MONGOLIA: PROVINCIAL COMPETITIVENESS REPORT 2014 (based on the statistics of 2013) www.aimagindex.mn

ECONOMIC POLICY AND COMPETITIVENESS RESEARCH CENTER

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THE PROVINCIAL COMPETITIVENESS REPORT 2015

ECONOMIC POLICY AND COMPETITIVENESS RESEARCH CENTER

San Business Center, 9th floor, Prime Minister Amar street 29, Sukhbaatar duureg, Ulaanbaatar,

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Provincial competitiveness report website: www.aimagindex.mn E-mail: [email protected] Website: www.ecrc.mn Facebook page: http://www.facebook.com/ecrcmn Twitter page: http://twitter.com/ursulduhchadvar

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© All rights reserved. No part of this publication may be transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. Nor may any part of this publication be included as a reference in any other work without authorization. FOREWORD

Renowned for its rich agricultural and mineral resources, Mongolia has a vast terrain comprised of an exquisite combination of towering mountains, golden desert and vast steppe. Should we manage these resources which can be found in all parts of the country, efficiently and with a good vision, we will be able to improve our competitiveness and achieve prosperity. Although Mongolia has experienced rapid economic growth in recent years, the economic livelihood of its people remains lagging. In addition, there is an ever-increasing development gap between urban and rural communities. Until a comfortable and substantive livelihood can be guaranteed for all Mongolians, regardless of location is met, an important measure of competitiveness will remain unmet. Three years have passed since the Economic Policy and Competitiveness Research Center (EP- CRC) first published the Provincial Competitiveness Report. This annual report compares the strengths and weaknesses of all 21 provinces in Mongolia. Based on the outcomes of these indicators, decision makers can then formulate and implement robust and issue-specific devel- opment strategies aimed at improving regional and national competitiveness. It is imperative that as part of this process, provinces are able to establish a platform on which to discuss with one another their experiences and concerns, working together to solve com- mon problems. As such, in October 2014, the EPCRC held the first Provincial Competitiveness Forum, an event where government and local community leaders from the 21 provinces came together to engage in a cooperative discussion. I am glad to report that through this, we are able to propose a wide array of opportunities that may promote a more effective dialogue among . By working with local representatives and business communities, we can advance the self-sufficiency of provinces. This in turn will facilitate sustainable socio-economic development, based on investment in infrastructure and microeconomic reform that will reinvigorate economic and social growth. In 2015, we are also happy to announce the launch of a website dedicated to better promot- ing and dissecting information on provincial competitiveness. The website, www.aimagindex. mn, contains useful information from all previous Provincial Competitiveness reports, allowing for cross-sectional and historical comparative analysis for provincial competitiveness. I trust that the work of the EPCRC continues to serve as a valuable tool and guide for your endeavors.

Puntsag TSAGAAN Chairman of the Board RESEARCH TEAM

Economic Policy and Competitiveness Research Center

Mr. Tsagaan Puntsag, Chairman of the Board Ms. Lakshmi Boojoo, Director Ms. Odonchimeg Ikhbayar, Manager Mr. Ganbat Chuluun, Researcher Ms. Tungalag Erdenebat, Researcher Mr. Bilegsaikhan Tumursukh, Researcher Ms. Yesunchuluu Khuderchuluu, Researcher Mr. Otgon-Erdene Khandaa, Researcher Ms. Orgilmaa Ganbat, Researcher

www.ecrc.mn ACKNOWLEDGEMENTS

Dear Reader, I am happy to present to you the third annual edition of Provincial Competitiveness Report. I am also pleased to highlight the growing trend of regionalized economic growth and cooperation in Mongolia, which will undoubtedly facilitate a favorable environment for a long-term, constructive cooperation. In line with these developments, we are placing more importance in disseminating our products to the wider public. We are extremely grateful to the growing number of organizations that understand the importance of research-based decision making, and who support the work of the EPCRC. In particular, I would like to thank The Asia Foundation for providing a significant level of support for this project. Moreover, on behalf of the research team, I would like to express my sincere gratitude to our colleagues at the Konrad Adenauer Foundation who co-organized the first Provincial Competitiveness Forum in October 2014, as well as the representatives of the 21 provinces, the Mongolian National Chamber of Commerce and Industry, its local chapters, and the survey respondents for participation in the event. On behalf of the EPCRC team, I wish the best of success to our partner organizations and our readers.

Boojoo LAKSHMI Director General PARTNER ORGANISATIONS

Mongolian National Chamber of Commerce and IndustryRegional Branches

The Asia Foundation

STATISTICAL DATA SOURCES

National Statistical Office

Bank of Mongolia PROVINCIAL COMPETITIVENESS REPORT 2014

CONTENTS

Abbreviations...... 9 DEVELOPMENT FOR EVERYONE ...... 10 PRINCIPLES OF ANALYSIS AND METHODOLOGY...... 13 PROVINCIAL COMPETITIVENESS SCOREBOARD...... 19 Competitiveness factors...... 20 Overall competitiveness scoreboard 2014...... 21 Competitiveness structures...... 27 PROVINCIAL COMPETITIVENESS PROFILES...... 31 STATISTICAL TABLES...... 117 1 Economic Performance...... 119 2 Government Efficiency...... 131 3 Business Efficiency...... 141 4 Infrastructure...... 153 MULTI-DIMENSIONAL ENVIRONMENTAL VULNERABILITY INDICATOR...... 175 ANNEXES...... 185 The fundamentals of competitiveness...... 186 Data sources and notes...... 188

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Provincial Competitiveness Profiles

ARKHANGAI…………………………………………...... 32 BAYAN-ULGII ………………………………………...... 36 ………………………………...……...40. ……………………………………………...... 44 GOBI-ALTAI ………………………………………...... 48 GOBISUMBER ………………………………………...... 52 -UUL ………………………………………...... 56 DORNOGOBI …………………………………………...... 60 DORNOD ……………………………………………...... 64 DUNDGOBI …………………………………………...... 68 ZAVKHAN ………………………………………………...... 72 ORKHON………………………………………………...... 76 UVURKHANGAI ………………………………………….....80 UMNUGOBI ……………………………………………...... 84 SUKHBAATAR …………………………………………...... 88 SELENGE ……………………………………………...... 92 TUV …………………………………………………...... 96 UVS …………………………………………………...... 100 …………………………………………………...... 104 KHUVSGUL……………………………………………...... 108 KHENTII ………………………………………………...... 112

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Abbreviations

BoM Bank of Mongolia

EPCRC Economic Policy and Competitiveness Research Center

GDP Gross domestic product

MNT Mongolian national currency (tugrug)

NSO National Statistical Office

SME Small and medium enterprises

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DEVELOPMENT FOR EVERYONE

“Alone we can do so little, together we can do so much”, Helen Keller

For any country, improving national Government efficiency: Sukhbaatar province competitiveness and advancing the livelihoods of topped this category, while Dundgobi province its citizens is essential. As part of this, the quality was ranked last with a mere 13 points. The and availability of publicly-provided services such primary difference between these two provinces as healthcare and education, as well as basic can be found in the contrasting rankings guarantees like a reasonable price for goods and given by each for the survey question “Local services, should be comparable regardless of government policies and decisions are on the where in the country it is being delivered. Each spot, transparent, and effectively contribute to and every citizen of Mongolia should expect local development”. an equitable living environment, whether they Business efficiency: was again reside in the city or countryside. the leader in this category, with Dundgobi Three years have passed since EPCRC launched province ranked the last. This despite the two the first study on provincial competitiveness. This provinces faring similar for the question on report provides regular and in-depth analysis “Province provides enabling environment for that helps Mongolians compare the unique private businesses”, with the biggest factors strengths, weaknesses, opportunities and risks contributing to such an outcome being business of each province, which can then lead to reforms investment, the competence of mid-to-senior and improvements. level management, and productivity. The result of the report show that Orkhon Infrastructure: Orkhon Province once again led in province still leads in overall competitiveness, infrastructure development, while Uvurkhangai followed by Umnugobi, Darkhan-Uul, and province was ranked as the least competitive in Sukhbaatar provinces. Moreover, there have this category. Infrastructure focuses on a number been a substantial improvement for better of indicators that demonstrate a comfortable performing provinces and a deterioration in the and safe living environment for residents such competitiveness indexes for a number of those as transport, information, communication, lower-ranked. In short, the gap between provinces education, healthcare, and environment. with the best and worst competitiveness index In order to assess provincial competitiveness, we has increased considerably. utilize available data and statistical information, If we take a closer look at each of the in addition to a questionnaire of mid-to-senior competitiveness factors: management from local businesses of the 21 provinces. This helps us to identify the most Economic performance: Due to its relatively pressing challenges for businesses in specific advanced industrial and service sector, Orkhon provinces. In this year’s report, we have identified province leads in economic performance, while number of common issues: Dundgobi province was ranked last. Assuming a value of 100 in economic performance for the 1. Improving the quality and distribution of Orkhon province, by comparison Dundgobi has public services, and eliminating bureaucracy 31 points. Of note, according to the answers for Local businesses have stressed the state’s over- the survey question “Compared to previous year, involvement in the business environment again. did economy in your province grow?” Dundgobi For instance, they have named the length and province was in the 20th place. difficulty in obtaining necessary licenses, as

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well as cumbersome tax burdens as examples. economy. By the end of 2013, of 99,603 The respondents also proposed engaging local enterprises in the business registry database, residents and companies in provincial tenders and 54,929 were in active operation. Of these bids as one way of supporting local businesses 54,929 enterprises, 81.7% or 44,854 were and development. Small and Medium Enterprises (SMEs), of which 38,334 SMEs had 1-9 employees. The private 2. Infrastructure sector employs 766,910 people, which is 69.6% Infrastructure was shown as the weakest of total employment.1 In order to support SMEs, competitiveness category for most provinces. the Government of Mongolia has adopted Although many provinces now have paved road the “Program to support Small and Medium networks connected to Ulaanbaatar City, as Enterprises 2014-2016” by Government well as numerous projects aimed at improving Resolution No. 278 of 28 August 2014. availability of school and kindergarten services In addition to nationwide problems, the in rural areas, the quality and distribution of report reflects on individual problems faced by healthcare and education still pose a challenge. provinces. In 2014, the following works have been done in The next step order to improve basic infrastructure: The EPCRC hosted the first annual Provincial Building of paved road network connecting Competitiveness Forum in October of 2014. The provincial centers to Ulaanbaatar City purpose of the event, which brought together As part of the project to establish a top-tier governors and speakers of citizens’ representative road network connecting provincial centers to khurals of all provinces, was to determine a list Ulaanbaatar city, provinces Khuvsgul, Sukhbaatar, of reform recommendations and next steps, and Umnugobi were connected to Ulaanbaatar based on the results of previous years’ Provincial via paved roads in 2014. In addition, Zavkhan, Competitiveness Report Uvs, Khovd, Bayan-Ulgii, Dornod, and Gobi-Altai During the forum, regional-specific sessions, provinces will also join this network by the end of where participants identified regional 2016. It is said “progress follows a road”. Once development strengths and weaknesses, were all the provinces have roads connecting to the held. An outcome of these sessions was the city, the opportunities for trade and business will identification of key pillars and sectors for increase, improved availability will bring down development for each of the regions. Livestock prices, and the general livelihood of rural citizens raw material processing plants for the Western will be improved. region, all types of light and heavy industry Building 1000 household apartments in each for the Central region, mining and minerals province processing plants for the Gobi Region, tourism The State Housing Corporation is currently for the Eastern region, and agricultural and implementing a project to build apartments livestock husbandry for the Central region. for 1000 households in each province, one In addition to working on individual development of the several projects they are running in the strategies, and other activities aimed at countryside of Mongolia. Construction has improving individual provincial competitiveness, already begun in 11 provinces. For instance, 120 the importance of neighboring provinces and household apartments are being built in Khentii cooperative effort in the effective use of time and Arkhangai provinces, while a 35 apartment resources was also stressed. building is being built in . Due to the participants’ requests to regularly 3. Supporting businesses hold discussions on research results and local At the end of 2014, the private sector accounted development, regional discussions will be held for over 80% of the GDP and 40% of budget again in 2015 and are anticipated as an annual revenue. These numbers alone display the event. importance the private sector has in national 1 Source: Ministry of Labour of Mongolia; National Statistical Office of Mongolia

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12 PROVINCIAL COMPETITIVENESS REPORT 2014

PRINCIPLES OF ANALYSIS AND METHODOLOGY

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THE PURPOSE AND IMPORTANCE OF THE RESEARCH

The purpose of Provincial Competitiveness create a favorable environment for preserving Research is to make a comparative evaluation their competitiveness edges and supplement the of the current competitiveness of 21 provinces existing advantages. In other words, this report in Mongolia and to define their competitiveness pursues the question of whether a certain province holistically. This study identifies the strengths and enables local business efficiency and prosperous weaknesses of each province and evaluates life for its residents through effective allocation of their potential to compete, thereby creating a resources and by exploiting its advantages. database that is usefulfor developing a stable, Since this research is designed to compare the long-term development policy. provincial competitiveness, those that are ranked The provincial competitiveness index would give top in the list should not necessarily be the best us an opportunity to observe any improvement performers. Although they are more competitive and changes in provincial competitiveness, than the others, those provinces should promote because this study will be conducted every year their incompetency by using its resources according to thesame set of methodologies. effectively and exploiting its advantages. Likewise, those ranked lower in the list should not consider Besides comparing the competitiveness of the themselves to have poor competitiveness, but provinces, this research helps to identify factors rather, they should see themselves as having thatinfluence the provincial competitiveness lower competitiveness than the other provinces either positively or negatively and evaluate and should learn from other provinces and the competitiveness strengths and weaknesses. address the factors that are lowering their Moreover, this becomes an important source of competitiveness. ammunition to determine which province is more competitive and which is not by addressing factors For policy makers, the report on provincial that drags down the provincial competitiveness. competitiveness will be an important source of knowledge and handbook which would help The concept of provincial competitiveness is a them evaluate the current situation and level of relatively new notion and aims to investigate provincial development and to make more effective how efficiently a particular province is allocating policies to develop rural areas. Also, it makes for its resources and potentials, thereby creating its provincial administrators it possible to estimate own competitiveness and enabling a favorable the results of their implemented policies, to make business environment rather than merely studying comparisons with other provinces and learn from its dominance. For these reasons, we ranked the their experiences. Likewise, businessmen can get provinces by comparing a particular province reliable and holistic information from this report against others questioning, whether they could when making business or investment decisions.

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COMPETITIVENESS CRITERIA

It is impossible to evaluate the provincial In Government Efficiency section, provincial competitiveness solelyby means of GDP per policies to encourage competitiveness and capita and unemployment. Because there are its spectrum were evaluated by 4 sub-factors manyfactors such as economic, political, social of parameters: provincial budget, institutional as well as cultural that influence prosperity of a framework, business legislation and societal province and living standards of its citizens. framework. There are 32 criteria in total. Within the framework of this research we adopted In Business efficiency sector33 criteria of 4 sub- the same main 4 factors for measurement,the factors business environment, labor market, methodology used in the Mongolia in World management practices and productivity, were Competitiveness study – produced by EPCRC used in order to study the capability of provincial in conjunction with the World Competitiveness business sectors to act efficiently and with Center. Some sub-factors within the main factors responsibility and as an entrepreneur. were replaced through another set of criteria Infrastructure involves 75 criteria within following that could reflect the uniqueness of provinces 4 sub-factors of criteria: basic infrastructure, and create more in-depth comparisons. technological infrastructure, education and Economic Performance, Governance Efficiency, culture and health and environment. Business Efficiency and Infrastructure are the 4 This way, the competitiveness of provinces main factors which are divided into 4 sub-factors was evaluated according to 178 criteria, and of each. These 16 sub factors comprise of 178 this enables in depth evaluation of provincial criteria (made some changes for this report) in competitiveness and prevents any biased total. influence which may have an impact on the In Economic Performance section, 4 sub-factors general assessment of provincial competitiveness. of criteria are: macro economy, development These criteria were used to create competitiveness of economic sectors, standard of living and indices in each of the 21 provinces. employment. A total of 38 criteria were used.

Economic Efficiency Government Efficiency Business Efficiency Infrastructure • Economy • Provincial Budget • Business • Basic Infrastructure • Development of • Institutional Environment • Technological Economic Sectors Framework • Labor Market Infrastructure • Standard of Living • Business Legislation Productivity • Education and • Employment • Societal Framework • Finance Culture • Management • Health and Practices Environment

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Data and information source

The Provincial Competitiveness Index uses Executive Opinion Survey two types of data for the computation of The Executive Opinion Survey was sent to competitiveness. These are: executives in top and middle management in all • Hard data (statistical data) of the provinces covered by the report. The survey questions are designed to accurately reflect their • Executive opinion survey perspectives on the business environment and Of all the 178 criteria to measure competitiveness, competitiveness of the province. 103 or 2/3 rely on hard data whereas 75 or 1/3 We believe the survey results would provide us rely on executive opinion survey. Of the hard with good insights as the survey respondents data, 28 criteria or 25% are informative criteria are experienced and knowledgeable local intended to givegeneral information but not used professionals working in the field. in computing the competitiveness. In order to be statistically representative, we Hard data measures competitiveness over a selected a sample size randomly from each of specific period of time (for the past one year the 21 provinces proportional to GDP of the e.g.) and indicates how the competitiveness in provinces. Moreover, to avoid from non sampling each criteria is performed (for example, in terms errors, we expanded the survey size and surveyed of GDP). On the other hand, executive opinion a total of 1050 executives which is equal to 50 survey is used for measuring qualitative data that executives on average for each province. could not be easily measured. Moreover, opinion surveys are used to verify hard data results, clarify The survey contained 75 closed questions and and reflect, how the public and businessmen 1 open question. The respondents assessed evaluate the current situation. Therefore, the competitiveness issues by evaluating the compared to hard data the survey responses questions on a scale of 1 to 10. Scales of 1- reflect perceptions of competitiveness through 5 indicate negative perception on the question, business executives’ perception who are dealing whereas those of 6-4 indicate positive perception. with local business situations. Their responses are The average value for each economy is then more recent and closer to reality since there is no calculated according to which the rankings are time lag, which is often a problem with hard data determined. that show a “picture of the past”.

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Methodology of computation of provincial competitiveness index (pci)

We used 150 of the 178 criteria in computing the 3. Calculating the competitiveness index and competitiveness index (28 criteria for background overall ranking information were not included in computation). Each of the four main factors of competitiveness The following steps were used in computing the is divided into the four sub-factors. The PCI: standardized value means of each of the 16 sub-factors for each province are obtained by 1. Calculating standardized value computing weighted mean of the standardized The essential building block for the rankings is the values. Each sub-factor, independently of the standardized value for each individual criterion. number of variables it contains, is assigned an Computing the standardized value is important equal weight of the overall ranking (16 * 6.25% mainly because it enables to convert data with = 100%). Thus, the weight of the sub-factors will different scale unit obtained from statistics and be consistent and the results would be more survey to the same comparable measurement. reliable. It also blocks any diverted impact on other factors in cases of errors and omissions in Standardized values are computed for each statistics. criterion and each of the 21 provinces according The competitiveness index of 16 sub-factors to the following formula. of each province which based on mean standardized value are calculated using the xi-μ STD(x)= following formula. σ STD(x)-STD (x) Where: I= min STD (x)-STD (x) xi – value of the criterion of theprovince i Where: max min μ – mean of x value I - competitiveness index σ – standard deviation of x value STD(x) - standardized value of the criteria STD_min (x) - minimum value of the standardized All criteria were reviewed to determine the value of the criteria shape of the distribution before calculating the STD_max (x) - maximum value of the standardized standardized value. In case of not normally value of the criteria distributed data, the standardized value was calculated from normalized data by taking the The competitiveness index of the four main logarithm. factors is calculated based on the mean of the sub-factors index, the overall competitiveness In most cases, a high value is considered to index is calculated based on the mean of the be good and the province with the highest four main factors` index. standardized value is ranked first, while the one with the lowest as the last. However, with Based on the four main factor`s index and overall some criteria the inverse may be true, where the index, we then rank the provinces, the one that lowest value is the most competitive, for example, has a maximum value of index calculated as 100 poverty rate and maternal mortality rate. In such scores, other provinces’ scores are calculated cases, standardized value is multiplied by (-1). according to their values. The overall scoreboard shows the province`s 2. Criteria ranking context of competitiveness compared to the Provinces are ranked based on the mean of the other provinces. Those provinces ranked top standardized values of the 150 ranked criteria. should not be directly considered as the most The higher standardized value indicates more competitive. Although it is right to consider that competitive provinces and the provinces are those provinces are more competitive than other ranked from the most competitive to the least provinces. competitive.

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How to use the provincial competitiveness report?

Provincial competitiveness scoreboard is divided 2. Provincial Competitiveness Profiles (pages 33- into the following sections: 115) 1. Provincial Competitiveness Scoreboard (pages This section provides a summary of the overall 21-32) competitiveness, competitiveness structure, sub- factor rankings and challenges facing each The provincial competitiveness scoreboard province`s development. presents the overall rankings for the 21 provinces. The provinces are ranked from the Moreover, 10 strengths and 10 weaknesses most competitive to the least competitive. by four competitiveness factors (Economic Performance, Government Efficiency, Business Competitiveness Factor Rankings Efficiency and Infrastructure) are highlighted. It is In addition to the overall competitiveness important to determine competitiveness strengths scoreboard, provinces are ranked according to and weaknesses as they play a vital role in the each of the four main factors: Economic Efficiency, current provincial economic situation and future Government Efficiency, Business Efficiency and development perspectives. By properly examining Infrastructure. its competitiveness strengths and advantages, the province can identify its comparative advantages. Competitiveness Sub-Factor Rankings In addition to identifying strengths, addressing its Provinces are ranked according to all 16 sub- weaknesses would help improve that province`s factors (4 from each factor). The sub-factor competitiveness. rankings provide more detailed and in-depth In addition to comparing competitiveness of examination on each of the competitiveness different provinces, this report also provides 25 factor rankings. improvements and 25 decreases in comparisons Competitiveness Structures of last and this year’s indicators for each of the provinces. This section compares the values of the four competitiveness factors for each of the 21 3. Statistical Tables (pages 117-173) provinces. Charts help identify in which factors This section presents the complete criteria a province may have a particular strength or a list, broken down by competitiveness factor. weakness. It is possible to find rankings and information about each of the 150 ranked criteria affecting competitiveness.

18 PROVINCIAL COMPETITIVENESS SCOREBOARD PROVINCIAL COMPETITIVENESS REPORT 2014

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Economic Performance

Economy Economic sectors Standard of living Employment

Government Efficiency

Provincial budget Institutional framework Business legislation Societal framework

Business Efficiency

Business environment Labor market and productivity Finance

COMPETITIVENESS FACTORS Management practices

Infrastructure

Basic infrastructure Technological infrastructure Education and culture Health and environment

20