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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Mongolia to Further Develop its Infrastructure

May 18 – Mongolia’s Cabinet identified a list of several “urgent” roads and bridges that need to be built. It also announced that 5,572 kilometers of roads and 900 kilometers of highways connecting Ulaanbaatar with aimags (provinces) would be restored under the umbrella of the country’s US$3.75 billion “New Up Building” program.

While US$3.5 billion will be drawn from the mining sector for the program, US$17.5 million of the funding is expected to come from foreign and domestic investment, according to officials.

The capital city is expected to see much of the new development with 115 new construction and transport projects scheduled to be completed by 2030 at an estimated cost of US$9.9 billion, according to city administration.

The population of Ulaanbaatar has grown significantly in recent years with 548,000 citizens registered in 1989 and 1.24 million by the end of 2010. Approximately 42 percent of the nation’s population currently lives in the capital city and this number is expected to rise to 55 percent over the next 18 years.

One of the capital’s largest ongoing construction projects, the new development program “100,000 Houses,” is one of a number of key projects, alongside railways, roads and the Sainshand Industrial Complex, being funded by bonds issued by the Mongolian Trade Development Bank. The aim of the scheme is simple – to construct 100,000 units of affordable family housing across the country, with the majority of these – 75,000 units – being built in Ulaanbaatar.

According to some estimates, there are 200,000 families or 60 percent of the capital population living in ger districts of Ulaanbaatar – sprawling tent cities spread across the surrounding hills. The great majority of this population is not connected to any utilities.

Meanwhile, for many locals, housing loans have long been out of reach, with commercial bank mortgage rates hovering around 16 percent – 19 percent per year in early 2011, with a low of around 14 percent last September.

In November 2011, The Mongolian Housing Finance Corporation announced it would offer eligible first-time homebuyers a 6 percent, 25-year long mortgage for apartment less than 50 square meters in size.

“For the next 15 years, this program will give us work,” M. Batbaatar, president of the Mongolian Builder’s Association, said to the local press. “To implement the 100,000 houses project, we will require at least 40,000 construction workers.

While the construction sector looks set to play a vital role in Mongolia’s development, analysts believe the industry could be held back by challenges in key areas, such as capacity and regulatory constraints, shortages of materials and manpower, and transportation bottlenecks.

A report issued by the World Bank in February, 2012 showed that construction activity in the country dropped 20.5 percent in a year-on-year comparison in the fourth quarter of 2011. It also pointed out that only 5 percent of licensed domestic road construction companies were found capable of large construction projects.

There are signs that Mongolia is opening up to foreign investment as opportunities become available, such as the announcement in February that the U.S.-based firm FLSmidth had won a US$112 million contract with the local Mongolyn Alt Group to supply a greenfield cement plant some 330 kilometers from Ulaanbaatar. Once built, the plant should have a 3,000-tons-per-day supply capacity.

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