The government of Mongolia annually provides herders with incentives to increase agricultural output and encourage supply of agricultural products.

Last year, a total of 90,064 herders and entities owning livestock animals were registered to receive the wool incentives for supplying camel and sheep wool to 85 factories. According to the Ministry of Food, Agriculture and Light Industry, wool incentives totaling MNT 30.7 billion were granted to eligible 88,669 herders out of all registered herders. The herders had supplied a total of 18,566 tons of sheep wool and 676 tons of camel wool to 78 factories in 2020.

The wool incentive program is being carried out by the Agriculture Ministry in accordance with a 2020 regulation on cash incentives for herders supplying sheep and camel wool.

A virtual press conference by the Financial Regulatory Commission (FRC) to present the Financial Market Review of the first quarter of 2021 was held on May 6.

The nonbank finance market (including the capital market, insurance, NBFIs, and SCCs) share of GDP reached 17.5% in the first quarter of 2021; made up of:

Capital market: 9.9%,

Insurance market: 1.1%,

NBFIs: 5.7%, and

SCCs: 0.8%

The FRC regulated and supervised 3,302 entities, and 2,429 insurance agents. The former consisted of the following:

315 joint stock companies, and 281 professional participants in the securities market,

326 insurance companies, professional participants, and auditors,

530 NBFIs,

249 SCCs,

185 REBs, and

438 DPMS and their 978 branches.

Capital market:

Market capitalization increased by 48.5% to MNT3,695.1 billion, compared to same period in 2020.

Liquidation of stocks increased by 1.4 percentage points to 1.8%. The TOP 20 Index increased by 17,732.0 points to 34,635.7 points.

Volume of trading, among the MNT71.8 billion worth of securities, was as follows:

Stocks: 91.8%,

Asset-backed securities: 5.7%,

Investment fund: 1.8%, and

Corporate bond: 0.7%.

Trading on agricultural commodities exchange increased by 145.1%; and MNT69.3 billion worth - of five types of goods - were traded.

Insurance market:

Total assets increased by 14.6% to MNT401.2 billion, and the reserve fund increased by 9.3% to MNT172.6 billion, compared to same period in 2020.

Total premiums, of general and life insurance, decreased by 4.2% to MNT39.0 billion, and total premium of reinsurance decreased by 16.4% to MNT10.9 billion.

Total indemnity expenses decreased by 21.3%, and MNT12.3 billion was paid (amounting to 31.6% of total premiums).

NBFIs:

530 NBFIs operated, and their total asset increased by 17.6% to MNT2.1 trillion.

The total balance of loans increased by 11.8% to MNT1.4 trillion, and 48.5% of loan balance was consumer loans.

85.3% of the total loan balance was accounted to by individuals, and 14.7% was entities.

Due to the increased loan supply (and the access to loan services) the number of borrowers increased 1.4-fold to 610,100 and the number of total customers was 3.4 million (with double counting). The introduction of products and services based on technology in the market influence the increase of the access of loan service.

The monthly weighted average interest rate decreased by 0.1 percentage points to 2.9%.

The average loan per borrower was MNT2.3 million.

Borrowers of FinTech numbered 362,900 (59.5% of total borrowers), and the average loan per FinTech borrower was MNT270,700.

SCCs:

249 SCCs provided services for their 75,002 members.

Total assets increased by 21.5% to MNT278.9 billion. The amount of savings reached MNT201.4 billion (72.2% of total assets).

The monthly weighted average savings interest rate decreased by 0.1 percentage points to 1.4%.

The monthly weighted average interest rate decreased by 0.7 percentage points to 2.4%.

The balance of total loans increased by 11.1% to MNT192.1 billion, compared to same period in 2020. Of total loan balance, 3.64% were non-performing loans.

The number of depositors was 40,166, and borrowers were 38,353.

Real estate brokers:

Entities with licenses issued by the FRC were as follows:

185 entities, and their 206 brokers and 1,219 agents.

Through 935 deals (with double counting), 290 REBs/agents bought and sold real estate; amounting to a total area 98,600m2 and a value of MNT127.2 billion.

Through 390 deals (with double counting) REBs/agents rented and leased real estate amounting to a total 39,300m2 and a value of MNT2.8 billion.

Dealers in precious metal and stones:

Entities and individuals with licenses issued by the FRC were as follows:

Entities (dealers in precious metals and stones, and dealers in products made of them): 34

Individuals (dealers in precious metals and stones, and dealers in products made from them): 58

Individuals (dealers in precious metals and stones): 117

Individuals (dealers in products made from precious metals and stones): 229

Precious metals with a value of MNT103.6 billion were bought and MNT101.9 billion sold.

The Government of Mongolia is currently planning to implement 100 projects on recovering the economy after the pandemic.

“A discussion will be held to receive suggestions from the public and entities from today on May 11,” announced Prime Minister L. Oyun-Erdene during his report on the works implemented by the Government in the first 100 days since its formation. Furthermore, as the Government cannot single-handedly implement large-scale projects, the 100 projects aimed at developing the country’s economy in 2021-2030 will be announced to the public.

He said, “The current Government does not have the capacity to implement even the first 4 or 5 projects. The Gashuunsukhait railroad will be commissioned on July 1 next year. With the construction of the Tavantolgoi Thermal Power Plant completed, we will be able to reduce our costs by USD 300-400 million. The pipeline of the oil refinery will also be constructed. The Government will spend its reserves with the implementation of projects on Erdeneburen hydropower plant, the fifth thermal power plant, and the extension of the third thermal power plant as well as the Ulaanbaatar-Darkhan road construction. However, these 100 projects need to be implemented. It is not necessary for the Government to implement them alone.

Coal takes about 37-40 percent of Mongolia’s total export. More specifically, gold, copper, iron ore, and coal make 93 percent of the country’s export. However, the price of our main export, coal, is estimated to drop from USD 300 million to USD 200 million in 2020-2040, decreasing by 33 percent. As countries of the world are working towards reducing its coal use, all we have is 10 years to put in all our efforts. If we lose this window of opportunity, issues will begin to arise starting from the state budget. Thus, it is of utmost importance that we launch our 100 projects without losing any time. By successfully implementing the projects, it is projected that the current economy will grow by 3 times and the GDP per capita will increase to USD 8-10 thousand.”

The Government plans to reform the current policy for the mining sector. More specifically, while Mongolia conducted operations on exploration and extraction, works will begin to be more focused on value-added mining products. Plans such as the construction of a coal washing plant at Tavantolgoi is also included in the measure of works to be implemented in the policy framework. “With the plant being put into operation, it will become possible for the price of coal to increase from USD 60-63 to USD 80-100 by transporting it to Gashuunsukhait,” said the Prime Minister. Furthermore, large-scale construction works such as a copper concentrate plant, oil refinery, and metallurgical plant are planned to be completed. In order to increase sales, a decision was also made to establish a Mineral Exchange, which will allow the mineral resources extracted from large deposits to be openly traded on the global market. Moreover, the profits of its sales will be brought to citizens and entities by providing support for education, healthcare, pension, SMEs, and businesses through the Sovereign Wealth Fund, Development Fund, and Unified Accumulation Fund. The legal framework regarding this matter is currently being developed.

Additionally, the sectors of agriculture, energy, information technology, and the creative industry will be developed. The cultural sector must have a method of supporting many more artists and bands such as The Hu to form and have success as well as the filming of Hollywood movies in Mongolia through a tax policy, highlighted Prime Minister L. Oyun-Erdene. The 100 projects will also include projects on resolving the transport and logistics issue of Mongolia as a landlocked country alongside social reform. Moreover, matters such as improving the quality of life, merging public universities, reforming the educational sector, transitioning into a system that involves all citizens in annual check-ups, and 25 changes to be made in order to improve governance will be resolved.

Meetings have begun between the government and representatives of top entities and donor organizations starting from today.

MOSCOW - The Russian Direct Investment Fund (RDIF) has signed deals with three Chinese biopharmaceutical companies for the production of over 260 million doses of its Sputnik V vaccine against the coronavirus in the past weeks, according to statements published on the website of the RDIF.

The first contract was signed with China's Shenzhen Yuanxing Gene-tech Co., Ltd. on March 29 for the production of over 60 million doses of the Sputnik V jab that is scheduled to start this month.

Another agreement was reached on April 1 with a subsidiary of a key leader in the pharmaceutical field, the Tibet Rhodiola Pharmaceutical Holding, namely TopRidge Pharma, for the production of over 100 million doses per year.

The most recent agreement was reached on April 19 with a subsidiary of a major Chinese biopharmaceutical producer Hualan Biological Engineering Inc. for the production of over 100 million doses.

The three deals together amount to a production of over 260 million doses of the jab, which will facilitate supply and could be sufficient to fully vaccinate over 130 million people worldwide, according to the RDIF.

Kirill Dmitriev, CEO of the RDIF, said cooperation with China would significantly "help increase production capacities," adding that the country is one of Russia's key partners in this field.

"China is one of the major production hubs for Sputnik V and we are ready for increasing the scope of partnership with local producers to meet the rising demand for the Russian vaccine," he added.

In April, the Bank of Mongolia (BoM) purchased 1.3 tons of precious metal. Thus, total amount of precious metal purchase has reached 4.3 tons since the beginning of this year, showing a decrease of 2.5 tons compared to the same period of previous year.

The BoM branches in Darkhan-Uul and Bayankhongor aimag bought 25.5 kg and 61 kg of precious metals respectively in April.

The average price of BoM’s purchase of 1 gram of gold was MNT 160,616.05 in April.

Activity in the Chinese services sector is recovering from the pandemic faster than manufacturing, and rose at the fastest rate in five months during April, according to the results of a Caixin/Markit survey.

The Caixin China services PMI, officially known as the Caixin China General Services Business Activity Index, stood at 56.3 in April, against a 54.3 reading in the previous month. Any reading above 50 reflects growth, while a number below that threshold points to a contraction. According to Caixin, the services sector has been constantly growing for 12 straight months.

The results of the private survey, which reflects sentiment among smaller, private firms, are better than the official Chinese non-manufacturing PMI, released last week. The data, published by the National Bureau of Statistics (NBS), signaled that expansion in both services and manufacturing lost some steam in April.

The Caixin survey showed last week that manufacturing PMI rose to 51.9 in April from 50.6 in March. According to new data, the Caixin China General Composite PMI, which covers activity in both manufacturing and services, was up to 54.7 from 53.1 in March. The growth was driven by strong overseas demand and improved employment, according to Wang Zhe, senior economist at Caixin Insight Group.

However, the rapid recovery of the sector could be still affected by rising input costs. According to the poll, costs for service providers have been increasing for 10 months in a row and jumped at a faster rate in April compared to a month earlier, due to rising raw material prices and demand-driven higher labor costs. Those extra costs were passed on to the consumer, as the companies had to raise prices to offset the inflation.

“In the coming months, rising raw material prices and imported inflation are expected to limit policy choices and become a major obstacle to the sustained economic recovery,” Wang warned.

Mongolia registered 639 new COVID-19 cases in the past 24 hours, bringing the national tally to 45,459, the country's National Center for Communicable Diseases (NCCD) said Monday.

Meanwhile, eight more fatalities were reported, raising the death toll to 182, the center said, adding that 1,287 more recoveries were reported, bringing the nationwide count to 32,660.

The Asian country launched a COVID-19 vaccination campaign in late February, with the aim of vaccinating at least 60 percent of its population of 3.3 million.

More than 1,590,600 people have so far received their first dose and over 622,740 have got both jabs, according to authorities.

During his working trip in Umnugobi aimag last weekend, Prime Minister L.Oyun-Erdene informed that the government issued a decision to establish ‘Tavantolgoi coal concentrator’. To be commissioned in 2023, the plant will have a capacity of concentrating 30 million tons of coal annually and export the value-added product. It is estimated that a ton of high-quality enriched coal will cost USD136, semi-coked coal -- USD107 and washed thermal coal –USD11.

PM Oyun-Erdene noted that the government aims to export value-added products through ways such as establishing a copper smelter under the Erdenet Mining Corporation, and transition from the mining sector from extraction to processing.

The government also set out to construct a thermal power plant at Tavantolgoi deposit. This 450MW thermal plant is aimed to supply electricity to mega construction projects and programs and contribute the central energy grid to a certain extent.

Energy and Finance Ministers said that 30 percent of the total required funding will be provided through owning shares in the Erdenes Tavantolgoi JSC, while the rest will be funded with loans and assistance. A water supply is of problems in constructing a thermal power plant. Therefore, the PM obliged to resolve this matter together with construction of the coal concentrator.

Erdenes Tavantolgoi, a Mongolian state-owned joint-stock company, has launched a three-phased trading of ‘ETT’ bond to raise MNT 2 trillion. The first phase trading of the bond was organized between March 30 and April 9, raising MNT 677.7 billion. It means that the planned target of MNT 600 billion has been exceeded by 13 percent.

Stock market analysts explain in many ways what the value and advantages of the ‘ETT’ bond are. For example, firstly, the bond has low risk because the state-owned company has issued it, and secondly, it has the advantage of not being subject to depreciation as it is listed on the domestic stock exchange in US dollars.

In addition, the company has been effectively managing a large-scale construction of railway, and Tavan Tolgoi Fuel Company, and for the first time distributed dividends of 1,072 shares, being owned by every citizen of Mongolia, which has been a political tool for many years. It is likely to be reputable in the sense that is a bond of the company that has matured financially and operationally. Moreover, the Bank of Mongolia's first legal support for the issuance of foreign exchange bonds has certainly contributed to the success of the trade. The Bank of Mongolia has given legal support for the first time to issue foreign currency bonds, which has certainly contributed to the success of the trading.

In the first phase, the bonds will be repaid over a period of 24 months and interest will be paid every six months. The nominal unit price is MNT 100,000 and USD 100, and 973 individuals and companies participated in the trading. In the next phases, bonds will be repaid in up to 36 months. The first phase of trading was for the domestic investors, while the second and third phases are expected to attract more foreign investors.

Is the ETT bond by the government or the company?

Investment cannot be made rashly. Investing funds on profitable variants is certainly a basic business principle. That is why the bond with high USD and MNT interest rates is seen to be greatly profitable to the investors and stakeholders at this time when the savings interest rates are low. To be specific, the MNT interest rate announced by the central bank is 6-7 percent, while the bond’s interest rate is 10 percent. USD savings interest rate is 2.8 percent, while the bond’s USD interest rate is 6.8 percent. This is clearly a profitable variant to stock market stakeholders.

Moreover, the bond issued by a company that sells its main commodity, coal, at 5-6 times its mining cost can be seen as an opportunity to get high returns without any risk.

Government securities are considered the most reliable investment instruments. The bond issued by a company every Mongolian has shares in is part of the ‘MNT 10 trillion Comprehensive Plan for Health Protection and Economic Recovery’ being implemented by the Government of Mongolia. That is how the bond is considered to be a government security. However, Erdenes Tavan Tolgoi JSC explained, “The bond will have no guarantee from the government. The bond issuance is based on business principles and will not affect the government’s debt ceiling.”

The government does not guarantee the bond even though it holds 81.5 percent stake in the company. The company will be accountable for any future outcomes. Nonetheless, the planned target was fully met in the first stage trading of the bond, which suggests that the stakeholders have belief in the bond issued by a state-owned company.

Is it the right time to issue a bond?

In connection with the COVID-19 situation, cash outflow began to be limited, causing a certain amount of securities to be “accumulated” at the Bank of Mongolia - which in turn, created the opportunity for the company to use it for financing its large-scale project. During this time when the foreign exchange reserve is at a significantly good level at the central bank, there is no wrong in using the finances for a state-owned enterprise that has good capacity and resources. Issuing a bond domestically serves as a big opportunity for domestic entities to get profits from the state-owned enterprise. It also has a positive impact on expanding the domestic financial and capital markets.

In the past decade, 75 million tons of coal was extracted, of which 71 million were sold on the markets. From the sales income of MNT 9.3 trillion, MNT 6.4 trillion was the income for the last 4 years - which shows that its profits are continuing to increase year after year. Furthermore, MNT 1.9 trillion was allocated in the state budget through the company in these 4 years. These are said to be indicators for how the company has already reached a point where it is relatively stable financially and can implement any project without any issues.

In 2021-2025, the company is projected to run its operations with a sales income of MNT 33.5 trillion, using about MNT 17 billion for its operational costs and allocating MNT 7.7 trillion in the state budget. Overall, the business plans and financial estimates for the coming 5 years show the company to have a net profit of MNT 11.5 trillion, with a capacity to pay citizens MNT 1.3 trillion in dividend. This estimate is not far off from reality, explained the company executives.

What will be done with the bond financing?

With the bond financing, it is planned to implement the country’s mega construction projects, including Tavantolgoi thermal power plant, coal concentrator, water supply and railroad. However, a question arises that whether MNT 2 trillion is sufficient for the abovementioned large-scale projects, otherwise there is a risk that it will be ineffective as the bond financing is spent on many projects. For this matter, the company explained that the projects have been internationally certified, with detailed blueprint, preliminary budgets and proven estimation of benefits. The projects are deemed to be possible to recoup their initial investment in a short period.

Moreover, there are several foreign investors who are interested in investing some projects. It can be seen as an opportunity that has been opened up for Mongolians to participate in such profitable projects.

It is also estimated that transportation expense would decrease in addition to drastic increase in the sales revenue with commissioning of Tavantolgoi-Gashuunsukhait railroad at the end of 2022. Mongolia started supplying over 60 percent of coking coal need of China, which was just 17 percent last year, in this time where China’s ban on Australian coal continues. Although Mongolia is located closer to China compared to other suppliers, expenses on auto road transport and coal washing and concentrating processes raise the coal price, emphasized the experts. It means that there is a necessity to launch the construction projects.

The demand to be ready for the supercycle

Economists and experts suggest that the post COVID-19 world economy is likely to contract to a great extent, however, the economic capacity of China will be enhanced. This economic growth of China will serve as a foundation to help grow the revenue of the company, whose shares are owned by every citizen of Mongolia.

International experts also see that the “commodity supercycle” that characterizes the mining commodity prices lies ahead of us. Price surges on the world’s copper, iron ore, and gold markets, which hit 10-year record high this year, outline a positive outlook for this industry.

The fact that Mongolia’s primary coking coal export market and only client - China is forecasted by international economists to lead the global market in the world in the aftermath of the pandemic is good news for us.

Although being dependent on one country in terms of sales and the lack of multiple export clients impose a disadvantage, China is already not “far” from us, having announced to promote its sustainable energy production. Thus, we are in need of fully utilizing this opportunity. To achieve that, Erdenes Tavantolgoi JSC is compelled to build its capacity and resources and be prepared for the next supercycle.

G.Urantuya