Economic Policy Reform and Competitiveness Project (EPRC) Update
Chemonics
www.eprc-chemonics.biz

SO1: PRIVATE SECTOR-LED ECONOMIC GROWTH
posted by Skip Waskin on Tuesday, December 13, 2005, 8:13PM

ECONOMIC, FINANCIAL, AND TRADE POLICY SUPPORT
Shadow Economy Survey Follow-On. During November, and with the assistance of a short-term shadow economy survey specialist, EPRC completed the necessary cleaning up, documenting, and editing for public use of the October 2004 national household survey. With the assistance of short-term international expert Mack Ott, the project also began an analysis of the shadow economy and its relationship to tax collection and avoidance. The first policy paper based on the shadow economy survey is scheduled for completion in December.

Tax Reform
Tax Reform Facilitation. As requested by the Parliamentary Tax Working Group (PTWG), EPRC completed a newly drafted Personal Income Tax Law (PIT) in English and Mongolian. The project provided CDs with the PIT and the new draft of the Legal Entity Income Tax (LEIT) law—aka the Corporate Income Tax law—to attendees at the SGH Tax Working Group retreat on 5 November. The CDs included the laws and outlines of the laws in both English and Mongolian. In addition to the MPs, the project distributed copies to the Ministry of Finance and the General Department of National Taxation (GDNT).

Parliamentary Tax Retreats. Members of the Parliamentary Tax Working Group (PTWG) continued to “stretch” some work weeks in November, and met for two Saturdays to review and debate different tax reform measures. The Chair of Budget Standing Committee, MP R. Badamdamdin, and of the Economic Policy Committee, MP Ts Damiran, as well as diverse members of the PTWG and interested MPs attended the meetings. MP N. Bayartsaikhan, Chair of the Parliamentary Tax Working Group, presided over both events.

The first meeting included discussion of the LEIT and PIT laws; discussion of the fiscal and microeconomic impact of different LEIT and PIT scenario; discussion of VAT figures and issues; and initial agreement on the first draft LEIT and PIT laws. The second meeting included discussion of issues associated with the current Mongolian general tax laws and immovable property tax law, and discussion of economic policy issues surrounding customs tariffs and export taxes. The next retreat will include a comparison of the current Mongolian VAT regime with international best practices, an overview of the experience of export taxes in the Mongolian value chain, and a discussion of fiscal policy options in housing finance for lower income families.

Workshop on Computable General Equilibrium (CGE). For four days in November, twelve participants attended a hands-on technical workshop on the initial Computable General Equilibrium (CGE) model of the Mongolian economy that EPRC has been developing for use in forecasting potential economic and fiscal impacts of different tax reform scenarios. Dr Miles Light, an international expert on CGE modeling, conducted the training. The first Social Accounts Matrix (SAM) for Mongolia developed by the project, documentation on CGE models, and details of the Mongolian CGE model developed for tax policy scenarios will be made publicly available.

Personal Income Tax (PIT) Calculator. At the request of MoF the project began development of a user-friendly PIT calculator that will be available on line in December though the web sites of MoF and GDNT. The “calculator” assumes a flat tax rate and allows the user to calculate his/her tax based on different assumptions about the tax rate and tax credit tax as applied to current gross salary and allowances.

Fiscal Impact Calculator for Corporate Income Tax (CIT) and PIT. Similar utilities have been created to calculate the budget impacts resulting from alternative changes in the CIT and PIT rates and thresholds.

CLUSTER AND BUSINESS DEVELOPMENT SUPPORT
Tourism
EPRC Tourism Specialist Visits London’s World Travel Market. Indraa Bold, EPRC’s tourism specialist, visited the World Travel Market (WTM) in London in November to attend a number of workshops and seminars on recent trends and new opportunities for Mongolia. Upon return she will be conducting two workshops to the industry to disseminate the information.

New Tourist Information Center in London. The WTM coincided with a Ministry of Roads, Transport and Tourism (MRTT) delegation to investigate the feasibility of opening a Tourist Information Center in London. Ms Bold was invited to advise the delegation, and MRTT has now agreed in principle to allocate $100,000 to the London Center.

Tourism Portal. A short-term expert will visit Mongolia in early December to advise on suitable business models for the tourism portal that is currently under development by the project. The intent is to operate the portal on a commercial basis with the Tourist Information Center, the operating company, and an industry consortium as owners.

Khentii Chinggis Trail. EPRC supported a community conference in Undurkhan in November. The conference included tourism stakeholders and the local communities and administration, and discussed how Khenttii Aimag can take full advantage of 2006—the 800th anniversary of the founding of the Mongol State. The activity follows the EPRC tourism team visit to Khentii last summer, the development of the Khentii web site with Peace Corp volunteers, and the development of the Chinggis Trail for 2006.

Natural Fibers
Orders for Mongolian Cashmere Products. EPRC obtained firm orders in November for 160,000 cashmere scarves for its client firms with a value US$1.75 million. The first delivery, 20,000 scarves, is due in March and the remainder of the order on a monthly basis through the year. The scarves will be manufactured in rolls in Mongolia and then cut and finished in Scotland. Using the Business Development Fund (BDF), EPRC will assist local producers by bringing in quality assurance (QA) professionals to ensure that quality standards are met. In addition to the scarves there is firm interest in shawls, ponchos, throws, and selected knitwear.

Cashmere Linkages with New York and Hong Kong. Plans to visit New York and Hong Kong to develop linkages with buyers and investors received a set back when the Hong Kong representative was taken seriously ill while on a fact finding mission in Mongolia. EPRC is continuing with plans for the New York leg in January, and will review the Hong Kong leg (scheduled for February) in the light of changing circumstances. The project has assisted with the shipping of samples to both target markets.

Berlin Showroom. Mongolian cashmere sales through the Berlin showroom have increased significantly over the past three months, but were disrupted for three days due to a break-in at the facility.

Meat, Leather and Other Markets
Pet Food Prospects. Jim Krigbaum, Chemonics’ Asian Markets expert, is continuing to liaise between pet food producer ‘Khaltansuikh’ and Japanese importers. EPRC is advising the Mongolian company and arranging for field trials in Japan through a Japanese consultant.

FINANCE
Mechanisms to Finance Housing for the Urban Poor. Fulfilling a request from the Prime Minister’s Office, Claude Bovet, an expert in urban housing finance, completed the in-country phase of his consultancy to help the GOM develop a politically viable, fiscally sound, private sector-oriented plan to deliver affordable urban housing based on best international practices. The primary objectives are to (1) provide the GOM with recommendations on the most appropriate means of achieving its stated objective of providing about 40,000 new or improved housing units for lower income families over the next five years; and (2) support the private sector by recommending ways and next steps for the financial sector to offer longer term, more affordable housing finance. The consultancy concluded with a series of presentations to, and discussions with, various stakeholders regarding the recommendations. Following EPRC’s presentation of the recommendations, a number of banks interested in developing their mortgage finance activities have formed a working group to further the concept of a Housing Finance Corporation to facilitate the development of the primary and secondary mortgage markets

Local Private Equity Fund Gets Off the Ground. Last August, a consortium of local banks and a Canadian investment firm formed a joint venture investment bank, MICC, with the intention of raising a private equity fund for Mongolia—almost ten months after the first of two market feasibility studies that the project and local partners conducted. The project has been acting as an advisor to facilitate the formation of the fund. MICC is now in active negotiations with the Asian Development Bank and an internationally recognized fund management company and has identified local investors for approximately 25% of the intended fund size. The start up of the potential fund successfully caps project activities initiated over a year ago to assess the potential market for private equity investments. Consonant with EPRC’s intent when it assumed the initial risk of assessing the local market, the private sector has now assumed the risk of setting up the fund. The project will now provide limited technical assistance during the start-up phase of operations until the firm teams up with a recognized fund management company.

Central Bank Willing to Privatize Credit Information Bureau. On 2 November, EPRC and the Bank of Mongolia organized an open discussion on the Future of the Credit Information Bureau (CIB). Eighty participants, including the Mongolian Bankers’ Association (MBA), 13 commercial banks, 32 non-bank financial institutions and 4 public utilities companies attended the event. The CIB was established in the mid 1990s as part of the bank restructuring process. In 2003, the Bank of Mongolia (BoM) started to implement a World Bank-funded $100,000 project on the installation of new software and improvement of operation. Today, the CIB database includes credit information from 17 banks and 26 non-bank financial institutions (NBFIs), and covers 144,600 individuals and MNT 806.1 billion (about $655 million) worth of loans. At the meeting, BoM publicly declared its readiness to transfer the CIB to private sector operators. Through EPRC, USAID expects to field an international expert during the next quarter to assist in the preparation of actionable steps to make this happen.

ENERGY SECTOR SUPPORT
Energy Law. The Ministry of Fuel and Energy has circulated an Energy Law concept paper to the line ministries for comment. EPRC has advised the Minister in a letter that the concept does not adequately address major concerns in the draft law, including the political independence of the Energy Regulatory Authority (ERA), investor friendliness, and the principle that the government should act as the energy sector planner and develop the vision for the sector rather than competing with the private sector.

Concessions Law. By edict of the Deputy Prime Minister, a multi-ministry working group charged by the Deputy Minister of Justice and Home Affairs was established in November which includes Energy; Roads and Tourism; Housing and Urban Development; Finance; and the State Property Committee. During the first meeting of the group, EPRC gave a presentation of basic concepts of concessions and objectives to attract international financing into the infrastructure sector. The project suggested that the proposed completion date of June 2006 be changed to an earlier date as the basic work has been in place since February 2005. After the law is passed, follow-up work will include drafting of implementing contracts and other related agreements.

Market Structure Development. The ERA has asked EPRC for assistance with the development of a bilateral contract market structure to replace the single–buyer–market currently practiced. The project hopes to field a qualified expert in this field in Mongolia by mid-January.

Energy Sector Finance. At the suggestion of the Prime Minister, the EPRC energy team briefed the Minister of Finance on the financial condition of sector companies. The minister provided the project with additional information about energy sector loans to assist in the accounts reconciliation process. The project plans to hold a two-day workshop with energy sector companies in December to review the reconciled financial accounts.

PUBLIC EDUCATION/NATIONAL DIALOGUE SUPPORT
Live National Chat on the Budget. On 15 November, the Chair of the Parliamentary Budget Standing Committee, MP R. Badamdamdin, and of the Economic Policy Committee, MP Ts Damiran, participated in a national dialogue on the budget on the Open Government (OG) website. Carried over national television, radio, and the internet, the budget chat generated 18,821 hits at the OG chat server, with 540 unique visitors. Fifty-four questions came via the internet, 90 questions came on the live telephone lines set up for the event, and 82 came through SMS (cellular phone messages). The OG estimates that over 600 thousand Mongolians—more than one out of every five—watched or listened to the program.

Economic Policy Reform and Competitiveness Project (EPRC) Update
Chemonics
www.eprc-chemonics.biz

SO1: PRIVATE SECTOR-LED ECONOMIC GROWTH
posted by Skip Waskin on Friday, November 9, 2005, 8:07PM

Economic, Financial, and Trade Policy Support
Shadow Economy. On October 4, EPRC, the Open Society Forum (OSF) and the National Statistics Office (NSO)—the partners funding the 19,000 household shadow economy survey—held a public presentation of the survey findings. The shadow economy of Mongolia is sizeable, about 40% of the official economy, but smaller than in most other developing, emerging–market countries. During the next quarter the project will prepare an easy-to-use guide to the shadow economy based on further analysis of the data.

Tax Reform
Tax Reform Communications Strategy. The last of the weekly tax briefings supporting the tax communications strategy of the Ministry of Finance (MoF) and the General Department of National Taxation (GDNT) was published in October. The briefing “Legal Entity Income Tax Law: Investment Incentives” brought the cumulative number of these briefings to fourteen.

Tax Revenue and Tax Impact Analyses. EPRC is working closely with the General Department of National Taxation (GDNT) in the analysis of tax revenues. About eighty percent of taxes are paid by 100 taxpayers; the contribution of the rest of the economy is relatively small. Moreover, budget organizations and state-owned enterprises generate about one-half of tax payments, indicative of a persistent presence of the state as an economic agent. In late October, the Minister of Finance asked for project assistance in quantifying the micro-economic impact of different personal income tax (PIT) rates and thresholds, VAT rates, and customs duties. EPRC has begun work with MoF staff on these issues.

Tax Reform Facilitation. EPRC held additional meetings with members of the Parliamentary Tax Working Group (PTWG) and other relevant Members of Parliament (MPs) in October. At the request of PTWG members, the project prepared new drafts of the “legal entity income tax” or LEIT—formerly known as the corporate income tax (CIT)—and personal income tax (PIT), incorporating amendments solicited by the PTWG. A new draft of the LEIT was delivered. The project also completed the new PIT in draft and translated it into Mongolian. The project has shared the new LEIT draft with the Ministry of Finance (MoF) and the General Department of National Taxation (GDNT), and it will also share with them the new PIT draft when it is delivered to the PTWG.

SGH Standing Budget Committee/Tax Working Group Retreat. The first of what is planned to be a short series of off-site retreats with Parliamentary members was held October 8 at the Hotel Mongolia. Attendees included the Chairs of the Budget Standing Committee, Economic Policy Standing Committee, MPRP caucus, and the Parliamentary Tax Working Group. In total, approximately 30 MPs were in attendance, plus 10 MP assistants. Primary topics included the Legal Entity Income Tax (LEIT) and Personal Income Tax (PIT) proposals that MoF submitted to Parliament on July 14. Presentations included summarizing the MoF proposals and comparing them to international best practices. MPs considered the retreat successful, stating that the information received and discussion of issues were valuable. A second retreat will gain concurrence on rates, thresholds, and key provisions included in new LEIT and PIT drafts requested from EPRC by the PTWG, plus initial discussion of value added tax (VAT) issues.

Cluster and Business Development Support
Tourism
New Tourist Information Centers Planned. Based on the success of the EPRC- conceived Tourist Information Center (TIC) in Ulaanbaatar, the Ministry of Roads, Transport and Tourism has announced plans to open new TICs in Beijing, China and Seoul with its own resources. Last month, the first overseas TIC was opened in Tokyo. China, Korea and Japan make up over fifty percent of visitors to Mongolia.

Tourism Portal Introduced to Industry. On October 27, the project organized a meeting with industry stakeholders to discuss the new tourism portal and its potential applications. The response from industry was lukewarm, with some tour operators reluctant to share price information and not understanding the value of the site. This comes as no surprise, and reflects the current fragmentation in the industry. EPRC will move to the next stage, development of the business model, before re-presenting the portal idea to the industry.

Natural Fibers
Cashmere Linkages with Hong Kong. The problems with finding ‘trade insiders’ for New York and Honk Kong were solved in October, and EPRC is now putting together a plan for visits to both venues in early 2006—New York in January; Hong Kong in February. The Business Development Fund (BDF) will be used to co-finance the trips, with client companies contributing 50% of the costs. Companies already committed are Eermel, MCCWC, and Altai Cashmere; Sun Shiro and Gobi Corporation are still considering whether to participate.

Inquiries Received for Mongolian Cashmere. EPRC textile expert Philip Eddleston has generated a number of solid cashmere inquiries from the United Kingdom. One potential order is for 160,000 cashmere scarves; another is for 100,000 plus merino/cashmere blends; and a third is for household textiles, throws, and blankets. The factory FOB value of the cashmere scarves order alone is estimated at US$3.0 million. Philip Eddleston will have meetings in Edinburgh, Scotland, with a representative of Mongolian producer this week. EPRC is liaising with other potential suppliers and will provide technical assistance as needed—especially in quality control—if the orders materialize.

Doggy Cashmere. EPRC client “Tengerland” has dispatched another 200 cashmere doggy jackets to the United States with a retail value US$35,000.

Meat, Leather and Other Markets
Pet Food Prospects. There is continued interest from Japan for horse meat-based dog food. Jim Krigbaum, Chemonics’ Asian Markets expert, is coordinating field trials in Japan and EPRC is working with Mongolian counterpart firm ‘Khaltansuikh’ to develop packaging and labeling suitable for the Japanese market.
Other Potential Niche Exports. Interest in blueberries and cranberries, frozen or in the form of jams, remains high. EPRC has had meetings with ‘Bat-Sarain’ to discuss the 2006 harvest and quantities likely to be available for purchase/export. Modifications will be needed in jar sizes, labeling, packaging, etc. EPRC is now trying to expedite the visit of Japanese buyers to discuss a partnership for 2006.

Finance
Urban Housing Finance. In October, Claude Bovet, an expert in urban housing finance, completed the information-gathering phase of his consultancy to help the GoM develop a politically viable, fiscally sound, private sector-oriented plan to deliver affordable urban housing based on best international practices. The primary objectives are to: (1) provide the GoM with recommendations on the most appropriate means of achieving its goal of providing about 40,000 new or improved housing units for lower income families over the next five years; and (2) support the private sector by recommending ways for the financial sector to offer longer term, more affordable housing finance. Mr. Bovet’s report will also explore the possibility of using USAID’s Development Credit Authority (DCA) guarantee products to stimulate private sector housing finance. Public presentations of the findings and recommendations are scheduled for November.

Energy Sector Support
Energy Law. The Ministry of Fuel and Energy is currently reconciling various versions of the draft law, on which EPRC has commented extensively. The final draft is expected to go to the Cabinet and Parliament in early November.

Renewable Energy Law. The Renewable Energy Law, which EPRC has also commented on, is progressing through the system. USAID understands that it was submitted for review to the ministries and presented to the cabinet. Passage is expected during the fall session.

Market Structure Development. The Energy Regulatory Authority (ERA) has asked EPRC for assistance with development of a bilateral contract market structure to replace the single–buyer–market currently practiced. Chemonics is actively recruiting for qualified experts to assist in this endeavor.

Energy Sector Finance. The energy sector’s stated profit of 520 million MNT turned into a 36 billion (yes, billion) MNT loss in 2004 after application of the International Accounting and Financial Reporting compliant Uniform System of Accounts (USOA). The new accounting system identified bad debt expenses, removal of capitalized maintenance expenses, accrual of interest expense on loans, and recognition of currency exchange losses as required under the international accounting standards introduced over the last year with EPRC assistance. Data show that the energy sector as a whole is virtually bankrupt. The amount of actual loss is expected to increase when Ministry of Finance (MoF) loans assigned to companies but not currently recognized by them are put in their books, and the corrected market valuation of assets is entered for assets whose values have been increased arbitrarily. EPRC and the Mission will be developing strategies on how to communicate the findings and work with the various ministries involved to seek ways of addressing future capital financing needs of the sector.

Regulatory Transparency. In September and October, the Energy Regulatory Authority (ERA) officially adopted three project-initiated and drafted procedures: Public Hearing Procedures, Tariff Review Procedures and Inter-company Dispute Resolution Procedures.

Public Education/National Dialogue Support
National Dialogue on Taxes. Finance Minister Altankhuyag and the General Department of National Taxation (GDNT) Director Zorig were the guests of the first national multimedia Open Government (OG) website multimedia chat on October 4. Carried over national television, radio, and the internet, the “super chat” generated 24,144 hits at the OG chat server, with 600 unique visitors. Sixty-three questions came via the internet, 115 questions came on the live telephone lines set up for the event, 142 came through SMS (cellular phone messages), and 14 from the live studio audience. An estimated 663,000, or about one out of every four Mongolians, watched or listened to the program. The week before the chat, the project assisted the Open Government website and the MoF with the publication of their July 14 tax proposals in national newspapers so that citizens would have a chance to read and examine the proposals before the program.

Second Media Chat on Taxes. The second multimedia chat of the Open Talks on Taxes series was held on October 18 with the participation of representatives from the Mongolian National Chamber of Commerce and Industry, the North American Mongolian Business Council, the Mongolian Employers’ Association, and the Mongolian Association of Meat Exporters. Five-hundred-and-fifty unique visitors to the OG chat server generated 19,832 hits. Fifty questions came through the OG internet chat server, 121 through the live telephone lines and 240 through SMS messages. There were ten questions from the live audience, and an estimated 600,000 watched or listened to the program. The project is currently negotiating the participation of members of the State Great Hural tax working groups in the third program of the Open Talks on Taxes national chat series. The “chat” format, pioneered by EPRC in Mongolia, is quickly gaining popularity among politicians.

Mongolia ranked 96th in WEF Growth Competitiveness Index. Culminating work started a year ago acting as a National Partner for the World Economic Forum (WEF), EPRC, WEF, and the Open Society Forum conducted a public presentation on October 13 of the findings of the survey in Mongolia. Ms Emma Loades and Ms Kerry Jaggi represented WEF for the event. This is the first time that Mongolia is ranked in the Growth Competitiveness Index (GCI), and results of the survey show an extraordinary convergence of Mongolian businesses’ perceptions about the biggest constraints to competitiveness. Having successfully completed its role as WEF’s 2005 National Partner and initiator of the GCI rankings, EPRC will hand over that role to the Open Society Forum for 2006 and future years.

Economic Policy Reform and Competitiveness Project (EPRC) Update
Chemonics
www.eprc-chemonics.biz

SO1: PRIVATE SECTOR-LED ECONOMIC GROWTH
posted by Skip Waskin on Friday, October 21, 2005, 3:57 AM

Economic, Financial, and Trade Policy Support
Social Accounts Matrix (SAM). In August the National Statistics Office (NSO) made significant revisions to the national accounts data of 2004 published in the yearly statistics book. During September, EPRC worked on adjusting figures used in the Social Accounts Matrix (SAM) that the project has developed for the Mongolian economy. These figures needed to be made consistent with the NSO revisions and reconciled with data received from other sources. The reconciled data show that in 2004, Mongolia’s GDP increased to 1.9 billion Tg ($1.6 billion, $640 per capita). Household consumption per capita slightly declined and domestic private sector investment remained at a very low level—about four percent of GDP. Foreign direct investment also declined, but private remittances increased to about $200 million. Both the budget deficit and foreign trade deficit decreased significantly.

Tax Reform
Tax Reform Communications Strategy. During September, EPRC continued its support of the tax communications strategy of the Ministry of Finance (MoF) and the General Department of National Taxation (GDNT). EPRC prepared four new tax briefings for publication in national newspapers, bringing the cumulative number of these print briefings to thirteen. Topics were:

• The proposed Personal Income Tax Law; Part II
• The proposed Corporate Income Tax
• Deduction of expenses under the proposed Legal Entity Income Tax Law
• Taxes and assets: Depreciation.

In addition to the four newspapers which publish the briefings, they were also posted on the Open Government, Ministry of Finance, General Department of National Taxation, EPRC, and Open Society Forum websites.

Tax Reform Facilitation. EPRC held a first round of individual meetings with members of the Parliamentary Tax Working Group (PTWG) and the Chair of the State Great Hural (SGH) Standing Budget Committee in September. The Tax Tech Team also prepared and delivered a set of proposed corporate income tax (CIT) amendments, a justification for them, and economic impact scenarios.

SGH Standing Budget Committee/Tax Working Group Retreat. At the suggestion of the project, the Chairs of the Budget Standing Committee and the Parliamentary Tax Working Group (PTWG) agreed to hold a one-day weekend retreat to examine the corporate income tax (CIT) and personal income tax (PIT) proposals submitted by MoF in July. The retreat is scheduled for early October.

The General Equilibrium Model. In September, the project updated the computable general equilibrium model (CGE) with final 2004 national accounts released by the National Statistics Office; began documentation of the model for public use; and, at the request of the Chair of the PTWG, ran economic impact scenarios of diverse combinations of corporate income tax (CIT) and personal income tax (PIT) measures.

Corporate Income Tax. At the request of the PTWG Chair, in September the project prepared and delivered draft amendments on the Ministry of Finance corporate income tax proposals.

Cluster and Business Development Support
Tourism
Tourist Information Center (TIC) Opens in Tokyo. Patterned after the EPRC/USAID Tourist Information Center (TIC), the first overseas Mongolian Tourist Information Center representative office opened in Tokyo on 26 September. This new center is entirely funded with counterpart resources; no USAID funding was used. The event was timed to coincide with the annual Japanese Association of Travel Agents World Tourist Fair (JATA). The TIC, working with the Ministry of Roads, Transport and Tourism, organized the participation of 32 Mongolian tour operators specializing in the Japanese market. Japan is the fourth largest visitor market for Mongolian companies, after China, Russia, and Korea.

Tourism Portal. EPRC subcontractor PXL demonstrated the first working prototype model of the web-based Tourism Portal at EPRC on 23 September. The major objective of the prototype was to test an on-line booking system for reservations and overall design of the site. Future tasks include further development of content, graphics, photographs and English language editing. During October, PXL will consult with focus groups from the industry prior to an all-industry launch scheduled for November. The portal is designed to run on a commercial private sector basis, with TIC and PXL being anchor shareholders.

Khentii Tourist Website Launched. Peace Corps volunteers in Khentii and Ovorhangai aimags completed a pilot program to survey and document tourism sites, attractions, and events in the aimags for inclusion on the tourism portal. The Khentii web-site is functional at www.khentii.net. The site has a number of small bugs yet to be ironed out and will be integrated into the portal with other aimag sites as they are completed. Khentii and Ovorhangai were selected for the pilot because of the connection with Chinggis Khan and 2006, which will mark the 800th anniversary of the founding of the Mongolian State.

Ger Camp Networks. Two ger camp networks have been formed in response to deficiencies noted last summer during EPRC’s survey of tourist facilities. The first network, Nuudelchdiin Urgoo—literally “Great Ger of the Nomads’’—has been incorporated as a private limited company with fifteen ger camps in fifteen aimags, with equal shares. The intention is to market themselves as a group to tour operators, conduct joint training and purchasing, and create differentiation through coordination of menus and events. EPRC is in discussions with the new company concerning assistance in a number of areas, particularly training and marketing. The second ger camp association, the Mongolian Tourist Camp Association (MTCA), has similar objectives but has been set up as an NGO.

Chinggis Trail. The Chinggis Trail in Khentii, mapped by EPRC this summer, has been adopted by one of the major tour operators and will be promoted as the “Chinggis Khan Golden Tour” during 2006. EPRC will act as a facilitator between the company, the local administration, and local communities to provide tourism services.

Natural Fibers
Cashmere linkages with Hong Kong. The planned delegation to Hong Kong, a follow up of Philip Eddleston’s work on ‘routes to market’, is facing some difficulties. It has proved problematic to engage the Hong Kong ‘insider’ necessary to contact key buyers and ensure attendance at the event. Because of the buying cycle, unless the problem can be resolved very quickly the opportunity will be lost and the event will need to be postponed until February 2006. The problem is compounded by the US/China textile dispute, with buyers currently reluctant to place orders. New York has been promoted as an alternative and possibilities are being investigated. Hong Kong and New York are regarded as the two buying centers for cashmere; Hong Kong had been preferred due to proximity and cost.

Cashmere Project – Berlin. The CEO of the Cashmere Project in Berlin reports a trial order of 500 pieces with a back up order of between 1,000 to 2,000 from Brigitte.De—a mail order and e-retailer. The Berlin distribution hub for Mongolian cashmere has also been asked to send sample scarves to Becksondergaard—a Scandinavian distributor with 120 outlets.

“Doggy cashmere”. EPRC client “Tengerland” has launched a range of cashmere garments in the US for dogs—rain jackets, sweaters, and polo shirts, intended for retail at between US$180–$240 (that’s no typo!). Tengerland is a purely marketing company and sources its garments from Mongolian producers. The company had received orders for 110 pieces four days after launching the products. After solidifying its presence in the US, Tengerland hopes to market its products in Japan and in Germany—the latter through the Cashmere Project-Berlin.

Meat, Leather and Other Markets
Pet Food Prospects. Jim Krigbaum, an international sales and marketing expert with significant experience in Japan and in the pet food industry, worked with Mongolian firms on proper positioning of their products according to target markets. After working with Mongolian pet food companies during September, he will take sample products and visit select distributors in Japan in early October.

Other Potential Niche Exports. While in Mongolia, Jim Krigbaum also identified Mongolian products with potential demand in Japanese markets. These included creams and health foods (“nutriceuticals”) made from mares’ milk, naturally-grown blueberry preserves, specialized salts, and carpets. Mr Krigbaum will explore potential Japanese interest for these products during his visit to distributors in that country in October.

Export Management Seminars. While in Mongolia, Mr Krigbaum conducted two seminars for exporters and potential exporters. The first was “Export management: A practical guide;” the second was ”Getting the best out of trade shows”.

Finance
Urban Housing Finance. Claude Bovet, an expert in urban housing finance, arrived in September to help the GOM develop a politically viable, fiscally sound, private sector-oriented plan to deliver affordable urban housing based on best international practices. The primary objectives are to (1) provide the GoM with recommendations on the most appropriate means of achieving its stated objective of providing about 40,000 new or improved housing units for lower income families over the next five years; and (2) support the private sector by recommending ways and next steps for the financial sector to offer longer term, more affordable housing finance. The consultancy will also explore the possibility of using USAID’s Development Credit Authority (DCA) guarantee products to stimulate private sector housing finance.

Energy Sector Support
Energy Law. Drafting of amendments to the Energy Law heated up in September, with the ministry incorporating all fuels—from coal to uranium—into its portfolio. Minister Ochirkhuu believes the amended law will be passed by Parliament in this session.

Renewable Energy Law. The Renewable Energy Law is progressing through the system. USAID understands that it was submitted for review to the ministries and presented to the cabinet. Passage is expected during the fall session.

Energy Conservation Law. This law has been put on hold, yielding to other priorities. USAID expects the ministry to put this law on the legislative schedule for the spring session.

Market Structure Development. The Energy Regulatory Authority (ERA) has asked EPRC for assistance with the development of a bi-lateral contract market structure to replace the single–buyer–market currently practiced. Chemonics is actively recruiting for qualified experts to assist in this endeavor.

Difficulties at the ERA. As September was coming to a close, the chairman of the ERA was arrested and accused of violating procurement procedures, mismanaging the Authority’s budget, and using an ERA vehicle for personal use. Since it requires all three ERA regulators to make decisions and issue orders. three project proposals made to the agency are now on hold: the Public Hearing Procedures, the Tariff Review Procedures, and the Dispute Resolution Procedures.

Energy Sector Finance. The energy sector’s stated profit of 520 million MNT turns into a 36 billion (yes, billion) MNT loss in 2004 after application of International Accounting and Financial Reporting compliant Uniform System of Accounts (USOA). The new accounting system identified bad debt expenses, removal of capitalized maintenance expenses, accrual of interest expense on loans, and recognition of currency exchange losses as required under the international accounting standards introduced over the last year with EPRC assistance. Data show that the energy sector as a whole is virtually bankrupt. The amount of actual loss is expected to increase when Ministry of Finance (MoF) loans assigned to companies but not currently recognized by them are put in their books, and the corrected market valuation of assets is entered for assets whose values have been increased arbitrarily. Thanks to the successful implementation of the USOA in energy sector companies, policy makers will have, for the first time, an accurate financial picture of the dire conditions of the sector. Delicate negotiations lie ahead with MoF, MoFE, and sector companies on completing the remaining pieces of the financial picture and, more importantly, designing and agreeing on a practical workout. These trail-blazing intermediate findings may be just what the policy makers need to consider enacting needed reforms to attract private sector investment and management know-how in the sector.

Public Education/National Dialogue Support
Tax Reform. A variety of tax reform outreach efforts were undertaken by EPRC in September. These included posting tax reform proposals and weekly tax briefings in English and Mongolian on a variety of websites; starting preparations for a national dialogue to be hosted by Finance Minister Altankhuyag and GDNT Director Zorig; and running of full texts of the corporate (CIT) and personal (PIT) income tax laws in two national newspapers to make them available to the citizenry. The “Open Talk About Taxes” multimedia dialogue (or “chat”) on tax reform proposals will be broadcast live on national television and radio, as well as on the Internet. Citizens will be able to ask questions through live telephone lines, the Internet chat server, and SMS messages on cellular phones.
Private Sector Chat. EPRC is also holding discussions with the Mongolian Chamber of Commerce and Industry (MCCI) to jointly sponsor a similar program in October for the Mongolian private sector, to get business perspectives and reactions to the MoF tax reform proposals. MP Bayartsaikhan, Chair of the Parliamentary Tax Working Group (PTWG), declined participation of its members in this chat, reserving the right to hold one later when Parliament has a basic agreement on the tax reform measures. The “chat” format, pioneered by EPRC in Mongolia, is quickly gaining popularity among politicians.

Mongolia Ranked in World Economic Forum Competitiveness Index. EPRC is planning a formal event in October for the official release in Mongolia of its ranking on the World Economic Forum’s (WEF’s) Competitiveness Index. EPRC was WEF’s National Partner in Mongolia for 2005, and conducted the survey in January-March of this year. For 2006, EPRC will pass on this role to the Open Society Forum (OSF), a partner in organizing the October event. This is the first time that Mongolia is ranked in the Competitiveness Index, and results of the survey show an extraordinary convergence of Mongolian businesses’ perceptions about the biggest constraints to competitiveness.