PART III ASIA
Section 2 An overview of SMEs in Mongolia
A dynamic private sector is a key component in providing opportunities for people to build a better life for themselves and their families, and contribute to the communities in which they live. A thriving private sector not only generates gainful employment but also develops a tax base that contributes to investment in infrastructure, health care and edu- cation that benefit everyone. That private entrepreneurship is necessary to GDP growth is evident in the efforts made by governments worldwide to promote entrepreneurship (for a discussion on public policy in promoting entrepreneurship in various countries, see Dana, 1999, and Chew and Chew, 2000, for a study on Singapore). Recognizing the vital importance and contribution that the private sector makes to economic growth and improving people’s livelihoods, the Government of Mongolia has placed continuing support for business at the heart of its Economic Growth Support and Poverty Reduction Strategy, which declares that its priority is ‘To set up a favorable environment for running business aimed to accelerate economic growth based on the private sector for the long and medium-term’ (Government of Mongolia, July 2003, p. 101).
In the past decade, Mongolia has made great strides in creating an environment that enables private businesses to operate successfully. From a baseline of zero in 1991,
Mongolia today has 26 552 private concerns that contribute 74.5 per cent of her GDP (Mongolian Statistical Yearbook – 2003).
According to the international standard, which classifies an enterprise with 50 or fewer employees as an SME, 96.1 per cent of the private enterprises in Mongolia have 49 or fewer employees and are therefore identified as SMEs (see Table 13.1). Some 80 per cent of the private enterprises are located in the urban area, with 61.4 per cent of all registered SMEs located in Ulaanbaatar itself, while 20 per cent are found in the rural areas (see Table 13.2). These enterprises contribute about 18.9 per cent of the corporate income tax revenue and 21.8 per cent of value added tax revenue. About 35.6 per cent of all registered employees are employed by the SMEs (Badarch, 2004). Table 13.3 shows the private sector share of GDP and number of employees by industry.
The Government of Mongolia believes that the development of the SMEs is a crucial component of the socioeconomic development of the country. Hence the government approved and implemented the ‘SMEs Development Programme’ in 1999. As indicated earlier, the main purpose of this programme is to create a favourable economic and legal environment for the development of the SMEs. Within the scope of the programme, the government paid considerable attention to issues such as management, human resource development and enhancement of the information environment for SMEs, development of infrastructure in the local area, improvement of technology of SMEs and reduction of negative impacts on environment and human health, promotion of cooperation between SMEs and large enterprises, encouragement of domestic and foreign investment, and expansion of international cooperation.
Table 13.1 Number of active legal units by employment size at the end of 2003
Employment size Number of enterprises Cumulative percentage
1–9 employees 21 704 81.7
10–19 employees 2016 89.33
20–49 employees 1806 96.1
50 and more employees 1026 100
All enterprises 26 552 100
Source: Mongolian Statistical Yearbook – 2003.
Table 13.2 Number of enterprises by region
Region Number of enterprises Percentage
All enterprises 26 552 100
West region 2462 9.3
Khangai region 3041 11.5
Central region 3536 13.3
East region 1201 4.5
Ulaanbaatar (capital) 16 312 61.4
Source: Mongolian Statistical Yearbook – 2003.
As a result of the implementation of this programme, the infrastructure in rural areas, which is one of the main areas for development, has been developed. Since 2000 one heat-power station and four hydro-power stations were constructed. A total of 30 soums (the lowest administrative unit in Mongolia) have been connected to the central energy system. Moreover a water supply improvement project has been implemented in eight aimag centres. As a result of the banking system reform, which has been carried out gradually, the people’s trust in the banking institution has increased. Therefore the amount of deposits as well as the amount of bank loans has increased. Hence the total amount of bank loans in the year 2000 was MNT68 billion and it tripled in two years to reach MNT200 billion in 2002. Around 90 per cent of all loans were made to trade and service businesses (Badarch, 2004).
Mongolia has received substantial support from donors and international organiza- tions. For instance, the World Bank contributed USD12.0 million to support her private sector, and the German government granted a DM10.0 million soft loan to assist SMEs.
Another example of the government’s SME support policy is the ‘SMEs promotion fund’, which operates under the Ministry of Industry and Trade. This fund established sub- funds of MNT521.1 million in 18 aimags (provinces) in 2000 and provided an additional MNT172.0 million in 2002. There is also some support from non-banking organizations, of which there are about 67, and more than 200 saving co-operatives operating in Mongolia (Tserenpil, 2004). Moreover the rate of gross industrial production increased by 11.8 per cent in 2001 and by 24.3 per cent in 2002. The processing industrial decline was halted and in 2002 it increased by 24.3 per cent. The share of processing industry within total industrial production has increased by 2.6 points compared to 2000.
Table 13.3 Private sector share of GDP and number of employees by industry, 2003 Percentage of
GDP Number of
Industry employees
Agriculture, hunting and forestry 98.4 97.4
Mining and quarrying 64.2 85.6
Manufacturing 87.8 91.2
Electricity, gas and water supply 3.1 68.8
Construction 93.1 90.9
Wholesale and retail trade, repair of motor vehicles, 98.2 99.5 monocycles and personal household goods
Hotels and restaurants 100 98.2
Transport storage and communication 60.1 93.1
Note: About 90 per cent of the electricity in Mongolia is produced by two main power stations, which are public entities. These two power stations, plus some small enterprises, contribute about 97 per cent of the value of GDP in this sector, while the remaining 3 per cent is produced by small privately owned power stations in the urban area. Each aimag (province) has privately-owned power stations, which are operated by manual labour, while the two main power stations do not require a lot of manual involvement, and employ about 4000 people out of the total of 22 700 employed in this sector.
Source: Mongolian Statistical Yearbook – 2003.