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Gandolgor Purevjav is the founder of the Ganabell Institute, one of Mongolia’s leading Human Resources consultancy firms and wrote “Ten Steps to Success”, a leadership targeted specifically at Mongolians.
In this interview, she talks about the high turnover for Mongolian companies and explains the necessity for HR planning to retain training investment. A few nuggets of wisdom include features of the archetypical Mongolian mindset and gaps in the Mongolian workforce that can be leveraged by savvy entrepreneurs and investors.
Enkhzul Orgodol: Miss Gandolgor is one of the most prominent HR advisors in the country. She found her own practice, Ganabell Institute, back in 2011 with her partners who are also specialized in strategic management and corporate training. Miss Gandolgor, welcome to the interview. I’m very glad to have you here. As I just briefly explained in the intro you started Ganabell Institute with your partners and your main focus is HR consultancy as well as strategic development, as I understood. Please tell the viewers a little more about your institute.
Gandolgor Purevjav: Sure. I studied Human Resource Management at the Michigan State University and got the HR certified advisor. Also I had over 10 years of experience in HR field. Ganabell Institute vision has two objective. The first one is to help local companies to become international key players by developing the human resources. The second one is to help the individuals to become successful not only in their career, but also in their life. We have the three fields to run our services. The first one is the consultant services in the strategic management, especially in human resource strategy. The second one is the customized and public services. The customized training program is designed based on the needs of the company. The public one is for the design for anyone who wants to improve their personal abilities in the productivity. The third area to cover in our services is to produce the product lines on human development books and notebooks and other activities.
Enkhzul Orgodol: I see, I see. Okay. I’m very glad to have you here, partly because throughout this project we found that human resources is one of the top challenges of doing business in Mongolia, especially based on the interviews with our 11 other business leaders. I would like to ask you was being the human resources in one of the top challenges in Mongolia prompted you to pursue your career in this field? If so, how much improvement have you seen over the past decade since you got into this field?
Gandolgor Purevjav: Well, there was a lot of improvements going on. For instance, 10 years ago when I started this kind of business as a CEO, we’re trying to approach to the small and medium and even large companies, and trying to educate them how training is important to their employees. Then in the beginning they just reacted and say that, “Oh, the training is very costly. Giving the training to employees is very costly. Why do we have any benefit?” It is, “We don’t see any benefit. After we giving training, they probably just leave our companies. What’s the need?” So this kind of attitude was very prevalent during that time, but now that quite changed. Of course, in better way. They understood how it is important, human resource is a very good asset if you utilize, manage them well, how it can be liabilities if you can’t manage, if you can’t retain these employees. It’s all depend on the management level of the company.
Enkhzul Orgodol: Right, right. Those who manage their human resources good, well, must have sustained their business quite well, especially during this economic downturn over the past few years. Right?
Gandolgor Purevjav: I totally agree with you. During the past economic downsize time, the most of the companies they thought reducing their employees is the good option. But indeed, it’s not a matter of employees, it’s a matter of the management strategy. That’s why it’s depend on how you see it. If you see the human resource is the liability, then it is your right to reduce the number of employees, but if you think the human resources asset then you will never fire them. You instead, based on the human resources, you could able to find the new solution to sustain your competitiveness.
Enkhzul Orgodol: Right, right. Could you share us a bit about the human resources challenges that are found most commonly in Mongolia, maybe top three challenges you commonly see in Mongolian organizations or organizations in Mongolia?
Gandolgor Purevjav: In terms of company-wise, there are certain challenges they mostly challenges facing, no matter if you are big company, small company, if you are international company. Based on my experiences the most of the challenge, number one challenge the companies are facing in terms of HR is turnover. That the turnover is less than 50%. Some companies even 70%. So an average, about 50%. It’s considered very high number compared to other developing countries.
Enkhzul Orgodol: Could you elaborate a bit more on the turnover aspect? For example-
Gandolgor Purevjav: For instance if it’s 50% means that when you have the 10 employees and half of them would leave your company. Yeah. It’s like a flow. The employees come in and out. When turnover is very high it’s very, It’s a bad sign.
Enkhzul Orgodol: Yeah.
Gandolgor Purevjav: That means the employee who work more in years, they’re productivity is getting higher time-to-time, year-to-year. Unfortunately once you give training, once you facilitate the training, and once that employee is get used with the job, then after two or three years they just leave the company. Maybe there are different reasons, but the turnover, if it’s high turnover it’s not good sign.
Enkhzul Orgodol: Not at all, and very costly for the companies.
Gandolgor Purevjav: It’s very costly, yeah. The second challenge I see that there are many very good companies who give the high salary job to the highly skilled people. Unfortunately the Mongolian market itself is very small, and in terms of population we have only three million people. The middle level working force is about over 500,000 people. That means Mongolian companies mostly on a lack of highly skilled employees. They are always seeking such employees. If they find it they have ability to pay the money. So this is the second challenge.
Enkhzul Orgodol: Could you share some of the exact professions that you are referring as highly skilled?
Gandolgor Purevjav: Sure. I can say the two levels. The first one is highly specialized technicians. Even though the Mongolian universities produce, give supply, a lot of highly specialized technicians, the Mongolian demand, labor demand cannot supply the work demand. Demand and supply of the labor has been imbalanced. That’s why the highly skilled technicians couldn’t find a job. They had to change the profession and major. Another side, the reason I’m saying that Mongolian companies are lacking of the highly skilled professions means very high executive like Chief Financial Officers, Chief Marketing Officers. These kind of jobs are still vacant because many of my clients keep asking me, “Please find a very good accountant, a very good Chief Financial Officers like Human Resource Advisors,” stuff like that. I’m talking about highly executive job and highly skilled technician. Both companies are lacking these kind of employees. Another side also Mongolian companies are lacking of low-skilled jobs, too.
Enkhzul Orgodol: Right, right. Yeah. Because everybody started going to universities to gain the diploma and the degrees, but there is need in the market where people with vocational training, for example, are in demand.
Gandolgor Purevjav: Yes. Yeah. That’s what I meant.
Enkhzul Orgodol: I see. I see. Okay. So two major problems you named under the-
Gandolgor Purevjav: The problem is it’s not matter of the employees, it’s a matter of the company’s strategy. Based on my experience, hundreds of Mongolian companies didn’t have any human resource strategy. What kind of people they want to hire, how to develop them, how to evaluate the performance fairly. Finally, they don’t have a strategy to retain the employees, who are giving the productivity.
Enkhzul Orgodol: I see. So if there is no clear strategy or clear picture for any newcomer or any employee in the system, then it kind of demotivates them to stay loyal to the company or even to plan their personal life in relation to their work life. Is that what you’re suggesting?
Gandolgor Purevjav: Yeah, yeah, yeah. That’s why highly executive people and very professional people like to find the international companies. They want to be employed by the company who take care of these issues. When Mongolian companies could be able to find the good jobs, good employees, but they should have been prepared in strategies to keep them, to improve their productivity. That is the challenge, one of the three challenges Mongolian companies-
Enkhzul Orgodol: I see. Very insightful. Thank you very much. In terms of overcoming the challenges you just mentioned, high turnover, employee turnover as well as lack of highly skilled professionals, and thirdly unclear or the lack of clarity in their human resources strategy among the companies or the organizations in Mongolia, what are your top maybe three, four, two three solutions or strategies you provide to your clients or to anyone who are operating in Mongolia?
Gandolgor Purevjav: It all depends on the company culture and strategy and mindset of the owner. If the company founder who has a feeling, who loves his or her employees, then he would find out the solution to keep the employees. If the founder, in other hand, doesn’t love, understand employees, he only take cares of making money, then story would be so wrong.
Enkhzul Orgodol: Right, yeah.
Gandolgor Purevjav: When I give advices to the company owners I found out that they didn’t have any certain culture of the organization. Even some companies doesn’t have any value or vision. In that case, how can new employees come to the company, have ambition to work in the long run? When your employees come in they hesitate whether I going to work in the long-term or not. Nobody tell me that company has a vision, company has a capacity to grow. But in that case the new employee’s just trying to adjust a few months. Then if that employee doesn’t find any reason to stay longer then that employee say bye-bye.
Enkhzul Orgodol: Yeah. That happens very commonly in Mongolia, doesn’t it? Yeah. A lot of employees go into new company, corporation, or even startup, and then they just stay there for a few months or even sometimes few weeks. Then they say, “You know, I don’t like how the company’s structured or how the company’s handled.” I see. I see. So that means there is unclarity in the company.
Gandolgor Purevjav: It’s no wonder that the young, energetic, executive people try to find the job at the foreign investment company. The reason is that the policy is very clear, how to develop, how to evaluate performance, how to increase the salary. Everything is very clear.
Enkhzul Orgodol: I see, and as well as their medical and health benefits, etc. I see.
Gandolgor Purevjav: Because of that, foreign investment companies have a privilege to find the good executive, young, energetic professionals. In that case, if Mongolian companies want to attract such potentials they need to compete. Right? In order to compete they have money, they have land, they have equipment, office, but they don’t have a human resource strategy. That’s the problem. If the Mongolian companies who have the human resource issues, they need to pay attention what they are doing instead of criticizing the employees. The highly skilled, energetic, young professionals like to be employed by foreign investment companies. Reason is that these companies, their human resource strategies very clear.
Enkhzul Orgodol: Well, thank you for speaking of foreign investment companies because I was going to ask you about the difference you see in terms of human resources practice and management in Mongolian local and foreign invested companies, you know, foreign companies in Mongolia. Let’s say on one hand Mongolian professionals, or the skilled workers, is more attracted to international companies or foreign invested companies, mostly because of their more clear human resources strategies as well as the package they’re offering. But on the other hand, how about the employees, the foreign employees? Are they happy to employ Mongolians? Are they as happy to employ Mongolians as employing probably the nationalities from more developed countries or more experienced international professionals, based on your experience?
Gandolgor Purevjav: There is no way they wouldn’t be happy because they’re able to hire the highly energetic and capable professional people. That means they have good human resources, so they don’t have any discrimination between the foreign people and the Mongolian people. The rule and structure and everything is clear. Also the international companies do not discriminate against the races and against the age and even the sex. But in the Mongolian companies you will probably notice that in Mongolian companies you need to be a certain age, from 25 to 35. You need to be high. It’s very discriminative. It’s all depends on the company’s culture. When I work with the international companies, I mean, the foreign investment companies, they give certain, they face certain challenges when they work with Mongolian people. So I gave several lectures and seminars how to understand Mongolians, how to communicate the Mongolians effectively for different officials and foreign employers. There is a reason they argue with each other. The reason is very simple. Because the way they see the work is totally different.
Enkhzul Orgodol: Could you give some examples?
Gandolgor Purevjav: I’m talking about in majority, okay? Because there are certain Mongolian professionals who are very highly skilled in terms of soft and hard skills. I’m talking about in majority. The foreign employers need to understand the Mongolian people’s mentality. You know that Mongolian human resources has been developed in more than 25 years before we had the different system. Now the capitalist system has only 25 years. Right?
Gan Then the Mongolian people’s attitude to work quite different. The Mongolian people are very calm. They don’t hurry that much. They don’t plan in small items. They think as a whole. They think on the items as a whole. So once they need they can divide into small stuff. Otherwise they usually just see in general. Also the Mongolian people’s IQ is very high, but EQ is very low, very means they don’t have very time to improve to develop the emotional intelligence. Once Mongolian mentality has been understood by foreign employers, there wouldn’t be any argument, because they understand the mentality of Mongolian people. Then they find the solution, how to communicate with Mongolians.
Enkhzul Orgodol: I see. So it’s not individual specific but it’s more of national or something that you can see across the human resources or the workforce in Mongolia, you’re suggesting. I see. Could you share some of the examples of the EQ that Mongolian workforce commonly lack of?
Gandolgor Purevjav: Mm-hmm (affirmative), yeah. The EQ could be how to communicate with your employee tactfully. If you’ll say something that that person made a mistake, the Mongolian people just say, “You made that mistake.” There is direct communication, straight forward. But if you have emotion IQ, if you have a EQ high then you would find the way to soften it, to make that person understand the mistake. In that case that person who made the mistake realize and recognize that he made the mistake. Such kind of small communication gesture.
Enkhzul Orgodol: I see. Do you provide communication or cultural advice to your foreign clients?
Gandolgor Purevjav: Yeah. Once they had some problems and didn’t find the solution they approach it to us, but we didn’t have such a training program. They had the needs and based on the needs I formulated the training program and give the training for them. Then after the training they were very thankful to me, because they said that for many years I didn’t understand Mongolians. Now I understand Mongolians. Now I find the solution how to work with Mongolians effectively and efficiently.
Enkhzul Orgodol: I see. Could you share some of the insights of that effective training you provided for your foreign clients? Some of the insights, yeah.
Gandolgor Purevjav: Sure. For instance, there are one company, it was the European company. I don’t want to say the name of the company and the country. That European foreign investment company owner had a problem communicating with Mongolians. Then when we find the argument from both sides, because I talk to that foreign boss, foreign employer and the Mongolian employees What was the argument? Why they didn’t understand each other. Then they give the points. The points they say is right for them. But they don’t understand each other. The problem was that that company’s owner was very aristocratic personality. He got aristocratic personality. That means trying to underestimate the people. But the Mongolian people-
Gandolgor Purevjav: Yeah, looked down. But Mongolian people don’t like mud treatment. So Mongolian people high ambitious, ambitious goal, and they don’t want to be-
Enkhzul Orgodol: Seen as someone at the lower … I see, I see. That’s the mentality. Exactly. Yeah, yeah. Actually, in one of my interviews with one of the business leaders, a European business leader actually, he said he kind of saw Mongolians as very entrepreneurial. He kind of saw Mongolians as very entrepreneurial and he said, “Maybe for every Mongolian they have a dream to have a business of their own.” I see.
Gandolgor Purevjav: The second argument they had was that the person, that employer was very punctual, very detail oriented. But the Mongolian people didn’t plan that well, so because of that working attitude, culture, made them misunderstood. I’d give the training to the Mongolian employees that we are a working environment and working style is totally different from them. European people, they are very focused. They are time punctual. Their EQ is high. Also they are detail oriented. After they plan small they could able to find there’s a big picture. But in a Mongolian aside, they see the items as a whole, but later on if necessary they plan it in small steps. Most of the time they don’t plan it in the small steps. They just think as a whole.
Enkhzul Orgodol: I see. There’s a goal here and we have to get there.
Gandolgor Purevjav: They are not high enough to think about how. This kind of misunderstanding occurred between foreign people and Mongolian people. Otherwise the foreign employers really value how intelligent Mongolian people are, and their IQ is very high. Also the are quick learner. They appreciate how quick Mongolian people learn.
Enkhzul Orgodol: Exactly, and the language ability is very high.
Gandolgor Purevjav: They learn the foreign language very fast. Even though Mongolian human resources are limited in terms of quantity, but in terms of quality Mongolian human resources is very highly energetic and highly asset-driven.
Enkhzul Orgodol: I see. So it’s a matter of management at any organization to see the potentials, the real potentials of Mongolians, and having bearing in their minds the potential risks related to the difference in their cultures and difference in their communication styles, etc. Then how all these make difference in how successful and sustainable the business can be run. I see. Those are very valuable, very valuable insights and discussion. I think our intended target audience who we believe to be entrepreneurs and investors, mostly foreigners interested in doing business in Mongolia, have gained some insight related to Mongolian human resources, Mongolian workforce, or to Mongolians in general from your discussion. I would like to welcome your final comments and thoughts on whoever watching the show, the interview, and then thinking whether they should be coming into Mongolia to do business, and if so how they should leverage the potentials of the Mongolian workforce.
Gandolgor Purevjav: Those who want to open a company in Mongolia, you have a very big potential in Mongolian market because Mongolian market is emerging fast and a developing country. In terms of the human resources, if your company has very strong human resource strategy you can find the employees that you really want. These people can give you the value, and these people give you the new ideas. These people give you high productivity. So before you’re entering that, please make sure to develop your human resource strategy. Once you did that you don’t need to worry about different resources.
Enkhzul Orgodol: I see. By the way, finding a local partner, reliable and efficient local partner in Mongolia, was also named to be one of the top solutions or in the top tips for anyone entering the market as a newcomer. Would you agree with that? Would you also suggest finding a good partner in the country as one of the top solutions to addressing potential human resources challenges?
Gandolgor Purevjav: Yeah. Totally, I agree with you. If you find the local partner it would be much, much easier for the foreign companies to penetrate the market, to find the market share and improve the market share in certain period of time. So one of the good advice is to find a reliable local partner.
Enkhzul Orgodol: I see. Maybe after, or even before you come into Mongolia, if you need any help with your human resources strategy or planning, go talk to Miss Gandolgor in Ganabell Institute. Okay. Thank you very much for your insightful discussion, and I hope it’s been useful for our viewers. Thank you.
Gandolgor Purevjav: Thank you.
Robert Stearns is the Director of the International School of Ulaanbataar, the only school in Mongolia to offer IB education. Previously, he held principal roles at schools in Hong Kong and Germany.
In this interview, he discusses the ideology that drives the education in the school and how it affects the employment pipeline in Mongolia. He also talks about Mongolia’s prospects as an education hub and the underlying factors that inform his assessment,
Enkhzul Orgodol: Mr. Robert Stearns is the director of the International School of Ulaanbaatar, which is the only school offering international baccalaureate. Is it correct? Primary, middle years, and diploma programs in Mongolia and the school itself was founded in 1992, as you can see in the background. Mr. Robert Stearns, or Bob, has over 40 years experience in the education industry and has worked across different continents, including Europe, America, and Asia. Bob, thank you very much for accepting our invitation and welcome to the show.
Robert Stearns: I’m honored to be here and thank you, Zula for the invitation and thank you to discover Mongolia travel and to BCM for sponsoring this because for me, it gives us an opportunity to explain a little bit about the school and about something that’s really close to our hearts as educators and that is education in Mongolia.
Enkhzul Orgodol: Right. I’m very glad to have someone from the education sector, because education is really the foundation of, and the feeding foundation of the other sectors. As you said, this is where the human resources, this is where the future labor force, or the workforce are built. ISU is planning to double the capacity of the school, I found out. Was the decision demand driven or opportunity driven?
Robert Stearns: Let me just explain a little bit about the background of ISU and then I’ll talk about the demand versus the opportunity drivers. ISU is a school that was founded by the parents that came to Mongolia in 1992. They came with the embassies and the NGO’s and as the foreign investment companies came in, the United Nations and all of those children that were coming in didn’t have a place to go to study. They couldn’t speak Mongolian so they couldn’t go into the Mongolian system and so a school was started up and it was supported by the embassies and this school gradually grew with the help of the US Embassy in particular. The US government and the Mongolian government actually created a bilateral agreement for this school in particular so our school actually thrives under this bilateral agreement, which gives us a very special status here in Mongolia.
We’re a non profit school. Any revenue that we have at the end of any fiscal year is recycled back into the school. We strive only to have enough revenue left over, enough surplus at the end of the year for those rainy days that might come along and make sure that we’re prepared for those. I would say in the first instance that the decision to double the capacity of the school was seen as an opportunity as the economy was growing. 2009, 10, 11, if you remember back in those days, the economy was really hot, the hottest economy in Asia so the opportunity was there to, With more and more expats coming in to grow the school to a critical size of about 600, 650, 700 students, which from an educational point of view, makes for an opportune size for a student body.
With that number of students, you can have facilities built that are purpose driven, that allow the learning activities and the curriculum to diversify, that you don’t have when you have a smaller number of students. You can have a strong curriculum, you can have a strong educational program with a small number of students but you can’t have the opportunities that might serve the best needs of all of the students. Let’s suppose in the sciences, you can study your chemistry, physics, and biology but with a larger school, you can add on other sciences that you wouldn’t otherwise be able to afford to add on. We have facilities that are specialized such as a theater, which now allows students to learn about what it’s like in the backstage of the theater, the lights, the sounds. We have a pool so now our students can learn the skills of swimming, the things that they wouldn’t have the opportunity without the theater and the pool beforehand. That’s why the school planned to double. The opportunity came with the economy growing.
Demand driven in the sense that knowing that these foreign students were coming, then we needed to have a school that was gonna be ready to accept them. Of course, ASU was there and BSU started up a year or two later and so those schools also saw the opportunity and the demand but that was really, the demand for us was to make sure that as the students that we needed to serve, that they would have a place in the school.
Enkhzul Orgodol: Before asking the question, let me give you a brief explanation I heard from one of the current events. There were, I heard there was an even between education sector presenters as well as the employers, business community and I wouldn’t say if it was in Mongolia or elsewhere but they were saying the business community was complaining to the education sector that whoever they were preparing for them, basically the education sector are preparing the human force so the human resources for the business community were not meeting the expectations they were having in their jobs, in their work stations. Now, I think this discussion is getting even bigger worldwide, because we’re living in this era of technology and the technology is evolving so rapidly that is is hard, even for young people to keep you with the new forms of demand that the business community or the employers are seeking.
For example, with S-T-E-M, the STEM, the AI, the artificial intelligence and big data are only a few of the long list of the buzzwords shaping the future of global workforce. I would say particularly in the advanced economies at the moment but we will have spillover effect in the midterm or in the long term as well. You are an institution, international institution that are preparing international, the future of the global, the global citizens, yet you are based in a country, specifically Mongolia, that is lacking lots of infrastructure on development to keep up with the development of advanced economies. How are you tackling … Do you find it challenging to have the expectations of your, maybe, parents or your students to meet the expectations or what you can offer in this situation?
Robert Stearns: It’s an interesting question. I’m going back to the beginning of your question. I can recall back in the 80’s in Ontario, the business community, and this may have been throughout Canada but certainly where I was in Ontario, the business community had a big impact on the curricula that were offered, the learning skills that we were trying inculcate in the schools. We shifted, wrongly in my opinion, to educating students to be part of the economy, to be part of the business and of course, we have to be that. It’s out bread and butter. Don’t we? But if we go back to the roots of education, if we go back to what education is really all about, it’s to teach our young people to become critical thinkers, to become logical, to become analytical, to think for themselves. That’s what education is really all about. It’s not to train people in specific skills. It’s not to train people to go our and be good robots in the workforce, to sit in the cubicles and not question.
Enkhzul Orgodol: You’re saying soft skills are more important than hard skills when you’re training the young children.
Robert Stearns: The hard skills come later. The soft skills, at the levels that I’m dealing with in primary and secondary school, the soft skills are the inquiry skills, the critical thinking skills. Those are the important skills. Those are the lifelong skills.
Enkhzul Orgodol: I see.
Robert Stearns: In that sense, if there’s a growing schism between the economy and what business people are saying versus what’s coming out of the educational sectors, that doesn’t make sense to me because I think more and more we’re finding the educational sectors around the world, in different countries are shifting to these soft skills. We don’t know what skills are gonna be needed 10 years from now, 15 years from now. Our children that are in primary grade, their jobs, their careers are probably not even created yet. We have to prepare students to be able to do anything, to be able to go into any area and apply and adapt. In terms of our school here in Mongolia, because it was a multifaceted question that you asked, I think we would not say there’s a mismatch between our school and the students that we’re teaching at the school.
First of all, our Mongolian, or sorry, our expat students, they are foreign students and they are going to go on into a foreign environment. Many of them are part of foreign families that do rotate from country to country and so it’s important for us to teach these students international mindedness and all the traits that come with being international so that they can not just cope but they can thrive as they go from country to country with their families. Quite likely, they will also be international when they, they won’t settle down in one country because it’s hard for them even to know what country to call home.
Our Mongolian students, we also would feel there’s a good match for them because as I mentioned, as I will mention in the interview later, Mongolia itself is becoming more international. It’s reaching out and therefore, it’s incumbent on us, with the students that come to us, students who we hope will aspire to be leaders in the country tomorrow, that they are internationally minded because that’s Mongolia’s aim. It doesn’t want to remain a landlocked, isolated country. It’s already reaching out in its foreign policy, in its partnerships with other countries, in its tourism, in other areas as well. There’s no mismatch there as well. I think students that come into this school are well setup if they’re Mongolian to be leaders in the Mongolian economy, to be very active participants in the Mongolian economy. For our foreign students, to be able to take what they’ve learned here and apply that elsewhere around the world.
Enkhzul Orgodol: When I was talking to the previous leaders, a lot of them, especially the foreigners were emphasizing cultural difference among their employees, local employees. One of them included their independence, their eagerness to be independent, as well as their eagerness to be leader in certain areas or I think behind that, those kinds of characteristics, competition or competitive mindset is there so I thought maybe that some area, Mongolia, those who are employed, those who are going to be employed, including the current secondary school students, if they could pick up this kind of collaborative mindset from their young age, then that might help them to be more internationally, not competitive but compete in the, I guess, workforce or human resources. Would you agree with that and is that what you’re visioning, maybe when you are stressing so much on the collaboration aspect?
Robert Stearns: The workforce today in general is dependent on people working together, synergistically.
Enkhzul Orgodol: Right.
Robert Stearns: The students at a young age, at our school, begin to work in groups. They begin to work in teams. It doesn’t mean that they don’t work alone from time to time and it doesn’t mean that the teamwork is always smooth. It’s a learned behavior, how to accept the ideas of others, how to incorporate them and work together for the good of the whole team and how to drive a team when some people aren’t necessarily pulling their weight on the team or some people are going off on other tangents and all of that takes time and practice and it develops personal skills, interpersonal skills. Those carry on then through the higher grades and then into the workforce. When you go into the workforce, you’ll see that you have people are working together, they don’t work alone. They have cubicles, I suppose, in some areas that they tend to work all day in the cubicle but I think of my own children who are in their 40’s now and they work as parts of teams all the time so it’s a very important, there’s a sense of competition in that sometimes with the team itself and we don’t diminish that. In our science classes, for example, we’ll have science competitions and in our math classes, we’ll have math competitions so it’s not to drive the competition out but it’s to use the team to synergistically compete.
Enkhzul Orgodol: Do you see Mongolia having the potential of becoming, I don’t know, educational hub or educational center for the region at some point because a lot of people emphasize the Mongolians are blessed with language abilities, they can learn Chinese, they can learn Russian quite easily for example and these two countries are two of the major powers in the country, not only in terms of political but in many aspects. On the other hand, there’s cultural difference as we just discussed about. Mongolians are not too open to accept changes, welcoming foreigners, etc and also lagging behind many emerging markets in terms of many infrastructure developments, especially the road, having the public parks, etc. There is the aspiration to become some form of regional hub, whether it would be in the educational sector, it would be in the financial sector but the reality is pulling it back. What’s your personal opinion on that?
Robert Stearns: I think the first question comes to mind when I think about this educational hub for Mongolia is what would be the motivation to become an educational hub when you have other possibilities to focus on? I suppose one primary motivation would be to attract the best and the brightest to drive innovation and with innovation, then the economy can be driven as well so I suppose in one sense, in a landlocked country like Mongolia, in the geographical position that it is in, to become an educational hub to attract that innovation and that innovation can then drive a knowledge economy or a value added economy that gets away from the resource driven economy that now exists. I suppose another motivation to certainly improve the educational levels here, if not become a worldwide hub, is to retain your own bright young people and not allow that brain drain out of the country, to keep the people here. A couple of reasons you might want to consider Mongolia as an educational hub.
What’s holding it back? The infrastructure, yes, you mentioned that and I think, I’ve been here six years and in the six years I’ve been here, I’ve seen wonderful improvements in the infrastructure, the road systems and so on. It’s no longer just a city that’s out in the middle of nowhere. This is an urban environment that can hold its head up with any other modern urban environment in many ways but air quality, I think, is one of the most important infrastructural areas that needs to be tackled and we’ve seen more and more voice on that in the last, This year, especially and I think if you’re looking at attracting young students to come into Mongolia to stay, to stay afterwards, the air quality – You’ve got beautiful blue skies here and we’ve gotta see them more often.
Enkhzul Orgodol: Definitely.
Robert Stearns: I think infrastructure, to me, that’s the most important. Yes, water is scarce here so water quality also has to be maintained, improved, so that it doesn’t become a limiting factor. I think beyond the infrastructure, if you look at the institutional factors that would help build an educational hub, the school system needs to be drastically improved at the primary and the secondary level. The overcrowded classrooms, the multi phases per day because they feed into universities and colleges and institutions of training that are gonna be world class. If your own people can’t enter those, the educational hub is not going to be successful so it has to start at the ground up. I think if you look at the top level, because when you think of educational hub, you think of those universities, those colleges, those arts and sciences areas, the universities and the colleges here need to gain international accreditation.
So in the first instance, I think that has to be sought after very vigorously and I know at least one of the science universities here is seeking international accreditation. With that international accreditation, of course, that forces the standards to come up but it also brings that worldwide recognition so students who are considering, “Should I go and study in Mongolia? Will my degree be recognized?” Yes, it will be because it’s an accredited institution, internationally accredited. That’s what we boast about here. We’re internationally accredited so any student that graduates with an ISU diploma has got a diploma that is internationally recognized.
Enkhzul Orgodol: If these kinds of supply side problems are started out at least at a certain level, then I guess the demand side could be motivated more in addition to having the certification, etc, it’s much less costly here. Would you agree? For example, we have this American University of Mongolia in here, I’m not so sure about their accreditation yet because I haven’t looked into, but if there are for example young people from other Asian countries or central Asian countries, who are willing to gain degree in an American institution, instead of going to America, if they can come to Mongolia, it would be much cost efficient for them, wouldn’t it?
Robert Stearns: That’s right. If you’re looking at Central Asia or you’re looking at East Asia and in those areas it is very expensive to look at, or China, you look at Hong Kong, those areas, they’re expensive so if you can provide that at a much more efficient price level then yes, that would be a big attractor right there.
Enkhzul Orgodol: Right.
Robert Stearns: I think one of the steps that Mongolia could, The American University of Mongolia, is a good start, but you could kickstart that process by inviting franchise campuses. The population is spread out across the country and from the student centers, students, when they graduate from the local schools move into regional schools and eventually perhaps to UB or to Erdenet or Darkhan or places like that and so those have to be built up as well. Also you have the satellite campuses over at Darkhan and Erdenet and Central Lake and places like that so that because this population is so spread out, the ease of getting to these has to be there.
Enkhzul Orgodol: As I mentioned to you before starting the interview, the intended target audience of this project is not only Mongolian really, I want it to be international, international investors and entrepreneurs who are looking at fresh opportunities in Mongolia. That’s why based on what you just said, is it correct to summarize that there are lots of opportunities of setting up educational institutions in Mongolia to meet the demands from the population who are so spread out but that had to be done with proper planning and that should not be done from the top but more systematically?
Robert Stearns: Yes, I agree. It has to be done right from the bottom, more systematically. Otherwise, it won’t be sustaining.
Enkhzul Orgodol: Wouldn’t you think the population,I guess the reason why I started talking about the educational hub or welcoming students from other countries, not only designing institutions for the local locals is that, the number of … The size of the market, because Mongolia is only 3 million people, the size of the market is just too small, I think, for any big investments. However, we do have other competitive advantages like having the big land mass and having very attractive, beautiful campus built not too far from Ulaanbaatar but still where international students, as well as the locals can gain world class or international education.
Robert Stearns: If that’s all you wanted is to have, because Mongolia as the exotic destination for students to come over and complete their tertiary eduction here and a well recognized university, college, an arts and science college,That can be setup but that doesn’t create an educational hub, that just creates an institution of opportunity. You look at what Korea did on Jeju Island, they’ve setup an educational hub on Jeju Island that starts right from the beginning, right from the lower grades, all the way through and that island itself, because of its UNESCO world heritage designation, its beauty, away from the hubbub of the Korean big cities, it’s banking on that to attract students and it’s got the franchise campuses over there already, even at the secondary level for example. Private, for profit schools in other countries have setup franchises on Jeju Island so that could be here, but they are attracting mostly Korean students with some international. If you want to setup a university here, like AUM that’s attracting international, then sure, but that’s not gonna build your educational hub.
Enkhzul Orgodol: Bob, it was really informative and educational interview for me. I think, of course you know, you’re from the education sector and you’re institution is not for profit, but I think it would be good to have these words heard in this kind of business context as well, because I’m talking of responsible business, sustainable business, any investors and entrepreneurs should be aware of the kind of human centric aspects you mentioned and I’m very grateful that I had you in my interview and I myself as a parent was educated a lot in many ways as well and I would like to wish you all the best in your next step. You said you were moving to
Robert Stearns: China.
Enkhzul Orgodol: China, yes. I hope that you will stay in touch with your old school, the current school, which will be old soon and to ensure the kind of messages you want to pursue is still there and maybe to our viewers, you can share your final thoughts and we can call off.
Robert Stearns: I wanted to say thank you to you, Zula for giving me the opportunity to explain about the school. We are a member of the BCM and I have had opportunity, a couple of times, to present to the BCM on specialized topics, but so that your viewers can understand there are schools here in UB, that are ready to accept the children of international families, of investing families that are coming to UB and it’s a growing sector here so thank you for the opportunity for us to explain what we do at this school. It was a good chance for us to talk a little bit about ISU.
Enkhzul Orgodol: Right. It’s a great pleasure. Thank you.
Daniel Mahoney is a founding partner of Mahoney Liotta, one of Mongolia’s most experienced law firms, dealing with a full range of corporate matters and government matters.
He speaks about the ever-present risks of Mongolian taxation and the underlying causes. There is an interesting aside about the composition foreign investors and how they have changed over time in response to the regulatory environment. This interview also provides a glimpse into the nature of mining investment community.
Enkhzul Orgodol: Mr Daniel Mahoney is a founding and managing partner of Mahoney Liotta law firm based in Ulaanbaatar. Daniel is a lawyer by training and has almost 20-year experience of providing legal and business advisory to international and national companies and successfully doing business in Mongolia. Dan, welcome to the show.
Daniel Mahoney: Thank you.
Enkhzul Orgodol: In one of your company profiles, it’s stated that many clients may not fully understand the complexities and difficulties unique to the development of Mongolia. Please specify some of these complexities and difficulties you’re talking about in your statement.
Daniel Mahoney: I guess mainly as lawyers we’re talking about the development of the legal system in Mongolia. We opened our firm in 1997, so that was just a few years after the collapse of communism and the establishment of market economy and market-based laws in Mongolia. At the time, all these laws were new, and the infrastructure, the regulators, and the courts and everything was new. That’s I think probably one very unique thing about Mongolia for foreign investors looking in Mongolia.
Enkhzul Orgodol: Right, but since your establishment, it’s been almost … almost, it’s actually exactly been 20 years. Which do you see in terms of the development? What do you see? Have you seen much progress or do you think there’s still lot of areas that need to be improved?
Daniel Mahoney: There’s areas that need to be improved but there has also been a lot of progress, of course. In 1997 when we first came, there was a property registration office was set up to register ownership of apartments, but that was about it. Now they’ve just established a new system to register other pledges of other types of collateral. The regulators have gained a lot of experience. The securities regulators, the FRC, the banking regulators. Everybody in 20 years of work has gained a lot of experience as have our competitor law firms.
Enkhzul Orgodol: Right. Could you name some specific areas, which still need to be improved you think?
Daniel Mahoney: I think it’s … I would say probably the tax. Tax is a difficult area where it’s still investors and not only investors, but Mongolian business people have a difficult time due to lack of consistency, and lack of detailed rules, and ad-hoc administration by different tax offices, different officers would apply law in a different way. It’s very difficult for business owners, and investors, business owners, Mongolian as well as foreign to really understand what they’re supposed to do and to follow the rules.
Enkhzul Orgodol: I see. Yeah, in one of our previous interviews we talked to a tax expert, Mr. Onchinsuren. She also said one of the difficulties of the business in Mongolia might be the number of these state organizations that may need more clarity in terms of their roles and better arrangement even among themselves. That’s basically what you’re talking about with regard to tax.
Daniel Mahoney: Yeah, with regard to tax and yeah, other organizations as well as training, I think, of staff. You know, at election time, there’s a lot of turnover in departments, and we’ve talked for years about having a more formal civil service in Mongolia, where people don’t change, their jobs aren’t changed because of change of elections, and they develop some expertise in the area within the different departments and authorities. Because now, sometimes they’ll change and people aren’t trained. It’s not always their fault if they actually are trying to apply these laws and regulations, but they haven’t been trained. There is a difficulty many times, faced, yeah.
Enkhzul Orgodol: Of course. Having maybe improperly or inadequately trained civil servants at these public organizations, of course, would be quite time-consuming and troublesome for the business as I understand. Is it correct? Is that where the business is having the most difficulties with regard to the inconsistent civil servants.
Daniel Mahoney: Yes. I think it’s … now speak for example foreign investors, we do a lot of representing foreign investors investing in Mongolia. A lot of the risks in Mongolia could be addressed through contracts, and quite frankly, offshore arbitration, or providing agreements with the partners to address issues but one thing you can’t avoid is dealing with the tax authority and if you have a dispute with the tax authority, it goes to Mongolian court. This is probably the main … you can have a successful business. You can make profits, but sometimes the more profits you make, then the more interest the tax people have. You can’t do business in Mongolia without dealing with the tax authorities.
Enkhzul Orgodol: Exactly. Based on my previous experience, what I understood was, of course, we have the Mongolia law on one hand but if Mongolia is a party to international agreements that are related to that specific area of law, then the international agreements or international … the legislation would prevail the national laws. That’s how I understood. You’re saying that it does not apply to tax-related laws.
Daniel Mahoney: Sure, there’s international agreements on tax as well. There’s many different areas. Yes, under Mongolia law, Mongolia law is clear and actually, the regulators are pretty faithful in applying it in the courts that that international agreement will prevail. Of course, there’s no international agreement about income tax of a company operating in Mongolia. That’s solely a Mongolian law issue, so you’re solely subject to Mongolia law as a business operating in Mongolia.
Enkhzul Orgodol: I see. Then what would be your top let’s say three, four advice to your clients or anyone who is interested in doing business in Mongolia in tackling or sort of, how would I say, at minimizing the risks, such risks you mentioned?
Daniel Mahoney: Yeah, I mean, I think probably the advice is similar to other country. The main one, the first one is to have a good Mongolia partner because it’s really difficult as foreign investors. It depends on the size of the project, also. For somebody like Rio Tinto who is a huge multinational, it’s a little bit different than a small investor from United States or from Australia. For the smaller projects, medium size projects it’s really essential to have a reliable Mongolia partner, and it’s difficult to find a good partner.
Enkhzul Orgodol: Yeah, that’s what I’ve been hearing.
Daniel Mahoney: It’s possible. They just have to … I guess the first advice is, yeah, is to be careful, and investigate and do your due diligence on your partner, but find a good partner. There are, of course, there are good partner.
Enkhzul Orgodol: Right, and what else would be your reply? Find a good partner, also …
Daniel Mahoney: I think the other … not to go back to the tax point is … but the financials is to monitor closely the business here in Mongolia, and to keep track on a constant basis what’s going on. Another problem you see a lot of is to have a good understanding of what you’re doing, so language is a problem, of course, for a foreign investor now we’re talking about They need to have essential documents that they’re asked to sign or submit, file, translate it. They need to have an understanding. Either word for word translation or explain very clearly to them by their staff or by their advisors or something. I think it’s just very important.
We’ve seen as lawyers, we’ve seen many problems over the years where clients come and say, “Well, that’s not what I understood we were doing at the time and now there’s a problem.”
Enkhzul Orgodol: Yeah, I keep hearing, especially because as you said, Mongolia market economy has been developing just over 20 years for now, so there is still a lot of areas that need to be improved in terms of meeting the internationally accepted standards. Some of these sectors, economic sectors are quite new to Mongolia, especially the services or the special, professional services. That’s why a lot of the legal language that are used in English have not been introduced in Mongolian language maybe until now or until quite recently. How do you tackle with that? I mean, how do you go around that as a law firm?
Daniel Mahoney: Yeah, well, I mean, we have, obviously, I’m American, obviously I’m a foreigner but I’m an American so I speak English. Since we were founded, we’ve always had Mongolian partners and a lot of Mongolian lawyers working for us. What we try to do is to understand within the firm, the legal concept that we’re talking about, and then to get it translated into Mongolian either as a word or as a concept. If there’s a defined term or an accepted international standard term, we as lawyer, offshore lawyers, of foreign lawyers, if we understood the term, we would try and explain it, we would discuss. Then our Mongolian lawyers will help us put it in terms that would be understandable in Mongolian.
Enkhzul Orgodol: Right. You said when you set up your own company, you also partnered the Mongolians. What were your main, how would I say it, the criteria or the kind of requirements that you saw in your own local partners?
Daniel Mahoney: Well, actually, I had met our original partner in Washington DC. We worked together in a law firm in Washington.
Enkhzul Orgodol: I see, so you knew-
Daniel Mahoney: I knew him before we came and actually, he invited me to Mongolia. That’s how I arrived here.
Enkhzul Orgodol: Maybe speaking based on your clients or other experts doing business in Mongolia, the kind of quality they seek in their local partners, what did you find the most common?
Daniel Mahoney: Yeah, it is in the earlier … the most common is that they met somebody, that the foreign investor met a Mongolian, their Mongolian partner somewhere, often in Hong Kong, Japan, Singapore.
Enkhzul Orgodol: Mostly through personal connections.
Daniel Mahoney: Through personal connection for the smaller projects. Of course, the larger projects it’s a little bit different.
Enkhzul Orgodol: They would more look at the professional background, etc..
Daniel Mahoney: Yeah, they would. I mean, organizations like BCM or check with, many times people come, potential clients and ask us. They ask us about this is our potential partners. Do you have any comments? Ask around and get references, and check with people that you trust, because you know Mongolia is very small and everybody knows everybody else. Even if not personally or directly, they know of them or they know somebody who knows of them. It’s not that hard.
Enkhzul Orgodol: Right, exactly. Okay, when I was looking at your websites, the company website that I noticed that you have very wide range of services you’re offering through your firm. Of course, I mean, I think that the number of years you’ve been in the country justifies that long list of services that range from registration and regulatory affairs to export customs and trade, etc.. I want to point out the Goldman relations, which actually you pointed out earlier in the discussion as well in terms the inconsistent maybe in the civil service etc.
Could you share some of the advice that you provide to your clients under the government relation section because some of the viewers of our video, the interview would be ones I don’t think who would have the maybe the necessary , who would necessary have the capacity to have a law firm like yourself as their, the professional helper. Could you share some of the insights that could fall under this category?
Daniel Mahoney: I mean, mainly, I guess, in our website, what that means is that we assist our clients primarily in negotiating contracts with the government party, either the government is a contract party, for example, in some of the larger mining projects where the government is actually a shareholder, or the government is the regulator. We would be discussing and meeting with the regulators on behalf of clients. This is what we mean by government relations. We also help just generally, the business community and lobbying for new laws where new laws are published. Hopefully, they’re published in draft form first, and we have a chance to review the draft and then to make some suggestions. That’s probably what we would cover by government relations.
Enkhzul Orgodol: How has the government been? How responsive has the government been in terms of accepting the kinds of suggestions from business community?
Daniel Mahoney: You know, it changes from government to government. Originally, when we first came and I think generally, to be honest, in the late ’90s, government was very open to suggestions and discussions with foreign investors or with. At the time, there were few foreigners actually living full times. Myself, and I had another American partner, and we had a lot of discussions with the parliament members and the government regulators about questions they had.
Then, as the economy grew and particularly the commodity prices went up and the government became, seemed less interested in getting advice because there was so much, I think they took the view that there was so much value in Mongolia that the investors, that they had the upper hand basically and that investors would, they didn’t need to cater to investors, investors needed to cater to them if they wanted to get a gold mine, or a copper mine, or whatever. Of course, in the last few years, that has kind of backfired. Now, the current government is very open.
Enkhzul Orgodol: I see. You see some promising results. You’re expecting some promising results from the current government. Could you name some of the positive actions that the current government has taken that has given you this kind of positive outlook?
Daniel Mahoney: Sure. I think just being open to discussions. All the time over the years, of course, all the government leaders will come to invest. They’ve always go to investor conferences and say, “Yes, we’ll listen to you. If you have any problems, come speak to us.” Then when you actually try and go to speak to the sometimes it’s not so easy.
This government has been open and aggressive in its listening comments, and the Prime Minister, the Speaker, other ministers have come regularly to monthly investor meetings and have presented their platform. They listen to issues and they’ve reacted and so far positively. There’s a lot of changes. There are a lot of proposed laws, of course, under consideration. We’ll see what happens, including mining law, labor law, and some other issues. We together with some others in the business community are providing comments on those laws. We’ll see what happens.
Enkhzul Orgodol: Exactly, yeah, fingers crossed. I see. On your client portfolio what I understood, when I was also speaking to some of the not similar, but professional services firms like the investment banking or the tax, they were sort of sharing insights in terms of their client portfolio because they were saying that how their client portfolio looks like at the moment can be reflecting of the current economic sector, which sectors is doing well, which sector is attracting more investors, which sector has more trends etc., is more tending, etc.. Just to understand this kind of big picture, could you share some of the insights from your client portfolio, any dominant country in the portfolio or any dominant sector you see?
Daniel Mahoney: Mining has always been in 20 years was historically the dominant sector, and it was what was bringing in all the investment into Mongolia. Then, when that cash went into the economy, it went into the real estate and into banking. Those were the key sectors. We’ve represented clients from all countries. Probably if you name a country, we’ve worked with them. In the early years, there was a lot of Canadian investment into mining, into exploration. Later became more Australian because that’s where the money was raised on the stock exchange in Australia say five, six years ago.
Recently, in the last three or four years, unfortunately, there’s been minimal little investment in the exploration side of mining so a lot of that business has dried up. In the last few years, it’s been actually a lot of infrastructure work, and now power projects, and renewable power projects. That’s been the focus probably, at least for our business in the last two to three years.
Enkhzul Orgodol: In terms of the mining, is it mostly gold and copper, or any other specific type of mining sector that Mongolians are not very familiar with, but the foreigners are looking to explore in Mongolia.
Daniel Mahoney: Generally, I think mining companies and investors are interested in anything, but of course, coal was really hot for a while and now the market’s fallen off the last three or four years. Coal had a, in early years, there was very little interest in coal, and then there was a three or four years previous when coal prices went way up, and there was a lot of investment and activity in the coal sector. I think throughout, gold is always interest always, and I think always will be. Copper is the same. I think the long-term prospects for copper.
Uranium has always been here and there’s always been Uranium projects, but there’s always national security issues and because of the nature of Uranium, but there’s still a lot of interest in Uranium. Iron ore for a while there was some interest. It’s a little, I guess more difficult commodity because of the bulk to transport out of the country. It’s copper and gold are probably still today and probably for the future.
Enkhzul Orgodol: Besides this kind of, how do I say, what Mongolian government likes to call a strategic sector like the infrastructure, mining, and maybe even transport? They have transport, for example is next. Which kind of areas, maybe some niche areas of economy do you think Mongolia has the potential to develop more. I’m thinking of maybe organic farming or things like that, but just as a foreigner who’s lived in Mongolia for many years, which do you think, which sectors do you think have the more potential in the long run?
Daniel Mahoney: Yeah. I know and I think you probably know too, the government for a long time just talked about IT sector because that’s,I mean, there’s a lot of well trained, smart, young mostly I guess in technologies, young people, and it’s a good potential. The Mongolian situation has always been that the domestic market is kind of small.
Enkhzul Orgodol: Yeah, it is very small.
Daniel Mahoney: Yeah. You can’t, It doesn’t make economic sense to build a car assembly plant here, because the sales is too small and then the distance to other markets where you can sell is too far and too expensive. There’s lot of types of industries that wouldn’t work in Mongolia but IT would work.
Enkhzul Orgodol: You talked a lot about mining. When we talk about mining, most of the time people think mining as a high-risk, high-return type of business. Earlier you mentioned to me it’s not always the case. Could you explain a bit more on that?
Daniel Mahoney: Yes, what we were talking about was exploration, which is very high risk but very high return. This is I think maybe somewhat misunderstood in Mongolia that the exploration phase, which is when you’re just acquiring new ground which has never previously been mined, that there’s big risk. You have to go and spend a lot of money drilling, doing investigations. Say out of 10 companies, only one out of 10 will find anything. The other nine will go bankrupt.
These business are always financed on stock exchange and most in Toronto, in Canada, and then Australia, which are big mining company countries, a lot of experience of financing exploration work. Banks don’t lend to these companies because there’s a good chance that nine out of 10 of them will go bankrupt. There’s investors in Toronto, they are in Canada, and Australia that understand this business very well and they finance all this work.
This was in early years in Mongolia where a lot of the investment into Mongolia was these kinds of companies. If you’re the one out of 10 that find Oyu Tolgoi, then your investment goes 100 times. The investor knows if I invest in 10 and I go bankrupt, the 10th one will go 100 times so overall I make my money back.
These investors are a relatively small pool of investors and they know what’s going on around the world. For example, when in 2006 when the Windfall profits tax came in, this is when the investment from Canada just dried up. They started investing in companies working in Columbia and South America because they know which countries are friendly to investment and they know where, because it’s all high-risk money so they know. They’re very knowledgeable and they know, which countries are better and worth their investment.
Then Mongolia second, they came along with the strategic mine concept, which is basically like we say it’s like going to a casino that if you win the jackpot, then the casino owner comes and says, “Give me one-third for free.” How you’re going to be, put real high-risk money into my project, would I go to Mongolia where I have to give a third to the government or go to a country where I get to keep my jackpot. This is what’s really hurt investment at exploration stage in Mongolia.
Now, we also talk other projects like Oyu Tolgoi where the resource has already been discovered and developed. Once they did discover copper deposits, those continue and they’re still doing it now, drilling and trying to expand it. It’s going to be bigger. They don’t know how big it is but what they do know is that it’s big enough, and they know that how it sits in the ground, and how it’s structure, and the engineering to get it out of the ground, and they know they can make a profit by doing that.
They check all of these things, a company like Rio Tinto and they won’t invest until they eliminate, until they know that they won’t invest the big $10 billion to exploit the mine until they know all of these things. They know that the resource is there. They know how it’s structure, they know the engineering.
The other thing we were talking about is the political risk. They address that issue as well. Before they’re going to put 10 billion, they’re going to make sure that they’re covered by political risk, mainly that the government won’t confiscate their investment, or that the tax regime will stay stable. This was what was behind the stability agreement.
That’s not just for Mongolia. It’s for any developing country, they would want these kinds of assurances before they would invest. But, for them, it’s a, I mean, they’re still going to make good profit but it’s not like exploration company that makes 100 times what it’s invested, it’s more like if you invest 10 billion it will make a 25% return or something. Of course, it’s good profit.
Enkhzul Orgodol: I see. Can you elaborate a bit more on the stability agreement you just mentioned? What are the main inclusion out there, and how it’s protecting the investor, and how the government is practicing it in Mongolia?
Daniel Mahoney: Yeah, well, it’s mainly it’s fiscal stability but you know, it’s just taxes so the tax rate. If you invest in the project and tax laws, of course, can always be amended. Any law can be amended. What the government has done in the stability agreement at the time is to guarantee to Rio that the tax rates in effect and the taxes in effect at the time that the agreement was signed will stay stable. There’s some other, I mean, the documents is public record. It’s all over the internet, of course, and there’s stock exchange filings in Canada. It covers other things, labor, licensing, things like this, but it’s basically just to say you’ll have a stable environment going forward. Probably the most important thing is the fiscal and tax stability going forward.
Enkhzul Orgodol: Can this stability agreement be done by other investors as well or is it only for specific projects or where, you know, bringing over a specific number of investment?
Daniel Mahoney: Under the new investment law that was adopted a couple of years ago, I forget, 2014 maybe. Now, there’s two things. Any business can get a tax stability agreement. In the tax stability agreement, any large,I think it’s in certain sectors, really large, what you’re talking about, really multi-billion dollar project, you can get an investment agreement, which is similar to the stability agreement that you talk about which is broader coverage. Any investor can just the tax stability. If forget, there is a minimum investment. I forgot what the amount is, but a relatively small amount.
Enkhzul Orgodol: Right. It seems like the government has been giving significance to specific sectors like the mining, infrastructure. They’ve been trying to first attract investors through often this kind of incentives like the stability agreement, but at the same time, they’ve been trying to protect such sectors namely the strategic sectors, for example, right? With the current government, what do you think? They have to work as priority to fix the situation, to keep the right balance in terms of making Mongolia look like they are being very protective on the one hand, but on the other hand, they’ve been trying to be very open or very welcoming.
Daniel Mahoney: Well, there’s the strategic sectors I guess are mining, media, and finance, but most countries do have national security interests in the strategic sector. It’s not unusual for Mongolia to have that. I wouldn’t say that they’re giving advantages, or benefits, or special treatment to investors. Just, all investors want a stable environment and the fact of the matter is, United States is more stable than Mongolia. If you invested in the United States, you don’t expect or you don’t necessarily want or need a stability agreement because you know that the law, the legal environment will stay relatively stable. Sure, Congress can change tax rates and they do from time to time, but nothing like what the risk that they foresee in Mongolia. That’s why they needed the stability agreement to invest in a country like Mongolia.
For the government going forward as we talked before, investors need to see results because of what happened in the last three or four years with all the negative experiences of investors. Also, the government now has been going out and been telling everybody that those mistakes were in the past, lessons have been learned. Going forward we’re definitely committed to investment, we’re committed to rule of law, we’re committed to fairness. They just have to prove it now over time.
There’s huge potential in this country and there’s been unfortunately some missteps and over the last five, six years and mainly because of Mongolia was maybe too successful too quickly at the time as far as drawing investment in and things were going maybe too fast.
Enkhzul Orgodol: Since a 17% increase in GDP etc
Daniel Mahoney: All of it, yeah, just huge inflow of money into the country. Things were going really maybe too fast for the population, society to manage, to understand. When it’s 17% compounding year-on-year and there’s so many changes in Ulaanbaatar. You know, you’ve lived here, just physically, just explosion in building but also I think in society is really coming from Communist era and then slowly into market economy. Then all of a sudden sort of just thrown totally in such a rapid rate that it’s tough to adjust, and then maybe some mistakes made in adjusting to it.
Enkhzul Orgodol: Yeah, and we really hope to see the current government learning from the mistakes and doing what’s right in the future.
Daniel Mahoney: Not only government but the whole country, and society, and everybody understanding, maybe having better understanding of for example it’s not going to go up forever 17%. It’s going to maybe come down sometimes and to manage if for the long run, not the short run. More exposure, experience, education. More of just general concepts of a market economy.
Enkhzul Orgodol: Yeah, exactly. I think I should highlight something here as well, because what you said about finding qualified and reliable workforce is one of the top challenges in Mongolia. I think that really should make the general public and the professionals, aspiring professionals to reflect on themselves, and trying to, how would I say, build up more soft skills like trust building etc., it seems like.
Daniel Mahoney: Sure.
Enkhzul Orgodol: Okay, thank you very much for your insightful discussion, and all the best in your work. Thank you.
Daniel Mahoney: Thank you.
Enkhzul Orgodol: Thank you.
Elisabeth Koppa is the owner of Valiant group of companies that amongst other things are business that exhibits and auctions art as well as doing interior design projects.
The interview with Elisabeth Koppa trawls the value-add of art world and where Mongolia stands with regards to brand education. She posits that, while things are getting better, there is a need for Mongolia to develop better practices with regards to contract fulfilment and adherence to the Rule of Law.
Enkhzul Orgodol: Mrs. Elisabeth Koppa is a serial entrepreneur. She has started and run various businesses while she was in Europe. Since she moved to Mongolia in early 2000 with her husband, she began collecting Mongolian artworks, mostly paintings, which was later developed into her latest venture Valiant Art and Interiors Space.
Mrs. Koppa, welcome. You have multiple functions under your company, an art auctioneer, official distributor of a number of mainly European home and office furniture and interior decoration producers, interior design service provider and so on and so forth. Could you briefly explain how your business is organized, how many employees you have and which kind of departments do they belong to?
Elisabeth Koppa: My company is divided for two, actually three, main departments.
One is Valiant Commercial which has goods for constructions, for hotels, for restaurants, for bigger projects and that is like carpet tiles, raised floor, Marisol foil which is good for ceilings or walls decoration. Many other elements, which are necessary. We have everything what the client may have it, lights, industrial lights, that is in the Valiant Commercial.
Then we have the Valiant Interiors, which is dedicated for private users, also hotels, also other smaller businesses. We have now just recently started with new interior designs for shops like boutiques, jewelry shop, watch shop, shoe shops. We have now make contract with very famous company in Poland. As you know, I am born in Poland and some connections still there and the company, which is specialized for this kind of work, make fantastic work all over the world included France, England, America, so that is our new baby.
And then, the last one is for the private home. We do full projects, we take care of whole apartments and making the renderings, making the concepts, the ideas, the coloristic. We have everything what is necessary, carpets, furnitures, lights, decorations, and as the last decoration is art, also art.
Art is a separate business, let’s say in my business, and we just started to make auctions. We are making auctions once a month. Two times we do normal auction and every third time fine art auction, which are more expensive paintings, famous artists and hopefully, that will be developed. Also included, get things from people to sell, specifically antiques or also paintings or other things which are connected with art.
Enkhzul Orgodol: Right. Art auction sounds very new and unique to Mongolia and based on your background, I found out you’ve actually initiated lots of new projects in Mongolia with regard to introducing art and arts related businesses and services. How has your art related business been like, the auction as well as the introduction and export of artworks of Mongolian artists.
Elisabeth Koppa: I started with art as a first element of my business and that was 2005, and we had the first ever private gallery in Mongolia which was in Ulaanbataar Then in one year time we had five galleries around the cities including gers which was close to the circus and, which we provided concerts, for example, short concerts for tourist with Mongolian art like singing and performance art with art also. And then, I did also start at that time, I traveled around the world with Mongolian art exhibitions. I did 74 international exhibitions for last year, which is huge amount of money but also very, very energy consuming process.
Enkhzul Orgodol: I can imagine-
Elisabeth Koppa: Because of the cost of everything, most of the work I done myself but I also needed to hire people in places, which is costly. Unfortunately, that had been finished very bad for me because I got problem with my spine and I got neuropathy. My nerves has been squeezed between my vertebrae and I couldn’t make that anymore and I don’t do that anymore. But, not only this reason why I stopped to work with this art around the world, because Mongolian artists didn’t understand the whole effort, the money behind it and the needed honesty with co-orporation, unfortunately. Here, in this country, artists used to come, offer and sell. It’s not like other galleries around the world that they take a painting to gallery for period of months, two, three, and if the artist sold they’re sharing the-
Enkhzul Orgodol: Profits?
Elisabeth Koppa: Not profits but the cost of the painting. The sale price they are sharing depends, of course, where is the gallery located and what kind of money is the gallery spending for promotion of the artist, invitations, cocktail parties to invite guests. These things are not known, or didn’t few years ago and problem was that is very difficult to explain to the artist that that is necessary to continue. As I said that already before, I will also explain that I can make you to very famous artist, depends how much money I will put in that project, because a repeating exhibitions with your art and make sure that your art and your name will be known and repeated very often, make you famous.
Enkhzul Orgodol: Exactly.
Elisabeth Koppa: Why, for example, Anthony Hopkins is now artist, everybody know his name. He’s artist, he’s actor but now he start painting and his paintings are very expensive because the name is famous, and he’s not educated artist at all and he’s painting. He’s also questioning if I like them or not. I think that I will paint better, by the way.
Enkhzul Orgodol: Yeah.
Elisabeth Koppa: This is a question how much money you put to the artist to make the artist famous.
Enkhzul Orgodol: Exactly. I understand that there’s two same products with different names. For example, if the product A is not very famous brand, then it’s known to people. It’s different price, it’s different quality, different appreciation but if brand B’s, for example, more known it’s better price, it’s better appreciated et cetera. What makes brand B more valuable? Is the marketing and the brand development, the brand manager like yourself, is doing?
Elisabeth Koppa: Marketing money, the advertising, the promotion, all kind of things connecting with marketing.
Enkhzul Orgodol: Exactly.
Elisabeth Koppa: Therefore, you pay. Why you pay for Chanel that big money when other company maybe even make better?
Enkhzul Orgodol: Exactly.
Elisabeth Koppa: Unfortunately, these educations is necessary in this country. We have Narantuul. In Narantuul you can buy everything. You can buy carpets, you can buy lights, you can buy shoes but look at the shoes, how they are done. The elements to make good quality cost money. Ironically, the situation now is that in China, there are companies which are starting to make very good quality, but the quality is exactly the same money as in Europe. Chinese clients are going now to Europe to buy goods, because why they should buy something from Chinese company when they can buy for the same price from the original producer who has, maybe, experience of hundred or two hundred years?
Enkhzul Orgodol: Right.
Elisabeth Koppa: For example, Quadrifoglio Furnitures, which I am representing in Mongolia, selling very much to Chinese clients, because the furnitures are down in Italy made of very good quality and the price are almost the same.
Enkhzul Orgodol: Right, I see. Speaking of educating the customers as well as the artist, I heard you have written articles to educate the Mongolian artist and the Mongolian public in terms of appreciating the art and artworks better. Are you still writing and-
Elisabeth Koppa: I do. I had contract with Home magazine, and there I was writing about all kind of work I do and that was basically dedicated to educate Mongolian population about interior design, because interior design eight years ago, seven years ago was very unknown world and nobody really understand what that mean and how that works. Now’s much better. It’s more companies which are doing the concepts, the renderings because it’s very difficult to put things together it you don’t have really eye and education.
I was writing articles every month about different element of interior design, starting with what is the design, how the design is connected with culture. Then it’s like, what is the importance of light? What is all kind of covering like wallpaper or carpets or all these kind of things and they coloristic, how you put things together, all kind of design. Why to not make things too busy, because people feel just too stressed when they in an apartment and we’d like to relax after work. So, many things I put it in the articles, which was educating, I hope I heard that from my clients and then readers who bought this magazine, that that was very helpful. Some of them collected these magazines –
Enkhzul Orgodol: Oh, that’s great to hear. So, the Home magazine, it’s Mongolian?
Elisabeth Koppa: It’s Mongolian magazine which is mostly dedicated to the advertising of different companies, but in this magazine I was writing articles 12 months about different aspect and elements of interior design.
Enkhzul Orgodol: I see, so whoever is interested in finding more about your advice should access this Home magazine. Besides educating the Mongolian market, you have done tremendous amount of work in terms of promoting and making Mongolian artists and Mongolian artwork known to the world. You mentioned that you’ve organized almost eighty-
Elisabeth Koppa: Seventy-four, yeah.
Enkhzul Orgodol: Exhibitions throughout the world and Europe and the U.S. Earlier you were telling me that these kinds of efforts of yourself have not been appreciated as much as it should have. What do you think of the future? You said, for example, eight, seven years ago, people did not know much about the interior design but now they’re learning and more and more, they’re getting more better customers. Are you hoping that artists or even the merging the art collectors in Mongolia have the bigger potential of appreciating and maybe bringing some of the artworks…
Elisabeth Koppa: This is very difficult question to answer, because question is number one. Who will be financing that? That was a dinner organized not long time ago by, I think, Ministry of Foreign Affair, or at least that was signature by people from there looking for sponsors to make a Venetian exhibition.
I sent Mongolian artists there and they requested to 300,000 Euro they needed for that. I will ask myself, why it’s 300,000. It doesn’t cost 300,000 Euro, but the cost is huge. You need to transport the paintings, you need to transport the people; the hotels, the advertising, the catalogs. You need probably make new stretches because going with huge paintings abroad is cost very much, so it’s maybe easier to roll and them and then make stretches on the place, which I did many, many times.
I have, in America, storage that I have probably 500 stretches now because moving from one place to another. This is very costly work and, unfortunately, Mongolian artists, they do not appreciate art. They sold paintings behind my back-
Enkhzul Orgodol: So sorry to hear that.
Elisabeth Koppa: They didn’t accept the fact that we had agreement, exclusivity agreement that I am the one only who can sell and can work. They didn’t understand the whole concept of promoting artists. If you are artist in Hollywood or everywhere in the international market, you have your agent and the agent is actually dictating everything; how you will be named, your nickname or other name, how you will be dressed, to whom you will speak, to what you will need to say. This is whole promotion of you as an artist. It’s not like you can say whatever you want, but in Mongolia this concept was not accepted.
Enkhzul Orgodol: Right. We were saying earlier on about the matter of time. What you’re saying, the kind of problems or the challenges facing Mongolia. I’ve heard that they have been faced in other emerging markets as well, and I’m hoping that the situation will get better over time. However, let’s try to look at the potential.
Besides the visual arts like the paintings or the sculptures, do you think Mongolia has the potential of exporting other types of its art? I actually heard, for example, Mongolian ger, the traditional housing, is much more popular in Europe than in Mongolia because there are lots of countries like Germany, France and Switzerland importing Mongolian ger for its ease of setting up and also the sustainability aspect. Do you see other potentials of –
Elisabeth Koppa: Yeah. I can tell you that, most probably, 2008 I have exhibition in Chicago in Four Seasons Hotel and I took with me Mongolian little ger and Yo-Yo Ma, the very famous violinist, he was the one who was the name of that event. That was Silk Road event, like promoting the countries of the Silk Road, and we had pictures with the little ger and everybody was very happy to see that.
That was 10 years ago almost, 9 years ago and I can imagine, the world is looking for more organic and more relaxed life. People are going for yoga, meditation. Mongolian ger is very healthy and I know families who are very rich who be living in huge villas, but they have in the garden Mongolian ger or some other type of ger to relax during the summertime or evening time or children are playing in it.
Also, ger is very easy to put immediately very quickly if you have earthquake or some disaster happens, it’s very easy to make it. I think that is potential of Mongolian ger. Of course, the question is of the quality and the prices as the business decide. The Mongolian cashmere, everybody talking about but I think that-
Enkhzul Orgodol: I think you are wearing some of them aren’t you?
Elisabeth Koppa: I wear. I have a friend who was trying to get, now, samples for cashmere down in Mongolia and she already make appointments with the clients and with special designers and make lot of effort and put lot of money, but the company didn’t deliver it. They didn’t deliver it in time. Even they promised that
Enkhzul Orgodol: Contracted the Mongolian company?
Elisabeth Koppa: Yes, yes. –
Enkhzul Orgodol: Because they saw the potential. However, in terms of the delivery, oh-
Elisabeth Koppa: Exactly. These people had been very disturbed by the fact because they spent a lot of money to promote the Mongolian cashmere and get the –
Enkhzul Orgodol: Where was the company from?
Elisabeth Koppa: I am not authorized to discuss that.
Enkhzul Orgodol: Which country was it from? Is it okay to say-
Elisabeth Koppa: America, that was American. Yeah. American friends who are living in Mongolian and try to get it and the day when they were supposed to get the samples, they was denied and they was promised that they was promised that they will be sent when they are there and they didn’t come. So, all the meetings, all the effort the people did, all the money they spent already for nothing. This is totally lack of sincerity, lack of business manners, lack of profession.
Enkhzul Orgodol: I will just share with my viewers. Before we started, Mrs. Koppa was very concerned about her speaking about the business environment in Mongolia because she has experienced some negative experiences and transactions in terms of doing business in Mongolia.
The purpose of this project is to really expose the good, the bad and the ugly truth about Mongolian business environment. Of course, there are a lot of people who see Mongolia having lots of potential in terms of its landmass, proximity to other bigger markets like China, Vietnam, Japan and Korea but at the same time, there are a lot of people who are complaining about how hard it is to work with Mongolians because Mongolians have been nomad for centuries. They’re only learning to be professional or to work in more civilized or more organized way since 1990’s. Before that, it’s a different story. That’s why we’re trying to expose the truth or the kind of the expectations for foreign investors, or even Mongolians living abroad.
That’s why I wanted to ask you, you have worked in Mongolia for more than a decade now. There have been good times, I hope, especially during the mining boom and there have been bad times as well. What is your recipe for getting the most out of your Mongolian employees as an employer?
Elisabeth Koppa: You told me that you would like to be positive and looking in the future in time? Yes, I understand and I said because you are young, you are Mongolian, you are full of energy. I have been in Mongolia 10, 12 years. These are my last 12 years in my life now, I am over 70 now, and the situation is that I don’t have much time to look forward. I would like to have the business giving me the satisfaction and giving me-
Enkhzul Orgodol: Stability-
Elisabeth Koppa: The stability now, and the biggest problem is that they are missing from the government part positive attitude towards foreigners and positive attitudes towards foreign investor. If the normal people who are not educated, who are nomads, who didn’t have much experience to see beautiful things around the world don’t know and don’t hear from the government that this is positive element in our economy, that we doubt foreign investors, we can’t do very much because Mongolia have too little people and the production, what you have of animals and little bit of the cashmere, are not things which can get the economy to such a high level like it was 5 years ago.
Please, don’t forget that Mongolia five years ago was on the top of the international economy, 17 and half percent of GDP. Where we are today? Almost zero. The situation is, if you’re looking at the foreigners who are coming to Mongolia, they are not the pest. They are bringing the knowledge, they are bringing the need for new schools, new restaurants, new hairdressers, new whatever and that is what make the economy booming. Everybody have possibility to make some money because there are requests. Why we decline now so much during the four years? There’s no request. Nobody renting the apartments, no need for furnitures, nobody really travel with the taxis. If you have 300 people coming from abroad, you have 300 taxis busy and, at least few days, yes? And they’re going to restaurants, they going to the theatre, they going to shop and buying things. That is the model of the economy, so my recipe? Let the foreigners come, make the investor-
Enkhzul Orgodol: Do their jobs?
Elisabeth Koppa: No. The investor needs to feel that there’s stability in the country, that they are welcome. I understand there is always some black element in every kind of population, and I am sure there are investor which are not correct and which want to cheat, but I would like to look at this. Also, Mongolians we are cheating like 8 billion togrogs, get it from government to make rubbish recycling.
Where the money gone? How much did rubbish recycling really cost? If that will be very interesting to make, checking. How the money get to these people? Who get the money and why? What is the reason? That is what are looking here, we foreigners, looking at the corruption that, ‘My brother is in the government so I will get the projects.’ All these corruptions are going over and over.
But, look at the people who live in gers. This is disaster. So much money is spent for different things which are not really controlled, and then look at the people, how they need to go every day to pick up water, or not light or cold at nights. Now, government make the gesture that during the night the electricity’s either for free or very little cost, so that can be make the pollution less.
But, there’s so many things the government should do for the people here in the country. I am not Mongolian, but I help many people. I send the children to operations in Korea, I put my money, I collected money to make that. In my gallery, for example, the auctions. Ten percent of our proceeds are going to the orphans house which we are donating every time we selling anything in the gallery, and I am foreigner. What’s happened in here in Mongolia with the people who has money, and the car, the watch, the apartment they want to have. Of course, I understand everybody wants to have, but this is not really correct and fairness in Mongolian population.
Now, the situation in Mongolia is little bit better because of the competition in restaurants and other places, but there’s still lot of things people needs to learn to make the service. It’s difficult, I know. Mongolia have lot of history with nomad life, which is simple, not need too much and maybe even not expecting much, but-
Enkhzul Orgodol: Independent.
Elisabeth Koppa: Exactly, but if you want to get back to the glory, which was five years ago, you need to get investment. You need to get the people, and the people needs understand in Mongolia that foreigners are not the pest. Foreigners are those which bringing the, as I said, knowledge that the possibility of making the business. So, first is the stability for the investment. Second, is the law.
The law in Mongolia is corrupted terribly. I lost two cases because my lawyers has been set by the judge to come with documents one day later, and because of that I lost two cases. I have now third case in the court where the guy who sue me told me that he has colleagues in Parliament, he has colleagues in government and he knows many judges, so how to fight that? I would like just to address that, that this needs to be corrected. I even spoke with minister Tsagaan some time ago about it and he said to me, ‘You know Elisabeth? This is new democracy, we learn new things. That take time.’ But, how many people on the way will lose the patience and lose the money, lose the will to do something better?
Enkhzul Orgodol: We want to set the right expectations for whoever is looking at Mongolia as a potential. I think it’s very helpful that you support entrepreneurs and investors who are looking at Mongolia to have balanced view about the business environment in Mongolia.
Of course, there are lots of potentials that, as you said, different kinds of, for example, your sector different kinds of arts and culture, products for export, et cetera. But, there are lots of internal politics that are corrupt and that are holding the involvement of the country back. I guess for investors and entrepreneurs who are really looking at Mongolia and trying to leverage it can also try to see some positive side from that. For example there can be an investment coming into education sector in educating the really high skill professionals, as you mentioned, et cetera.
Elisabeth Koppa: Yes.
Enkhzul Orgodol: So, I think it would be good that you have this balance to the viewers, so I’m very thankful for your honest feedback and on this interview.
Elisabeth Koppa: I always say positive things about country, and the people out of Ulaanbaatar, because in Ulaanbaatar, for me, that is like colliding with sharks and, unfortunately, I have evidence for that, that these things are not happening correctly with the big money from the government, people giving to the families and make all the projects for huge money, which could go to much better projects to helping the normal people.
But things can happen. More and more good things happen. If you look at Shangrila, we have fantastic back area, which I just adore. Every day, you’re buying fresh bread, so new things coming up. If you look at my shop, there’s also things which you don’t see in other shops. I am trying to bring things which are new, which are modern, which are fashion with the international community. I think that there’s not only negative things, there are also positive things. I would like just the positive would be little more than the negative.
Enkhzul Orgodol: Yeah. So, Mrs Koppa, thank you very much for your insight, and very honest discussion. I’m sure our viewers will get lots of useful and helpful information from it.
Elisabeth Koppa: Thank you so much, thank you.
Oliver Kuhn is the General Manager of Kempinski Hotel Khan Palace in UlaanBaatar. He has previously managed hotels all over Europe and Asia.
In this interview he talks about the logistical and branding challenges faced by hotels and the hospitality sector in Mongolia. Insights are provided with respect to staff and produce management as well as a note on pricing and timetable considerations for tourists visiting Mongolia.
Enkhzul Orgodol: Kempinski Hotel Khan Palace is a subsidiary hotel of Kempinski Hotels, one of Europe’s oldest luxury hotels headquartered in Geneva. Mr. Oliver Kuhn is the general manager of the U.B. based hotel, which won Mongolia’s Hotel of the Year title from World Travel Awards last year. So Mr. Kuhn, welcome.
Oliver Kuhn: Thank you.
Enkhzul Orgodol: When I was looking at your personal profile, I noticed you’ve been appointed, or you’ve come to Mongolia three times, first in 2008, next in 2012, and last time in 2015. For the first two times, I noticed those were for the same employer, Terelj Hotel, but the last one is for Kempinski Hotel, as we can see now. Please tell us, besides professional reasons, there must’ve been some personal reasons that kept you coming back to the country. Please share some of the reasons, the main reasons that have been attracting you to the country.
Oliver Kuhn: It’s a very challenging country, and I am a person who actually likes challenges. I could not work in Berlin or Hamburg where you have all the infrastructure in place and logistics in place. Here’s something very, you have actually really challenges which you need to tackle, which you need to find solutions, and that’s what I like. That’s why I always work in countries where it’s still more challenging than to work in Europe like some.
Enkhzul Orgodol: I can name, in terms of the tourism sector, the biggest challenge would be low infrastructure development, I think. What other challenges can you name?
Oliver Kuhn: I believe the country lacks a bit in education and development. I believe our main task when we come to the city to work for is to educate the people, to train the people, and to bring them on the next level.
Enkhzul Orgodol: Is it correct to understand that the hospitality sector, not only the hotel but hospitality sector in Mongolia, might be lacking the professionals, the qualified manforce to develop the industries, is that what you’re saying?
Oliver Kuhn: I would say so, yes. All though the country is already coming on to a good way, they are now a couple of hotel schools in the city where people can actually learn the field. Also we have many trainees in the summertime, and in the wintertime as well, which we can train, which we can educate. So the country is moving, now, into this right direction. But four years ago it was more challenging.
Enkhzul Orgodol: Your track record shows me that you have exceeded planned objectives for revenue and profit in almost the hotels you’ve managed here and elsewhere. What are your three key business principles in running a hotel successfully, maybe in this kind of market?
Oliver Kuhn: I will say the first one is respect. You need to respect the culture, respect the people. You cannot just come like me, as a German with his own way to push it through, it just wouldn’t work. So we always need to find a compromise to talk to the people, to respect the culture.
The second one I would say is trust. You need to build trust, you need to say what you do. You cannot do promises which you don’t keep. And the third–
Enkhzul Orgodol: Trust to your employees? Or–
Oliver Kuhn: And to the community as well. To everyone. You always need to say what you do. You cannot lie or give wrong information.
And the third one I would say is development. If you come to a country like here, you always need to train people. You need to develop them because that’s the main motivation for them, and that’s these main reasons why we are here, to train the people.
Enkhzul Orgodol: You have mostly worked in the former Soviet-influenced countries, namely Mongolia, Kazakhstan, and Russia. What do you think are the biggest similarities and disparities in doing business in former Soviet-influenced countries like the ones I just mentioned?
Oliver Kuhn: I believe very similar is still that due to the Soviet influence, and people are more used to an autocratic system, which means they need to receive straight orders, and as well every thing is very much in paperwork. You always need to sign so many documents while in Europe most of the stuff is already electronic, so here it’s a lot of paperwork.
Differences, I would say that especially Russia and Kazakhstan had quite good development over the last 20 years, especially if you look to Astana, it’s a beautiful new city, it’s very different, new universities, education came to a new level. And I believe this is where something here, Mongolia is still lacking.
Enkhzul Orgodol: Right, right. In terms of the external and internal factors, the countries do have similarities like you mentioned and disparities as well. I would say one of the biggest differences may be the population, the number of population. And you’ve run hotels in much more populated countries, like you mentioned, as well as Australia and some other European countries I believe. How is it been like running a hotel in a small market like Mongolia, which is also challenged by external factors, like the cold weather, low infrastructure development, et cetera?
Oliver Kuhn: I believe here it’s very important that you find your niche where you are very special and where you stand out from other hotels. I would say the city has an oversupply of hotels, in the wintertime especially, but every hotel is somehow finding his way. I believe we have beautiful hotels, like the Shangri-La, the Best Western hotel, they’re all very nice. But we’re here focusing purely on quality and on personalized service because we are quite small, we just have 99 rooms, and I believe we are the only hotel where our customers get really greeted with the name if they come a second time, where they can interact with the team. Our team speaks many languages so they can really interact with international customers and gives them a good experience.
Enkhzul Orgodol: Besides the customer service, what are the benefits, maybe advantages and disadvantages, of being a part of large multinational hotel chain like Kempinski?
Oliver Kuhn: I wouldn’t say any disadvantage to be honest, because if you’re a part of a group, first of all, it’s the brand what you have on the hotel, on the roof, which is known worldwide. Then you have the support from the group, especially in sales and marketing, in PR, and most of all in training. We have many trainings which is involving all our team and for service, for sales. We also have cross-exposures that we send some of our team members to other properties over the world where they can learn for couple of months. In return, we take team members, for example from China or from Germany, also to us for a short period of time. This cross-training is very helpful.
Enkhzul Orgodol: But how about as a leader or as a general manager of the organization. Do you sometimes feel like you would like to do this, but you know that might not fit under the operational plan of your hotel chain? Whereas maybe in the smaller hotels like Terelj, I assume you had the authority to make decisions on your self.
Oliver Kuhn: At Kempinski Hotel we call ourselves a collection of individuals, which means we are actually very free to do our own business way how it should be, as long as we have certain standards which we have to meet, which is mainly based on quality, and certainly also on revenue and profit. We are quite free to do our way.
Enkhzul Orgodol: That’s good for you!
Oliver Kuhn: Yeah, it gives us more ways. For the Terelj Hotel, if you are not linked to an international group, then your property need to be very outstanding. The Terelj Hotel isn’t very outstanding product. It’s very remote, it’s a very nice boutique hotel. Although it’s linked to an international association of just called a small luxury hotels of the world just to get the sales support, to get also known internationally.
Enkhzul Orgodol: You mentioned about some of the benefits included in this sales support for being in the chain of hotels. How much does the Kempinski loyalty program or things like that help your Ulaanbaatar-based hotel?
Oliver Kuhn: It does help a lot, and Kempinski has its own program called Discovery, which was founded by Kempinski, and the subdivision is called Global Hotel Alliance, where we have many hotel chains in the world taking part of. Customers can get very fast and upgrade up to the black status, which is our highest status. If they have this they can actually get very nice benefits, like a complementary upgrade to the room. They can get some so-called local experience, which means that they can choose out of a catalog some, for example, a small trip to a local family where they can experience how it is to live there, or they get a free airport transfer, all those things so it’s quite beneficial.
Our market share is coming mainly from Japan, and the second ranking is from Germany. I believe due to the Kempinski brand, that’s where we attract many German customers because it was founded in Germany 120 years ago. And due to Japan, because we are part of TavanBogd Group, and TavanBogd has very good relationship with Japan and just helped us a lot with our Japanese customers.
Enkhzul Orgodol: As hospitality industry being an essential part of tourism industry, how would you rate the tourism industry players in Mongolia, particularly vis-à-vis tour operators and transportation service providers like airlines?
Oliver Kuhn: There are certainly some unprofessional companies on the market, but there are also some very good ones. For example, Juulchin Travel is a very good company where we cooperate quite good. This market is now coming much better than before. In view of airlines, I believe the biggest challenge we have because it’s a monopoly between Aeroflot, MIAT, and Korean Air. The ticket prices are just too expensive. The clients which come to the country are not coming to visit Ulaanbaatar because, to be very honest, the city has not much to offer for people to come. They all come to see the beautiful nature, the countryside. Those client usually are low-budget tourists, I would say. It’s like backpack hostel, it’s like people who just want to make a trip. If they need to buy an airplane ticket with such high cost, it’s simply too expensive.
Enkhzul Orgodol: How about railway?
Oliver Kuhn: Well, you can also go with the train from Moscow to Ulaanbaatar, but it’s simply too much time. People in Europe have maybe two weeks vacation, three weeks vacation. If they take the train, it’s almost 10 days, almost half of the time is over.
Enkhzul Orgodol: As a foreign business leader, as well as an expert in Mongolia, which kind of opportunities do you see for the Mongolian tourism industry by looking at these kind of challenges, as well as comparing the challenges to the potentials and the opportunities that the country has?
Oliver Kuhn: I believe when the new airport is opening, which hopefully is happening this year, then they need to attract new airlines to come. They need to have shorter flights coming with lower price. They need to find a way to organize the transportation from the airport to the city, which I believe is not actually done yet. There need to be a shuttle bus system because otherwise the transportation cost of the taxis is too expensive for the clients. The city need to somehow work on the traffic solution in the city because the traffic, the low infrastructure, then all these uncompleted construction buildings is not really helping to make the city more attractive. There’s all so much things to do.
Enkhzul Orgodol: But you are located maybe on the edge of the downtown of the city, so you do have to find your advantages, or your niche to stand out. Besides the Kempinski name, the brand name, as well as your good costumer service, what do you think that can attract your clients who are not maybe coming through the Kempinski loyalty program, but who are finding you on themselves? Say the main reasons for them to attract.
Oliver Kuhn: I believe that the main reason why a costumer come is purely because of the brand and because of the costumer service. People nowadays checking all these online review portals like Trip Advisor, bookings.com, and so on. They’re checking the reviews before. It’s not that normal that people call the hotel and make a reservation. Now actually 80% comes from online. People really check the reviews, see that it’s a good quality, and come. That’s the main reason.
Enkhzul Orgodol: Right. Besides the costumer service and everything you mentioned, I find myself the location of the hotel very important when I’m deciding on which hotel to stay in anywhere I travel to. How do you find your location? To me, honestly, it’s not in the downtown area. It’s not in a walking distance to the main parts of the city. Do you find that it’s a challenge, or you find a compromise for that?
Oliver Kuhn: Many people tell me it’s a challenge. I try to see it more as an opportunity. Despite we are not located next to the Sukhbaatar Square, we are actually more out from the city center which makes it easier for people to travel to the airport because to go outside the city they don’t need to cross the central square. One of our newest pieces is this big parking place that we have outside. From security point, we have a quite good set up. Our property is quite good secured with a fence, with two exits, one in the back, one in the front. That’s why we have been the main portal for all the head of states before because of the location not in the city and the two exits.
Enkhzul Orgodol: That’s a very smart way of looking at the positive side of what maybe might seem as a disadvantage to many. Earlier you mentioned about training your staff, preparing your professionals. How have you found retaining those talents or professionals after training them?
Oliver Kuhn: This hotel is very unique. The hotel is now open since 10 years. We still have almost 20% of our employees here since 10 years or even more. We have quite a very low turnover. Certainly sometimes people just leave because the season is over or a new hotel is opening on the market and they just want to try it out. We have many people who have left but then they just came back because we really take care of our employees, all the social benefits, these interactions we have for the team outings. It’s quite a good package.
Enkhzul Orgodol: I see. You mentioned the respect for the locals or the local culture as one of the top business principles of your leadership. Can you name an example or two about the kind of costumer, the kind of cultural aspects you had trouble when you first came to Mongolia, but then you had to get over it because it was part of the culture you could not escape?
Oliver Kuhn: I believe, this biggest challenge, what I see here is the timing. If someone’s supposed to come, let’s say, at 12:00 or you have a party that’s supposed to start at 12:00, people not coming at 12:00. They’re coming at 1:00, 2:00. Something which would not work in Europe. Here, you just need to get used to it. You need to prepare your kitchen team that the food comes out a bit later. You obviously need to communicate with the client. That’s how you overcome.
Enkhzul Orgodol: I see. Many people complain about such a challenge, the punctuality. I also find it quite frustrating when I’m doing business here as well. I think hopefully, you know, especially among the professionals it’s getting better. On the other hand, there are a lot of people who explain it with regard to the mindset of the Mongolians who have been nomads for centuries. They say, especially if you are traveling in the countryside then I’d like to tell you, there are only three hours during the day- there is morning, afternoon, and evening, right? Do you still find that?
Oliver Kuhn: It’s getting less. It’s getting less. In 2008, it was very, very often that it happened like this, but now it’s getting much, much better.
Enkhzul Orgodol: You mean in the city? Or …
Oliver Kuhn: Both. Both. In the countryside and in the city. Now, it’s almost solved, but people still come late. We just need to get used to it.
Enkhzul Orgodol: Based on your personal observation, as well as maybe some in-depth discussions with possibly some other foreigners or experts living in the country, which kind of tours do you think are lacking in the country? Or the country has the potentials to develop more?
Oliver Kuhn: I believe what is missing is an infrastructure in the tourist destination. Like to have some hotels in Lake Hovsgol, for example. Or have some hotels close to Khatgal that people can actually stay longer there. Then maybe some small airports in this region, some train connection, or some proper road connection. This could also help to actually gain more tourist revenue.
Enkhzul Orgodol: You commented mostly on the logistical side, but as an expert in the hospitality sector which kind of … You know, if someone tells you or asks you to plan a lodge or hotel in one of the destinations you just mentioned, what would you have in mind? Could you describe a bit?
Oliver Kuhn: It would be something mixed. It would be something with usual hotel service, like a good restaurant, a spa, maybe some entertainments in there like a cinema, shopping mall. But you also need to keep its local touch. People still want to live in a ger. If tourists come in from Paris, from London, they should at least have the opportunity to stay one or two nights in a ger. All these new hotel concepts should have main building plus some extra gers on the site to give this opportunity.
Enkhzul Orgodol: I know in Terelj National Park, which is the nearest national park to the city they do have very good facilities, including the Terelj Hotel you managed. You’re suggesting to have similar facilities provided in the more remote areas?
Oliver Kuhn: Yes, but less in quantity. I mean the Terelj Park is a very beautiful formed nature, with this river floating there, all these animals running around. In my opinion, it’s already too much built. It’s just destroying this landscape.
Enkhzul Orgodol: Where, for example, again if you were asked to developed these concept or tour hotel in one of these destinations you mentioned. Maybe not in the destinations you mentioned, maybe elsewhere, where would you pick?
Oliver Kuhn: To have it as a tourist destination, I would choose Lake Khuysgul as first option. Me personally. To make it as a business concept, I would choose Khanbogd because it’s not far from the OT project. I believe this could bring potentially in the future that it could start with a small hotel and entertainment center to keep all these OT workers there onsite. That they don’t need to fly always to Ulaanbaatar. In the next stage, maybe even extend this project. If you plan to open a hotel in Khuysgul for example, you should have a base in Ulaanbaatar, which means you should have actually two hotels. Then you can swap your team. Because the seasonality at the moment for the tourists is the summertime only. Still Khuysgul is very nice in the wintertime, so we can still have a base business there, but then you can swap your team members from the summertime in Khuysgul to the the wintertime in Ulaanbaatar. There you have all the social events, all these New Year parties coming and they still need your team members. So you don’t need to release them, you can just swap them.
Enkhzul Orgodol: I see. And Khuysgul actually they do try to keep the tourists coming in, even in the winter time by organizing different events like ice festival, and I believe like reindeer festival and things like that. You must have visited Khuysgul by yourself haven’t you?
Oliver Kuhn: I was there once and it was a very beautiful region. It’s very different. When you talk about seasonality actually since we say that there’s only season in the summertime, I believe this is only because we accept this. Because there is still potential to have even a winter season, it’s just not yet developed. For example, if you look at Harbin in China, we have a Kempinski hotel in Harbin. In Harbin is always organized this winter festival, this ice festival you have maybe heard. Still, people don’t come to visit Ulaanbaatar as a city because the city is not that attractive. They come to see the countryside. In the wintertime, even if Ulaanbaatar is polluted and the traffic is disastrous, people still go out to the countryside. They just need to be out.
Enkhzul Orgodol: You’re suggesting that the winter tourism can be actually promoted, not only to international tourists, but also to the domestic tourists as well?
Oliver Kuhn: Yes. Certainly, it will come mainly from the international market since domestic market is very small. But it attract both of them.
Enkhzul Orgodol: I see. I wonder if you promote or offer uniquely Mongolian products to your customers that they can find only in Mongolia? Maybe such as, I don’t know, cashmere blanket, or artisan cheese made by local producers.
Oliver Kuhn: Well, we sell a lot of cashmere products, and we also give for our top clients which are part of this program cashmere scarves, cashmere hats, and such things. Really much appreciated. We tried the cheese. There are some cheese factories close by with the local cheese. But the feedback was not that good so we stopped it again. But the cashmere works very well.
Enkhzul Orgodol: I see. What other local products would you like to see in your team, in your hotel, to be offered to your customers?
Oliver Kuhn: We would like to be as much local as possible, with local vegetables, with local meat. We try to buy as much as possible from local producers. Certainly cashmere is a big topic here. Since we are also linked with TavanBogd to Gobi and we have a good source, we really good play with this.
Enkhzul Orgodol: You said that the feedback on your cashmere gifts, for example, by your customers had been positive. I see. As an international professional, do you think the Mongolian cashmere products, and maybe other textile products, yak wool I know, some camel wool as well, do have the potential of becoming an exportee to Mongolia?
Oliver Kuhn: Yes, for sure. It already is I believe. Cashmere, and also yak wool, camel wool, is a growing demand in actually Western Europe, China. I believe this has good potential.
Enkhzul Orgodol: We previously discussed the seasonality aspect don’t only result in decreasing number or fluctuating number of incoming tourists due to the cold season, but also shorted your availability of fresh food ingredients which seemed to be very important in your business. How have you been tackling this issue?
Oliver Kuhn: I believe Gatsuurt farming became quite big the last years with local products, which is very good for us. Even to buy vegetables in the winter months. If it’s really not possible to get something local, fresh, we just fly it in fresh.
Enkhzul Orgodol: From Russia?
Oliver Kuhn: From Russia, from Korea, from China.
Enkhzul Orgodol: I see. I see. But then do you find it challenging to keep the freshness of the product you’re using?
Oliver Kuhn: If you fly it in, it’s here in between 24 hours. It’s still fresh. It’s very good. In the summertime, there is no problem at all. We get almost everything on the local market. Fruits, vegetables, meat, this is fine. In the wintertime we mostly cover with flights.
Enkhzul Orgodol: Right. Right. That would be reflected in the increase in your cost side though, right?
Oliver Kuhn: We compensate. We don’t increase our prices in the wintertime. We keep our prices stable because our customers expect quality. It’s up to us how we handle this without increase the price.
Enkhzul Orgodol: The way you handle this kind of seasonality is to plan ahead? To be prepared for different scenarios. Is that what you’re suggesting?
Oliver Kuhn: That’s correct. We have sales agents in Korea, in China, who are actually always on standby if we need something. We will have it later in 36 hours.
Enkhzul Orgodol: Let’s put Airbnb aside. What other kinds of threats, or challenges do you see that might affect your business negatively in Mongolia? What kinds of actions are you planning to go around those kinds of potential risks?
Oliver Kuhn: I believe that the biggest risk I see is the infrastructure. Is the traffic, the behavior, how people drive. This is not something we can actually solve, we as a hotel. We’re part of the BCM, Business Council of Mongolia. We actually using groups in there to actually address to this government to find solution. We have working groups in there, we have training sessions, so this is really something where we hope we find a nice word with this government to find a solution.
Enkhzul Orgodol: I mean, of course once you are operating in the market or any country, everything in the country affects your business, regardless of the size of your business. The kind of challenges you’ve names are mostly related to the country-specific problems, I can see. In terms of the hotel , when I’ve talked to a number of business leaders for these interviews, many of them were complaining how the economic situation hit them hard over the past few years. Was it something you also observed for your business? Or you were able to go forward because of the multinational chain you had that could support you?
Oliver Kuhn: You obviously have pros and cons. The actual downturn of the economy resulted that the Togrog was quite lost in value. We actually compensated this because most of our customers were coming from approved pay and hard currency, so we actually had benefits because the Togrog was actually lower so we received more Togrogs. There are always pro and cons. The Kempinski brand is very strong in sense of marketing so we have a very good client base which is coming. We actually show an increase in revenue and profit over the years, despite there was the economic crisis so I would not complain about it.
Enkhzul Orgodol: I’m very glad to hear that. I think it’s important to try to look at the positivities of something negative happening. Whoever can do that survives at last. That’s what I believe. Earlier you mentioned a couple of times how being a part of a big corporation like TavanBogd Group helps your business. Besides the kind of benefits you mentioned, of course with regard to the cashmere factory, as well as the TavanBogd Group’s good relationship with Japanese. What other types of advantages can you name?
Oliver Kuhn: Well, TavanBogd is a very professional company and we work very good with them. I believe our, except these points what you already said, I believe our largest benefit is the knowledge of the market. They’re all very professional businessmen and we can actually learn from them, as well, how this market goes, how to get contacts, how to solve problems. It’s a good partnership.
Enkhzul Orgodol: I see. I see. Okay, Mr. Oliver Khun, thank you very much for your insightful talk and I’ll be looking forward to see you raising standards of hospitality sector through all the programs you are delivering to your staff, and more.
Oliver Kuhn: Thank you very much.
Enkhzul Orgodol: Thank you.
Here Christopher provides many insights into development of the property market and Mongolia’s love affair with cars. His company, M.A.D Investment Solutions has been involved with several urban development projects in Mongolia and the drivers for the project are explored.
Christopher also shares his views on what makes Mongolia unique and presents the case for capitalising on its strengths.
Enkhzul Orgodol: Chris is an urban planner and a real estate expert. He’s been actively involved in Mongolia’s property market over the past decade. We will discuss about ups and downs of Mongolia’s property market and other type of opportunities to turn the current challenges into investable opportunities in the future.
So, Chris, welcome.
Christopher De Gruben: Thank you.
Enkhzul Orgodol: Your company, MAD, stands for “Makes A Difference”.
Christopher De Gruben: Make A Difference, yeah.
Enkhzul Orgodol: Make a Difference.
Christopher De Gruben: Yeah.
Enkhzul Orgodol: Investment solutions claimed to be primary of several initiations in Mongolia, such as Mongolia’s first serviced apartment fund.
Christopher De Gruben: Correct.
Enkhzul Orgodol: And Mongolia’s most comprehensive construction price index.
Christopher De Gruben: Yes.
Enkhzul Orgodol: Please explain these initiatives for us.
Christopher De Gruben: So, when I first came to Mongolia, I was working for a large private sector developer in the country. And I quickly realized that if the market was to mature and improve, we had to have access to information. And so, we started MAD on the basis of providing information and improving the market.
So, we published a very large comprehensive market report that was made available freely. And then we then looked at opportunities that were outside of the normal range of what developers do in Mongolia.
Enkhzul Orgodol: Which was?
Christopher De Gruben: So, service the apartments for instance. There were no serviced apartments in the country. There was a strong need for it. And so, we started buying up the old Russian apartments, and renovating them, and then renting them out as serviced apartments.
So, today, we have 43 apartments under management and we rent them mostly on Airbnb. And it’s working out really well. So, about 70% of our bookings come from Airbnb. And so, we provide a chauffeur-driven car from the airport, we provide cleaning services, we provide breakfast coupons, we do other sorts of things.
And so, we like to look at opportunities that didn’t exist in Mongolia before instead of developing what everyone does. And we are very focused on providing services to the industry rather than providing, that being a developer basically, or being something else.
The same thing with the construction price index. So, we noticed that, again, for the market to mature, there had to be access to better information which means that foreign investors coming into the market, as well as Mongolian companies, need to better understand where construction prices are, where the seasonality is, and where prices are moving.
Enkhzul Orgodol: Is it accessible online?
Christopher De Gruben: At the moment, it’s owned by the Ministry of Construction. So, we did it for private company before the Ministry of Construction. And they will make it available online.
Enkhzul Orgodol: I see.
Christopher De Gruben: But sections of it are available online. But our real estate market data is available online. And a lot of our databases are reflected in that. So, the construction price index is summarized within that document.
Enkhzul Orgodol: I see. So, whoever is interested to find out about those index and the figures and numbers, can you just access your website
Christopher De Gruben: Yes, correct.
Enkhzul Orgodol: Okay, that’s great. Your intelligence unit made the very compelling analysis and projections on the rising demand and shortage supply of parking spaces in Ulaanbataar over the next few years. As a result, you again started another initiative called “UB Parking Fund”.
Christopher De Gruben: Yes.
Enkhzul Orgodol: Which could be seen, to me, as an impact investment initiative.
Christopher De Gruben: Correct.
Enkhzul Orgodol: How is this project progressing?
Christopher De Gruben: So, we’ve raised the first tranche of capital. And we’ve bought a bunch of parking spaces in UB. Parking in UB actually is a very simple investment for me because there’s so many cars here, there’s such a lack of parking in the city. The city is restricting more and more the parking spaces, they’re starting to charge for parking spaces. And you can see now, public spaces have been closed off so that you now need to pay for it, and so on.
So, we thought that the parking spaces within building. So, we buy parking space within existing buildings. We’ve come up at a premium. As you try to remove the supply of parking spaces on the streets, and as people get more and more cars, rationale is that the parking spaces within buildings will increase in value. And therefore, the demand for them will increase. And so, that’s what we’re doing.
The parking is also a very simple investment to manage, unlike other forms of real estate because there’s no maintenance, there’s no utility bills. It’s very, very straightforward.
Enkhzul Orgodol: Right, right. So, please help me understand a bit more on how it’s working. You said you bought some parking spaces in Ulaanbataar. Could you name some of them? And they’re all under existing buildings?
Christopher De Gruben: Yes. So, we look at the existing buildings. They all run here, actually. They only run this, the State Department Store, and the Sükhbaatar Square. And so, typically we’ll buy two or three parking spaces in the building. We go in the building, we try to find people who are selling parking spaces. And if it falls within the price criteria, then we buy them off. And often, the people who we buy them from are the people who end up being the tenants for those parking spaces.
Enkhzul Orgodol: And after that, what happens?
Christopher De Gruben: Probably in summer, we’re going to raise a second tranche of capital. And if successful, then maybe a third tranche be about building parking spaces. So, we had a vision towards building integrated above-ground parking structures.
Enkhzul Orgodol: Above-ground?
Christopher De Gruben: Which is severely lacking in UB. But this is, of course, a much, much bigger project.
Enkhzul Orgodol: Yeah.
Christopher De Gruben: So, before we get to that, we want to build some experience, we want to build some track records of knowing exactly where the price points are, of where the demand is, and how it works. And we need to prove to investors that there is a market. And so, raising small amounts of money bit by bit allows us to do this while maintaining the revenues that we need in order to build on phase three, to build one parking spot. And if it works, then we maybe build multiple.
Enkhzul Orgodol: I see. So, for the investors who’re investing in this fund, what is their turnover like? How long does it take-
Christopher De Gruben: So, the yield at the moment is about 15%. So this is annual yield, annually yield that investor’s getting. It’s a private fund. It was, in many respects, crowd funded. So, it was done through a website. And so people subscribed on the website.
And so, investors get the 15% yield at the moment. We are keeping some of the revenue to be able to reinvest back into purchasing more parking spaces because we want to drive up the capital value of the portfolio.
Enkhzul Orgodol: Do you see more foreigners investing in that fund? Or more domestic-
Christopher De Gruben: No, definitely foreigners. Domestically, we haven’t seen much interest.
Enkhzul Orgodol: Or, do you think it’s lack of awareness or?-
Christopher De Gruben: No, I think for domestic investors, it’s easy enough for them to do it themselves. If you want to buy five parking spaces, they can do so without management cost and the management fees, and so on. We present value because we aggregated everything together. And so we have efficiencies because we buy so much.
But for a domestic investor who has $50,000 to invest, he can buy two parking spaces quite easily by himself. He doesn’t need us to do it. And he can find the tenant very easily.
Enkhzul Orgodol: I think it’s very smart that you changed your model a bit because of the economic issues in Mongolia. Instead of trying to rent out apartments, which are of course much costly to most of the people, you’ve turned to parking spaces which are maybe much more essential than luxury apartments.
Christopher De Gruben: I know many Mongolians who buy a car before they buy an apartment. And-
Enkhzul Orgodol: Did you find that interesting or-
Christopher De Gruben: Yeah, for me, it’s very interesting, because in Europe, it’s completely the opposite. For me, I don’t have a car. And I will only buy a car if I really, really, really need one. But my preference is always not to buy a car. If I can walk, or cycle, or take taxis, that’s what I always do.
Enkhzul Orgodol: Right. Yeah, but then, again, if you look at the other side, public transportation is not really as great as Europe for example.
Christopher De Gruben: Yeah, absolutely. But even in UB, I don’t have a car. I walk everywhere.
Enkhzul Orgodol: That’s great.
Christopher De Gruben: But people-
Enkhzul Orgodol: You must have a very good located apartment, then.
Christopher De Gruben: I live upstairs.
Enkhzul Orgodol: Oh, good for you.
Christopher De Gruben: So, for me, it’s very easy. But I think the Mongolian mentality or so, this is a transition from the horse to the car. And for many young Mongolians, having a car is a status symbol. It’s a sign of wealth, which is why I know a number of Mongolians who live with their parents, often in the living room, but they will buy a $50,000 car before they buy an apartment. You can buy an apartment for $50,000. But they will buy a car instead because it’s a status symbol. It’s something they’re proud of.
And of course, you have the winter conditions, you have public transport, you have also the realities of living here. But we feel that there’s an oversupply of apartments in the market. But no one is building parking garages. So, it’s a simple supply-and-demand game.
Enkhzul Orgodol: Or very few buildings-
Christopher De Gruben: Or very few buildings, yeah. And there’s always under supplied. There’s always 30 spaces for 60 apartments.
Enkhzul Orgodol: Besides the above-ground parking lots, do you think we do have the potential of building underground parking lots as well?
Christopher De Gruben: Yeah, you do. The problem is that it’s all more expensive. But, actually, UB has a lot of very good public spaces. So, you have the courtyard. So, behind here in the 40K (a district), you have other courtyards. You have Sükhbaatar Square. You have a lot of big, open spaces where you can build underground parking garages and leave a space on top so you can just rebuild the square on top of it. So, it doesn’t change anything.
So, imagine if Sükhbaatar Square was three levels of parking underground.It’d be very convenient. It’d be very easy. And it wouldn’t change Sükhbaatar Square. It would be exactly the same.
And this is what you’ve seen all over the world taking place. So, Chicago, there’s Millennium Park. All over the world, parks and public spaces have been transformed to underground car parks.
And so, it will happen in UB. It’s a question of time.
Enkhzul Orgodol: Have you mentioned this idea to anyone from the Ministry, for example
Christopher De Gruben: Yes.
Enkhzul Orgodol: You seem to have a very close connection with them
Christopher De Gruben: We talk often to the Minister and his party. The problem is there’s many agencies in Mongolia who deal with this sorts of things. So, from the chief architect’s office, to the MUB, to the Master Planning Department, to the Urban Design Institute. And so, getting everyone together, getting everyone in agreement. And then there’s a symbolic nature of a private parking space and the need for public space, like Sükhbaatar Square, then the security concerns being so close to Parliament, and so on.
So, there’s hurdles. But they can be breached. They can be resolved, that’s not the problem. The problem is finding someone who has the money and the resolve to make it happen. But we’re working with one developer at the moment who actually does want, interestingly, to build car-parking spaces to the south of Sükhbaatar Square and then connect it directly to Central Tower to Blue Sky Tower and to the Municipality through underground tunnels. Which means people could drive underneath and link directly into their office spaces without going outside.
Enkhzul Orgodol: So, that project is in discussion, is it?
Christopher De Gruben: At the moment, yes. So, we are doing the computation preparation. We’re looking at various investors to see if we could make it happen.
Enkhzul Orgodol: I really hope it will happen.
Christopher De Gruben: So do I.
Enkhzul Orgodol: Yeah. And all the best in that, and you.
Christopher De Gruben: Thank you.
Enkhzul Orgodol: Another greater impact investment opportunities lies in the suburban or ger districts of Ulaanbataar,I believe. Those who are not so familiar with UB ger districts, they’re basically districts where people live in Mongolian traditional housing, gers or yurts, and burn coals to cook and keep themselves warm. So, it’s not as exciting as it might sound, you know, ger district, yurt district because such ger districts are the main source of air pollution in Ulaanbaatar unfortunately.
But countries like the Philippines and India have solved some of their housing problems with impact investment and built large-scale, low-cost housing for their suburban population. As an expert, do you see opportunities for such project happening in UB to rebuild the suburbs?
Christopher De Gruben: Yes. There are many opportunities, but the challenges are huge. And UB has a very unique situation as compared to the Philippines and so on.
Enkhzul Orgodol: It’s cold?
Christopher De Gruben: The cold is not so much the issue.
Enkhzul Orgodol: Okay.
Christopher De Gruben: The one issue is the land rights. So, UB is maybe one of the only capital where the poorest people of the city are the land owners. In every other capital city in the world, or just about, is the richest people who are the land owners, and the poorest people are squatters. They have no land rights, no land tenure.
In UB, actually everyone in ger districts has a land right. So, they have rights of possessions, of ownership, or they have a free-hold right to the lands. And every Mongolian, as you know, has a free right to land as a birth right.
Enkhzul Orgodol: True.
Christopher De Gruben: Which means the ger districts are getting bigger, and bigger, and bigger, and bigger. Now, because of this, you have very low density. So, if you look at the low-income areas of Mumbai, of Manila, of Chinese cities and so on, they’re very dense. Lots of people sleeping on top of each other and living on top of each other. Right?
UB’s extremely spread out, very low density. Which means it’s impossible to provide urban infrastructure to those people. You can’t provide the buses, the heating, the water, the electricity and so on to such a low density for people who can’t afford it. Because the cost of doing so it huge.
Enkhzul Orgodol: Exactly.
Christopher De Gruben: You can provide this infrastructure in the U.S. suburban setting where the average home pays $15,000 a year in taxes. You can’t do it in UB where people pay no taxes. So, the cost of building that infrastructure would be in the billions of dollars. And the city just can’t do it.
And it’s not just the physical infrastructure, it’s also the schools, the hospitals, the buses, all those sorts of things. It’s too expensive to do. So, the solution is to densify. You need to bring people closer together, and then it’s affordable to to build infrastructure for those sub-centers.
In terms of providing affordable housing, so, I work on ADB and World Bank projects in the ger districts. And those two projects in particular that I’m working on at the moment for the ADB. One is ger development investment program that invest in infrastructure in the sub-centers of UB. So, we’re working on two sub-centers at the moment, Bayankhoshuu and Selbe. And the other one is affordable housing and urban renewal project, which we built human-centric affordable housing for residents of the ger districts.
Enkhzul Orgodol: What do mean by human-centric?
Christopher De Gruben: So, a lot of the affordable housing projects that have happened so far by GADIP, by GAP, by all of the state agencies, they build single-use high-rise towers, right?
Enkhzul Orgodol: Okay.
Christopher De Gruben: And this is a model that has been proven the world over not to work from a social perspective. People lose touch with their identity. You have a rise in vandalism, and so on. What works is something that’s called human-centric. So, it’s human-focused development. It’s about scale.
So, instead of building high-rise towers with lots of emptiness around it, what we’re trying to do is build mid-rise townhouses so people still have an attachment to man, they still have a garden, they still have low-rise cities. And so, you have-
Enkhzul Orgodol: Better school and a hospital.
Christopher De Gruben: That’s right. And you create communities. And you create meeting spaces or you create green spaces, and so on. So, it’s creating more a village feel rather than a megapolis feel.
Enkhzul Orgodol: Is it in the stage of conceptualization? Or-
Christopher De Gruben: No. So, we’re finishing the feasibility study of the affordable housing in March, April. And then it will go to the Parliament to be discussed. And hopefully we can start construction 2018.
Enkhzul Orgodol: Okay-
Christopher De Gruben: It all depends, once we’ve finished our mission, then it depends on the Mongolian Parliament and the ADB to push it through. Which can be very quick. It can also take a long time.
Enkhzul Orgodol: Yeah. Well, I hope the Mongolian Parliament will be looking into those kind of innovative solutions. Otherwise I mean, the people have been quite angry and upset with the social and environmental problems-
Christopher De Gruben: And it’s understandable. I mean, it’s a very difficult choice. I work a lot in the ger district. And people there realize that burning coal is bad for their families, it’s bad for everyone, but they have no choice. They need to heat themselves. So, it’s a very difficult situation.
Enkhzul Orgodol: But is someone who’s lived in Mongolia for a decade-
Christopher De Gruben: Yeah
Enkhzul Orgodol: -and also have been involved in different economy sectors of the country, which kind of opportunities do you see in the countryside in terms of building up more business-like environment there and at the same time, helping the gers sustainable livelihood.
Christopher De Gruben: Yeah. I mean, the two big of course are agriculture and tourism. Mongolia is extraordinarily beautiful, it’s one of the most beautiful countries in the world. The problem is how it markets itself. It’s too expensive for low-income tourists, and it’s too difficult. And you don’t have the infrastructure for the high-income tourists.
Say, if you look at African countries that also have sort of beautiful nature, and so on, they’ve marked themselves on very high-income tourism — so, Tanzania, Kenya, and so on — with extremely good luxury-tented camps. The whole glamping movement and so on.
And I think Mongolia needs to go into that direction. But in order to be able to do so, it needs to build infrastructure. A tourist who pays $2,000 a day, is not going to sit in a minivan going over bumpy roads for five hours a day. And so, there needs to be an infrastructure built on that
But there also is a huge market for the nomads to start welcoming tourists into their lifestyles and so on. And this is destination tourism. Is a huge opportunity that is not being exploited at the moment. There’s a few small companies that are trying to do it. And I think the Ministry of Tourism needs to be a better job of supporting those sorts of initiatives.
And then, agricultural business. I think the opportunity actually lies in letting Korean and Japanese companies come and do agricultural projects in Mongolia. There’s a common misconception in Mongolia that if you do longterm leasing of land, or even selling of land to Japanese, or Korean, or Chinese companies that mean you’re losing that land. And I think that’s nonsense because our land is still in Mongolia.
Enkhzul Orgodol: Exactly.
Christopher De Gruben: They can’t take it away back to Japan or Korea. And the Mongolian government is here to regulate. So, you can tax it, you can derive revenues from it, you can do all sorts of things.
The Japanese really need grazing lands. So do the Koreans because they have overpopulation, they have issues there. And it will come at no cost to Mongolia. And it would create jobs. It will create benefits. But importantly, it will create skill transfers, because they will employ Mongolians on their farms that those Mongolians would then get set at their own farms and become competitors.
Enkhzul Orgodol: But however, do you see the relatively long, lengthy cold season in Mongolia, a problem in doing such kind of agriculture projects?
Christopher De Gruben: It used to be. No longer. Now that you have hydroponic agriculture, you have so many new types of innovative agriculture that you can do. It’s becoming less and less of a problem. And bear in mind, during the Soviet period, Mongolia was a net exporter of wheat to the Soviet Union. The Soviet Union was far bigger agriculturally than it is today. Today, we have 20% of agriculture we had at that time. Now, the Soviet Union agriculture wasn’t particularly sustainable or wasn’t particularly good quality. But there is a market for doing this. And bear in mind that the world over, people associate Mongolia with the steppes. If you ask anyone in the world what is Mongolia, they imagine the steppes.
And you have restaurants the world over that sell Mongolian beef. That’s not actually Mongolian, it’s from inner Mongolia. But there is a perception of good-quality beef. And I think there’s a niche market for Mongolia to go into very high-quality beef, like wagyu beef, or kobe beef, or something like that, that can then be sold over in Asia to Korean, Japanese, Chinese, Singaporeans, and so on.
Because the branding is already there. Now, it’s just a case of creating the product. And there’s a number of opportunities like this that I think Mongolia could actually do fairly easily.
Enkhzul Orgodol: Besides your real estate business, have you been involved or have you had deeper research on this kind of economic opportunities you just mentioned besides your real estate.
Christopher De Gruben: No. I mean, we really, really focus on real estate. Everything else often comes as a result of the real estate. Because if you’re looking at the urban areas, you also need to look at what drives economically and how the economy as a whole functions. So, I’m very interested in macro elements.
And we have advised sort of different agencies on opportunities in Mongolia. The problem is not so much the opportunity here. The problem is the size of the markets and the regulatory environment. Those are the two big issues that investors face.
So, the opportunities are there. And there are good Mongolians on the ground that can actually make them happen. The problem is simply the government often gets in the way and is very difficult to deal with Mongolian government for such a small market. There are other countries where the government is equally difficult to deal with. China is notoriously very, very difficult to deal with. But at least the market is much bigger.
Mongolia is a very limited market. And there’s three million people, of which only 1.5 live city, of which how many can afford any kind of product.
Enkhzul Orgodol: Due to exactly the reason you just said about the relatively small size, not relatively small size of the market, however relatively big land-
Christopher De Gruben: Land mass, yeah.
Enkhzul Orgodol: -and land mass, do you think Mongolia has more opportunities for becoming springboard to other countries like China or Japan and Korea, you just mentioned, is they’re trying to attack investors who would do business that targeted for Mongolians.
Christopher De Gruben: So, I think actually Mongolia, being such a large land mass in a geographic area that has so many high-density countries and so many countries that are growing in terms of economy, presents enormous opportunities. And Mongolia rightly or wrongly — I mean, there’s debates on both sides — is very much against letting foreigners in for a number of reasons.
Of course, the Chinese, there’s a fear of being invaded and becoming a Chinese country of sorts. And those fears are of course founded. But I think there’s a middle ground that can be found between the current xenophobia of we’re afraid of foreigners, so we’ll make life very difficult, to actually benefiting from the potential and investment that it brings. The land mass that you have here is an enormous godsend that Mongolia has. And beyond the mining, I think it is what’s going to prove the fortune of Mongolia over the longterm.
Of course, there’s huge mining opportunities in the country. But the land mass is also a big issue because it means everything is difficult and everything is far. UB is a city-state in effect. But if you want to go anywhere, if you want to create any kind of business for secondary cities, it is just so far, it’s extremely hard to do.
Enkhzul Orgodol: I’d like to ask you a couple of questions on your personal journey. Back in 2012, in your interview for a local newspaper, UB Post I believe, it’s exciting fun and the best possible business school in the world.
Christopher De Gruben: Yes.
Enkhzul Orgodol: I know the positivity, but can you still say so after five years?
Christopher De Gruben: It still is the best business school in the world because we’ve seen both the good times and the very bad times. And so, for example, for my business, it’s forced us to completely change, and adapt, and be flexible. And so, the business lessons you learn in Mongolia are very, very concrete. They’re very good. And they’re probably much more down to Earth than the experiences you will have in any other country.
The things I’ve learned in Mongolia is the power of relationships and the power of being practical, and being very pragmatic about what you do, and always looking at what can go wrong.
Enkhzul Orgodol: So, this type of scenario planning, you have to plan-
Christopher De Gruben: Yes, absolutely.
Enkhzul Orgodol: -for scenarios.
Christopher De Gruben: Absolutely.
Enkhzul Orgodol: What if this happens? What if that happens? Yeah, I think that sounds like a very good lesson for you, right?
Christopher De Gruben: Yeah, but at the same time, Mongolia is actually quite unique in the fact that it is virtually easy to start an adventure. If I was working in the U.K. or in most Asian countries, it’d be very difficult for us to do new product lines, new markets, and so on because there’d be so much regulation, there’d be so much red tape. And it’s such a competitive industry.
Here, if we have an idea, we can start on this idea next week and see if it works at relatively low cost. And if it doesn’t work, we can shelve it and try something else. And Mongolia’s quite unique in this. And that’s why you have such an entrepreneurial culture.
Mongolia, for me — I’ve traveled all over Asia — is very unique in how many entrepreneurs it has. Mongolians are by nature extremely entrepreneurial, which is a problem as well as a negative. It’s a problem for people like me because when we have good employees, they stay with us one year and two years and then they want to go and compete. And the dream of every Mongolian is to have their own business, I think. Or, that’s how I see it.
Enkhzul Orgodol: Partly true, I think
Christopher De Gruben: Yeah, and whereas if you go to China, if you go to Japan, if you go to Korea, the dream for them is to work for a company for the rest of their lives and to be a salary man, right? And so, Mongolians have this great entrepreneurial spirit where they want to try everything, they want to do everything, and so on.
Enkhzul Orgodol: What else do you think the government should do in the next few years? Because they just formed about half a year ago, and they I think are really trying hard to lift the economy up. How much do you think they will be able to accomplish here over the next few years?
Christopher De Gruben: Yeah, so the biggest problem of the government is — I mean, it’s a vicious circle. It’s a very different institution they’re in because what investors what is stability. The best way to prove stability is over time. You can’t prove stability over six months.
So, we’ll see in a year or two if the government is stable. The key thing for the current government is to maintain its promises and to stay on message. One of the key challenges from the previous government was that there were so many conflicting messages. So, constantly there were ministers, and members of Parliament, and so on that were saying certain things in the press. And they were all fighting amongst each other, and so there was no unity in the government.
Today, with MPP controlling the Parliament, controlling municipality and probably soon controlling the presidency, they will have all the tools necessary to have stability and to have a single message. And I think that’s what’s very important. For example, today, there’s a lot of uncertainty about will Mongolia be able to meet its March payment on the Chinggis Bonds. Will the IMF come in and so on? And even in the March payment, the Minister of Finance is saying one thing, the Parliament are saying another thing. And so, we need to have clarity in what is going on.
And in most other countries, you have a clear chain of command. And so, you have a spokesperson from the government who says where the government position is. Other ministers and parliament members are not really allowed to talk publicly about affairs of state. And I think this is something that needs to be slightly improved on Mongolia.
I’m actually quite impressed so far with the current government. They’ve inherited from a very, very difficult situation. It hasn’t crashed yet, which it’s a positive. It’s a good sign because we were heading towards a massive crash. And they’re trying their best to improve the situation while maintaining their political promises, which is not always so straightforward. So, we’ll see if they’re able to do it. I’m confident. I’m confident.
Enkhzul Orgodol: When you said five years ago that you came to Mongolia to build a career, do you think you’ve already reached that goal and what your needs and longterm goals in your business life. How are they related to Mongolia?
Christopher De Gruben: I’ve learned an enormous amount. Not just from a business perspective, but mostly from the marker perspective. So, we become valuers, we become planners, we become market research specialists. And we’ve realized that we have product, which actually, from an Asian-market perspective, are quite unique and very good.
Or capacity to integrate together the investment side the research side, the urban planning and evaluation, all together into one core team. It’s something that’s quite unique here. So, we think there’s a market for this in other Central Asian countries, as well as Northern Asian and so what we want to do is expand our business. Mongolia is a relatively small market, as I’ve mentioned before. And so, for us to keep growing, I think we have to grown outside of Mongolia. So, when we tame our base-
Enkhzul Orgodol: So, you want to duplicate your business in Mongolia and implemented elsewhere? Okay.
Christopher De Gruben: Yeah. We’ve set our base in Mongolia. But I think there’s a number of central Asian countries in particular that have gone through the same transition than Mongolia, and had the same problems that we can probably enter in and provide some good services. And it is those countries where the big companies don’t want to go into because they’re too complicated because they’re too expensive, and they’re too small of a market. Where we had a competitive advantage to be able to take our lessons from Mongolia, and go and apply to other countries.
Enkhzul Orgodol: Yeah, that’s sounds like a very good plan.
Christopher De Gruben: We’ll see if it happens, yeah.
Enkhzul Orgodol: Yeah. Which countries are you looking at, at the moment? Or it’s still in your mid-term plan-
Christopher De Gruben: So, it’s still mid-term. But we’re looking sort of at Tajikistan, Kazakhstan, those sorts of central Asian countries.
Enkhzul Orgodol: I see. Okay, Chris, very, very extremely interesting discussion. I think thank you very much and that-
Christopher De Gruben: A pleasure.
Enkhzul Orgodol: -I just want to briefly explain about the project-
Christopher De Gruben: Yeah.
Enkhzul Orgodol: -again to let the views and yourself as well. So, this project, Doing Business in Mongolia is a content strategy project which will produce four main outcomes in ebook, business guide book that will be mostly based on the kind of discussions we’re having from these 12 business leaders we’ve chosen. And also, of course, there’s YouTube videos that original media series we’re also going to launch a website on this project, Doing Business in Mongolia, so people care visit them any time, even after the videos is the e-book. And we’re also planning to organize a forum in the summer when the sun is up and the weather is warm for anyone who’s interested in that, explore more businesses opportunities in Mongolia. So, of course, if you are in Mongolia, please join us-
Christopher De Gruben: I’d love to.
Enkhzul Orgodol: – there in the forum. And I would, I would also like to encourage my leaders to sign up in the link, under the description in this video to receive the free copy of the Business Guide Book we’re providing. And we hope that you will be able to share some of the market insights with us with so that we can include some of that in your book.
Christopher De Gruben: Of course. Happy to.
Enkhzul Orgodol: Okay. Okay, thank you very much.
Christopher De Gruben: Thank you, very much. Thank you.
Bayanjargal Byambasaikhan founded Nova Terra and investment and project management firm. He was the CEO of Mongolia’s Sovereign Wealth Fund, Erdenes Mongol, chief negotiator for the government of Mongolia ending a 5 year dispute with Rio Tinto and has set up capital intensive copper mining projects.
In this interview with Enkhzul Orgodol, he talks about the direction of Mongolia’s renewable energy sector, explains why Mongolia is a competitive for business investments and the impact of China’s slowdown. There is more to hear and it’s well worth knowing more about a major practitioner in Mongolia’s hottest sectors of mining and energy.
Enkhzul Orgodol: Mr. Byambasaikhan, you have worn many hats, both professionally and personally throughout your career. Some of the highlights are former CEO of the Sovereign Wealth Fund Management of Mongolia, World Economic Forum, Young Global Leader, Chairman of Business Council of Mongolia. So please tell me, which hats are you actively wearing these days?
Bayanjargal Byambasaikhan: In addition to my business, NovaTerra, which is a company that develops and invests into renewable energy projects in Mongolia. For example, we recently established a partnership with an international solar energy developer, called Symbior, and we are jointly developing and investing into a Solar PV project in the Gobi region of Mongolia. That is an area that we specialized in and we have experience with previous projects and we feel that developing such projects according to international standards, and having bankable projects will allow us to, number one, attract investment and financing. Be able to complete the project on time, and be able to supply the grid, but in future, as I said, we want to really be in position to export that clean power. Therefore, there will be many such renewable energy project developments in the coming 10, 15 years and we are actively engaged in that. We also have an advisory function that helps various international clients to do their business and to create value in Mongolia.
I am an active member of BCM, which is the Business Council of Mongolia. BCM is really 250 companies.
Enkhzul Orgodol: 250?
Bayanjargal Byambasaikhan: Yeah. They are all actively operating in Mongolia and we represent those businesses to help them get more information about the market, so that companies can improve their revenues and sales. Also, we advocate on their behalf on economic policies, investment issues, and issues that are important in improving business climate in Mongolia.
I think the fact that Mongolian economy is an economy that is emerging, that is growing. If you look at where Mongolian economy was, say just six years ago, it has tripled in size. So despite what is happening around the world, as well in the economy, this economy will continue to grow for many more years. Infrastructure, particularly energy infrastructure, will be critical to this sustainable growth. Mongolia does have a lot of potential, in terms of producing cleaner energy, that it can supply the neighboring markets. That is something that will interest many investors, technology companies, and engineering companies, as I said, for the next 10, 20, maybe 30 more years. That is an area that I’m working in now and been fortunate enough to lead the team that built the countries first wind farm. It was-
Enkhzul Orgodol: How is the progress of that farm?
Bayanjargal Byambasaikhan: Well, it’s operating so I think it’s doing-
Enkhzul Orgodol: Any export?
Bayanjargal Byambasaikhan: No, Mongolia currently does not export power, except for peak energy balancing that it does with a Russian grid. In the future, Mongolia does have a tremendous potential to be an exporter of clean energy to China, as well as the neighboring markets.
Enkhzul Orgodol: How long is the future you’re talking about?
Bayanjargal Byambasaikhan: Well I’m talking about the next, as I said, the next 20, 30, 40, maybe 50 years.
Enkhzul Orgodol: Okay.
Bayanjargal Byambasaikhan: This economy is currently, as you well know, had been built on the back of mining commodity projects. That is very volatile. That market is very volatile. We feel that in the future, once we are able to build up the infrastructure that will allow us to export that clean energy to these neighboring markets, this will be another base for the economy and this will be actually a very strong and sustainable base that will allow this market to have growth on one side, to get more investment and to earn more foreign currency.
Enkhzul Orgodol: The next question I prepared is right exactly related to what you just said about renewable energy. It’s actually rather long, so please bear with me. Your consultancy company, NovaTerra, assists businesses to take on mega projects in Mongolia, particularly in the infrastructure and energy fields, mostly renewable energy you mentioned earlier, right? Embarking on mega projects has it’s pros and cons, of course. On the pros side it can bring substantial amount of financial benefit to the investors. On the other hand, it can also be crippled by complicated multi stake holder engagement, or prolonged negotiation process, and maybe even unwanted encounter with publicists. What I’m trying to ask is, according to the company profile, Nova Terra has wide experience in strategically positioning it’s clients in the Mongolian political and economic environment. Also, the company’s quoted to have proven track record in winning negotiations and agreements with the Mongolian government, which is not something anyone can do.
I would like your expertise, I would like to seek your expertise in this field because mega projects, the kind of projects you just mentioned, be it in the field of renewable energy or in the mining, or infrastructure, we need them. However, there are different sizes of businesses who want to be part of this kind of projects, but they would not have the capacity or capability to have the service of professionals, like yourself. I would like you to give some practical tips or share some stories in dealing this kind of project with the Mongolian government.
Bayanjargal Byambasaikhan: As I said earlier, Mongolian economy is an emerging market. The risks and the rewards are aligned with similar markets. This market can grow fast and it can transform quickly. The fact that you have businesses continuing to invest in this market, particularly in the renewable energy area, tells you that the market is good. What I can tell you is there’s a lot of people who will say that dealing with government is difficult here in Mongolia. I will tell you that, from my experience, dealing with any government is difficult. Try to get a permit in America or try to get a permit in Australia, and compare it with the effort it takes to get that similar permit in Mongolia. People who are in that line of business will tell you that Mongolia is actually a favorable place to work in.
Enkhzul Orgodol: Really?
Bayanjargal Byambasaikhan: Yes. Yes, there is issues with the fact that some of the industries can be quite new to this country and there will be a long process to get support from all the stakeholders. That said, over the last 25 years, this market has always grown. This market has always adapted to new things. Therefore, the difficulties that you will face in Mongolia, are no different than those difficulties that you will face in other emerging markets. I like to tell my potential partners and clients, be prepared. Mongolia will give you it’s bumps in the road, but as one who is experienced, will know that if you come for an off road adventure driving, you can not come with a Ferrari and expect the roads be –
Enkhzul Orgodol: Highway.
Bayanjargal Byambasaikhan: Yes. Therefore, you have to come prepared. The most important advice that I give people is, “Find the right partner.” Finding that suitable partner that understands you, that has-
Enkhzul Orgodol: You would advise a local partner, right?
Bayanjargal Byambasaikhan: Yes, a local partner that shares the same values will help you tremendously. You may spend hours and a month, trying to understand the local practices, etc. Having the right partner will help you really win in terms of time and money. Find that right partner and then, of course, build that relationship. Also, respect the local traditions when you do business in this country. The laws and regulations in this country, some people will complain that they’re too cumbersome, but on the other hand as I said, those who have experience will tell you that this is actually a pretty liberal environment to be in. Look Mongolia, there is no restrictions in bringing money in and taking money out. We’ve seen many foreign investors that have invested in the country and have been able to exit without any issues, making lots of money. Whether it’s in the banking sector, mining sector, and other sectors. So again, making money, taking money out, is no issues and creating new businesses, again this is one of the most liberal environments that there is in this region.
Enkhzul Orgodol: Would taking money or exiting without much taxation, etc., apply to any investor from any country? Or that would depend on the bilateral agreements with their government?
Bayanjargal Byambasaikhan: No, I think there is no restrictions in taking money out of Mongolia. As I said, yes, there are certain taxation that you’ll have to abide with, but that said, corporate tax is very low in this country, personal income tax is very low in this country, so I think the overall taxation regime was designed to attract new investors into this country. Yes, there are issues sometimes when it comes to differences in local standards, as well as international standards. But increasingly, the tax system is moving from that local standard into the international standard. I think five years from now, things will be a lot more sophisticated in terms of tax rules and regulations. We will have more precedence, which means there will be clarity for others to come in.
China is the largest market in the world. The largest economy, the largest consumer of effectively everything. We are fortunate to be next to this large economy now. We feel that connectivity is important for Mongolia, meaning that we want to be connected with the Chinese economy, also we want to be connected with the other economies that are in our region. When you look at this economy that is so large in size, despite the fact that it has slowed down in terms of growth in the last several years, that growth is still the largest growth that the world has ever seen. For us not to benefit, or not being able to benefit from that growth, is just wrong.
We need to position ourselves to be able to benefit from this phenomenal growth that our neighbor brings to us. In order to do that, we need to attract more capital in this country, more modern technologies into this country, better management. This will allow us to build those businesses that will constantly supply products to the market in China, as well as neighboring markets. China market is an opportunity for Mongolia, is an opportunity for investors who are interested in Mongolia, and all who have invested in Mongolia.
Enkhzul Orgodol: It all sounds so promising when you talk about Chinese growth potential and our proximity to China, etc. However, due to different factors, namely political factors, I would say, a lot of the projects have been withheld and it seems like we’ve been moving too slow to get a fair share of this development. Would you agree with that?
Bayanjargal Byambasaikhan: Mongolia is a democracy. When somebody owns and manages a business in this country, we know that every years there will be an election. We know that there will be some changes in policy. That’s a given. That’s probably one of the reasons why people would invest in Mongolia, the fact that it is a democracy and it has a system where the people elect the government, and the government hopefully continues with the growth policies, etc. As I said, the economy grew three times its size in the last five, six, years. Which means, yes, it is growing. Do we want things to be faster? Absolutely. But do we want things to be right? That’s the key, which means businesses must understand the competitive nature of the market that we are in now. We are effectively competing against companies in Indonesia, Australia, or Canada. We have to play by those rules. Mongolian companies are working to improve their business standards and ways of doing business, so that it can be competitive and it can be a part of this growth where China is providing you the opportunities.
Enkhzul Orgodol: Yeah, I do understand the scheme or the scope of your business expertise is more in mega projects like, infrastructure and renewable energy, that takes time and immense amount of effort to see the result. How about the businesses or investors that are looking into Mongolia and thinking, “What can I do in Mongolia to get my benefits in the short term and not as long as this kind of mega project?” Which kind of sectors would you advise to look into? Is there any intellectually driven sectors that are immune from all this infrastructure, lack of infrastructure development?
Bayanjargal Byambasaikhan: Well if you look at Mongolia in the last 20 or so years, since we’ve had internet, and since we had the mobile phones, meaning really, information, or access to information, then that industry has developed tremendously. I can tell you that we probably have better mobile service than one would experience in New York City. I can tell you-
Enkhzul Orgodol: Where you’ve lived?
Bayanjargal Byambasaikhan: Yes, where I lived. We may have better have internet speeds than some European countries, for example. It tells you that those industries where it was less government involvement and competition was allowed amongst the private companies, then you can really see the difference in terms of maturity of a sector. You can see that customers at the end of the day, benefit from better quality service as well as lower prices. Again, in Mongolia, if you invest in technology, you can see that it can transform lives of people. Also, it can transform the way we do business. That really is thanks to technology.
Two things, number one, of course, information technology, as I mentioned. So that’s internet as well as cellphones. The technology that also helped Mongolians to transform their life, in the last 20 years, was renewable energy. So the solar panels that all the families use across the country now, helped to really overnight from having a candlelight, to an information age. Now this allows the children, for example, who are living in those remote areas, to watch the same content as my children who are growing up in the city. When I was growing up, the information divide between the person who was growing up in the rural areas, as well as in the city, was really different. There was a huge gap. Nowadays, there is no gap. It tells you that technology can transform people’s lives and we’ve seen good examples for it. We hope that technology developments and improvements in future, will also help us to be more competitive.
Enkhzul Orgodol: Okay Mr. Byambasaikhan, thank you very much for your time and all the insights that should be informative, not only to the viewers we are target, but also to anyone who’s interested in the international relations and future development. So thank you very much, and I invite the viewers to subscribe to our website because we’re planning to make up a business guide book with all these interviews we’re collecting from the chosen 12 business leaders operating in Mongolia. I’ll be looking forward to send you copy of the e-book and looking forward to seeing your comments on that. Thank you.
Bayanjargal Byambasaikhan: All right, thank you.