Cold Weather, Warm Economy in Mongolia

 Special report from Ulaanbaatar, Mongolia, January 22, 2004

Ben in Mongolia

There is no cold like the cold of Mongolia in January at midnight. I departed the tropical climate of Cambodia wearing a khaki short sleeve safari shirt to arrive in Mongolia at midnight. The super frigid air is like a wall…it stops you in your tracks. It is like walking into a refrigerator, but twice as cold. It is so cold that my lungs cried out and coughed in protest. I quickly realized why the Mongolians waiting in the lobby of the airport were smiling as they looked at my short sleeve shirt. One laughed and said; “Look at that American, he is so strong he doesn’t need a coat!” I breathed in and gasped. The exhale was a frozen cloud over my face, my beard was instantly frosted.


Everyone walks quickly in Mongolia, in January, at midnight. One shudders to think of the fate of a SLOW walker. Mongolians are a happy and jovial lot. They joke about cold, just like Texans joke about feeding Jalapeno peppers to Yankees.

This night, a midnight, they are laughing with me, slapping me on the back and watching my face turn blue as I hear the brittle crack of ice under my feet. They say: “You are very strong, but we suggest that you put on some clothes.” Strong is fine…ego is fine, but I throw my suitcase on the frozen ground, under a sky so crisp concerned that my ears are becoming brittle. I dig out clothes, anything. It is a cold night but a warm experience, 3 Mongolians and a frosty Texan all laughing together, enjoying the fresh frozen air of Mongolia.

BRIEF ECONOMIC REVIEW OF MONGOLIA:

These good natured people have developed Mongolia from miserable economic conditions in 1991, to a “hot” consumer economy, an expanding banking system and an economic environment that offers opportunity. As the economy has blossomed, the capital city, Ulaanbaatar has enjoyed the construction of many new buildings. New office buildings, hotels, restaurants are scattered throughout the city. Many Mongolians speak English now and enjoy a good relationship with Americans. The United States has invested much effort and expertise to provide some guidance and resources for Mongolia’s growth. The banks, government agencies, and corporations have a high percentage of well educated young executives, who believe in efficiency and transparency. One such executive is Gankhuyag Gombosuren, VP/Director of the Treasury Division of Golomt Bank. We discussed a variety of issues, among them the drop in value of the U.S. Dollar. Bankers and economists throughout the world are studying the U.S economy and are trying to do strategic business planning based upon how the U.S. budget, deficits, tax policy, and foreign policy will affect their sectors. One consensus throughout Asia among bankers and economists is that the U.S. deficit will drive interest rates up, and possibly lead to a global decline in consumer and industrial demand. One businessman in Hong Kong told me; “We fear an extended U.S. recession in the future that could pull us all down”.

But the attitude in Mongolia is slightly different. While economists here recognize the real potential for economic retraction in the U.S., one banker in Mongolia told me: “Mongolia is so far removed from the U.S. and one of the advantages is that our mining and agricultural industries should not be impacted much by a recession in America.”

Indeed the Mongolian economic expansion may well continue if commodity prices, especially metals such as copper are strong. Furthermore, a huge proven reserve pool of hydrocarbons provides long term fuel for growth of the Mongolian economy. The banking sector is expanding, but government requirements of increased capital may well put pressure on some banks, particularly smaller ones. But, the Central Bank of Mongolia is well managed and indicated to us that it will pursue policies of careful moderation, to assure stability in the banking sector. The real estate sector is in transition, with expansion and new buildings being completed every month. There may be some delay in absorption of vacant space, but present demand appears to be stable and rents are not in decline.

RECOMMENDATION:

Considering these and other factors, the cold Mongolian air has not "frozen" what appears to be a "warm" economy. To that end, we recommend foreign investment in Mongolia as a viable alternative and a future industrial and consumer market. There is a huge acceptance and hunger for American style franchises. S. Otgonbat, Vice Chairman of the Foreign Trade Ministry of Mongolia told me of the government's desire and willingness to provide a 'friendly' environment for U.S. franchises. Our review of the market suggests that many American style companies could seize the opportunity for very profitable businesses directed at a hungry and willing market in Mongolia. Many markets here are yet to be developed. There is much to be done and opportunity for prudent businessmen and investors. The only danger is unethical or enept Mongolians. Some of them still have not accepted values of ethics, and thus, if you invest, we suggest that you take a trip over and personally check out those you are dealing with. While Texans like myself believe a "handshake" is as strong as a contract, some Monglians would still shake your hand and take your coat with a smile. Perhaps some of them have been too close to China and Russia for too long. Yes, there is opportunity, but try to protect your backside.