% drop in citizens finding
jobs through the Labor and Social Welfare Services Office is explained by hike in the banks
interest rate, resulting in decreased level of lending to the service industry.
Table 7.Level of unemployment
Indicators Unit June, 2009 June, 2010
Number of registered unemployed citizens at thelabour and social welfare services offices
Persons 39495 39941
Number of registered unemployed women Persons 21910 20647
New registrants Persons 42100 32024
Registered unemployed who found jobs through
the labour and social welfare services offices
Person 25329 20388
Source: National Statistics Office
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Figure 7. Registered unemploye
level of education.
In the Figure 7, it illustrnot changing in line with change
Fugure 8.
Of the total registeredyears of age bracket. Therefore,of Mongolian workforce and lab
35-44, 25.
45-5
Highereducatio
16,4
Uppersecondary
44.2
Lowersecondary
23.6
Primary;
3,5
2009.06
alf of 2010/
d citizens at the Labor and Social Welfare Ser
tes the fact that the education level of Mongos in the demand and supply of labour market.
Registered, unemployed by age category
nemployed, around 60% of jobless citizensit is seen as an indication of mismatch betwee
or market skill demand.
16-24, 21.2%
25-34, 33.6%
%
9; 19,4%
College;
5,8
Vocationaltraining
6.0
No
ducation0.6
HiEduc
17
Uppersecondary
44.9
Lower
secondary
22.2
Primary;
3,6
2010.06
NDIC 20
ices Offices, by
lian workforce is
all within 25-44education level
heration,4 College,
5.4
Vocational
training
6.0
No
education,
0.5
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Future trend
There are more vacant positions to be created due to seasonal job opborder pointunietiesin mining, construction, infrastructure, manufacturing, agriculture and tourism sectors.
As the Government of Mongolia announced 2010 as the year of Business enablingenvironment reform, a number of important initiatives is being taken by the Government ofMongolia directed towards supborder pointing and increasing investment inflows into small andmedium enterprises. The present intend of Government is to create opborder pointunities for theunemployed to be included in various vocational training programs as well as to implementpolicies on creating both seasonal and permanent positions for the unemployed.
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4. INFLATION
INFLATION
The price levels of consumer goods and services continued to rise since the beginning of2010. However, the latest data on CPI in June revealed a drop of 1.5 percentage points in
comparison to figure in the month of May. Consumer price index stands at 11.4% in the first half
of 2010.
Following are the main factors that contributed to high inflation rate in the first half of the
year.
Distribution of Human Development Fund. Government of Mongolia approvedits first ever sovereign wealth fund, Human Development Fund, to pool all
revenues generated from mining sector and distribute social transfers to each
eligible citizens. Therefore, cash transfer of MNT 70,000 had been handed out toeach eligible citizen since February this year. As a result, herders disposable
income had increased after receiving the MNT 70,000 from Human Development
Fund. This increase in herders disposable income projected adverse impact on the
meat market as herders were reluctant to supply a few remaining livestock to the
meat market after harsh winter.
Harsh winter. Months of freezing temperatures and heavy snowfalls in the winterof 2009 claimed lives of 9.7 million livestock. Severe loss of livestock throughout
Mongolia depressed the supply of meat, left the country with over inflated meat
price in the first 5 months of the year. This hike in the meat price is estimated tocontribute over 90 percent of increased prices of consumer goods and services.
Fuel Price. Price of fuel has been somewhat fluctuant throughout the first half ofthe year. Whilst, only in a month of May, the fuel was costing more than it was at
the end of 2009, fuel price remained lower than the end of last year for the
remaining months. However, frequent fluctuation was observed on monthly basis
throughout the first half of the year. This unstable fuel price creates uncertainty
amongst consumers and undermined consumer confidence. A long term fuel price
policy would be required to prevent further uncertainty amongst consumers.
Price of Electricity and heating. Energy Regulatory Authority announced itsdecision to increase the price of electricity by 17.35% and the price of heating
price by 14.5% from the 15th of January, 2010. However, the price of household
electricity was on hold until the 1st of June and increased by MNT 11, to MNT 79
per kilowatts. This price climb makes up around 0.5% of total increased price
levels of consumer goods and services.
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Price of cashmere. Price of cashmere is almost doubled compared to the same period last year. This price acceleration was seen as a favorable market
adjustment to the herders as Mongolia had just experienced severe weather
conditions, resulting in loss of millions of livestock.
Price imported goods. As the Chinese economy is showing strong signs ofrecovery after global economic downturn, housing and real estate market isbooming in China, causing massive increase in the price levels of consumer goods
and services in the first half of the year. Chinese consumer price index increased
by 2.9% in June. This has a direct effect on Mongolian economy where the price
of such imported goods as clothing, gourmets, shoes, furniture went up in line
with China.
INFLATION EXPECTATIONS
After evaluating the factors causing inflation, Government of Mongolia put forward
following set of initiatives in order to prevent further acceleration of inflation rate.
A Cabinet meeting was held to discuss some measures to be taken on staple foodsand passed official government resolution to address supply side issues of stable
food. Ministry of Foodm Agriculture and Light Industry was ordered to organize
regular meat exhibitions in Ulaanbaatar, twice a month in spring, and once in all
the other seasons, to bring buyers and sellers together directly from June 2010.
The quantity of meat to be kept in reserve has also been adjusted to reflex the
previous years shortage of meat. Beginning from the next year, the quota
for Ulaanbaatar will be 12,000 tonnes, for Darkhan and Erdenet 1,000 tonnes
each, and for all other provinces 100 tonnes. This meat in reserves will be sold inthe spring. Also, the relevant government agencies were instructed to take the
count of such staple food as meat, flour, sugar, rice, oil in reserves and to reborder
point it the Government meeting on monthly basis. They were also ordered to take
all the necessary actions to ensure sufficient level of staple food is stored in all
reserves.
Of the MNT 120,000 to be handed out to each eligible citizen through Humandevelopment fund, MNT 70,000 has already been distributed to citizens. From
August 2010, remaining MNT 50000 will be distributed in MNT 10,000 pieces on
monthly basis in order to prevent price levels of consumer goods and services torise as well as increasing household disposable income.
With the purpose of decreasing consumption of imported fuel and increasing thelocal fuel production, Government of Mongolia had just approved Mongolian
Socio-Economic guidelines for 2011, which includes setting up of an oil refinery
in Dornogovi province as well as one in Darkhan city with the capacity of
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producing 2 million tonnes of oil. Overall, these actions are set to be implemented
in order to stabilize the supply of meat and other staple food products, which, in
turn, have a positive effect on price stability and to decrease dependency on
imported fuel from overseas. Heat waves and soaring temperatures across many
parts of the world is likely to have a negative impact on the supply of such food
products as wheat, sugar and rice.
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5. EXTERNAL SEC
FOREIGN TRADE
As the world economy
showing strong sign of recoverprices and increased level of copCommodity circulation in the fi period last year. Countrys exphighest export revenue ever. Trmillion in the first half of the yefrom previous 2 years.
Figure 9. Trade
Source: Customs office of Mongolia, s
Export revenue is up by 71.5%
The continued strength i
has been the main driving force
rose from $4045 in the first hal
zinc was $1322 and price of ba
These commodities price surge
383
612
500
61
-104
-400
-200
0
200
400
600
800
1000
1200
1400
1600
2005.1-6 2006
Export
alf of 2010/
OR
is rebounding from recession, Mongolias
, which is being fueled by the upward momenper and coal export to China, Mongolias largest half of 2010 is much more exuberant comprts revenue reached over $1.309 trillion, mar
ade deficit has stabilized in recent months, narr. This figure is relatively lower than figures i
eficit in thousand US USD /first half of 2005-201
tatistical information of foreign trade
from previous year to $1.309 billion.
the prices of Mongolian main exporting com
behind record high export revenue. The averag
f of 2009 to $7130 in the same period this ye
rrel of crude oil was $52 on average in the fi
in the first half of 2010, reaching $2157 and $
836
1271
763
1309
7
868
1472
893
-5 -32-201
-130
.1-6 2007.1-6 2008.1-6 2009.1-6
Import Trade deficit
NDIC 25
foreign trade is
tum in the metalt trading partner.ared to the sameking Mongoliasowing to US$48the same period
/
odities this year
e price of copper
r. Also, price of
rst half of 2009.
8 respectively.
1356
-48
2010.1-6
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Rapid economic recovery, inflated household disposable income and increased consumer
confidence have all contributed to the rising consumer commodity and import of household
goods. For example, in the first half of 2009, staple food products import is down by 28%
whereas, 37% increase is recorded in the same period this year. Similarly, the number of motor
vehicles imported in 2009 was down by 70%, but in 2010, it was up by 86%.
The Government of Mongolia announced 2009 as the year of support ing
industrialization. Within the scope of this year, 46 food manufacturing factories have been set
up with the purpose of replacing the goods that are being imported from overseas. As a result,
flour import has dropped by 12 million tonnes this year alone, thanks to newly established
flourmill with the capacity of producing 170 tonnes of flour each year and expansion of other
flourmills around the country.
Due to the introduction of export quota on rice by China (to tackle domestic shortages),
rice import is down in the first half of the year, pushing the price of rise up by over MNT 200 in
the local food market. In addition, sugar price surged in the world market, peaking at 28 cents a
pound in January. This adversely impacted the price of imported sugar.
Future trend
Development of mining sector, in particular, coal exploration is likely to continueimpacting the export revenue favorably. Consequently, import of fuel and petroleum
products is expected to rise.
As the consumer confidence strengthens, import of household commodities is likely tocontinue increasing.
As the investment inflow to the mining sector increases, import of mining equipments isexpected to surge.
Import of raw materials is likely to rise due to rising number of manufacturers.
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COMMODITY PRICE
Figure 10. Price of Gold, Copper, Oil, Coking coal /as of first half of 2010/
Copper
The world price of 1 tonne of copper in the first half of 2010 fluctuated between $6091and $7950. /Figure 10 illustrates the fluctuation of copper price between January and July in
green/
International experts are claiming that the drop in copper price is a direct result of
decreased demand for copper by Chinese manufacturers. However, this phenomenon is said to be
a temporary one. The price of copper is likely to increase again in the near future. The
management of worlds one of the largest copper producer Sonami, Chilean mining company, is
confident that the price of copper will rise by approximately 19% this year alone. On the other
hand, Mr. Bret Clayton, the chief executive officer of Rio Tinto Copper said that higher copper
prices have not necessarily been supported by the matching demand this year. Therefore, itwill further slide downward toward the end of the year. Eventually, insufficient level of demand
will pick up in the next year, forcing the hike again.
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Gold
London metal exchange report pointed that the price of gold peaked at $1058 and
plunged at $1291 in the first quarter of 2010, indicating constant growth in the gold price.
/Figure 10 illustrates the fluctuation of an ounce of gold price in red/
Despite gold prices touching record highs again in recent months, the gold price
instability is driven by investor concerns about financial stability about the European Union
sovereign debt crisis, and by the metals continuing appeal as a currency and inflation hedge.
The gold price remains depressed not only in the Asian markets, but gold was exchanged as low
as $1198 an ounce in European and US markets. The rationale behind this is that purchasing an
ounce of gold between $1200 and $1210 is seen as too risky investment by a lot of investors.
Some economists are expecting that some European Union countries economies will worsen
towards the end of June while others argue otherwise. This uncertainty puts downward pressure
on the price of gold.As a result of downgrading of Portuguese credit classification, price of gold surged to
$1264 an ounce in June. Furthermore, some of the US giant corporations recorded strong
performance in the second quarter of this year which, in turn, had a positive impact on their
shares. Consequently, increase in such commodities as euro and crude oil also dragged the price
of gold upwards.
Standard Chartered Banks metal analyst Daniel Smith speculates that there is an
opportunity for gold price to further increase in the medium and long term. This speculation is
explained by the increasing level of gold purchases by European investors in order to hedge
against currency exchange risk. In Asia too, investors are keen on purchasing gold to avoidinflation risk.
Oil
According to New York commodity exchange, oil is exchanged at an average price of$78.39 a barrel in the first half year, up by 52.6%, from $27.04 in the same period last year./Figure 10 illustrates the fluctuation of oil price in blue/
May was the most fluctuated month for oil price in the first half year, recording thehighest price of $86.2 on the 3rd of May, 2010 and reaching its lowest price of $66.88 on the 24 thof May, 2010.
European Union sovereign debt crisis is feared to slow down the world economic growthby many investors, causing slip off of the world demand for oil. Also, strengthening value of USdollar against euro contributed to increased oil price.
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6. BANKING & FINANCE
BANKING SYSTEM
Monetary Policy
The Bank of Mongolia started implementing tight monetary policy in order to restraincountrys economic instability and to reduce the risk of further overheating of the inflation in theeconomy.
Figure 11. Supply of money /in MNT million/
Despite the tight monetary
policy that is likely to restrict
the growth of domestic
production of goods and
services, it is implemented to
address the issues of rising
price level of consumer goods
and services. Half year CPI
inflation reached 16.5% for the
city of Ulaanbaatar and 11.4%
for rest of the country.
Although it would seem that
Bank of Mongolia should
introduce loose monetary policy at the time of rapid
economic growth in order to
restore consumer confidence, ,
of those who were affected by the economic crises the most in particular, introducing loose
monetary policy would run the risk of economic over-heating, leading to increased inflation rate.
Therefore, it would be incongruous move if the Bank of Mongolia loosens its monetary policy as
it would push the rate of inflation even higher, hurting near term economic growth and
employment. Also, this would lead to possibility of returning to the macroeconomic vulnerability
of the boom-and-bust cycle of the recent past. As a heavily weather dependent country, the
inflation rate fluctuation is highly observed when given sector goes through the boom-and-bustcycle. Therefore, it is highly unlikely for Bank of Mongolia to loosen its monetary policy for the
rest of the year. The lending in the first half of the year reached MNT 2.882 trillion, up by 13.4%
from the same period last year and up by 9.6% from the end of the year figure.
0.0
500,000.0
1,000,000.0
1,500,000.0
2,000,000.0
2,500,000.0
3,000,000.0
3,500,000.0
4,000,000.0
2007
01
04 07 10 2008
01
04 07 10 2009
01
04 07 10 2010
01
04
Source: Bank of Mongolia
(1)Quasi money Money /M1/
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Lending
Lending activities are always in the center of publics attention because of Mongolian
banking system. Despite commercial banks preference in general to, purchase Central banks
bills or to place its available fund in overseas investments in relative to providing lending
services in the most of months of 2009 and some months of first half of 2010 due tomacroeconomic instability, lending activities this year have increased in comparison to last year.
As of the first half of 2010, outstanding loan is almost doubled, reaching MNT 882 billion,
13.4% up from previous year or 9.6% up from the beginning of the year.
The first half of 2010 record indicates an increase in the lending. However, producers are
concerned of its sustainability for the second half of the year. Bank of Mongolia announced its
intention to keep the policy rate at 11% by employing tight monetary policy as the high rate of
inflation threatens to robust the economic growth.
Consequently, purchases of Central banks bill is back up again in May, after continued
drop in the first half of the year. As the commercial banks use up their lending money forpurchasing Central bank bills, the amount of lending available for public goes down. However, it
is important to note that not all banks are the same in terms of making the remaining cash
available for lending. Some bank may limit the funds available for lending while others may not
follow their trend. Even though Bank of Mongolia is implementing tight monetary policy, some
0.0
500,000.0
1,000,000.0
1,500,000.0
2,000,000.0
2,500,000.0
3,000,000.0
3,500,000.0
200701
03 05 07 09 11 200801
03 05 07 09 11 200901
03 05 07 09 11 201001
03 05
Source: Bank of Mongolia
Figure 12. Total outstanding loans /MNT million /
Non-performing loan Overtime loan Loan
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of larger banks may not necessarily limit the fund available for lending. Lending in the first half
of 2010 went up gradually and this steady growth is expected to be kept for the rest of the year.
State Bank of Mongolia
Mongolian financial sector had been through substantial stress last year, leaving a few
commercial banks non-operational, namely, Zoos Bank and Anod Bank. As the Zoos bank wasno longer fit to operate on its own, Government of Mongolia announced its decision to establish
a new state-owned bank based on the activities of collapsed Zoos Bank in order to protect the
rights of public from the 27th of November, 2009. Since then, the State banks total assets
reached to MNT 116.129 billion, its own capital reached to MNT 27.958 billion and number of
customers reached well over 110,000 as of June, 2010.
Although there were some controversies whether or not to establish state-owned State bank
during the time of its establishment last year, public is currently no longer concerned over its
existence anymore. However the issue has now focusedon how the operations of State bank and
the Development bank, which is soon to be established, would correlate to each other. It is clearthat both banks have different purposes and functions, as State bank is a commercial bank
whereas the Development bank will be established with the purpose of financing large, strategic
projects. However, both banks are either wholly or in part owned by the state. Therefore, when
both banks are in existence, Government of Mongolia would have to run operational and control
risk on both banks. Publics attention is now onthe Government of Mongolias ability to cope
with these increased risks.
From the time of establishing the State bank, it was rumored that State bank would be
switched to Development Bank. However, latest decisions by the Government of Mongolia in
relation to financial market are seen to be quite inconsistent with this rumor. Furthermore,making abrupt decision about the State bank in close approximation would undermine the public
confidence in the bank. Thus, it is unlikely for Government of Mongolia to privatize the State
bank for the rest of the year.
FOREIGN CURRENCY EXCHANGE
Mongolian currency exchange is regulated by the market demand and supply for foreign
currency. The value of Mongolian currency is determined by the market activities.
As the world economy is rapidly rebounding from recession, the price of our main export
products is rapidly growing on the global market. Investment inflows into the country ares up
this year mainly due to signing of large investment contracts by foreign investors in the miningsector. Furthermore, Bank of Mongolia reportedreported that Mongolian official foreign
currency in reserves increased, reaching $1.23 billion as of June, 2010.
Mongolian tugrug is stronger against American greenback by 6%, against euro by 17.7%,
against Korean won by 10.4, against Chinese RMB by 5.5%, against Russian ruble by 8.5% in
the first half of the year.
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Top 20 index
Basket of top 20 index basket had been renewed effective from the 1st of January, 2010.
Of the top 20 companies, the stock value of 19 companies appreciated in the first quarter of the
year. However, stock value of top 20 indexes started sliding down from the second quarter.
Top 20 index stands at 10,367.47 points in the first quarter of this year, up by 4358.74 points or89.2% from the same period previous year.
Figure 14 illustrates that the stock trading between February and April has increased
constantly whereas, in the last months, stock trading was down. Of the 20 index, stock price of
APU company, Shariin Gol company, Material Impex company, Gobi company, Bayangol Hotel
company and Mon.Tsahilgaan company hiked by 15% in the first quarter, which projected a
positive influence on the top 20 index.
Figure 14. Top 20 index
Market Capitalization
Total market capitalization stands at MNT 768.4 billion up by MNT 297 billion or by
63% since the beginning of the year.
Companies with the highest capitalization are Tavan Toilgoi company /121.1 billion/,
APU LLC /118.9 billion/, MTSH LLC /75 billion/, Baganuur company /67.1 billion/ and Shivee
Ovoo company /65.8 billion/.
Total of top 30 companys stock valuation constitutes 89.25% of the total market. A
company with the highest capitalization is Tavan Tolgoi company whose market capitalization
stands at MNT 121.1 billion.
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
2010.
01
.04
2010.
01
.11
2010.
01
.18
2010.
01
.25
2010.
02
.01
2010.
02
.08
2010.
02
.17
2010.
02
.24
2010.
03
.03
2010.
03
.11
2010.
03
.18
2010.
03
.25
2010.
04
.01
2010.
04
.08
2010.
04
.15
2010.
04
.22
2010.
04
.29
2010.
05
.06
2010.
05
.13
2010.
05
.20
2010.
05
.27
2010.
06
.04
2010.
06
.11
2010.
06
.18
2010.
06
.25
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Table 15. Top 30 com
Summary
In general, the stock pr
surged in the first quarter of the
data became publicly availabl
example, APU Company record
and announced its decision to d
emerged stronger by 136.51% s
dividends.
Since the second quarter
This is mainly because increas
stock being injected back to thstocks. Other factors that contr
department store company who
interest rates of commercial ban
An increased level of i
market is being observed since
took place on Mongolian stock e
surging stock price of mining
investors are increasingly interes
Government of Mongol
through better management. The
now in the process of being
exchanges /UK, Germany and
exchange management. Selectio
0
2000040000
60000
80000
100000
120000
140000
alf of 2010/
anies with highest capitalization /as of 25th June,
ices of listed companies on Mongolian Stoc
year. This is mainly due to the fact that the end
and dividends were distributed by some
ed MNT 8.06 billion in profit at the end of 20
stribute MNT 1.4 billion as dividends. The st
ince the beginning of the year partly due to t
of 2010, share prices of top 20 companies sta
d stock price in recent months have led to la
e stock market, causing decreased level of dibuted to lower stock prices include Gobi co
e distributed dividends were relatively lower
s.
terest from overseas investors on Mongolian
the beginning of 2010. Over 60% of the total
xchange market were made by foreign entities.
companies demonstrates the fact that both l
ted in the mining sector.
ia has initiated steps towards developing f
management and the structure of Mongolian s
replaced. Currently, many applications fro
Korea/ had been received for the bid for
process would be completed by mid-Septemb
NDIC 35
010/
exchange have
of financial year
ompanies. For
09 financial year
ck price of APU
e distribution of
rted to plummet.
rge quantities of
emand for these pany and State
in comparison to
stock exchange
transactions that
In particular, the
cal and foreign
inancial markets
tock exchange is
overseas stock
ongolian stock
r this year. If the
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ECONOMIC REVIEW /First half of 2010/ NDIC 36
management of Mongolian stock exchange is outsourced to a foreign company, it is expected
that Mongolian financial market would be developed in a more efficient and productive manner.
Conclusion
In the first quarter of 2010, companies on the Mongolian Stock Exchange saw
considerable rise in their stock prices. This was both thanks to the year-end financial report
having come out and announcements for meetings on dividend payments being made. APU
Company, for example, has made profit amounting to MNT 8.06 billion, 1.4 billion of which is
to be distributed as dividend payments. This has led APUs stock prices to skyrocket by over
136.51% since the beginning of the year.
In the second half of the second quarter, however, market demand started decreasing and
stock prices followed. After the stock prices went up in the previous months, investors started
selling out their stocks actively which inevitably led to greater stock supply and falling prices.The fact that the dividend payments of some companies like Gobi and the State Department
Store were far lower than bank interest rates impacted the stock prices to a certain level too.
Overall though, the newly active attention from foreign investors made sure Mongolian
stock market grew since the beginning of this year. As of H1 2010, trading done by foreign
entities made up at least 60% of the total trading . The companies in the mining sector have
performed especially well which points to the growing attention from both the domestic and
foreign investors focused on our mining sector.
The Government of Mongolia is paying extra attention on efforts to develop the stock
market. In this light, they have started an administration and structural reform in the MSE. Many
foreign stock exchanges /London, Germany, Korea, etc. / have already expressed their interest in
participating in the tender. Decisions will be finalized by the middle of September this year.
Expectations have already risen that the long-awaited stock market in its classic form might
finally come into life with the directions of an experienced foreign management team.
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ECONOMIC REVIEW /First half of 2010/ NDIC 37
THE WORLD FINANCIAL MARKET
Asia, Pacific region
That most countries in the region are on the path to recovery from the recent economic
crisis can be seen from the economic indicators. According to a recent estimate by the WorldBank, in 2010, the world economy will grow at best at a rate of 2.9 - 3.3.
Key financial and economic events that took place in the Asia Pacific region in the first
half of 2010 are:
In February, the Central Bank of China increased the reserve ratio for banks by0.5%. In March, China reportedreported a negative trade balance for the first time
since 2004.
ADB addressed the central banks in Asia encouraging higher interest rates. According to a research carried out from the Japanese Government, Japans
Consumer Confidence Index for the first quarter reached 41%, a record high since
March 2007.
The Central Bank of China started implementing contractionary monetary policytargeting inflation. The inflation level was recorded at 1.9% in January 2010,
2.7% in February and 2.4% in March.
In April, Japans private sector machinery orders, the main component of thecountrys corporate spending, showed 5.4% increase from the previous month.
This proves that the Japanese car industry has survived the recession.
In April, China reported positive trade balance worth USD 1.68 billion. However,this also meant 87% fall YOY.
In April, Indias inflation rate decreased down to 9.6% as a result of thegovernments steps against inflation. The industrial sector has been growing at a
fast rate in recent years industrial production index reaching 17.6% in April, the
highest rate in 20 years.
Naoto Kan replaced Yukio Hatoyama as the new PM of Japan, becoming the 6thPM since 2006.
As Europe struggled with budget deficits, Asias major stock exchanges suffered volatility in the
first half of the year. The biggest falls in Asian stock exchange indexes came about in January
and April. But starting at the end of the first half of the year, indexes are finally going up. Thegraph below illustrates the movements of the MSCI Asia Pacific Index in the period of June
2009 June 2010.
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ECONOMIC REVIEW /First
Europe
Key events of the first ha
The EU member countriGreece.
As UK anticipated electiIndex fell drastically as s
The Central Bank of EU In April, the general me
975 billion for easing E
billion euro, equivalent
recovery from debt. IMF
billion, for the same purp
The debt problem of some o
whole region brought about the
were Spain, Portugal, Italy, Fra
Consequently, these countries
Economic Sentiment Indicator r
The EU Central Bank conti
banks of its member countries in
They will continue to carry on
market.
alf of 2010/
lf of 2010 in the financial and economic market
es agreed upon 45 billion euro, or USD 61 b
on that took place in May, the countrys Cons
ome economic indicators started showing volati
continues to keep the historically lowest interes
eting of EU decided upon 750 billion euro, eq
ropes economic crisis and a bailout for Gre
of USD 136 billion, is going to be spent so
is to give additional 250 billion euro,equivale
ose.
the EU members in addition to the uncertainty
iggest ever depreciation of euro against USD.
ce and England going down with debt budget
tarted cutting down government spending. I
ached 100.6, 23 month record high. In March, i
nues to buy government bonds and give mon
order to ease the debt and budget deficit proble
these steps with the hope of stabilizing the
NDIC 38
s of Europe:
illion bailout for
mer Confidence
lity.
rate of 1%.
uivalent of USD
ce. Of this, 110
ely on Greeces
t of USD 308.34
reigning over the
ollowing Greece
deficit problems.
addition, April
t was 97.9.
ey supply to the
ms of the region.
regions money
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ECONOMIC REVIEW /First
The growing uncertainty
led to 15% in Euros value in
improves heavily depends on th
started to cut down the budget
been planned accordingly to be
Europe continue to damage the
Europe Index performance for th
The Americas
Key economic and finan
Except Chile andfinancial and eco
The economies ocatastrophe that
price hike in the
markets, is takin
American regio
expansionary mo
only one in the re
The Federal Resemarket stabilizati
alf of 2010/
in Europe after investors pulled out their mone
H1 2010. Whether Europes financial and ec
e regions exports. As Britains budget deficit
pending drastically. The budget spending for
lower than those of the previous years. Debt
regions financial market. Graphic below illu
e period of June 2009 June 2010.
ial events of the region in the first half of 2010:
Argentina, most countries in the region have
omic indicators in the first half of the year.
f Chile and Argentina were heavily damaged b
appened in the area in February of this year
orld raw materials markets, especially gold, c
g a toll on the economic and financial gro
. Most central banks in the region ar
etary policy by lowering interest rates. Right
gion implementing the opposite, contractionary
rve Bank of the US announced their plan of en
on strategy they have been implementing since
NDIC 39
from the region
onomic situation
ises fast, Britain
he next year has
problems across
strates the MSCI
hown improving
y the earthquake
. The continuing
pper, oil and gas
th of the South
e implementing
ow, Brazil is the
policy.
ing the financial
2008.
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ECONOMIC REVIEW /First
The US economexpected rate of
monetary policy.
As euro is volatidemand is growi
Some of the deveand June. In May
drastically raised
Also in May, CaThe economic statistics
years economic crisis. The exp
agricultural products have helpe
than previously expected by the
lot of damage to the country.
possible high inflation rates. Th
was Perus. The below graphic
from June 2009 June 2010.
THE DEVELOPED ECONO
THE UNITED STATES
The US economic indic
level showed a considerable Y
industries. More expansion ex
inflation rates, theyre still at a
2.7%, 0.3% lower YOY. The p
alf of 2010/
ic growth in the first quarter of 2010 was
.2% enabling the Federal Reserve Bank to carr
le and weak USD is appreciating against oth
g.
loped South American countries had high infla
, the economic leaders of the region, like Brazil
their interest rates.
ada raised interest rates.
or the first quarter indicate Argentinas recov
rts say high prices and the rising export levels
d the economy. Its neighbor Chile seems to be
experts. The earthquake that took place in Feb
n May, the Chilean central bank raised inte
highest economic growth rate for the first qua
illustrates the MSCI America Index performan
IES
tors for the first quarter of 2010 were favorab
OY improvement and there was growth in li
ected in the industrial sector. Although ther
tolerable level. GDP growth of the first qua
evious quarter, the last quarter of 2009, real
NDIC 40
measured at the
on their current
er currencies, its
ion rates in May
, Peru and Chile,
ery from the last
of the countrys
recovering faster
ruary has done a
est rates against
rter in the region
ce for the period
le. Consumption
ght and medium
s some rise in
ter of 2010 was
DP growth had
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ECONOMIC REVIEW /First half of 2010/ NDIC 41
reached 5.6%. US domestic price level increased by 1.7%, with considerable increases in the
energy and food prices. According to GDP price indexes, civil and military spending of the
federal Government went up by 0.15% in the first quarter.
However, not everything was good news. Judging from the public sentiments, job market
is still not in a very good condition. Unemployment rate for the first half of the year reached9.7%. The number of new job openings for the first quarter was 162000, which was less than the
expected number of 184000, but that was also the highest in 2 years. Experts expect the inflation
to hit hardest on the poorer households, but in general, the economy seems to be recovering.
According to most economists and politicians, the real GDP growth rate for this year is expected
to be around 3-3.5%. Compared to Europes expected real GDP growth rate of 1-1.5%, this is a
rather good rate. However, there are some worrisome parts in this forecast including gigantic
budget deficit threatening to lead to higher interest rates and inflation.
Indicators January February March April May June
Unemployment rate 9.7 9.7 9.7 9.9 9.7 9.5
Average hourly wage 22.45 22.48 22.48 22.50 22.55 22.53
CPI 0.2 0.0 0.1 -0.1 -0.2 -0.1
PPI 1.3 -0.5 0.8 -0.1 -0.3 -0.5
US price level 1.2 -0.1 0.4 1.1 -0.5 -1.3
Source: http://www.bls.gov
According to this forecast, 2010 might end up being a good year for the US, bringing a
new economic beginning. This is largely thanks to the tax discounts for new first-time home
buyers, the more favorable loan regulations for new car buyers and reforms from the Federal
Government on loan regulations for finance and real estate markets. As of the end of March
2010, about USD 1.25 billion have been spent on this program, and the Federal Government
leaders plan for a long-term interest rate decrease.
Table 8. US Real GDP growth projection 2010 /monthly/
Months May June July August September October November December
GDP 14,632.3 14,632 14,684 14,684 14,684 14,743 14,743 14,743
Source: http://www.forecasts.org/gdp.html
After his meeting with the president Barack Obama, Ben Bernanke, the Federal Reserve
Bank chairman, told journalists that external factors have significant impacts on the US
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ECONOMIC REVIEW /First half of 2010/ NDIC 42
economy, and that Europes financial crisis is dangerous for the whole of the global economy,
especially the US.
Inflation
By the end of June 2010, inflation in the US has increased by 1.1% YOY. But comparedto the individual sectors price increase of health services by 3.5% and gas and oil increase
of3.9%, - 1.1% is a rather good number. This favorable inflation estimates are the result of price
decrease in products and labor after the economic crisis. Therefore, the inflation rate is expected
to continue at the same level in this and the coming year.
2010 events
In 2010, US budget deficit reached USD 1.6 billion, and total debt is 360% of GDP, ofwhich, government debt taking up 90%.
About 40% of all the employed in the US work at low-salary service jobs. Although therewere 500.000 job openings since the beginning of the year, the number of unemployed is
not decreasing. To improve this situation, President Barack Obama is planning on a new
program that will give financial help for small and medium business owners that offer
employment.
The US Congress announced that in order to eliminate budget deficit, it will be necessaryto increase every type of tax to at least 2.4 times the original amount. Meaning 10% tax
will be 24%, 15% will be 36% and 35% will be 85%.
According to President Barack Obama, the economic growth was positive and constant inH1 2010. This is a sign of recovery whereas when he took his position, the economy had
fallen to its lowest point. He has been taking many steps towards recovering theeconomy, giving special attention to the unemployment problems. He has given a
promise to increase aid to the state governments to help keep the government jobs like in
police, health services and firefighters.
President Barack Obama is to implement a USD 2-3 trillion program for the economicrecovery. Experts estimate that theres a possibility that the budget deficit mi
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