Chairman, Committee of National Development and Innovation (Mongolia), Mr. C. Khashchuluun’s address at the 2011 Mongolia Australia Business Forum
21 February 2011
Duration: 12 min. 28 sec.
Speaker: Mr. C. Khashchuluun, Chairman, Committee of National Development and Innovation (Mongolia)
MC: Our next speaker is Mr Khashchuluun, Chairman of the Committee of National Development and Innovation. Prior to his appointment with the National Development and Innovation Committee in 2009 Mr Khashchuluun served as Dean of the School of Economic Studies of the National University of Mongolia before moving to the board of the Central Bank of Mongolia in 2006. Mr Khashchuluun’s numerous qualifications include a PhD in Economics from Keiai University, Tokyo, Japan. Mr Khashchuluun will give a presentation on the Mongolian Government’s plans for developing mining and infrastructure.
Mr C Khashchuluun: Distinguished guests, Your Excellency, thank you very much for this beautiful opportunity to give a presentation about the plans of the Mongolian Government to develop the country, and especially infrastructure in the next five years. Before I go on to infrastructure, just one or two words about the specific things which make Mongolia very dynamic is we believe, for example, in terms of population Mongolia has a very young population, and as you see in the next few years we will enter a so called population bonus era in which the number of young workforce will become -- will have the highest share in the economy and it’s viewed actually as a very good possibility for growth. Now there is -- this is a political system and compared to other central Asian countries we believe that Mongolia has built a very unique political system which is flexible enough to withstand gross conflicts and as you see, the colours are not very clear here, but our mechanism ensures that the policies remain stable and while we have a number of parties enter power.
So as His Excellency, Prime Minister, already mentioned we have significant resources of metals such as iron, zinc, copper, gold, molybdenum and I would say in addition to that Mongolia has an excellent chance to become number two in the world in rare metals and rare ores. So this is a new significant field.
As you see the Mongolian growth is fuelled – it’s a very appropriate word – by coal first and the coal projections are very good for us. Secondly, it’s copper and gold but as it was mentioned there also, a number of other resources which are just beginning to be exploited, for example, such as uranium.
The impact of mining is very high on our economy. Overall for the next few years, for example, we see that the impact of mining actually more than doubles or triples economic growth for years and this situation will continue for at least for decades.
So our long term national development strategy says that we have five priorities to develop the economy. First, to develop mining and establish pace of heavy industry, for example, such as copper smelting, oil processing and chemical industry. Secondly, intensification of agriculture. Third, development of infrastructure. Number four is human development – sustainable development is very important for us. And number five, improvement of governance of the private sector.
Growth of mining creates numerous possibilities in infrastructure in Mongolia. For example, we assume that every dollar in mining creates additional demand of $1.84 in other sectors and it includes growth of related hard and soft infrastructure such as, for example, especially in transport, energy, construction, railroads, automobile roads, rural airports and power stations, and in services similar to Australia. This leads to increased demand for finance, customs and also education and administration services, and because of the movement of population to new growth areas there is growth need for hospitals, schools and urban development.
So in order to slow these infrastructure bottlenecks I just want to give a brief overview of main plans. For example, in terms of energy for these and for the next four years alone, at least five new power stations have either just commenced operations or are under negotiations or are beginning to be built anew, so it will almost increase our production of energy if we include all the projects, including a very large project at Shivee Ovoo, almost eight times.
At least 800km of new railways of new railways have been planned for 2011 for this spring and overall the length of new railways will almost and double and triple the capacity. The government has plans to build highways to connect every province in the country and already huge long specialised heavy truck arterial roads have been built and we estimate that about 600km of new such automobile roads will be built, including one which was presented in the Leighton’s presentation.
We need to increase large water supply and transportation projects to the Gobi area as it’s a desert area and the water will be needed both for mining and for processing.
Trade is to be expanded greatly in 2010 and ’11, so five customs checkpoints on the border area will be modernised and the capacity will increase to accommodate more traffic and we estimate it will result in a fourfold increase in export shipments as planned.
So these are the railway plans for the country. This red line which is connecting the major domestic deposits with the existing railways is being planned to start this year, this spring and otherwise, especially this line which we call export roads, are to be commenced after that. So overall we are almost creating a new railway network which is comprised of both wide and possibly narrow gorges to increase our exports to main Pacific region and above it and beyond it.
For example, it was mentioned that one of the backbones of infrastructure is communication and in just the area of communication for information we have more than 400 companies producing 9% of GDP and we just finished a large project - there’s telecommunication backlog network, national data centre and so on – and actually there have also been discussions for national satellite since we have very vast desert areas which are not reachable in other ways, and also the new information technology campus has been projected in the UB area.
So in order to diversify the economy this heavy industry processing such as copper smelting, oil refining, coal processing have been either planned already, such as coal processing has started.
For agriculture we have major possibilities for bio-technology, also technical renovation and the new Minister of Agriculture involved in, for example, Canadian methods of wheat production, and we are also one of the largest world producers of cashmere and have a fully accredited livestock 40 million.
So in order to develop the country in a sustainable way, for example, one of the possibilities is using of renewable energy, and as you see, currently the country uses commercially 16 midscale solar and wind power stations to fuel 100% some towns and cities and individual farmers use 74,000 solar energy generators. This year 20,000 more generators will be used in Mongolia to produce at least 5% of total energy by renewable in the near future and preparing a deployment of large wind power commercial projects near UB area. As you’ll see this is one of the examples.
So in order to ensure revenue from mining the policy has been adjusted a few years ago such that the government has high ownership of strategic deposits and also large projects, large investment deals, full media scrutiny and has to be approved by parliament. So institutes as Responsible Mining, extractive industries, transparency introduced a very much welcome to Mongolia and we are one of the countries which have good assessment in this area.
In order to ensure that this mining actually has fruits for every citizen, the country has established a human development fund in 2009 which accumulates revenue from strategic deposits and royalties and regulates even distribution to each Mongolian citizen, especially investing in health and social insurance and in housing, and in housing one of the models which we’re looking after is a Singaporean HDB model of housing and we think that maybe this year we can start this implementation.
Education tuition is another way of ensuring this development of human capital based on mining, so this is a kind of soft infrastructure in 2010 all in all about US$240 million have been distributed to citizens. It’s estimated that in the next four years the human development fund and stabilisation fund, which is another government fund, will exceed US$1 billion and this might help us to ensure human development funding in addition to usual budget outlays.
So in order to improve economic performance last year the government have done a business environment enabling reform and three of two international ranks showed that we had at least 10-15% advancement in business reform and the financial system has been modernised greatly to accommodate this increasing revenue. As I mentioned, the stabilisation fund and budget reform to reduce dependence on commodities, the Development Bank, as His Excellency already mentioned, to utilise proceedings from mining and channelling into investment, modernisation of the stock exchange and the financial markets to accommodate more growth in equity financing and linkages with international financial markets, and a regional development index to measure gaps in rural development and better forecast public investment and the creation in the pipeline of a unified PIP system (Public Investment System) to improve the effectiveness of public investment.
So this is what we are doing for the development of infrastructure, of both hard and soft.
Thank you very much for your attention.