Download FDI

CONTENTS
Revisions of the legal environment on increasing foreign direct investment in
Mongolian mining sector
Nyambayar. B IMPLEMENTING PUBLIC-PRIVATE PARTNERHSIP (PPP) IN INFRASTRUCTURE SECTOR
14
Damdindorj N., Undarmaa. E
Analysis on Political and Economic Twin Transitions of Mongolia:
Advances and Setbacks, Gains and Losses
22
Batsukh. Ts, Unur. S
Demands for Sustainable tourism Standards
4
29
Jargalmaa. G The way of strategy implementation and development of Eco Tourism
(Ecological Tourism Project of “Bor Khyariin Els” in Zavkhan Aimag)
36
Tsogtbayar. B
Title of the Paper: Analysis of the sources of finances in the selected
sample of Mongolian medium-sized enterprises.45
Ivshinkhorol. B, Ramnath Takiar, Ajay Kumar Takiar
Methodology to set living standard of households:
On the example of Ulaanbaatar City56
Gantumur P, Bolitogtokh D, Badamkhuu B, Erdene. S
Performance of Automobile Industry of Mongolian
Sansarmaa. B, Ramnath Takiar
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES:
REFLECTIONS OF THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES IN MONGOLIA
83
Bumdelger. Kh
Knowledge management In higher education institutions:
Concept, benefits & Problems
74
Nyamdorj. D, Tserendash. S, Tornon. T, Mendbayar. B
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
64
91
Atartsetseg. B
Factors associated with the wages of Accountants in Mongolia 97
Lkhagvasuren. D, khishigbayar. Lk
DEVELOPMENT OF A TEACHER
103
Bolorsaikhan.O, Baigalmaa. L, Otgonbayar.Y
United States income tax policy and mechanism 112
Ariunbold. J, Unurjargal. Ch
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
Nyambayar. B
Wuhan University of Science and Technology, China
Abstract:
Mongolia’s economic growth has become extremely dependent on the natural resources sector.
Based on the data of 2012-14, 17% of the GDP and 80% of export earnings come from the Mining
industry. The role of foreign direct investment has become more and more important today, especially
for developing countries. Attraction of foreign investment into Mongolia’s economy has now become
the key factor to propel Mongolia’s development.
After becoming a democratic country, The Mongolian Parliament issued its first “Foreign
investment Law” in 1993 and “Mineral Law” in 1997 to regulate activities and relations between the
mining and socio-economic environmental sectors. These laws established a positive atmosphere
among the parties and created an investor friendly business environment. According to the law,
the mineral licenses were granted on a first-come first-served basis, a low taxation and royalty
burden was imposed on investors, and more importantly, a stable and predictable legal environment
was present. The 1997 Mineral Law was revised in 2006 and amended in July 2009; however, the
amendment created backsliding and an unfavorable operational environment for investors due to
the increased tax and regulatory burden on them, as well as the overall uncertainty introduced by an
unstable and unpredictable legal framework for the sector.
This study focuses on legal revisions, its impact on foreign direct investment and performance
of the sector. We can see that FDI was rising. It concludes listing obstacles faced by prospective
investors and possible countermeasures to take.
Keywords: legal environment, foreign direct investment, mining, law
Introduction
Mongolia is a landlocked country with an enormous wealth in form of natural resources. Copper, coal,
iron ore and gold in particular are responsible for an amazing growth performance that Mongolia
continues to demonstrate over the last decade.
Discovery of enormous mineral wealth along with liberalisation policies attracting foreign
investors allowed Mongolia to receive substantial Foreign Direct Investment (FDI) inflows in the
mining sector. This led to a fast economic growth. However, it’s not undertaken to be lightly as this
is not an economic development which can be only achieved with globally competitive non-mining
sectors. Resource-poor countries are forced to reach certain level of economic development through
which they achieve economic growth in the long run. Asian Tigers South Korea and Taiwan are
appropriate examples. By undertaking economic development, these countries achieved high and,
more importantly, sustainable growth rates. Natural resources, on the other hand, provide a shortcut
to bypass gradual economic development, and to achieve high growth rates through large resource
windfalls. By skipping economic development short-run economic growth makes sustainable
development hard to reach. Countries fail to undertake process of gradual learning by doing and
become dependent on primary exports.
In Mongolia’s case, prevailing opinion is that institutional reform towards a democratic and
good governance and getting the needed technology, methodology and investment from foreign
countries is the key towards sustainable economic development. Mongolia’s democracy is still quite
premature and quality of institutions is not high enough to handle such enormous windfalls without
problems. The relation between social, political, economic and international factors needs to be
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
Page 4
considered. More research in general has to be done in this area. Since World War II most natural
resource-rich developing countries failed to create sustainable economy through resource windfalls.
A great portion of fossil and mineral resources that fuels todays’ global economy is imported from
developing countries. These countries often suffer from bad institutions, not properly developed
market economy, and they lack access to markets and capital needed for developing and financing
their mining sectors. In such cases, vulnerability to a resource curse could be quite significant.
It is thus important to recognise this great danger and better understand the origins of failure or
success in resource-rich developing countries. Strong legal environment and finance are two pillars
of pushing current mining sector forward.
Objectives
The general objective of this study is to obtain a comprehensive overview of revisions in legal
environment of foreign direct investment in Mongolia in case of mining sector. In doing so it seeks to:
- To examine the impact of the law towards FDI and sector performance
- To investigate and analyse which factors of the certain law are affecting the downfall or
increase of FDI
- To determine main legal obstacles refraining foreign investors to do business in Mongolian
mining sector
Political and legal invironment
Quality of institutions (everything from the enforcement of contract law to the honesty of government
officials) and their influence on economic growth is a topic well examined throughout the literature
(Frankel, 2010). Development economists argue that weak institutions lead to wealth and income
inequality, corruption, authoritarian rule and plundering of the country by some of the elites. Those
who see natural resource dependence as a curse to sustainable development usually stress out the
negative effect on country’s quality of institutions and governance. Some scholars agree that the
institutions are really a crucial factor in resource rich countries. For countries with sound institutions,
resource endowments are blessing. For those with bad institutional quality they can mean curse.
They are the foundation for good growth performance and it is useless to recommend specific micro
and macroeconomic policies if the institutional foundations are not supporting them (Frankel, 2010).
For example, oil dependent economies are considerably more likely to have limited political
freedoms, are more likely to be ruled by non-democratic regimes, tend to have much higher rates
of corruption. In extreme cases, there are higher chances of civil wars within their boundaries
(Humphreys, Sachs and Stiglitz, 2007). Strong arguments suggest that natural resource dependence
is connected with these issues to various extents.
In the 1980s, scholars recognized the idea of a resource curse, identified various factors and
developed different theories. For example, in 1995 Sachs and Warner reported that economic
dependence on natural resources and the slow growth of economy are linked. Richard M. Auty
(2008) affirmed that, based on the developmental level of natural resource-dependent countries
since the 1960s, “not only may resource-rich countries fail to benefit from a favorable endowment;
they may actually perform worse than less well-endowed countries.”
During the beginning of the twenty-first century, Naazneen H. Barma and her co-authors, in Rents
to Riches?, argued that political economy dynamics could lead resource-dependent developing
countries along the path of downfall. Moreover, not all states achieve development by adopting the
policies and experiences of countries that converted their resource rents into wealth. In other words,
a good policy for one country is not always efficient for another country; hence, countries need to
have development-oriented policies that fit their specific context. To avoid the decline and achieve
sustainable development, governments should be able to make credible inter-temporal commitments
to both extractive companies and its citizens, and the political regime should be inclusive such that
the government faces the incentives to use rents to provide public goods that enhance collective
welfare.
Page 5
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
Corruption and rent seeking
High levels of corruption are the most obvious political risk resulting from large resource endowments
(Humphreys, Sachs and Stiglitz, 2007). The short run availability of sizeable windfalls increases the
chance that these revenues will be exploited and stolen by political leaders. Those who control
these windfalls can use the wealth to keep themselves in power either through legal means (political
campaigns and populist measures) or arms. Mobutu in Congo, with its enormous copper deposits
and vast amounts of diamonds, zinc or gold, is often presented as an example of the later (Halvor,
Moene, Torvik, 2006). Another example is Nigeria’s president Abacha who was by some accounts
responsible for a theft of approximately USD 3 billion.
Especially in oil-rich developing countries corruption is somehow one of the characteristics of the
resource business (Humphreys, Sachs and Stiglitz, 2007). The presence of resource endowments
can also support corruption indirectly. Relying on windfalls creates weak state structures that make
corrupt practices significantly easier. If the power of bureaucratic caucus rises which is the usual
development in resource based economies, the risk of corruption is even more aggravated.
International or local mining companies are also actor with major influence. Companies often
seek the best possible way to maximize their profits. They frequently obtain the mining contracts at
below market value by bribing government officials.
Methodology and analysis
I have focused on following laws as they play a more crucial role in the mineral sector:
• Foreign investment law- 1993
• Mineral law – 2006
• Windfall Profit law – 2006
• Long named law -2009
• Law of Mongolia on the Regulation of Foreign Investment in Business Entities Engaging in
Strategic Importance Sectors (SFI Law) -2012
• Investment law - 2013
Since the transition into market economy our country has pursued active policy to attract foreign
investment. The Law on Foreign Investment of 1990 is one of the first legislations to declare open
economy and regulate important factors of market relations. Based on the knowledge and experience
accumulated in the first years of drastic political, economic and social changes, Mongolia has
revised its Foreign Investment Law (FIL) in 1993. Mongolian Government has steadfastly followed
the policy to ensure stable legal environment for foreign investment and introduce changes only to
grant more favorable terms to investment regimes and regulations. A vivid evidence of this policy is
seen from the stable implementation of the law until 2006. In 2012, the enactment of the SFI Law
considerably altered the investment landscape by expanding the discretionary approval authority
of the Government or Parliament for private and state-owned foreign investment in strategically
important sectors, namely minerals, banking and finance, and media and telecommunications.
The SFI Law stipulated that any investments by a foreign state-owned entity required Government
approval as a mandatory precondition. In 2013, new Investment law was enacted by Mongolian
government replacing 1993 FIL and 2012 SFI law.
I have used comparison method to analyze and determine which articles of the mining law
have contributed to downfall and increase of FDI based on investment size, companies operating,
development of new mine and GDP in the span of 1993-2015.
Mongolia’s economic growth has become extremely dependent on the natural resource sector.
For example, 20% of GDP, 61% of industrial value added, and 80% of export earnings come from
the mining industry. Therefore, the legal and regulatory environment of the Mongolian mining sector
plays a significant role in economy. In below diagram, you can see the average percentage of mining
sector’s role in total GDP, export, budget and FDI from 2012-2014.
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
Page 6
For example, 20% of GDP, 61% of industrial value added, and 80% of export earnings come
from the mining industry. Therefore, the legal and regulatory environment of the Mongolian
mining sector plays a significant role in economy. In below diagram, you can see the average
percentage of mining sector’s role in total GDP, export, budget and FDI from 2012-2014.
Fig.1.
Mining
sector’s
Contribution
Indicatorsand
and
Average
(2012-2014)
Fig.1.
Mining
sector’s
Contributionby
by Financial
Financial Indicators
itsits
Average
(2012-2014)
Export
81%
GDP
17%
20
2012
21
2013
17
2014
8
9
FDI
Budget
73%
23%
%
%
9
1
8
1
2012 2013
2014
2
1
2
0
2
3
2013 2014
2012
7
8
8
1
7
3
2012 2013 2014
I havedivided
dividedinvestment
investmentlegal
legalenvironment
environmentinin2 2intervals
intervalsdepending
dependingon
onthe
theimpacts
impactsofofthe
the
I have
working
workingregulations.
regulations.
Increase of foreign direct investment /1993-2006/
Increase of foreign direct investment /1993-2006/
Afterbecoming
becoming
a democratic
country,
The Mongolian
Parliament
issued
its first investment
“Foreign
After
a democratic
country,
The Mongolian
Parliament
issued its
first “Foreign
investment
Law”
in
1993
and
“Mineral
Law”
in
1997
to
regulate
activities
and
relations
between
Law” in 1993 and “Mineral Law” in 1997 to regulate activities and relations between the mining and
the mining and socio-economic environmental sectors. These laws established a positive
socio-economic environmental sectors. These laws established a positive atmosphere among the
atmosphere among the parties and created an investor friendly business environment. The
parties and created an investor friendly business environment. The fundamental legal and regulatory
fundamental legal and regulatory framework for the procedures of granting exploration and
framework
the procedures
of sector
granting
exploration
rights
in the mining
was
extractionfor
rights
in the mining
was
set up byand
theextraction
Mining Law.
According
to thesector
law, the
set
up
by
the
Mining
Law.
According
to
the
law,
the
mineral
licenses
were
granted
on
a
first-come
mineral licenses were granted on a first-come first-served basis, a low taxation and royalty
first-served
basis,
a low taxation
and royalty
imposed on
andpredictable
more importantly,
burden was
imposed
on investors,
andburden
more was
importantly,
a investors,
stable and
legal
a environment
stable and predictable
legal
environment
was
present.
For
almost
ten
years,
the
lawpredictable
provided a
was present. For almost ten years, the law provided a stable and
stable
and predictable
operational
environment
boosted
the mining
growth of
the mining
until
operational
environment
and boosted
the and
growth
of the
sector
until sector
the 2006
amendment. Therefore, it contributed to the attractiveness of the sector and constantly
the 2006 increased
amendment.
Therefore,
it contributed to the attractiveness of the sector and constantly
Foreign
Direct Investments.
increased Foreign Direct Investments.
4 there were no restrictions regarding usage of
Main clauses, which were attracting FDI were that
Main clauses,
which
were
attracting
were that
no restrictions
regarding
their property
and
income,
foreign FDI
companies
had there
same were
treatment
as domestic ones
from usage of
their property
and income,
companies
had same
treatment
as domestic
from government
government
and inforeign
order to
sign investment
agreement
with the
governmentones
the required
investment
was not so
high and also
of this contract
was longer,
tax regime level was
and in order
to signlevel
investment
agreement
withduration
the government
the required
investment
flexible.
not so high and also duration of this contract was longer, tax regime flexible.
TheFDI
total as
FDIcompared
as comparedtoto FDI
FDI due
Mining
sector
over the
period
1990-2014
is shown in is shown
The total
duetoto
Mining
sector
over
theofperiod
of 1990-2014
Fig. 2. The correlation between Total FDI (X) and Mining sector FDI (Y) worked out to be 0.978
in Fig. 2. The
correlation
between
Total
FDIwas
(X)0.77.
andThus,
Mining
sector
(Y)and
worked
out to be 0.978
(P<0.001)
and significant
and the
slope
implying
that FDI
the rise
fall observed
(P<0.001)inand
significant
and
the slope
wastune
0.77.
Thus,
that
rise
and
fall observed in
Total
FDI is highly
dependent,
to the
of 77%
on implying
the rise and
fall the
in FDI
due
to Mining
sector.
Total FDI is highly dependent, to the tune of 77% on the rise and fall in FDI due to Mining sector.
Fig.2:
Total
FDIand
andMining
Mining sector
sector FDI,
(1990-2014)
Fig.2:
Total
FDI
FDI,million
millionUSD
USD
(1990-2014)
Total FDI
Mining sector's FDI
4986.1
4038.2
3198.7
2217.8
2088.1
1120.8
316.8
493.9
1025.9
801.2
708.9
499.9
819.7
366.5
643.5
485.2
195.4 336.9
182.9
845.1
871.8
650.1
Page 7
Slowdown of Foreign direct investment
Source: Investment agency
Source: Investment agency
Revisions of the legal environment on increasing foreign
/2006-2015/
direct investment in Mongolian mining sector
The 1997 Mineral Law was revised in 2006 and amended in July 2009; however, the
amendment created backsliding and an unfavorable operational environment for investors due
to the increased tax and regulatory burden on them, as well as the overall uncertainty
Slowdown of Foreign direct investment /2006-2015/
The 1997 Mineral Law was revised in 2006 and amended in July 2009; however, the amendment
created backsliding and an unfavorable operational environment for investors due to the increased
tax and regulatory burden on them, as well as the overall uncertainty introduced by an unstable
and unpredictable legal framework for the sector. The amendment also included a new type of
mineral resource called the “strategic deposit.” Such a deposit is defined as one that can influence
national security and economic development, for it has capacity of producing more than 5 percent
of the country’s total annual GDP. Regardless of the intended improvement purpose, the changes
resulted in a substantial decrease in investments and license activities. Consequently, new mining
applications were suspended for nine months and created an inconsistent situation. Even According
to the law, two types of licenses, exploration and mining, are granted to legal persons, taxpayers
in Mongolia, and actors that operate under the laws of Mongolia. Yet, lacking detailed regulations
and established requirements for the companies and individuals to obtain exploration and extraction
licenses,
until recently
sector allowed
many unincorporated
applicants
accumulate
licenses
requirements
for thethe
companies
and individuals
to obtain exploration
and to
extraction
licenses,
until
recently
the
sector
allowed
many
unincorporated
applicants
to
accumulate
licenses
for
re-were
for re-sale for much higher prices than they were initially bought. As more mineral resources
sale
for
much
higher
prices
than
they
were
initially
bought.
As
more
mineral
resources
were
discovered, such license dealings were amplified and yielded enormous rent-seeking possibilities.
discovered,
such there
license
amplified
and yielded
enormous 2300
rent-seeking
By the
August 2012,
weredealings
already were
3000 mining
licenses
and an additional
exploration
possibilities. By the August 2012, there were already 3000 mining licenses and an additional
licenses, according to Mineral Resource Authorities.
2300 exploration licenses, according to Mineral Resource Authorities.
Fig.3: Mining and Exploration licenses (2006-2015)
Fig.3: Mining and Exploration licenses (2006-2015)
6000
5000
4000
All licenses
3000
Exploratory licenses
Mining licenses
2000
1000
0
2006 2007 2008 2009 2010
2011 2012 2013 2014 2015
Source: Mineral Resource Authority
Source: Mineral Resource Authority
Moreover, anyone,
anyone, even
eventhose
thosewithout
withoutprofessional
professionalexperience
experienceand
andknowledge
knowledgeofofthe
thesector
sector
Moreover,
could
could conduct mining activities, which slowed down the progress in sector development and
conduct
mining
activities,
which
slowed
down
the
progress
in
sector
development
and
ultimately
ultimately created enormous negative consequences on the environment and people’s behavior.
created
enormous
negative
consequences
the environment
people’s
In order
In order
to correct
the regulatory
gap, theon
government
decided and
to stop
issuingbehavior.
new licenses
in to
correct
the
regulatory
gap,from
thelast
government
decided
to stopapplications.
issuing new licenses in 2010 and only
2010
and
only starting
year has started
to accept
starting from last year has started to accept applications.
The Law on Prohibition of Mineral Exploration and Mining Activities in River Basins, Water
The
Law on Prohibition of Mineral Exploration and Mining Activities in River Basins, Water
Reservoir Areas, and Forested Areas, commonly known as the Long Named Law, was enacted
Reservoir
and
Forested
knownfrom
as the
Long Named
was
enacted
in 2009Areas,
in order
to secure
the Areas,
ecologycommonly
and environment
the damage
causedLaw,
by the
mining
in 2009
in order
secure
the ecology
and environment
frompopulace,
the damage
caused
by was
the mining
activities.
Thetolaw,
generally,
was appreciated
by the local
for its
intention
to
activities.
generally, The
was government
appreciated reviewed
by the local
populace,
for its intention
was to254
protect
protectThe
thelaw,
environment.
1,782
mining licenses
and revoked
alluvial gold mining
licenses in response
the law.
However,
thisand
environmentally
the environment.
The government
reviewedto1,782
mining
licenses
revoked 254beneficial
alluvial gold
effort
reduced
the
investor’s
reliance
on
the
mining
sector.
mining licenses in response to the law. However, this environmentally beneficial effort reduced the
investor’s reliance on the mining sector.
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
Page 8
Fig.4: Number of Operating companies in mining sector (2005 – 2014)
Fig.4: Number of Operating companies in mining sector (2005 – 2014)
Source:
Investment
agency agency
Source:
Investment
In 2009, the government passed another new law to create a separate legal environment for
In 2009, the government passed another new law to create a separate legal environment for
uranium mining from the other types of mining. The Nuclear Regulatory Authority of Mongolia
uranium mining from the other types of mining. The Nuclear Regulatory Authority of Mongolia was
was established as an executive agency in charge of uranium-related procedures. Under the
established as an executive agency in charge of uranium-related procedures. Under the law, the new
law, the new agency revoked existing licenses of uranium exploration and mining and required
agency revoked existing licenses of uranium exploration and mining and required the license holders
the license holders to get their licenses re-registered. In November 2010, the agency stated that
to get their licenses re-registered. In November 2010, the agency stated that the revoked licenses
the revoked licenses would not be restored. These changes in the legal environment represent
would not be restored. These changes in the legal environment represent the government’s inability
the
government’s inability to equally satisfy the participants of the sector while it launches new
to equally satisfy the participants of the sector while it launches new laws and policies.
laws and policies.
Particularly controversial law was the Windfall Profits Tax Law, which was passed separately in
2006
and abolished
in 2011.
According
the law, Profits
a 68 percent
windfall
tax was
the profits in
Particularly
controversial
law
was thetoWindfall
Tax Law,
which
wasimposed
passedonseparately
fromand
the abolished
sale of goldinand
copper—at
theto
time
the highest
royalty
rateimposed
in the world.
2006
2011.
According
theconsidered
law, a 68 percent
windfall
taxtax
was
on the
The
tax
increase
was
also
interpreted
as
a
burden
shifted
from
smaller
developers
or
individuals
to in
profits from the sale of gold and copper—at the time considered the highest royalty tax rate
large
mining
andwas
resource
developers.as
These
amendments,
which
were made
during or
the
world.
Thecompanies
tax increase
also interpreted
a burden
shifted from
smaller
developers
the
highly
profitable
period
for
the
sector,
increased
uncertainty
and
decreased
the
competitiveness
individuals to large mining companies and resource developers. These amendments, which
of themade
sector.during
In turn,the
thishighly
legislation
damaged
the attractiveness
of Mongolian
mining
in the eyes
were
profitable
period
for the sector,
increased
uncertainty
and
of investors.the
Before
the amendment,ofin the
Institute
Mongolia had
achievedthe
decreased
competitiveness
the Fraser
sector.
In Mining
turn, Survey,
this legislation
damaged
a score of 54 out
100 on themining
Index ofinPolicy
Potential
in 2005 for Before
its overall
attractiveness,
attractiveness
of of
Mongolian
the eyes
of investors.
thepolicy
amendment,
in the
while
only
12
and
19
scores
were
achieved
in
2006
and
2007
after
the
amendments.
ranked
78 of
Fraser Institute Mining Survey, Mongolia had achieved a score of 54 out of 100 onIt the
Index
out ofPotential
93 counties
very
lowpolicy
score attractiveness,
of 19.5 in 2011‒2012,
and the
has not
Policy
in with
2005itsfor
itsscore
overall
while only
12 low
andranking
19 scores
were
improved
until
now,
which
demonstrates
how
easy
it
is
to
lose
attractiveness,
but
difficult
to
achieved in 2006 and 2007 after the amendments. It ranked 78 out of 93 counties withregain
its very
it. Some
countries
rely
on highhas
levels
taxation and
score
low resource-rich
score of 19.5developing
in 2011‒2012,
andtend
the to
low
ranking
not ofimproved
untilregulation,
now, which
and
it
applies
more
to
the
businesses
that
involve
foreign
companies.
This
policy
can
be
suitable
on
demonstrates how easy it is to lose attractiveness, but difficult to regain it. Some resource-rich
environmental
grounds,
yet
it
also
can
discourage
output
and
foreign
involvement
as
demonstrated
developing countries tend to rely on high levels of taxation and regulation, and it applies more to
by businesses
the experiences
the populist
nationalism
of Bolivia,
and Venezuela.
the
thatofinvolve
foreign
companies.
This Mexico
policy can
be suitable on environmental
In theyet
following
we can seeoutput
that even
price is constantly
rising, operating
grounds,
it alsodiagram
can discourage
andthough
foreigngold
involvement
as demonstrated
by the
companies are
declining
quantity. It of
can
be derived
that
because
of the Windfall profit law,
experiences
of the
populistinnationalism
Bolivia,
Mexico
and
Venezuela.
companies are going out of business or evading tax and providing false information about mined
Ingold
the to
following
diagram we can see that even though gold price is constantly rising, operating
the authorities.
companies are declining in quantity. It can be derived that because of the Windfall profit law,
companies are going out of business or evading tax and providing false information about mined
gold to the authorities.
7
Page 9
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
Fig.5:
ofgold
goldand
anditsits
price,
2000-2014
Fig.5:Production
Production of
price,
2000-2014
Source:
Association
of Mongolian
miners
Source:
Association
of Mongolian
gold gold
miners
Since 75% of exports and 40% of revenues of Mongolia are formed by the mining industries,
which
theand
investment
of domestic,
foreign and
ventures,
inconsistency
in the
Sinceoperate
75% of under
exports
40% of revenues
of Mongolia
arejoint
formed
by the
mining industries,
legal
and
regulatory
environment
of
taxation
will
be
a
big
challenge
to
the
government.
In
other
which operate under the investment of domestic, foreign and joint ventures, inconsistency in
the
words,
tax
policy
should
be
favorable
to
both
the
state
and
investors.
legal and regulatory environment of taxation will be a big challenge to the government. In other
words,
should
be favorable
to both the state
and investors.
With tax
thepolicy
intention
to increase
the government’s
revenue,
the amendment to double the royalty
rate
made in to
2006.
However,
the doubledrevenue,
rate eliminated
sector investors
the
Withwas
the intention
increase
the government’s
the amendment
to doublemaking
the royalty
Mongolian
industry the
royalty regime,
again. making the Mongolian
rate
was madeextractive
in 2006. However,
thehighest
doubledmineral
rate eliminated
sector investors
extractive industry the highest mineral royalty regime, again.
Reduction of foreign direct investment will negatively impact Mongolian development, because
Reduction
of foreign
investmentand
will financial
negativelycapacity
impact Mongolian
the
government
lacksdirect
the managerial
to operate development,
the high cost because
industry
thealone.
government
lacks
the managerial
and financial
to operate
the high
cost industrycapital
alone.
It lacks
well-functioning
domestic
capitalcapacity
markets
and access
to international
It lacks
well-functioning
capital markets
andofaccess
to international
capital
markets.
As
markets.
As evidencedomestic
of the expensive
operation
the sector,
“60 percent
of the
total FDI,
which
is
more
than
30
times
the
percentage
that
goes
towards
manufacturing
and
20
times
evidence of the expensive operation of the sector, “60 percent of the total FDI, which is more than 30
more
towardsthat
construction,”
is devoted
to the mining
times
thethan
percentage
goes towards
manufacturing
and 20 sector.
times more than towards construction,”
is devoted to the mining sector.
Moreover, consequences stemming from the amendments show that the level of FDI, which is
Moreover,to consequences
stemming
amendments
show that decisions.
the level ofInFDI,
which
essential
sector operation,
is very from
muchthe
susceptible
to government
2012,
the
is essential
sector operation,
is very
In 2012,
the
Mongoliantogovernment
received
3.8 much
billion susceptible
U.S. dollarstoingovernment
FDI, yet it decisions.
was 4.6 billion
in the
Mongolian
received
3.8 billion
U.S.
dollars
in FDI, yet
billion in the
previousgovernment
year. A major
reason
for the
sharp
decrease
wasit was
the 4.6
amendment
of previous
Foreign
Investment
Law of for
Mongolia
(1993)
which was
is Law
Mongolia of
on Foreign
the Regulation
of Foreign
year.
A major reason
the sharp
decrease
the of
amendment
Investment
Law of
Investment
in
Business
Entities
Engaging
in
Strategic
Importance
Sectors
(SFI
Law)
which
was
Mongolia (1993) which is Law of Mongolia on the Regulation of Foreign Investment in Business
Entities Engaging in Strategic Importance Sectors (SFI Law) which was approved in 2012 June.
Persistent debates before and after the change in
8 the Strategic Entities Foreign Investment Law
of Mongolia increased the cautiousness of foreign investors regarding the Mongolian investment
environment. By November 2013, FDI slumped 50 percent due to a prolonged skirmish with the
Rio Tinto Group, which is the largest investor in the Mongolian mining sector. Due to the decline in
FDI and export of some minerals, the overall Mongolian economy confronts considerable external
imbalances.
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
Page 10
In short, overly optimistic changes that were made during the highly profitable period of the sector
increased investor uncertainty and decreased the sector’s competitiveness.
The level of taxation is dependent on the smooth and profitable operation of the companies.
Therefore, if there is an interruption in their operation, the revenue stream going to the government
will be reduced. In short, in order to maximize its tax receipts, the government should encourage
investments. After the Mongolian Parliament made amendments that were more resource developer
friendly, including the repeal of the Windfall Profits Tax effective on January 2011, some positive
results were observed. For example, the investment agreement of one of the biggest mining projects
“Oyu Tolgoi” was finally signed in September 2009. A report issued by the Mongolian Extractive
Industries Transparency Initiative in 2012 shows that the increase of mining and oil activity in recent
years has resulted in significant improvement in tax revenue from extractive companies. The tax
revenue increased 66 percent between 2010 and 2011, reflecting the rapid influx of investment into
this sector.
Taxes and revenues from selling the mineral resources are collected and divided by the state.
According to the EITI Mongolia report, there are more than 100 government entities that accept
payments from the mining companies in Mongolia and the government lacks a centralized, systematic
way to keep track of these taxes and revenues. Different ministries, agencies, provinces, and subprovinces can collect the government receipts; consequently, substantial amounts of revenue can
be left out of reports by the tax authority and therefore could be illegally spent and distributed. This
also suggests that respected central and local authorities lack efficient coordination of rules and
responsibilities to track and monitor taxes and revenues.
Having a comparatively small population, Mongolia is very vulnerable to this risk. Such a “dynamic
inconsistency” problem happens under political pressures, and it discourages foreign companies
and investors. Decisions associated with the extractive industry are made by the politicians at higher
levels, for the industry brings huge amounts of income which has the ability to impact the entire
country. However, excessive involvement of the politicians in the executive branch’s operation
damages the government’s ability to pursue consistent and reliable policy in the sector. Since the
early 1990s, Mongolia has experienced inconsistency among the political parties in power as well
as among members of the government. The frequent change of the governments negatively affects
long-term policies, because the new government in power always seeks to neglect and end the
policies that were initiated by the previous government.
In 2014 new Mineral law has been enacted. The Amendment is aimed to give opportunity to
such license holders to continue their mining operations, if they provide 100% guarantee for the
environmental rehabilitation and apply for permission to the Mineral Resource Authority of Mongolia
for resuming their activity within 3 months after the law comes into effect.
Pursuant to the Minerals Law, the state may participate up to 50% jointly with a private legal
entity in the exploitation of a minerals deposit of strategic importance where state funded exploration
was used to determine proven reserves and such percentage of the state share is determined by an
agreement on exploitation of the deposit considering the amount of investment made by the state.
Further, the state may hold up to 34% of the shares of the investment made by a license holder in
a mineral deposit of strategic importance where proven reserves were determined through funding
sources other than the state budget and the percentage of the state share is determined by an
agreement on exploitation of the deposit considering the amount of investment to be made by the
state budget.
Conclusion and recommendation
From the analysis, I have deducted following articles that contain specific concepts have attracted
foreign direct investment:
• Royalty rate was favorable
• Investment size to sign Investment certificate was low
• No limitation in investment size
Page 11
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
• Same conditions as domestic investors
Below articles have folded FDI:
• Increase in tax regime
• Ban on exploratory licenses
• Limitation in investing strategic mines.
The current Investment Law (2013) has taken consideration to all these problems and is
considered as a plausible law, however, FDI is still dropping as in 2015 it fell by 42%, mining sector’s
FDI by 30%. Following this, economic growth is slowing down.
Even though we have resources, land, work force and regulatory regimes to attract investors, the
reason why the investment is still so low is because of the constant change of legal environment and
political instability. Thus, investors have lost confidence that the current situation will stay the same
as it can change after every election or depending on the market trend.
According to the history of legal environment, following obstacles can be deducted in the way of
investors:
• Main problems are caused by the Mongolian government and its unstable policy. Including:
- Bureaucratism of public officers
- Inconspicuous activity of government agencies
- Breach of contracts and regulations
- Law enforcement is low and articles, clauses are unclear
• Even though new law environment is plausible, because of frequent changes in law environment
after every election or after rise/decline of market demand, investors have lost confidence.
• Arbitration cases that are still not solved and previous government disputes with foreign
companies that have closed unfairly on enterprises side are causing distrust with prospective
investors
Thus, regaining investors trust is a foremost problem.
Possible counter-measures to take:
1. In regulatory regimes:
Specify in details rights and obligations of the parties, make clear how to solve problems in
case of disputes.
2. In government layout:
Improve structure: elate correspondence between government agencies
Human resource: experienced personnel with knowledge in mining, law, international
regulations and economy.
Establish a private institution that conserves investor’s rights.
Alleviate procedures
Formulate a new formula regarding breach of contracts and investor’s defense rights
3. Regarding state policy:
Develop infrastructure and push the enforcement of projects
Accelerate enforcement of Mega-projects to regain trust of investors, stabilize currency and
getting a new technology.
Advertise new law amendments and its advantages in the international market to eradicate
previous negative trendiness.
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
Page 12
References:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Page 13
Asian Development Bank. “Report on Mongolia - 2014.” http://www.adb.org/countries/
mongolia/economy.
Barma, Naazneen H., Kai-Alexander Kaiser, Tuan Minh Le, and Lorena Vinuela. 2011. Rents
to Riches? The Political Economy of Natural Resource-Led Development. Washington, DC:
World Bank, 2011.
EITI Mongolia report – 2013. Available at https://eiti.org/Mongolia
Frankel, Jeffrey A. The natural resource curse: a survey. No. w15836. National Bureau of
Economic Research, 2010.
Fraser Institute Mining Survey 2011-2014. Available at https://www.fraserinstitute.org/
categories/mining
Halvor, Moene Zahid, Torvik.L. Incentive Compatible Reforms: The Political Economy of Public
Investments in Mongolia. East Asia and Pacific Region: The World Bank, 2006. Available at:
http://www.infomongolia.com/ct/ci/169/138/Ministries%20of%20Mongolia.
Humphreys, Macartan, Jeffrey D. Sachs, and Joseph E. Stiglitz. “What is the Problem with
Natural Resource Wealth?” 2007.
Investment Agency of Mongolia, statistic report 1993-2014
Jeffrey D. Sachs and Andrew M. Warner: Natural resources abundance and Economic growth,
1995. Available at : http://www.cid.harvard.edu/ciddata/warner_files/natresf5.pdf
Kohn, Michael. “Mongolia Minerals Law Changes may lead to Lifting of License Ban.”
Available at: http://www.bloomberg.com/news/2014-01-21/mongoliaminerals-law-changesmay-lead-to-lifting-of-license-ban.html.
M.A.D. “The Mongolian Real State Report 2011-2014.” Available at http://mad-research.com/
mongolia/macroeconomics-mongoila/mining-sectormongolia/.
Mineral resource authority report 2014 and statistics /1990-2014/
Mongolian laws are available at : http://www.legalinfo.com
Nyamsuren.Ch, The resource curse in Mongolia: Mineral wealth, institutional quality and
economic performance, 2014
Richard M. Auty : A Mongolian Perspective. China Brief 5, no. 10.
Theunissen, Tirza: Poverty, Inequality, and the Negative Effects of Mongolia’s Economic
Downturn. The Asian Foundation, 2013 Available at: http://asiafoundation.org/inasia/2014/06/25/poverty-inequality-and-the-negative-effects-of-mongolias-etim
lconomicdownturn/
World bank: Investment climate - Mongolia 2010-2014 Available at http://unctad.org/en/
PublicationsLibrary/wir2015_en.pdf
Revisions of the legal environment on increasing foreign
direct investment in Mongolian mining sector
IMPLEMENTING PUBLIC-PRIVATE PARTNERHSIP (PPP) IN
INFRASTRUCTURE SECTOR
Damdindorj N., Undarmaa. E
National University of Mongolia
Abstract:
The sustainable development of a country is largely dependent on the development of infrastructure
sector; therefore, the governmental policies and regulations tend to the sustainable development
of this sector. Infrastructure sector includes energy, transportation, post and communication, social
infrastructure such as education and health. For recent 6 years, mining and exploration sector has
occupied about 20% of GDP, approximately 70% of total industrial products, and 90% of export in
Mongolia. This shows the important role which mining sector is playing in the economy of Mongolia.
The development of mining sector, in turn is highly dependent on the infrastructure development. The
present paper advocate the critical need for development of infrastructure project and to determine
models which are large scale infrastructure projects that can be implemented through Public-PrivatePartnership in developing countries. The appropriate models for Mongolian infrastructure sector
development are also discussed in the paper.
Key words: Infrastructure sector, Public-Private-Partnership, Build-Operate-Transfer, BuildOwn-Operate
Forewords:
One of the background conditions for the sustainable development of a country is a development
of infrastructure sector; therefore, the governmental policies and regulations tend to the sustainable
development of this sector. Especially, the mining sector, which is highly dependent on the infrastructure
development, plays an important role in the increase of mining products’ competitiveness for
developing countries and for promoting into the world market. Infrastructure sector includes energy,
transportation, post and communication, social infrastructure such as education and health.
In accordance with international experiences, infrastructure projects are financed by private
investment in addition to budget assets. The Government of Mongolia also approved “State Policy on
PPP” in 2009 that stated “to provide infrastructure and social basic services to public, the public and
private sectors should cooperate on the implementation of the projects and programs of major priority
for the Government, to make the public participation in certain sectors optional through assignments
of some of state tasks and assignments into a private sector”, to improve quality and adequacy
of basic service, and to improve efficiency of budgets”. In early 1990s, the entire world, namely
developing countries had a practice, where projects of infrastructure sector have been implemented
jointly by public and private sectors. The research aims to implement this practice into Mongolia.
One. Mining sector development and critical issues
For recent 6 years, mining and exploration sector has occupied about 20%of GDP, approximately
70% of total industrial products, and 90% of export in Mongolia. Figure 1 shows that mining sector
has become a main moving force of Mongolian economy whereas the sector is under the permanent
attention of government, foreign and domestic investors. Therefore, it is necessary to consider positive
and negative sides of economic policy based on the mining sector, to improve competitiveness of
mining products in order to develop other sectors of the country on basis of the revenue gained from
mining sector, namely to make an optional solution to the investment to the mining infrastructure.
IMPLEMENTING PUBLIC-PRIVATE PARTNERHSIP (PPP) IN INFRASTRUCTURE SECTOR
Page 14
Fig. 1: Percentage Contribution of Mining and Exploration sector in Total Economy of Mongolia
(2009-2014)
Source: National Statistics Office. www.1212.mn
In accordance with annual survey conducted by “Ernst and Young Global” International Auditing
Company on mining companies of the world, top 10 risks of mining and metals sector have included
risks caused by infrastructural sector1 (See Fig. 2). It means mining and exploration sector is directly
depended on the infrastructure development.
Former researchers also consider development of the infrastructure sector is vital for the
sustainability of the Mongolian mining sector’s growth, economic efficiency, and competitiveness2.
For recent 5 years, risks of infrastructure sector have become the most critical problem for the mining
sector of developing countries; however, you can see this level has decreased in 2013-2014. As any
major investment and construction works haven’t been made in infrastructure sector of Mongolia for
those years, risk level hasn’t been decreased.
Fig. 2. Risks to mining sector of developing countries due to infrastructure sector
Source: “Ernst and Young Global”
1
2
Ernst and Young Global. “Business risks facing mining and metals”. 2009-2014
EURASIA CAPITAL “Infrastructure in Mongolia: Challenges and Opportunities”. 2009
Page 15
IMPLEMENTING PUBLIC-PRIVATE PARTNERHSIP (PPP) IN INFRASTRUCTURE SECTOR
Two. The required investment for the infrastructure sector of Mongolia and state budget
Infrastructural sector of the country is special for its direct and indirect influences to the economy of the
country, its role, initial investment, payback period, and many other data. The projects in infrastructure
sector are large scale project and construction of non-current assets, therefore, financial resources
are one of the major challenges for the government of project implementation. Recently the Mongolian
foreign investment has decreased and domestic financial resource is insufficient; therefore, financial
and economic slump has occurred that is being surmounting major issues in the present and future.
In accordance with statistics data of the recent 6 years, over 420.0 billion MNT investment has been
made into the infrastructure sector annually. The infrastructure sector of the Mongolia would require
approximately 19.2 trillion MNT financing for the next decade3. It means that the infrastructure sector
would require annually 1.5 trillion MNT additional financing for the next 10 years.
1
2
3
4
№
5
1 China
6
2 India
3
4
5
China
4,367.6
Table 1: The required investment
for infrastructure53.1
sector of Asian8,298,440.0
and
India
2,172.5
26.4
4,127,750.0
Pacific Ocean countries in 2010-2020
Malaysia
188.0
2.3
357,200.0
Sum /by billion Percentage in total
Sum /by billion MNT/
Thailand
172.9
2.1%
328,510.0
Countries
USD/
investment
1 US$=1900MNT
Mongolia
10.1
0.12
19,190.0
4,367.6
53.1
8,298,440.0
Other /27 countries/
1,311.4
15.98
2,491,660.0
2,172.5
26.4
4,127,750.0
TOTAL SUM
8,222.5
100
15,622,750.0
Malaysia
188.0
2.3
357,200.0
Source: “ADBI” working paper series, No. 248, Estimating demand for infrastructure in energy,
Thailand
172.9
2.1%
328,510.0
transport, telecommunication, water and sanitation in Asia and the Pacific: 2010-2020
Mongolia
10.1
0.12
19,190.0
6
Other /27 countries/
1,311.4
15.98
2,491,660.0
The
Mongolia
has
no
other
ways
than
to
be
financed
these
huge
amount
of
investment
only by
TOTAL SUM
8,222.5
100
15,622,750.0
private
investment,
namely
resources
of foreign
investors
if the state
budgettransport,
of the
Source:
“ADBI”sector
working
paper series,
No. 248,
Estimating
demand
for infrastructure
in energy,
telecommunication,
water
sanitation inreserves
Asia and the
Pacific:earnings)
2010-2020just remunerating the current
country has
noand
accumulated
(retained
expenses.has
These
additional
for these
infrastructural
sector is
to 10.7%
of by
The Mongolia
no other
waysfinancing
than to resources
be financed
huge amount
of equal
investment
only
average
GDP for the
last 6 years,
33.8%ofofforeign
total budget
revenues,
62.2%
of total
domestic
private sector
investment,
namely
resources
investors
if theand
state
budget
of the
country
has no accumulated
reserves
(retained earnings) just remunerating the current expenses. These
investment (Fig.
3).
additional financing resources for infrastructural sector is equal to 10.7% of average GDP for the last
6 years, 33.8% of total budget revenues, and 62.2% of total domestic investment (Fig. 3).
Fig. 3: Additional Financing in terms of the Percentage of the selected financial
Fig. 3: Additional
Financing
terms of theofPercentage
of the
indicators
for in
Development
Infrastructure
in selected
Mongoliafinancial
indicators for Development of Infrastructure in Mongolia
70
62.2
60
50
42.6
40
33.8
25.3
30
20
10
0
10.7
GDP
Total
Investment
Total Domestic
Investment
Foreign
Investment
Total Budget
Revenue
Source: National Statistics Office. www.1212.mn
Source: National Statistics Office. www.1212.mn
Therefore, private sector investment is necessary for the development of the infrastructure
Asian Development Bank Institute (ADBI) working paper series, No. 248, Estimating demand for infrastructure in energy, transport,
telecommunication,
and sanitation
Asiaexperiences
and the Pacific:
sector.
In addition, it iswater
necessary
to useinthe
to 2010-2020
be financed major infrastructure
3
IMPLEMENTING
PUBLIC-PRIVATE
PARTNERHSIP
(PPP) IN
SECTOR
projects
by private
investment
orINFRASTRUCTURE
jointly by public
and
private sector.
Page 16
Three. Public-Private-Partnership
Since
early 1990s,
thesector
entire investment
world has experienced
new
experience
finance
Therefore,
private
is necessaryafor
theadvanced
development
of the to
infrastructure
sector. Intoaddition,
it is necessary
use the experiences
to be
major infrastructure
projects
projects
be implemented
in the to
infrastructural
sector that
is financed
a Public-Private
Partnership (P3),
by private investment or jointly by public and private sector.
a contractual arrangement between a public agency (federal, state or local) and a private sector
entity. Through this agreement, the skills and assets of each sector (public and private) are
Three. Public-Private-Partnership
shared in delivering a service or facility for the use of the general public. Within the framework of
Since early 1990s, the entire world has experienced a new advanced experience to finance projects
this
partnership,
a joint
public-private
company
established
or privatePartnership
companies(P3),
possess
and
to be
implemented
in the
infrastructural
sectoristhat
is a Public-Private
a contractual
arrangementconcession
between a public
agency
local) and
private
sector
entity.
Through
thisPrivate
agreement,
implement
items
on (federal,
contractstate
andorreturn
to athe
state
after
specific
time.
the skills and assets of each sector (public and private) are shared in delivering a service or facility for the
companies
take all
the Within
risks and
the partnership,
concession aitems
during the contractual
use of the general
public.
the efficiencies
framework ofofthis
joint public-private
company is
established
or
private
companies
possess
and
implement
concession
items
on
contract
andalso
return
period. This model, which implements infrastructure project, is consist of public sector and
to the state after specific time. Private companies take all the risks and efficiencies of the concession
many other economic subjects of different proprietorship (such as investors, lenders, suppliers
items during the contractual period. This model, which implements infrastructure project, is consist of
and
purchasers
etc.)
that
encourages
activation
of other
Fig. 4).
public
sector and
also
many
other economic
subjects
of sectors
different(See
proprietorship
(such as investors,
lenders, suppliers and purchasers etc.) that encourages activation of other sectors (See Fig. 4).
Fig. 4: Main framework for Public-Private Partnership
Fig. 4: Main framework for Public-Private Partnership
Source: N. Damdindorj. “Research on Theoretical Basis of Project
Finance and Its Implementation in Mongolian Mining Project”, 2012
Source: N. Damdindorj. “Research on Theoretical Basis of Project
Finance and Its Implementation in Mongolian Mining Project”, 2012
Fig. 5 illustrates that government can use different types of project implementation models with
private
such as
of existing
items,
private
sector
individually
or jointly creates
Fig. sector
5 illustrates
thattransfer
government
can use
different
types
of project
implementation
models awith
private
sector
such public
as transfer
of existing
items,
privateetc.
sector individually or jointly creates a new
new
entity,
through
or private
sector’s
dominance
entity, through public or private sector’s dominance etc.
Fig. 5: Types of PPP
Page 17
IMPLEMENTING PUBLIC-PRIVATE PARTNERHSIP (PPP) IN INFRASTRUCTURE SECTOR
Fig. 5: Types of PPP
Source: PPIAF “PPP Basics and Principles of a PPP Framework”, 2012
Source: PPIAF “PPP Basics and Principles of a PPP Framework”, 2012
By the estimation of the World Bank, countries in the world have implemented over 6400
projects
the type of
through
totally
2 trillion
billionhave
USD implemented
in 1990-2014;over
out 6400
of which,
By theinestimation
of PPP
the World
Bank,
countries
in 413
the world
projects
inabout
the type
of PPP
through
2 trillion
billion
USDinin transportation
1990-2014; out
of which,
3,000
3,000
or 48%
in thetotally
energy
sector,413
1,600
or 25%
sector,
and about
the rest
or 48% in the energy sector, 1,600 or 25% in transportation sector, and the rest 1,800 in post,
1,800 in post, communication,
and social sectors,
infrastructure
sectors,(See
respectively
communication,
and social infrastructure
respectively
Fig. 6). (See Fig. 6).
The most common types of PPP are Build-Operate-Transfer (BOT), Build-Own-Operate (BOO),
Build-Rehabilitate-Operate-Transfer
and Rehabilitate-Operate-Transfer
(ROT). (BOO),
Over 6,400
The most common types of PPP are(BROT),
Build-Operate-Transfer
(BOT), Build-Own-Operate
projects involved into the survey of the World Bank, 1812 projects or 28% were BOT, 1295 or 20%
Build-Rehabilitate-Operate-Transfer (BROT), and Rehabilitate-Operate-Transfer (ROT). Over
were BOO, then respectively (See Fig. 7) shows that these types were the most common types for
6,400
involved
into the survey of the World Bank, 1812 projects or 28% were BOT,
the
half projects
of the total
projects.
1295 or 20% were BOO, then respectively (See Fig. 7) shows that these types were the most
Fig. 6: Sectors of PPP
common types for the half of the total projects.
energy sector
14%
13%
transportation
sector
48%
Fig. 6: Sectors of PPP
25%
communication
sector
social
infrastructure
sectors
Source:
WorldBank
Bankwww.worldbank.org
www.worldbank.org
Source: World
Fig. 7: Types of PPP
Fig. 7: Types of PPP
IMPLEMENTING PUBLIC-PRIVATE PARTNERHSIP (PPP) IN INFRASTRUCTURE SECTOR
28%
Build-Operate-Transfer (BOT)
Build-Own-Operate (BOO)
Page 18
Fig. 7: Types of PPP
Build-Operate-Transfer (BOT)
Build-Own-Operate (BOO)
28%
29%
Build-Rehabilitate-OperateTransfer (BROT)
9%
Rehabilitate-Operate-Transfer
(ROT)
20%
14%
Others(BLT, RLT...)
Source: World Bank www.worldbank.org
Source: World Bank www.worldbank.org
1.51.5
trillion
MNT
or or
790
million
US$
financing
necessary
forfor
thethe
average
annual
investment
toto
the
trillion
MNT
790
million
US$
financing
necessary
average
annual
investment
the
infrastructure
sector
of
Mongolia
occupied
4.4%
and
0.4%
of
the
average
finance
of
the
projects
infrastructure sector of Mongolia occupied 4.4% and 0.4% of the average finance of the projects
implemented in the world, Eastern Asia and Pacific Ocean countries for the recent 6 years (Table 2)
implemented in the world, Eastern Asia and Pacific Ocean countries for the recent 6 years
that shows a possibility to attract such an investment if we improve foreign investment environment.
(Table 2) that shows a possibility to attract such an investment if we improve foreign investment
environment.
Table 2: Projects implemented in the World, Eastern Asia and
Pacific Ocean countries in 2009-2014
Table 2: Projects implemented in the World, Eastern Asia and Pacific Ocean countries in
№
Data
2009
20102009-2014
2011
2012
2013
2014
Average
№ NumberData
2010
2011
2012
2013
2014
Average
of projects in 2009
1
287
307
427
409
291
325
341
the
world of
Number
1
287
307
427
409
291
325
341
projects in the
2
Total investment in
the world /by million
dollars/
157,234
187,862
176,452
195,202
150,353
213,596
180,116
3
Number of projects
in Eastern Asia
and Pacific Ocean
countries
78
62
116
85
85
67
82
4
Total investment
in Eastern Asia
and Pacific Ocean
countries /by million
dollars/
18,175
18,503
15,505
17,876
19,420
18.924
18,067
Source: World Bank. www.worldbank.org
In Table 3, you can see 39% of total projects in the energy sector were implemented in BOO
type, 30% in BOT, while 37% of transportation sector in BROT and 30% in BOT types, 38% of total
projects in social infrastructural sector in BOT and 28% in ROT types. Most of the 861 projects in
post and communication sector were implemented in Merchant type.
Table 3: Types of infrastructural projects implemented in the
Page 19
IMPLEMENTING PUBLIC-PRIVATE PARTNERHSIP (PPP) IN INFRASTRUCTURE SECTOR
developing countries of the world in 1990-2014
№
Data
Energy
Build-Operate-Transfer (BOT)
926
30%
Build-Own-Operate (BOO)
1,205
39%
Build-Rehabilitate-Operate3
124
4%
Transfer (BROT)
Rehabilitate-Operate-Transfer
4
93
3%
(ROT)
5 Others
740
24%
Total
3,088 100%
491
16
30%
1%
Telecommunication
9
1%
95
11%
606
37%
8
1%
159
18%
295
18%
2
0,2%
204
23%
229
14%
747
86,8%
160
1,637
100%
861
100%
885
Source: World Bank. www.worldbank.org
18%
100%
Transportation
1
2
Social
Infrastructure
336
38%
26
3%
Concession Law of Mongolia states about types of PPP such as Build-Transfer, Build-LeaseTransfer, Build-Operate-Transfer, Build-Own-Operate-Transfer, Build-Own-Operate, Design-BuildFinance-Operate, and Rehabilitate-Operate-Transfer. In Mongolia, totally 5 projects of totally 164.0
million dollars have been implemented in 1990-2014, whereas 120.0 million USD project in energy
sector was implemented in Build-Own-Transfer type in 2012. 77% or 101 out of 132 items for PPP
implemented in accordance with the Resolution of the Mongolian Government4 were stated for
Build-Transfer type, it means that Build Transfer type has been dominating in Mongolia (Table 4).
Thus, each 31% of energy sector project was implemented in ВОТ, ВОО, and ВТ types, 50% of
transportation sector and 91% of social infrastructure sector, namely education sector had been
implemented in BT type.
Table 4: Sector of PPP project implementation in Mongolia, type of partnership
№
Data
Energy
Social
Infrastructure
Transportation
1
2
3
4
Build-Operate-Transfer (BOT)
4
31%
5
18%
Build-Own-Operate (BOO)
4
31%
6
21%
7
Build-Transfer (BT)
4
31%
14
50%
83
Others
1
7%
3
11%
1
Total
13
100%
28
100%
91
Source: www.legalinfo.mn
7,9%
91%
1,1%
100%
Table 5 illustrates that a comparison of contents, features, risk conditions for BOT, BOO types
commonly used in PPP of developing countries and BT type legally authorized and accepted in
our country by the relevant laws. It shows that the public sector takes more risks to itself upon
implementation of the project in ВТ and ВОТ types; however, the privilege is that the asset stays
under the public ownership as strength of BOO type. Thus, ВОО type does not require
Table 5. Comparison between ВТ, ВОТ and ВОО types of PPP
Data
Financial resource
State guarantee
Construction
Operation
Risks
Post concession
term
Property ownership
Build-OperateTransfer (BOT)
Public and private
Only during
concession
Private
Private
Build-OwnOperate (BOO)
Private
Public
Public
Private
Public
Public
Private
Build-Transfer (BT)
Public and private
Only during
reconstruction
Private
Public
N/A
Private
Private
specific financing and guarantee from the state, the property ownership transfers to the private
4
Mongolian Government Resolution №317, Concession items of state property, 2013
IMPLEMENTING PUBLIC-PRIVATE PARTNERHSIP (PPP) IN INFRASTRUCTURE SECTOR
Page 20
sector. Above types have their advantages and disadvantages. It means that the public sector would
make an optional choice on the type of partnership with the private sector due to project features.
Summary and proposals:
•
•
Mongolia will have been developing mining infrastructure cause the Mongolian economy is
depended on mining sector and products. In accordance with the survey, it is impossible for
Mongolia to finance all the planned projects are implemented by the state budget only. We
had submitted that widespread and effective “Public-Private-Partnership” models are used in
Mongolian infrastructure sector.
Mongolian government would choose appropriate type of Public-Private-Partnership that
considering features of sector, possibilities and capacities of private companies, and their
economic capacities. For instance, we consider that it is more suitable to use BOO for energy
sector, BROT or BOT for transportation, Merchant for telecommunication, BOT or ROT for social
infrastructure sector, respectively.
Bibliography:
• “ADBI” working paper series, No. 248, Estimating demand for infrastructure in energy,
transport, telecommunication, water and sanitation in Asia and the Pacific: 2010-2020, 2010
• Damdindorj N., Research on Theoretical Basis of Project Finance and Its implementation in
Mongolian Mining Project. 2012
• Ernst and Young Global, Business risks facing mining and metals, 2009-2014
• EURASIA Capital, Infrastructure in Mongolia: Challenges and Opportunities, 2009. http://
www.associm.com/newsletters/pdf/INFRASTRUCTURE_final.pdf
• John D. Finnerty, Project Financing: Asset-Based Financial Engineering, 2006
• Mongolian Concession Law www.legalinfo.mn
• Mongolian Governmental Resolution №317 on approval of a list of state property concession
items, 2013. www.legalinfo.mn
• PPIAF, PPPs: An Introduction, 2009
• http://www.ppiaf.org/sites/ppiaf.org/files/documents/PPIAF_Intro_to_PPPs.pdf
• World Bank, Public-Private-Partnerships Reference Guide, Version 2.0, 2014.www.
worldbank.org
Page 21
IMPLEMENTING PUBLIC-PRIVATE PARTNERHSIP (PPP) IN INFRASTRUCTURE SECTOR
Analysis on Political and Economic Twin Transitions of
Mongolia: Advances and Setbacks, Gains and Losses
Batsukh. Ts, Unur. S
University of Finance and Economics
Abstract
This paper focuses on twin transitions of political – from totalitarian to democracy, of economic –
from centrally planned economy to market economy in Mongolia based on analysis of political and
economic spectrum charting. Scatter plot is drawn for showing dynamic changes in political and
economic conditions over two period of time namely 1970 and 2010. In the year 1970, the countries
like India, Israel, Bangladesh, Pakistan and Turkey had socialist economy but democratic politics
while countries like Singapore, Spain, South Korea, Thailand and Iran had dictatorial capitalism. By
2010, most of the countries shifted to democratic capitalism. However, former Soviet Union, China,
Thailand and Vietnam had shifted to dictatorial capitalism.
We compared the transitions of European countries with similarity of Mongolia, and proposed
further suggestions and recommendation on policy issues. It is remarkable that the transition of
Mongolia is externally caused instead of internally pressed system change. Mongolia first liberalized
politics and then the economy which is generally observed transition path of Eastern European
countries. There is a need to improve property right protection, alleviate corruption, limit Government
involvement in economy, and decrease Government expenditure to improve governance so that
freedom in economy from politics is maintained.
Key Words: Transition, Scatter plot, Socialist economy, Dictatorial capitalism, Mongolia
Introduction
This paper focuses on twin transitions of political – from totalitarian to democracy, of economic –
from centrally planned economy to market economy in Mongolia based on analysis of political and
economic spectrum charting. Political spectrum is derived from the Freedom in the World index
of Freedom House and economic spectrum is derived from Economic Freedom Index of Fraser
Institute and Index of Economic Freedom Score of Heritage Foundation. Scatter plot is drawn for
showing dynamic changes in political and economic conditions and related conclusions are given.
We compared the transitions of European countries with similarity of Mongolia, and proposed further
suggestions and recommendation on policy issues. It is remarkable that the transition of Mongolia is
externally caused instead of internally pressed system change. Mongolia first liberalized politics and
then the economy which is generally observed transition path of Eastern European countries. There
is a need to improve property right protection, alleviate corruption, limit Government involvement in
economy, decrease Government expenditure to improve governance so that freedom in economy
and politics is maintained.
1. Social Development Theories and Critique on Socialism
1.1. Social development theories
It is necessary to review social development theories to explain and understand the nature of twin
transitions. There are various theories and models and schools of thought that explain development
of society, transitional mechanism between different stages. Most influential social development
theories are summarized in following table which includes Social Stratification Theory of Karl Marx
and Fredrick Engels, Rostovian Take-off Model, Ethno-genesis and Social Cycle Theory of Lev
Gumilev and Nikolay Danilevsky.
Analysis on Political and Economic Twin Transitions of
Mongolia: Advances and Setbacks, Gains and Losses
Page 22
Any dynamic system is influenced by “external” and “internal” factors. Catastrophe theory
deals with the adjustment of the parameters in the system to gradual external changes which leads
the system from one steady state to another one or turns into different system. This phenomenon is
deeply related to internal nature of the system. Non-linear systems are sensitive to initial conditions,
thus the systems which are internally same nature can be in different steady-states. Smirnov and
Ershov (1992) used catastrophe theory in “Perestroika” for explaining Russian transition (Smirnov
& Ershov, 1992). On the other hand, the reaction of the system to the unanticipated external shock is
studied by stochastic process. Stochastic process is suitable for studying ethno-genesis and social
cycle theory.
1.2. Critique on Socialism
Twentieth century is definitely the century of socialism. Everywhere around the globe, the
countries in Europe, Asia, Latin America, and Africa had their socialist government. However the
empirical results of socialist system leads to economic and political disaster no matter when or
where the agenda was implemented. Fall of the socialism is attributed neither to the lack of public
willingness nor to lack of the stoutness of political leaders. Furthermore neither choosing wrong
leader nor unexpected historical incidence can be the failure of socialist system. The fundamental
problem was within the ideals of socialism. (Boettke, 1993).
When state owns the means of productions, there is no market for factors of production, which
also means that there is no money price for factors of production. If there is no pricing system,
the economic agents absent with sign of price which is indicator of scarcity, therefore rational
calculations is impossible. The free pricing system transforms subjective decision making of one
agent into objective signals which are perceivable by other economic agents. Socialism lacks such
procedure, therefore, economic decision makers will use scarce resources without frugality, and
at the same time, they are not able to get the information that the resources are used inefficiently.
Moreover, economic decision makers do not have intensive to correct the biased spending (Mises,
1936), (Mises, 1953).
Hayek augmented the above mentioned idea of Mises, and proposed two broad problems in
socialist system. First is epistemological problem. Decision making must be logical when authority
holds all power to plan economy. Since there is not economic information, most decisions are made
not economic logic, but political calculations. This allows immense economic power to few people
holding political authority, and they abuse their privilege thus leading to totalitarian regime (Hayek,
1944), (Hayek, 1948).
Proposed problems of socialism by Mises-Hayek are interdependent. Four arguments against the
socialist system, namely (1) problems of property right and incentive, (2) complexity of information
and calculation, (3) epistemological problem and (4) political problem, are causes of one another
2. Spectrum of Politics and Economy
2.1. Political Spectrum
Left-right political spectrum indicates the political agenda and ideologies of party or regime. Even
left and right wings of political spectrum disprove each other, a person have left wing statement on
some issues whereas right wing views on other issues.
Page 23
Analysis on Political and Economic Twin Transitions of
Mongolia: Advances and Setbacks, Gains and Losses
Figure
Figure 1.
1. Political
Political Spectrum
Spectrum and
and Related
Related Political
Political Systems.
Systems. Source:
Source: (Government
(Government of
of
Alberta,
2014)
Figure
1. Political
Alberta,
2014) Spectrum and Related Political Systems. Source: (Government of Alberta, 2014)
The
The political
political left
left focuses
focuses on
on societal
societal change,
change, advancement
advancement in
in ideas,
ideas, and
and radical
radical changes.
changes.
Communism
and
socialism
are
included
in
this
wing.
The
political
right
try
to
maintain
the
The
political
left
focuses
on
societal
change,
advancement
in
ideas,
and
radical
changes.
Communism and socialism are included in this wing. The political right try to maintain
the
Communism
and
socialism
arepolitical
included
in thisagrees
wing. The
political
right
try to
to some
maintain
the status
quo
status
quo
of
society.
The
central
ideas
of
both
sides
extent.
Political
status quo of society. The political central agrees ideas of both sides to some extent. Political
of society.
The
political
central
agrees
ideas
of
both
sides
to
some
extent.
Political
dictatorship
can
be
dictatorship
dictatorship can
can be
be found
found in
in two
two ways.
ways. Extreme
Extreme left
left including
including communist
communist tries
tries to
to bring
bring radical
radical
found
in two ways. Extreme
left including
communist tries
to bring
radical change,
whereas
extreme
change,
change, whereas
whereas extreme
extreme right
right including
including fascism
fascism tries
tries to
to suppress
suppress any
any new
new idea
idea and
and external
external
rightelements.
including More
fascism
tries
to
suppress
any
new
idea
and
external
elements.
More
democratic
and
democratic
and
mildly
left,
right
or
central
ideals
are
labeled
as
liberalism
elements.
More
democratic
and
mildly
left,
right
or
central
ideals
are
labeled
as
liberalism
mildly
left, right or
central ideals are labeled as liberalism (see Figure 1).
(see
(see Figure
Figure 1).
1).
2.2
Economic Spectrum
Economic
Spectrum
2.2.2.2
Economic
Spectrum
Economic
division
the
spectrum
is
on
of
control,
purpose
and
Economic division
divisionofof
ofthe
the
spectrum
is based
based
on degree
degree
of economic
economic
control,
purpose
and
Economic
spectrum
is based
on degree
of economic
control,
purpose
and property
property
type.
The
economical
left
focuses
on
collectivism,
equality,
income
redistribution
property
type.
The
economical
left
focuses
on
collectivism,
equality,
income
redistribution
type. The economical left focuses on collectivism, equality, income redistribution and state-owned
and
property.
The
right
achieve
individualism,
personal
property.
The economic
right tries
achieve individualism,
and equality
and state-owned
state-owned
property.
Thetoeconomic
economic
right tries
tries to
to personal
achieve business
individualism,
personal of
business
and
equality
of
opportunity
(see
Figure
2).
opportunity
(see
Figure
2).
business and equality of opportunity (see Figure 2).
Figure
Figure 2.
2. Economic
Economic Spectrum
Spectrum and
and Economic
Economic Systems.
Systems. Source
Source (Government
(Government of
of
Alberta,
Figure 2. 2014)
Economic Spectrum and Economic Systems. Source (Government of Alberta, 2014)
Alberta,
2014)
Based
on
the
economic
control,
economic
spectrum
is
from socialism
to
Based on
onthe
theeconomic
economiccontrol,
control,economic
economic
spectrum
is built
built
socialism
to capitalism.
capitalism.
Based
spectrum
is built
fromfrom
socialism
to capitalism.
When
When
economic
controls
increases,
economy
is
near
to
socialism.
On
contrary
when
When
economic
controls
increases,
economy
is
near
to
socialism.
On
contrary
when
economic controls increases, economy is near to socialism. On contrary when economic controls
economic
controls
economy
is
(Government
of
economic
controlsisdecreases,
decreases,
economy
is near
near to
to capitalism
capitalism
(Government
of Alberta,
Alberta, 2014).
2014).
decreases,
economy
near to capitalism
(Government
of Alberta,
2014).
2.3
2.3 Coordinate
Coordinate System
System of
of Political
Political and
and Economic
Economic Spectrum
Spectrum
2.3.By
Coordinate System
of Political and
Economic Spectrum
By combining
combining two
two spectrums
spectrums in
in descartes
descartes coordinate
coordinate system,
system, there
there are
are four
four types
types of
of
classification:
(1)
dictatorial
socialism
or
(2)
democratic
(3)
By
combining two
in descartes
system, there
four typessocialism,
of classification:
classification:
(1)spectrums
dictatorial
socialismcoordinate
or communism,
communism,
(2) are
democratic
socialism,
(3)
capitalism,
(4)
dictatorial
capitalism
or
fascism.
Transitional
post-communist
(1) democratic
dictatorial
socialism
or
communism,
(2)
democratic
socialism,
(3)
democratic
capitalism,
democratic capitalism, (4) dictatorial capitalism or fascism. Transitional post-communist(4)
Analysis on Political and Economic Twin Transitions of
Mongolia: Advances and Setbacks, Gains and Losses
Page3
324
dictatorial capitalism or fascism. Transitional post-communist countries are aiming to shift from
dictatorial socialism to democratic capitalism. Through the transitional process country may pass
countries
aiming
shift
from dictatorial
socialism
to democratic
capitalism.
Through
throughare
either
one ofto
two
remaining
systems (democratic
socialism
and dictatorial
capitalism)
or both the
transitional
process
country may pass through either one of two remaining systems
of two remaining
systems.
(democratic socialism and dictatorial capitalism) or both of two remaining systems.
Figure 3. Coordinate System of Political and Economic Spectrum. Source
Figure 3. Coordinate
System of Political and Economic Spectrum. Source
(Government of Alberta, 2014) (Government of Alberta, 2014)
3
3.1
Measuring Freedom: Indices
3. Measuring Freedom: Indices
Political Freedom Index
3.1. Political Freedom Index
Since 1972 Freedom House started publishing Freedom in the World Report based on
Since 1972 Freedom House started publishing Freedom in the World Report based on democracy
democracy
and freedom among the nations around the world. Political rights and civil
and freedom among the nations around the world. Political rights and civil liberties are measured in
liberties
are
measured
in 7.
scores
scaling
fromscore
1 to of
7.1Until
average
score
to 2.5
scores
scaling
from 1 to
Until 2003,
average
to 2.52003,
is labeled
as “free”,
of of
3 to1 5.5
is is
labeled
as as
“free”,
3 toand
5.5score
is labeled
as 5.5
“partly
free”
more
labeled
labeled
“partlyoffree”
more than
is labeled
as and
“not score
free”. In
2007,than
score5.5
for is
“partly
free” free”.
was altered
as 5 toscore
7. Thefor
report
usesfree”
political
science
elements
for 7.
ranking
political uses
rights political
and
as “not
In 2007,
“partly
was
altered
as 5 to
The report
civil liberties.
science elements for ranking political rights and civil liberties.
3.2 3.2.
Economic
Freedom
Index
Economic F
reedom Index
First economic
freedom
index
measuredbybyFreedom
Freedom House
their
experience
First economic
freedom
index
waswas
measured
Housebased
basedonon
their
experience
for
indexing
political
and
civil
liberties.
This
index
measures
freedom
of
business
and
federal
for indexing political and civil liberties. This index measures freedom of business and
federal
organizations. In 1972, another index named Economic Freedom of the World Index was developed
organizations.
In 1972,
another
index
named
Economic
Freedom
of the World
Index
by Michael Walker,
the founder
of the
Fraser
Institute.
Since 1995,
Index of Economic
Freedom
was was
developed
byfrom
Michael
theand
founder
of Journal.
the Fraser
Institute.
Since
1995,
Index of
calculated
HeritageWalker,
Foundation
Wall Street
Economic
freedom
is complex
concept
covering
private
choice,
market
exchange,
transaction,
and
property
rights.
Economic Freedom was calculated from Heritage Foundation and Wall Street Journal.
Economic freedom is complex concept covering private choice, market exchange,
4. Dynamical
Analysis
transaction,
and property
rights. of Political and Economic Freedom Changes
According to the indices of Freedom house, since 1990 the political freedom is continuously
Dynamical
of Political
andindices
Economic
Freedom
Changes
increasing
withAnalysis
steady paces.
Furthermore,
of Fraser
Institute indicate
that nearly 90 percent
of all countries in world are labeled as “mostly free or free” since 2000. In other words, the economics
According
to the indices of Freedom house, since 1990 the political freedom is continuously
around the world becomes relatively free, global trade and business activity faces less barriers and
increasing
with
steady paces.
Furthermore,
indices
of and
Fraser
indicate
nearly
role of the
government
in economy
had been shrank.
Cuba
NorthInstitute
Korea are
includedthat
among
the 90
countries
thatcountries
are labeledin“not
free”.are labeled as “mostly free or free” since 2000. In other
percent
of all
world
4
words, the economics around the world becomes relatively free, global trade and business
Analysis on Political and Economic Twin Transitions of
activity
less barriers and role of the government
in economy had been shrank. Cuba
Page faces
25
Mongolia: Advances and Setbacks, Gains and Losses
and North Korea are included among the countries that are labeled “not free”.
Figure 4 shows the political and economic freedom of the countries in Cartesian coordinate
Figure 4 shows the political and economic freedom of the countries in Cartesian coordinate
system in 1970 and again in 2010 with 40 years of gap. Political spectrum indicates Freedom in
After shows
the end
of colonialism,
the World Report by Freedom House, whereas economic spectrum
Economic
Freedom of
in 1970 socialism was
the World Index by Fraser Institute. Center of the coordinate was chosen as average of two indices
widespread and strong. Most
respectively.
of the countries were
bipolarized
to
either
After Freedom
the endsocialism
of colonialism,
dictatorial
or
Figure 4. Global Change in Political and Economic
in 1970 socialism
was
democratic
capitalism.
widespread
andofstrong.
Most in
After
the end
colonialism,
Countries
such
as
Chile,
1970
socialism
was
widespread
of theIsrael,
countries
were
India,
Bangladesh,
and
strong.
Most
of
the
countries
bipolarized
to
either
Pakistan, and Turkey had
were
bipolarized
to
either
dictatorial
dictatorial economy,
socialism but
or
socialist
socialism
or democratic
capitalism.
democratic
capitalism.
democratic politics. On the
Countries
such as Chile,
Israel,
Countries
as India,
Chile,
other
hand,such
countries
such
Bangladesh,
Pakistan,
and
Turkey
India,
Israel, Spain,
Bangladesh,
as
Singapore,
had
socialist
economy,
butSouth
democratic
Pakistan,Mexico,
and Turkey
had
Korea,
Thailand,
politics.
On
the
other
hand,
countries
socialist
economy,
but
and as
IranSingapore,
had dictatorial
such
Spain, South
democratic
politics.
On
the
capitalism
where
Korea,
Mexico, Thailand,
and Iran
other hand, countries
such
economically
free,
had
dictatorialrelatively
capitalism
where
as politically
Singapore,
Spain,
but
not
free. South
economically
relatively
free, but
Korea, not
Mexico,
Thailand,
politically
free.
andfor Iran
had dictatorial
As
2010, bipolarization
in
capitalism
where
1970
had been dissolved
economically
relativelyinfree,
and
most of countries
the
As for 2010, bipolarization in 1970 had
but politically
not
free.
world
shifted
to
democratic
been dissolved and most of countries
capitalism.
Cuba
still
in
shifted
to holds
democratic
Asthe
for world
2010,
bipolarization
in
its
position
in
communism.
It
capitalism.
Cuba
still
holds
its position
1970
had
been
dissolved
is
remarkable
that
in communism. It is remarkable
and most ofhad
countries
inback
the
Venezuela
shifted
that
Venezuela had
shifted
back
world
shifted
to
democratic
to communism
communism
from
to
from democratic
capitalism.
Cuba
still holds
democratic
capitalism
fromcapitalism
1990. Latinfrom
American
its position
in American
communism.
It
1990.
and
EastLatin
European
socialist and
countries
is
remarkable
that
East1990European
socialist their
in
quickly liberated
Venezuelaand
shifted
back
economies
shifted
to
democratic
countries
inhad
1990
quickly
to
communism
fromAsian
capitalism.
Central
liberated However,
their economies
democratic
capitalism
from
former
republics
Soviet
Union,
and shifted
to ofdemocratic
1990.
Latin
American
and had
China,
Thailand,
and Vietnam
capitalism.
However,
Central
East toformer
European
socialist
shifted
dictatorial
capitalism.
Asian
republics
of
countries
in
1990
quickly
Soviet
Union,
China,
liberated and
theirVietnam
economies
Thailand,
had
and
shifted
to
democratic
shifted
to
dictatorial
capitalism. However,
Central
5. Analysis on Political and Economic Twin Transitions
of Mongolia
capitalism.
Asian former republics of
There was glamour to reform the society in Mongolia after Gorbachev’s Perestroika in 1985.
Soviet
Union,
China,
5Political
Analysis
on Political
and
Economic
Twin Transitions
of Mongolia
demonstration
was
held
from December
10th of 1989.
Initial phase
of political
reform
Thailand,
and Vietnam
had
finished
after
promulgating
Constitution
January
13th
of
1992,
and
Mongolia
There
was
glamour
to reformnew
the democratic
society in Mongolia
afterinGorbachev’s
Perestroika
in
1985.
shifted
to
dictatorial
became demonstration
“post-communist”
newofConstitution
private
property
allowed,
Political
was country.
held fromAccording
Decemberto10th
1989. Initial
phase of
politicalwas
reform
capitalism.
civil participation
in judiciary system
dramatically
expanded, in
andJanuary
civil mobility
finished
after promulgating
new democratic
Constitution
13th became
of 1992,free.
andFigure
5
Analysis
on
Political
and
Economic
Twin
Transitions
of
Mongolia
Mongolia became “post-communist” country. According to new Constitution private property
was
allowed,
civil participation
in society
judiciaryinsystem
dramatically
expanded,
and civil in
mobility
There
was glamour
to reform the
Mongolia
after Gorbachev’s
Perestroika
1985.
became
free. Figure 5 shows
twin
transitions
of Mongolia
between
2014. The
45
Political demonstration
was held
from
December
10th of 1989.
Initial 1989
phaseand
of political
reform
degree
blue
line
depicts
theoretical
values,
if
both
political
and
economic
transition
occurred
finished after promulgating new democratic Constitution in January 13th of 1992, and
simultaneously.
Mongolia became “post-communist” country. According to new Constitution private property
was allowed, civil participation in judiciary system dramatically expanded, and civil mobility
became free. Figure 5 shows twin transitions of Mongolia between 1989 and 2014. The 45
degree
blue
line depicts
theoretical
values,ofif both political and economic transition occurred
Analysis on
Political
and Economic
Twin Transitions
Page 26
Mongolia: Advances and Setbacks, Gains and Losses
simultaneously.
5
5 shows twin transitions of Mongolia between 1989 and 2014. The 45 degree blue line depicts
theoretical values, if both political and economic transition occurred simultaneously.
Figure 5.Political and Economic Freedom change in Mongolia (1989-2014).
Figure 5.Political and Economic Freedom change in Mongolia (1989-2014).
In economic reform started with abolishing price control by Resolution No.20 of the
In economic in
reform
started
abolishing
price control privatization
by Resolution
of the
government
of 1991,
and implemented
byNo.20
offering
coupon
for
government
January
15th with
in January 15th of 1991, and implemented privatization by offering coupon for former state-owned
former state-owned enterprises which hold 75 percentage of all capital. Multi-party politics,
enterprises which hold 75 percentage of all capital. Multi-party politics, democratic elections were
democratic
elections
were
initiated
andparties
held 6 times.
New
political
in 1990s
had in
initiated
and held
6 times.
New
political
found in
1990s
hadparties
gainedfound
political
experience
gained political
experience
democratic
environment
new laws
were
passedInitial
democratic
environment
and newin
laws
were passed
accordanceand
to organic
change
in society.
cultures,
principles
and legal
frameworks
for Initial
operating
economy
and and
business
being formed.
accordance
to organic
change
in society.
cultures,
principles
legal were
frameworks
for
From the charting of political and economic spectrum, Mongolian transition is similar to that of
operating economy and business were being formed. From the charting of political and
Eastern European countries where political transition occurred more rapidly than economic changes.
economic
Mongolian
transition
is similar
that dynamic
of Eastern
Moreover
fromspectrum,
1989 to 2000,
economic
liberalization
wastomore
andEuropean
swift. Butcountries
recent years,
where
political
transition
occurred
more rapidly
economic
changes.
Moreover from
1989 is
even
political
freedom
has slightly
increased,
the than
economic
freedom
had shrunken.
This decline
attributed
toeconomic
reductionliberalization
of private property
protection,
corruption,
government
to 2000,
was more
dynamic and
swift. But and
recent
years, eveninvolvement
political
indices
according
to
Heritage
Foundation
Index.
freedom has slightly increased, the economic freedom had shrunken. This decline is
Judiciary reform
is being of
currently
Current issues
in political
andgovernment
economic frame
attributed
to reduction
privateimplemented.
property protection,
corruption,
and
are indicating the lack of strong and stable political culture. Recent years, structure of economy is
involvement indices according to Heritage Foundation Index.
highly dependent of mining and trade and manufacturing is sharply crowded out as The Economist
labeled
Mongolia
There
is not any
sign ofissues
sustainable
economic
source and
Judiciary
reformasis “Minegolia”.
being currently
implemented.
Current
in political
and economic
Mongolian
economy
is
highly
dependent
of
foreign
countries
in
many
products.
frame are indicating the lack of strong and stable political culture. Recent years, structure of
economy is highly dependent of mining and trade and manufacturing is sharply crowded out
Conclusions
as The Economist labeled Mongolia as “Minegolia”. There is not any sign of sustainable
•economic
From the
theoretical
review and
historical
eventsdependent
in the world,
the transition
source
and Mongolian
economy
is highly
of foreign
countriesin inMongolia
many is
caused from external factors and it is natural phenomenon.
products.
• Mongolian transition has the same pattern as the transition of Eastern European countries
Conclusions
which shifted through democratic socialism to democratic capitalism. As for Mongolia, donor
countries,
from international
had profound
influence
the transition.
 From guidance
the theoretical
review andorganizations
historical events
in the world,
the on
transition
in
• InitialMongolia
phase ofispost-communism
to
capitalism
had
finished
in
1992,
and
second
phase
as a
caused from external factors and it is natural phenomenon.
“form”
had finished
now. But
nature
true means
second phase
is not European
sufficient.
 Mongolian
transition
hasthe
the
sameand
pattern
as theoftransition
of Eastern
Page 27
countries which shifted through democratic socialism to democratic capitalism. As for
Mongolia, donor countries, guidance from international organizations had profound
Analysis on Political and Economic Twin Transitions of
influence on the transition.
Mongolia: Advances and Setbacks, Gains and Losses
•
If we do not improve property right protection, alleviate corruption, limit government involvement
in economy as well as decrease government expenditure to improve governance, there is a
tendency that the freedom in economy and politics may decline. Such that the country will fail
on the initial missions promulgated on democratic Constitution in 1992 and original goals of
the transition.
Reference
1. Aristotle. (1988). Politics. (S. Everson, Ed.) New York: Cambridge University Press.
2. Bellamy, R., & Ball, T. (2003). The Cambridge History of Twentieth-Century Political Thought.
Cambridge University Press.
3. Boettke, P. J. (1993). Why Perestroika Failed: The Politics and Economics of Socialist Transformation.
London, Chicago: Routledge.
4. Bova, R. (1991, October). Political Dynamics of the Post-Communist Transition: A Comparative
Perspective. World Politics, 44(1), 113-138.
5. DK Publishing. (2006). How Governments Work. London: DK Adult.
6. Fraser Institute. (n.d.). (Fraser Institute) Retrieved April 15, 2014, from http://www.fraserinstitute.org/
programs-initiatives/economic-freedom.aspx
7. Freedom House. (n.d.). (Freedom House) Retrieved April 15, 2014, from http://www.freedomhouse.
org/report-types/freedom-world#.U3SxdfmSzOg
8. Friedman, M. (1991, Januart 31). Retrieved from Academy of Achievment: http://www.achievement.
org/autodoc/printmember/fri0int-1
9. Government of Alberta. (2014, April 15). Learn Alberta. Retrieved April 15, 2014, from http://www.
learnalberta.ca/content/sspes/
10. Hayek, F. A. (1935). Collectivist Economic Planning.
11. Hayek, F. A. (1944). Road to Serfdom. Chicago: University of Chicago Press.
12. Hayek, F. A. (1948). Individualism and Economic Order. Chicago: University of Chicago Press.
13. Hayek, F. A. (1977, May). The Road from Serfdom: Forseeing the Fall. (T. W. Hazlett, Interviewer)
14. Heilbroner, R. (2008). Concise Encyclopedia of Economics. Indianapolis.
15. Heritage Foundation. (n.d.). (Heritage Foundation) Retrieved April 15, 2014, from http://www.heritage.
org/index/explore
16. Mises, L. (1936). Socialism: An Economic and Sociological Analysis. London: Jonathan Cape.
17. Mises, L. (1953). The Theory of Money and Credit. Yale University Press.
18. Mises, L. (1990). Economic Calculation in the Socialist Commonwealth. London: Ludwig von Mises
Institute.
19. Otgochuluu, C. (n.d.). Retrieved from Tsahimurtuu: http://tsahimurtuu.org/index.php/stories/2012-0510-04-48-56/413-archive-story-206
20. Pareto, V. (1906). Manual of Political Economy. New York.
21. Smirnov, A. D., & Ershov, E. B. (1992). Perestrioka: A Catastropic Change of Economic Reform
Policy. The Journal of Conflict Resolution, Vol. 36, No. 3, 415-453.
22. Trotsky, L. (1972). Writings of Leon Trotsky (1932-33). Pathfinder.
23. Будням нар, С. (2006). Монгол Улсын Үндэсний хөгжлийн цогц бодлогын төсөл. Улаанбаатар.
24. Гүржав, Л., & Норжваанчиг, Б. (2002). Монгол Улсын шилжилтийн эдийн засаг: Хөгжлийн
динамизм, тодорхой шинжүүд, өвөрмөц загвар. Улаанбаатар.
25. Лувсандорж, П. (2008). Монголын эдийн засаг: шилжилт, хөгжлийн асуудлууд. Улаанбаатар:
МУИС-ийн Хэвлэх үйлдвэр.
26. Никсон, Ф., & Лувсандорж, П. (1999). Монголын эдийн засаг: шилжилтийн эдийн засгийн
гарын авлага. Улаанбаатар, Манчестер: Адмон.
Analysis on Political and Economic Twin Transitions of
Mongolia: Advances and Setbacks, Gains and Losses
Page 28
Demands for Sustainable tourism Standards
Abstract:
Jargalmaa. G
University of Finance and Economics
Tourism is one of the largest global industries, with much of the growing market focused around
pristine natural environments such as protected areas. In 2014, at the year´s close, the number
of tourists travelling internationally grew by 4.4%, reaching a new milestone increase since
the global economic crisis of 2009. The tourism industry generates important direct and indirect
economic benefits. These benefits are translated into many jobs and constitute major sources of
income for destination residents. In addition, tourists can contribute to improving the socioeconomic
dimension by generating larger volume of cultural and artistic activities, which in turn lead to greater
dissemination of local culture. From social standpoint, tourism activities can also cause several
problems: decreased quality of life due to visitor volume, loss of identity due to outside influences,
noise, pollution, etc. Given these positive and negative impacts, sustainable tourism must follow a
development path that maximizes the economic benefits while minimizing the impact on the physical
and human environment. Sustainable tourism is tourism that minimizes the costs and maximizes
the benefits of tourism for natural environments and local communities, and can be carried out
indefinitely without harming the resources on which it depends.
The article presents the main ideas of sustainable tourism-new form of tourism promoted by
authorities, environmental and social institutions and international organizations. It implies taking
into account economic, environmental, and socio-cultural aspect by planning and management of
tourism. This paper specifically identifies the demand for and perceptions of sustainable tourism ecocertification amongst those working in the industry
Key words: Sustainable Tourism, Economic benefit, Tourism related problems, Standard,
ecotourism, Certification
Introduction
Tourism is one of the largest global industries, with much of the growing market focused around
pristine natural environments such as protected areas. In 2014, at the year´s close, the number of
tourists travelling internationally grew by 4.4%, reaching a new milestone increase since the global
economic crisis of 2009. Once again, these results have surpassed UNWTO´s long term projection of
3.8% growth for the period 2010 to 2020, well on track to reach the projected 1.8 billion international
tourists by the year 2030 (UNWTO, 2014) With over 1.1 billion tourists taking an international trip
every year, tourism continues to be an unstoppable force and a key driver of the global economic
recovery.
Mongolia, a landlocked country between China and Russia in central Asia, stirs up the nomadic,
exotic and mystic images of an international tourism destination. As the home of the legendary
Chingis Khan, it is a land of blue skies and vast open Gobi and steppe dotted by nomadic herders
and their gers (movable tent used by nomads), crystalline lakes and rugged hills. As a transitional
economy and an emerging tourism destination, Mongolia has drawn tourism researchers’ attention
to development strategies and management standards. (Hall, 2001) analyzed the nature and role
of tourism development in postcommunist societies by using Mongolia as one of the examples.
His evolutionary framework revealed the dynamic structural relationships in a slowly changing
ideological environment and the challenges facing international tourism development in a transitional
economy. (Saffery, 2000), conducting a case study on Gobi Gurvansaikhan National Park, identified
tourism development problems in involving local communities in tourism development initiatives and
recommended greater local community participation in decision making and appropriate planning.
Another study on the same national park focused on zonal use of park resources for conservation
and tourism purposes (Bedunah, 2000).
Page 29
Demands for Sustainable tourism Standards
This easily understandable, given that the tourism industry generates important direct and indirect
economic benefits (Sirakaya, 2011). These benefits are translated into many jobs and constitute
major sources of income for destination residents. In addition, tourists can contribute to improving
the socioeconomic dimension by generating larger volume of cultural and artistic activities, which
in turn lead to greater dissemination of local culture. Despite their positive impact, tourism activities
may have negative effects (Hall C.M., 1998). For example, in environmental terms, visitors generate
solid waste or greenhouse gas through their travels. From social standpoint, tourism activities can
also cause several problems: decreased quality of life due to visitor volume, loss of identity due to
outside influences, noise, pollution, etc. Given these positive and negative impacts, sustainable
tourism must follow a development path that maximizes the economic benefits while minimizing the
impact on the physical and human environment (Miller.G, 2001). These objectives must be supported
by standards such as criteria and indicators.
Concept of sustainability
Historically, the concept of sustainable tourism, it is worth noting that the environmental challenges
relating to the tourism industry were not at all discussed in the United Nations (UN) World
Commission’s report of 1987. The UN plan of action for sustainable development Agenda 21 adopted
at the Rio Conference in 1992 covered a total of 40 different topics and 115 programs. However,
despite the thematic breadth and ambition to include all groups in society, the tourism industry only
featured in a few, brief references to eco-tourism as a tool to promote sustainable development
(Johnson, 1993) To explore the principles and objectives of sustainable development in tourism first
it is necessary to define the term “sustainable development”. Despite the widespread acceptance of
sustainable development, there remains a lack of consensus over the actual meaning of this term.
It means different things to different people and can be applied to many context, including tourism.
Nonetheless, the most general but accurate is the definition provided by the Bruntdland Report:
“Sustainable development is one that meets the needs of the present generation without comprising
the ability for future generations to meet their own needs”.
Sustainable tourism is tourism that minimizes the costs and maximizes the benefits of tourism for
natural environments and local communities, and can be carried out indefinitely without harming the
resources on which it depends.
Environmentally responsible travel and visitation to natural areas, in order to enjoy and
appreciate nature (and any accompanying cultural features, both past and present) in a way that
promotes conservation, has a low visitor impact, and provides for beneficially active socio-economic
involvement of local peoples (World Conservation Union, 1996). Moreover, the definition applied
frequently by tourism planners and in tourism research literature was developed by the World Tourism
Organization (WTO).
Below in Table 1, we make a list of activities considered sustainable in contrast to the corresponding
unsustainable activities (Swarbrooke, 1999),
Table 1: Difference of Sustainable and Non-sustainable activities
Sustainable
General concepts
Slow development
Controlled development
Appropriate scale
Long term
Qualitative
Local control
Development Strategies
Plan, then develop (eco-design)
Concept-led schemes
Concentrate on physical elements of landscape
Demands for Sustainable tourism Standards
Non-sustainable
Rapid development
Uncontrolled development
Inappropriate scale
Short term
Quantitative
Remote control
Develop without
Project-led schemes
Concentrate on ”honey-pots”
Page 30
Pressure and benefits diffuses
Increase capacity
Local developers
Outside developers
Local employer
Imported labor
Vernacular architecture
Non-vernacular architecture
Tourist Behavior
Law value
High value
Some mental preparation
Little or no mental preparation
Respect local customs& traditions
Disrespect/ignore local customs & traditions
Quiet
Loud
Learning local ”language”
No learning local ”language”
Tactful and sensitive
Intensive and insensitive
Repeat visit
Repeat visit
Sources: (Swarbrooke, 1999)
Sustainable tourism development meets the needs of the present tourists and host regions while
protecting and enhancing opportunities for the future. It is envisaged as leading to management of all
resources in such a way that economic, social, and aesthetic needs can be fulfilled while maintaining
cultural integrity, essential ecology processes, biological diversity, and life support systems (WTO,
1998: 21).
Understanding and demand for sustainable tourism
One common theme of sustainable tourism is having stakeholder support for tourism. However before
tourism organizations support sustainable tourism, they need to have an understanding of what they
support. Therefore, it is necessary to assess tourism organizations knowledge of sustainable tourism,
(Wilson, 2001). The stakeholders within the tourism organizations surveyed showed a high level
(91%) understanding of the concept of sustainable tourism. Furthermore, 97% of these stakeholders
thought that ‘all tourism should be sustainable’. In addition, consumers are undeniably one of the
major driving forces behind sustainable tourism. Supporting this, (Tjolle, 2008), ‘Sustainable tourism
is a market choice, without the consumer there can be no sustainable tourism business’. These
results indicate 78% of the tourism organizations expressed there is a tourist demand for sustainable
tourism (Fig. 1).
Sources: (Conaghan, 2010)
This should allow the stakeholders to make sound decisions in relation to the tourism development
and management in their organizations. Furthermore the tourism organizations believe not only that
all tourism should be sustainable but that tourists actually demand sustainable tourism.
Page 31
Demands for Sustainable tourism Standards
Certification provides benefits to the certified business, to the consumers, governments, the local
communities and the local environment. It has its advantages as a sustainable development tool,
it showcases good practice and encourages voluntary improvements (UNEP, 1998). The Fig. 2,
depicts the tourism organizations opinion on who is benefitting by applying certification. With several
stakeholders to choose from, those more prominent to be benefiting were the tourists (20%), the
environment (19%), followed by the local communities (15%). This table indicates all the stakeholders
benefit as recognized by the tourism organizations in Ireland.
Fig. 2: Who is benefiting by implementing certification
25
20
20
19
15
15
10
7
10
8
4
5
0
The tourists Certification
organization
14
National
tourism
authority
3
Academics
Local
The
The
in the area communities Environment Government
Certified
All of them
tourism
organization
Sustainable Tourism Certification
Sustainable Tourism Certification
Authentic
certification
oneofway
of ensuring
sustainability.
Certification
is sometimes
Authentic
certification
is oneisway
ensuring
sustainability.
Certification
is sometimes
referredreferred
to as
to
as
a
management
tool.
The
tool
gives
credible
recognition
to
reward
the
businesses
that
a management tool. The tool gives credible recognition to reward the businesses that comply with
such criteria.
it isstandards
used for that
setting
that can
promote
suchcomply
criteria.with
Furthermore,
it is Furthermore,
used for setting
canstandards
help promote
true help
sustainable
true
sustainable
tourism.
Honey
and
Rome
(2001:
5)
define
certification
as:
tourism. Honey and Rome (2001: 5) define certification as:
“It is a voluntary procedure that assesses audits and gives written assurance that a facility,
“It is or
a service
voluntary
procedure
assesses
auditsaand
gives written
that a
product, process
meets
specific that
standards.
It awards
marketable
logo toassurance
those that meet
facility,
product,
process
or
service
meets
specific
standards.
It
awards
a
marketable
or exceed baseline standards”.
logo
to those that
meet or
baseline
standards”. sustainable from unsustainable
Theory on
certification,
propose
theexceed
instrument
will differentiate
tourism organizations (Font.X, 2009). There had been an explosion in the range of voluntary
Theoryinon
propose
the number
instrument
will differentiate
sustainable
from unsustainable
standards
thecertification,
past ten years
and the
of companies
adopting
them (Bendell,
2000), as
tourism
organizations
(Font.X,
2009).
There had been
an explosion
range
of voluntary
well as
the range
of programs
certifying
to sustainability
standards
(Font X. in
a.,the
2002).
Furthermore,
certification
hasinbeen
recognized
a valuable
method
to improve
industrythem
performance
(UNEP,as
standards
the past
ten yearsasand
the number
of companies
adopting
(Bendell, 2000),
1998)
andas
influencing
markets
(Buckley, certifying
2002). It has
advantagesstandards
as a sustainable
well
the range
of programs
to its
sustainability
(Font development
X. a., 2002).
tool, Furthermore,
it showcases good
practice
and
encourages
voluntary
improvements
(UNEP,
1998)
There
are
certification has been recognized as a valuable method to improve
industry
over performance
one hundred (UNEP,
labels for
tourism,
hospitality
and
ecotourism,
with
many
of
them
overlapping
in a
1998) and influencing markets (Buckley, 2002). It has its advantages as
sector
and geographical
scope. tool, it showcases good practice and encourages voluntary
sustainable
development
improvements (UNEP, 1998) There are over one hundred labels for tourism, hospitality and
Certification
Process
for of
Sustainable
tourism
ecotourism,
with many
them overlapping
in sector and geographical scope.
The certification process consists of five main steps (Poser, 2009) shown in Fig. 3.
Certification
Process for Sustainable tourism
1. Setting standards
2. Completing an assessment of the business
The certification process consists of five main steps (Poser, 2009) shown in Fig. 3.
3. Granting certification based on a successful assessment
4. Recognition of the certification
1. Setting standards
5. 2.
Acceptance
by an
theassessment
industry andofthe
Completing
theconsumers
business
3. Granting certification based on a successful assessment
4. Recognition of the certification
Demands for Sustainable tourism Standards
Page 32
5
5. Acceptance by the industry and the consumers
Fig. players
3: Process
and key players
in tourism certification
Fig. 3: Process and key
in tourism
certification
Setting
standards
Granting
certification
based on a
Completing an
successful
assessment of the assessment
business
Recognition
of the
certification
Acceptance by the
industry and the
consumers
Sources: (Font X. , 2002)
Sources: (Font X. , 2002)
Standards: A standard is a documented set of rules, conditions or requirements that are
Standards:
standard isbody.
a documented
set of for
rules,
conditionsan
or requirements
that are
approved
approved
by a A
recognized
To be eligible
certification,
entity must meet
or exceed
by
a
recognized
body.
To
be
eligible
for
certification,
an
entity
must
meet
or
exceed
the
set
standard
the set standard for that particular certification. To begin the certification process the tourism
for
that particular
Tothe
begin
the certification
process
the tourism
provider
must
provider
normallycertification.
must apply to
program
by filling out
an application
form
which normally
is reviewed
apply
to
the
program
by
filling
out
an
application
form
which
is
reviewed
by
the
certification
body.
by the certification body. In addition to the standards, or criteria, by which the sustainability or
In addition to the standards, or criteria, by which the sustainability or greenness of the business is
greenness of the business is measured, some programs have core criteria which must be met
measured, some programs have core criteria which must be met by any business that wishes to be
by any business that wishes to be certified.
certified.
Assessment:
Compliance
criteria
may
determined
business
itself
(selfAssessment:
Compliance
withwith
thethe
criteria
may
be be
determined
by by
thethe
business
itself
(selfevaluation),
byby
an an
independent
auditor
(third
party).
While
evaluation), the
the certification
certificationbody
body(second
(secondparty),
party),oror
independent
auditor
(third
party).
self-evaluation is an important first step in enhancing ownership of the process and helping to
While self-evaluation is an important first step in enhancing ownership of the process and
educate the business about sustainability practices, alone it does not produce credible certification.
helping to educate the business about sustainability practices, alone it does not produce
Third-party certification is considered to be the most credible as the auditor doesn’t have a stake in
credible certification. Third-party certification is considered to be the most credible as the auditor
either the business or the certification program. Performing audits of tourism providers tends to be
doesn’t
have
a stake
either
the business
or the certification program. Performing audits of
the mostly
costly
part ofinthe
certification
process.
tourism providers tends to be the mostly costly part of the certification process.
Certification: Those businesses that meet the specified certification program standards are
given an award, logo, or ecolabel to use for marketing purposes. Some programs certify businesses
Certification: Those businesses that meet the specified certification program standards are
on more than one level of certification, allowing and usually encouraging the business to improve its
given an award, logo, or ecolabel to use for marketing purposes. Some programs certify
sustainability initiatives over time. Monitoring continued compliance with the criteria is an important
businesses
on more however
than oneprograms
level of vary
certification,
allowing
and they
usually
encouraging
the
aspect
of certification;
in the degree
to which
do this
mainly because
business
its sustainability
initiativesMany
over time.
Monitoring
compliance
of
fundingto
orimprove
the availability
of staff resources.
programs
chargecontinued
a certification
fee thatwith
varies
the
criteria
is
an
important
aspect
of
certification;
however
programs
vary
in
the
degree
to
which
with either the number of employees the business has or with the revenue generated by the tourism
they do this
funding or the
availability
of as
staff
resources.
Many
programs
provider.
The mainly
money because
supports of
administrative
functions
as well
advertising
and
promotion
of the
charge
a
certification
fee
that
varies
with
either
the
number
of
employees
the
business
has
or
logo and of the certified companies (Honey 2001). Some programs, usually those with a less stringent
certification
processgenerated
and criteria,byarethe
free.
with the revenue
tourism provider. The money supports administrative
functions
as well as
advertising
and promotion
of theoflogo
and of therevolves
certified around
companies
Recognition
and
Acceptance:
The concept
certification
the (Honey
idea that
consumers will recognize and accept ecolabeled products or services as preferable to non ecolabeled
ones, thereby giving ecolabeled products a lager marketing share. Given the global nature of 6the
tourism industry, accreditation of certification programs based on international standards seems to
be a crucial, but currently missing link, in giving credibility and increased visibility to these programs
and their ecolabels.
Page 33
Demands for Sustainable tourism Standards
Methodological approach
A comprehensive literature review was conducted on sustainable tourism certification. The tourism
organizations were represented by the accommodation, transport, attractions, and activities and
followed by the tour operator sector. As a result of the research, the initial findings were determined and
discussed in context of current literature. The respondents are anonymous to ensure confidentiality.
Conclusions
This study contributes to sustainable tourism research in Mongolia. The awareness of sustainable
tourism and certification programs is investigated amongst the stakeholders. The understanding of
sustainable tourism was relatively high within the tourism organizations. In addition, they agree all
tourism should be sustainable and felt there is a tourist demand.
Certification can be used as a tool for sustainable tourism management. These certification
programs which certify sustainable tourism standards are rapidly growing worldwide.
Certification can be effective depending on the awareness, clarity and credibility (Hansen, 2007).
This study highlighted moderate awareness of certification as well as high level of confusion
amongst the stakeholders due to the variety of labels. The results had shown the need for certification
to be verified by an independent third party. An international accreditation body would be a key
component to ensure the credibility of certification programs and restoring confidence in the system.
Tourism, properly planned can also increase income and be source of wealth of local community.
Sustainable actions can help lower operating costs by reducing generation of waste and usage of
water and energy. However, more qualified employees are needed, therefore human capital will also
grow. A reputation for being sustainable adds value to touristic enterprises’ brands and strengthens
their market position, making them less vulnerable to short-term market and economic changes.
In this way introducing principles of sustainable development, certification process however is an
expensive process, it can be profitable in long term perspective.
References:
•
•
•
•
•
•
•
•
•
•
Bedunah, D. J. (2000). Rangelands of Gobi Gurvan Saikhan National Conservation Park,
Mongolia. Rangelands, 18-24.
Bendell, J. e. (2000). Terms for Endearment: Business, NGOs and Sustainable Development.
Sheffield. Greenleaf Publishing.
Buckley, R. (2002). Tourism Ecolabels. Annals of Tourism Research, 183-208.
Conaghan, A. (2010). DEMAND FOR AND PERCEPTIONS OF SUSTAINABLE TOURISM
CERTIFICATION.
Font, X. (2002). Environmental certification in tourism and hospitality: progress, process and
prospects. Tourism Management.
Font, X. a. (2002). Standards for Sustainable Tourism for the Purpose of Multilateral Trade
Negotiations, Commissioned by the World Tourism Organization. World Tourism Organization.
Font.X. (2009). Sustainability labels as ecological modernisation. International Centre for
Responsible Tourism, Leeds Metropolitan University. ICRT Occasional Paper, 19.
Hall C.M., L. A. (1998). The geography of sustainable tourism development: Introduction.
Sustainable tourism: Geographical perspectives, 1-24.
Hall, D. R. (2001). Tourism and development in communist and post-communist societies.
Tourism and the less developed world: Issues and case studies, 91-107.
Hansen, A. (2007). The Ecotourism Industry and the Sustainable Tourism Eco-Certification
Program (STEP).
Demands for Sustainable tourism Standards
Page 34
•
•
•
•
•
•
•
•
•
•
•
•
Johnson, S. (1993). The Earth Summit: The United Nations Conference on Environment and
Development (UNCED). London, UK.
Miller.G. (2001). The development of indicators for sustainable tourism. Tourism Management,
22, 351-362.
Mirela, T. A. (n.d.). QUALITY MILESTONES OF THE SUSTAINABLE TOURISM.
Poser, E. A. (2009). Setting Standards for Sustainable Tourism.
Saffery, A. (2000). Mongolia’s tourism development race: Case study fromthe Gobi
GurvansaikhanNational Park. Tourism and Development in Mountain Regions, 255-274.
Sirakaya, E. J. (2011). Developing dourism indicators for destination sustainability. The
Encyclopedia of ecotourism , 411-432.
Swarbrooke, J. (1999). Sustainable Tourism Management.
Tjolle, V. (2008). Understanding and Marke
UNEP. (1998). Ecolabels in the Tourism Industry, United Nations Environment Program.
UNWTO. (2014). UNWTO annual report.
Wilson, S. F. (2001). Factors for success in rural tourism development. Journal of Travel
Research, 132-138.
World Conservation Union. (1996).
Page 35
Demands for Sustainable tourism Standards
The way of strategy implementation and development of Eco Tourism
(Ecological Tourism Project of “Bor Khyariin Els” in Zavkhan Aimag)
Tsogtbayar. B
University of Finance and Economics
Abstract
According to Ulaanbaatar city tourism board, the number of tourists visiting Mongolia in the first
10 months of 2013 was 366,095. The most of the tourist visited from China, Russia, South Korea,
Japan, United States, Kazakhstan, Germany, France, Australia, and the UnitedKingdom. Tourism is
known to affect greatlythe countries traditional nature and culture. In another words, the change fits
with needsof development of sustainable ecotourism. Ecotourism is defined as “responsible travel to
natural areas that conserves the environment and improves the well-being of local people”.
The fundamental resource of developing ecological tourism are:Peculiarity of natural conditions
and resources; Peculiarity of natural zone and range; Peculiarity of life style of the local peopleand
their social and economic differences; Mongolian knowledge on treating the nature. Based on the
considerations of the local uniqueness and its future development and favorable economic and
social conditions, the region around “Bor Khyariin Els”, located in Zavkhan Aimag, has been chosen
as the site where to develop “Ecological Tourism –the distance to reach”.The total expense on the
tourist camp development in the selected area is estimated to 1,000 million tugrik. Under certain
assumptions, it is estimated that there will be a net profit of 486,000$ per year.
1. The orientation of world tourism and alteration
2
International tourist arrivals grew by 5% in 2013, reaching a record 1,087 million arrivals, according
to the latest
UNWTO
World Tourism
Barometer.
Despite
global economic
international
Demand
for international
tourism
was strongest
for destinations
in Asia and challenges,
the Pacific (+6%),
tourism results were well above expectations, with an additional 52 million international tourists
Africa (+6%) and Europe (+5%). The leading sub-regions were South-East Asia (+10%), Central
travelling the world in 2013. For 2014, UNWTO forecasts 4% to 4.5% growth - again, above the long
and Eastern Europe (+7%), Southern and Mediterranean Europe (+6%) and North Africa (+6%).
term projections.
Demand for international tourism was strongest for destinations in Asia and the Pacific (+6%),
of the(+5%).
main change
in the world’s
tourism market
a procedure Asia
that introduces
Africa (+6%) andOne
Europe
The leading
sub-regions
were isSouth-East
(+10%),new
Central and
area in (+7%),
the tourism
market. Tourism
market of southEurope
east Asia(+6%)
is new and
destination
affirmation
Eastern Europe
Southern
and Mediterranean
Northand
Africa
(+6%).
One of inthe
change
in themarket.
world’s
tourism
market istourists
a procedure
that introduces
themain
international
tourism
Therefore
international
come to south
east Asia. Fornew area
in the tourism
market.
southandeast
Asia
is new
destination
and the
affirmation
that reason
thatTourism
countries market
traditionalofnature
culture
effect
greatly.
Another words,
change in the
international tourism market. Therefore international tourists come to south east Asia. For that
fits with concept of eco sustainable development and new tourism or ecotourism. Thus world
reason that countries traditional nature and culture effect greatly. Another words, the change fits with
market is identified
that. and new tourism or ecotourism. Thus world ecotourism
concept ofecotourism
eco sustainable
development
market is identified that.
The Definition
The way of strategy
implementation and development of Eco Tourism
Ecotourism is defined as "responsible travel to natural areas that conserves the
environment and improves the well-being of local people." (TIES, 1990)
Page 36
The Definition
Ecotourism is defined as “responsible travel to natural areas that conserves the environment and
improves the well-being of local people.” (TIES, 1990)
Every country has their own resource of developing tourism that is more qualified tourism types.
Ecotourism as a Sustainable Development Concept
Strasdas 2001 {drawn by M. Meier}
Ecotourism is used to save the nature, social delicate issue system and be sustainable in
Ecotourism is used to save the nature, social delicate issue system and be sustainable in many
many
countries of the world. See pic 1 developing on the eco tourism countries.
countries of the world. See pic 1 developing on the eco tourism countries.
Ecotourism is used to save the nature, social delicate issue system and be sustainable i
many countries of the world. See pic 1 developing on the eco tourism countries.
2. Potential of Mongolian ecotourism.
In conjunction the Ulaanbaatar city tourism board has reported that the number of tourists visiting
Mongolia in the first 10 months of 2013 has been decreased by 12,8% compare to the same period
of the previous year. In other words, a total of 366.095 tourists visited Mongolia in above period and
most visited wherefrom China, Russia, South Korea, Japan, United States, Kazakhstan, Germany,
France, Australia, and the United Kingdom.
2. Potential
of Mongolian
ecotourism.
Fundamental resource
of developing
ecological
tourism:
1. Peculiarity of natural conditions and resources
2. Potential of Mongolian ecotourism.
In conjunction the Ulaanbaatar city tourism board has reported that the number of tourists
visiting Mongolia inIntheconjunction
first 10 months
of 2013 has been decreased by 12,8% compare to the
the Ulaanbaatar city tourism board has reported that the number of tourists
same period of the
previous
year. Inin other
words,
a total ofof 366.095
visited Mongolia
visiting
Mongolia
the first
10 months
2013 hastourists
been decreased
by 12,8%in compare to the
Page 37
The way of strategy implementation and development of Eco Tourism
the previous
year.Russia,
In other
words,
a total
of 366.095
tourists visited Mongolia
above period andsame
mostperiod
visitedofwherefrom
China,
South
Korea,
Japan,
United States,
2. Peculiarity of natural zone and range
3. Peculiarity of life style of the local people, and their social and economic differences
4. Mongolian knowledge on treating the nature
Based on the considerations of the local uniqueness and its future development and favorable
economic and social conditions, we have chosen the region around “BorKhyariinEls”, located in
ZavkhanAimag, as the site where to develop “Ecological Tourism –the distance to reach”.
Thus, Model area of Mongolian ecotourism will be establish in every local area, as a result. It
needs to be tourism production service Mongolian traditional style and advertise the specific nature,
culture, tradition and life shills in each local area. We are implementing and project that the idea is
about developing ecotourism. Of course the competitive production in the world is Mongolian nature,
culture, tradition and life style.
Mongolian eco tourism’s recourse is identified that ;
Human - nature
Nature – Culture
Culture – Tradition
Tradition – Life skill.
Life skill must be a resource of ecotourism.
3. Developing Strategic of Ecotourism
• herder democracy • aboriginal business • Professionalmanagement team (management, tourism. Law, finance, eco technology)
• Based in partnership
• good governance • controlling of quality
• Professionalworkpeople
• Tourist destination (7-10 trip, one day trip is 100km)
• Traditional event (visit to rural herder, to see nomadic life style, cattle stock ranch)
Eco service
• Eco toilet, eco sauna end other
• Green house, fresh vegetable
• Eco itinerary • Life event
Logistic
• Ulaanbaatar – uliastai – Bus transport – aim destination Bor Hyriinesl
• Eco Camp, eco trip, Eco event
• Eco marketing, management
• Local traditional souvenir We have a eco strategy
Eco concept to
Tourism
Trip
Service
Product
Others
The way of strategy implementation and development of Eco Tourism
Page 38
1. Project implementation based on the participation of local state property agencies,
local citizens and private business entities and professional organizations
The aim of the project is to continuously develop eco-tourism based on the participation of the
local citizens and private business entities and professional organizations and, also, based on the
natural, social and economic resources.
The project is to be a shareholding company owned by the local entities, and will strive for
establishing a multi-type community in terms of its ownership and investment source.
Closed shareholding company “GoliinUlaan”
General strategic plan
(“GoliinUlaan”.,Co.LTD whose project implementation works are being carried on their first step)
Vision for 2020
To become a company with good governance that employs the best example of developing “Ecotourism” based on the correlations of the mother land, traditional customs and way of life style.
Mission
We will strive for continuous development of the mother land and the traditional way of life and
lifestyle of the local citizens while highly respecting the interests of tourists and investors.
1.
2.
3.
4.
5.
The company values
We will highly respect the interests of the stakeholders to run an environment-friendly green
business while taking the changes in the eco-system of the mother land into our consideration.
We will restore, develop and expand the traditional way of life and lifestyle of the local citizens.
We will work while supporting international relations and cooperation based on the new
development trends of eco-tourism.
We will work within the legal framework to establish correct management and good governance
which meets the concept of eco-tourism.
We will cooperate with all kinds of business units which support green development.
Mid-term Goals for 2017 – 2020
1. To produce a new brand of eco-tourism production named “Bor Khyariin Els.
2. To obtain the Five Star ranking while meeting the standards of the international tourism &
hospitality services.
3. To establish a condition so that the local people are able to make up at least 20% of their family
income from this source.
Investment plan for the GoliinUlaan., Co.LTD
Initial calculation of project investment
The initial investment to implement the project is as follows:
№
1
Page 39
Factors
Investment amount /MNT/
The total expenses on the tourist camp construction works,
green house, seeds and fertilizer, soil, technologies, and
expenses on bringing the watering facilities into operation /
the cost to buy a bus has been included here /
Total amount
1,000,000,000
1,000,000,000
The way of strategy implementation and development of Eco Tourism
Clarification:
1. The tourist camp or the company’s overall construction will be built with natural stone and wood
and the roads, paths and fences will be built with natural stone and limestone.
2. A green-house and facilities for watering and fertilizing the soil will be set up.
3. Landscaping works will be carried out according to the planning.
4. Except the purchases for constructions and equipment, we will purchase a bus for the tourist
camp.
5. The total expenses in relation with bringing the tourist camp constructions into operation will be
financed through “Closed shareholdings”. .
2. The project will be financed through closed shareholdings.
№
Financing type
Nominal value
1
To issue closed shareholdings
1,000,000.00
Number
Total
1,000.00
1,000,000,000.00
PS:
• 1,000,000,000 MNT equals around 560,225 USD at the rate of exchange of USD-MNT=1,785.
1. The tourist camp net profit for 2017-2020
2. А. Package. Service and income calculation
№
Ger camp
Duration by capacity, by
Duration period
days
the number
of tourists
Utility
percentage of
the ger camps
The number
of tourists
per ger
Package
price per
tourist
Income
from
the total
package
1
2017оны
VII/20-IX/1
40
30
100
30
200
240,000
2
2018оны
VI/1-IX/1
90
30
90
27
200
486,000
3
2019оны
VI/1-IX/1
90
30
90
27
200
486,000
4
2020оны
VI/1-IX/1
90
30
90
27
200
486,000
5
2021оны
VI/1-IX/1
90
30
90
27
200
486,000
6
2022оны
VI/1-IX/1
90
30
90
27
200
486,000
7
2023оны
VI/1-IX/1
90
30
90
27
200
486,000
Clarification:
1. The package price per tourist has been estimated 200 on average as fixed price and the
further profit shall be counted depending on the rate of exchange.
2. The currency shall be USD compared to MNT and the rate of exchange shall be dependent on
the rates of banks.
The way of strategy implementation and development of Eco Tourism
Page 40
B. Operation cost estimation
№
1
2
3
4
5
6
7
Duration
2017
VII/20-IX/1
2018
VI/1-IX/1
2019
VI/1-IX/1
2020
VI/1-IX/1
2021
VI/1-IX/1
2022
VI/1-IX/1
2023
VI/1-IX/1
Total
Expense on
purchasing
present asset
General,
management
costs
Amortization,
other costs
15,000,000
36,500,000
28,250,000
330,000
37,125,000
54,550,000
29,250,000
330,000
40,837,500
54,605,000
29,250,000
124,692,500
44,921,250
54,665,500
29,250,000
128,836,750
49,413,375
54,732,050
29,250,000
133,395,425
54,354,713
54,805,255
29,250,000
138,409,968
59,790,184
54,885,781
29,250,000
143,925,964
301,442,021
364,743,586
Loan
Payment for
interest fixed capitals
203,750,000 660,000
Total cost
80,080,000
15,000,000
15,000,000
136,255,000
885,595,607
Clarification:
1. The operation costs from 7/20- to 9/1 of 2014 have been budgeted as 15,000,000. The
operation cost for 2017-2020 has been estimated in relation with the inflation rate of 10%.
2. Amortization and other costs have been included.
C. The investment efficiency of the project
The total
Rate of
income
exchange
of the
of USD
packages
compared
expressed
to MNT
by USD
The total
income of
the packages
expressed by
MNT
Total cost
Net income
before tax
Tax
expenditure
Net profit after
tax
№
Duration
1
2017
VII/20IX/1
240,000
1,785
428,000,000
80,000,000
340,000,000
34,000,000
310,000,000
2
2018
VI/1-IX/1
324,000
1,785
578,000,000
136,000,000
440,000,000
44,000,000
397,000,000
3
2019
VI/1-IX/1
324,000
1,785
578,000,000
124,000,000
453,000,000
45,000,000
408,000,000
4
2020
VI/1-IX/1
324,000
1,785
578,000,000
128,000,000
449,000,000
44,000,000
400,000,000
5
2021
VI/1-IX/1
324,000
1,785
578,000,000
133,000,000
444,000,000
44,000,000
400,000,000
6
2022
VI/1-IX/1
324,000
1,785
578,000,000
138,000,000
439,000,000
43,000,000
395,000,000
7
2023
VI/1-IX/1
324,000
1,785
578,000,000
143,000,000
434,000,000
43,000,000
390,000,000
Total
2,184,000
3,896,000,000
882,000,000
2,999,000,000 297,000,000
Page 41
2,700,000,000
The way of strategy implementation and development of Eco Tourism
Clarification:
1. The package income or purchase income for 2017-2020 has been calculated at the present rate
of exchange as USD-MNT=1,785.
2. The rate of exchange has been predicted to be no less than USD-MNT=1,785 in the future.
D. Dividend
Net income after
tax
Percentage
of dividend
distribution
Total amount of
dividend
Number
of closed
shareholding
The amount
of dividend
of the closed
shareholdings
№
Period to
distribute
dividend
1
2017, IX/1
39,700,000
50%
198,000,000
1,000
198,000
2
2018, IX/1
408,000,000
60%
244,000,000
1,000
244,000
3
2019, IX/1
404,000,000
70%
283,000,000
1,000
283,000
280,
4
2020, IX/1
400,000,000
70%
280,000,000
1,000
315
5
2021, IX/1
395,000,000
70%
277,000,000
1,000
277,000
6
2022, IX/1
390,000,000
70%
273,000,000
1,000
273,000
Total
amount
2,036,700,000
1,555,000,000
1,275,315
Clarification:
1. As it has been regulated in the Company Law, cash dividend will be distributed from the amount
of net income after tax.
2. Dividends equal with 1,558,247 per closed shareholding shall be distributed in 2017-2020.
E. The present value of the project and income or profit from the project
№
Duration period
Net income after tax
The coefficient to
transfer to the present
value is 20%
The present value of net
income after tax
1
2017, VII/20-IX/1
313,000,000
0.9701
304,000,000
2
2018, VI/1-IX/1
397,000,000
0.8333
331,000,000
3
2019, VI/1-IX/1
408,000,000
0.6944
283,000,000
4
2020, VI/1-IX/1
404,000,000
0.5787
234,000,000
5
2021, VI/1-IX/1
400,000,000
0.4823
193,000,000
6
2022, VI/1-IX/1
395,000,000
0.4019
159,000,000
7
2023, VI/1-IX/1
390,000,000
0.3349
130,000,000
Total amount
2,707,000,000
1,634,000,000
The way of strategy implementation and development of Eco Tourism
Page 42
Clarification:
1. Net present Value as estimated in cash,
NPV= PV-Initial investment
= (1,636,487,514 – 1,000,000,000) = 636,487,514 MNT
2. Internal Rate of Return is over 45% calculated as the following
IRR = 45%
3. General outline and architectural design of the ecological tourist camp of “Bor Khyariin Els
Plan/ design of the eco-tourist camp
Outside landscaping of the eco-tourist camp
Page 43
The way of strategy implementation and development of Eco Tourism
General outlook of the eco-tourist ger camps and landscaping
References
1. http://www.world-tourism.org
2. www.unwto.org/
3. http://www.touristinfocenter.mn
4. http://mne.mn
5. http://ecotourismbengal.wordpress.com
6. https://www.ecotourism.org/
7. Аялал жуулчлалын онол практикийн асуудалд 1
8. Аялал жуулчлалын онол практикийн асуудалд 2
9. Кабушкин Н.И.Аялал жуулчлалын менежмент 1
10.Гүргэмжав Жамсансүрэн Аялал жуулчлалын маркетинг
11.Гантөмөр Д. Аялал жуулчлалын үндэс
12.Баатарцоож Б. Тогтвортой аялал жуулчлал 2008 он
The way of strategy implementation and development of Eco Tourism
Page 44
Analysis of the sources of finances in the selected sample of
Mongolian medium-sized enterprises.
Ivshinkhorol. B, Ramnath Takiar, Ajay Kumar Takiar
University of Finance and Economics
Abstract
Introduction: Small and Medium Enterprises (SME) constitute more than 80% of the total number of
enterprises in Mongolia. It is crucial for any businesses to manage their financial resources properly.
A study was therefore designed with the following objectives: Objectives: 1) To explore the sources
of finance in the selected sample for medium enterprises in Mongolia; 2) To assess whether the
sources of finance varies by the type of enterprises and also by their financial performance. Methods:
The financial statements were obtained for selected 14 enterprises and they are categorized into
three groups based on their business activities namely Manufacturing (5), Trading (5) and Service
providers. From the financial statements, various financial ratios were derived. Using the financial
ratios and based on the sum of ranks of the sixteen selected ratios, the enterprises were ranked
and categorized as well performing (WP) and non-well performing enterprises (NWP). Results: The
major sources of finance were observed to be Short term loan, Retained earnings, Overdraft and
Ordinary shares. The sources of finances were observed to be not varying by the type of enterprise.
The use of Equity was observed to be more common among well-performed enterprises as compared
to those seen in NWP enterprises. Debt to equity ratio (71%) and Debt (%) was observed to be
higher among NWP enterprises. Conclusion: 1) Sources of finance do not vary by type; 2) Sources
of finance varies by financial performances; 3) Debt to equity and Debt (%) was found to be related
to the financial performances of the enterprises.
Introduction of the study:
The primary purpose of the business is to maximize shareholder`s value (Boundless) and in order
to fulfill that each business need a finance and its sources. Why and how to finance a business is
one of the key important concern for business owners or business executives. However, depending
on the business enterprise`s background, type of operation, financial position and business sector,
business entities are available to use a different type of sources such as single or multiples on their
operation in Mongolia.
This study is only exploring existing sources of finances in the selected sample for mediumsized enterprises that are actively operating at the Mongolian market in particular with trading,
manufacturing and service providing industries.
Introduction to Small and Medium Enterprises (SMEs)
Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which employ
less than a given number of employees. This number varies across countries (OECD, 2005). In
Mongolia, `Law of Small-Medium Enterprise` of Mongolia (adopted in 27 June, 2007), as defined; a
business is considered to be an SME mainly based on the number of employees and annual revenue
and as given in the following Table 1 (Mongolia L. I., 2007).
Page 45
Title of the Paper: Analysis of the sources of finances in the
selected sample of Mongolian medium-sized enterprises.
Table 1 : SME Law of Mongolia (2007)
Category
Medium
Small
Sector
Number of employees
Annual revenue in MNT
Manufacturing
No more than ≥199
Up to ≥1.5 billion
Wholesale trade
No more than ≥149
Up to ≥1.5 billion
Retail trade
No more than ≥199
Up to ≥1.5 billion
Services
No more than ≥ 49
Up to ≥1.0 billion
Small Trade/services
No more than ≥ 9
Up to ≥250 million
Manufacturing
No more than ≥19
Up to ≥250 million
Source: http://www.legalinfo.mn/
As of Q4, 2015 (Active Business register, NSO), there are 64,301 entities are registered at
National Statistics Office (Mongolia N. S., 2015). Small and Medium Enterprises (SME) constitute
more than 80% of the total number of enterprises in Mongolia. It is crucial for any businesses to
manage their financial resources properly.
Objectives:
A study was therefore designed with the following objectives:
1. To explore the sources of finance in the selected sample for medium-sized enterprises in
Mongolia;
2. To assess whether the sources of finance varies by the type of enterprises and also by their
financial performance;
Methodology
The financial statements were obtained for selected 14 medium-sized enterprises (General
Department of Taxation) and they are categorized into three groups based on their business activities
namely Manufacturing (5), Trading (5) and Service providers. From the financial statements, various
financial ratios were derived. Using the financial ratios, the enterprises were ranked and categorized
as well performing (WP) and non-well performing enterprises (NWP).
Theoretical framework:
Finance is the lifeblood of business concern, because it is interlinked with all activities performed
by the business concern. Based on the definition of (C.Paramasivan), sources of finance mean the
ways for mobilizing various terms of finance to the industrial concern.
This study completed the literature review and theoretical frameworks related with the sources
of finance (its classification, types) and capital structures (Figure 1).
• Modigliani and Miller - Firms would prefer to be 100% debt financed, to take full advantage
of the tax shield (ACCA, 2009)
• Trade-off Theory - Based on the value of an unlevered firm, where the optimal capital structure
is found at the trade-off point where the gain from adding additional debt is offset by the extra
incurred cost of financial distress (Stephen A. Ross, 2013)
• Pecking Order Theory - Can be derived based on adverse selection considerations, agency
considerations, or other factors (Stephen A. Ross, 2013)
• Optimal capital structure - The optimal cap ital structure is the mix of debt and equity that
maximizes a firm’s return on capital, thereby maximizing its value (ACCA, 2009)
Title of the Paper: Analysis of the sources of finances in the
selected sample of Mongolian medium-sized enterprises.
Page 46
I. Mongolian financial sector overview
Mongolian financial sector consists of the banking sector and non-bank financial institutions, (NBFIs)
such as, savings and credit cooperatives (SCCs), securities and brokerage firms and insurance
companies. As of December 2014, Mongolian financial sector is consisting of 13 commercial banks, 1
development
bank,banks,
195 small
NBFIs, 159
& credit
17cooperatives
insurance companies
commercial
1 development
bank,savings
195 small
NBFIs,cooperatives
159 savings &and
credit
(Togtokhbuyan
Lkhagvasuren,
2014).
and 17 insurance companies (Togtokhbuyan Lkhagvasuren, 2014).
Figure
1: Classification
Figure 1: Classification
of sources
of finances of sources of finances
Classification of
Sources of Finances
According to Tenure of
Repayment
Long Term
1.Equity Share
2. Preference Share
3. Debenture
4. Venture Capital
5. Financial
According to
Ownership
Medium Term
1. Debenture
2. Lease
Financing
3. Term Loan
4. Public Deposit
Owned
Capital
1. Equity
Share
2. Preference
Share
Borrowed
Capital
1. Debentures
2. Financial
Institutions
Short Term
1. Trade Credit
2. Factoring
3. Bank Loan
4. Cash Credit
5. Commercial Paper
6. Hire Purchase
7. Retained Earning
8. Provision for
Taxation
9. Proposed
Dividend
According to Sources of
Generation
Internal Sources
1. Equity Share
2. Preference Share
3. Retained Earning
4. Provision for
Depreciation
5. Provision for
Taxation
6. Proposed
Dividend
External Sources
1. Debentures
2. Financial
Institutions
3. Trade Credit
4. Factoring
5. Bank Loan
6. Cash Credit
7. Commercial
Paper
8. Hire Purchase
Source: http://schools.aglasem.com/15530
4
Page 47
Title of the Paper: Analysis of the sources of finances in the
selected sample of Mongolian medium-sized enterprises.
Figure 1: Total loans and advances by the banks (2014
Figure
and advances
advancesby
bythe
thebanks
banks(2014
(2014
Figure1:1:Total
Total loans
loans and
)
0.3
0.3
0.2
)
24%
23%
23%
20%
24%
20%
0.2
11%
0.1
11%
0.1
0
9%
8%
8%
5%
9%
5%
Trade and Khaan Bank Golomt Bank Xac Bank
State Bank Ulaanbaatar Other banks
0Development
Bank
Trade and Khaan Bank Golomt Bank Xac Bank
State Bank Ulaanbaatar Other banks
Bank
Development
Bank
Bank
Source: Bank of Mongolia
Source: Bank of Mongolia
Source: Bank of Mongolia
Figure 2: SME loan portfolios of commercial banks - Mongolia
Figure 2: SME loan portfolios of commercial banks - Mongolia
Figure 2: SME loan portfolios of commercial banks - Mongolia
16%
37%
16%
To SMEs
To To
Corporate
SMEs
37%
To To
Individuals
Corporate
47%
To Individuals
47%
Source: (Corporation, 2014)
Source: (Corporation, 2014)
Source:
2014)
Mongolia has recognized the potential
of (Corporation,
SMEs and has
established several programs to
Mongolia
potential
SMEs
and
has has
established
several
to support
support
SMEshas
in recognized
the
terms ofthe
funding
andof capacity
building.
The
Ministry
of programs
Labor
(MOL)
Mongolia
has
recognized
the
potential
of
SMEs
and
established
several
programs
to
SMEs
in the
terms
ofregulatory
funding and
capacity
building.
The Ministry of Labor (MOL) assumes the overall
assumes
the
overall
role
(Table
2).
support SMEs in the terms of funding and capacity building. The Ministry of Labor (MOL)
regulatory role (Table 2).
assumes the overall regulatory role (Table 2).
Results
Results
Resultsstudy consists of descriptive statistics and data analysis.
A present
A present study consists of descriptive statistics and data analysis.
A present
study consists of
descriptive statistics and data analysis.
Selection
of medium-sized
enterprises
Selection
of medium-sized enterprises
of medium-sized
enterprises
A Selection
study is selected
14 enterprises
based on the `Top Taxpaying Mongolian Small and
A study is selected 14 enterprises based on the `Top Taxpaying Mongolian Small and Medium
Medium
Enterprises`
(2014)
by General based
Department
Taxation,
Mongolia
and categorized
A study
is selected
14 enterprises
on theby`Top
Taxpaying
Mongolian
Small and
Enterprises` (2014) by General Department by Taxation, Mongolia and categorized enterprises into
3 industries
by business activities
Trading
(5), Manufacturing
and Service
Provider (4).
Medium Enterprises`
(2014) bynamely
General
Department
by Taxation,(5)
Mongolia
and categorized
5
5
Title of the Paper: Analysis of the sources of finances in the
selected sample of Mongolian medium-sized enterprises.
Page 48
Table 2 SME support institutions
Support
Institutions
for SMEs
SME Development Center of Capital City
The Mongolian National Chamber of Commerce and Industry (MNCCI)
Business Professionals Network (BPN)
International Finance Corporation (IFC) Asian Development Bank (ADB)
Programs of
International European Bank for Reconstruction and Development (EBRD)
Institutions
Japan International Cooperation Agency (JICA)
Targeting SMEs
United States Agency for International Development (USAID)
Source: (IFC, 2014)
Trading company: It is a company whose main business is buying goods for the purpose of sale
without reprocessing. In the event of processing is usually limited to the packaging or the provision of
specialized packaging for goods more attractive. So, trading companies mostly have high inventories
and receivables, low free cash flows, lower assets and mainly have short-term loans depending on
the business activity.
Manufacturing
company:
Manufacturing
companies
most
commonly
applied
to industrial production, in which raw materials are transformed into finished goods on a large scale.
So, manufacturing companies mainly have higher amount of assets (such as factory, equipment,
machinery and mechanisms) including raw materials. Depending on the nature of the business,
manufacturing companies usually have higher receivables and working capitals.
Service industry: These companies are involved in retail, transport, distribution,
food services, as well as other service-dominated businesses. The service providing
companies primarily earn revenue through providing intangible products and services.
Features of industries
Mongolian Government approved a program to support “Small and medium-sized enterprises (20142016) in 28 Aug, 2014 by resolution 278. The SME Law adopted in 2007 provides eligibility criteria
for the participation of SMEs in government programs and financial assistance to SMEs in terms of
soft loans, loan guarantees, insurance schemes and preferential tax treatment.
Trading industry features:
Trading industry follows below national laws and regulations on their daily business operations.
 Law of Company (2011)
 Law on Small and Medium Enterprises (2007)
 Law of Trade (2015)
There is no specific program or policy to support trading activities in Mongolia and because of
that trading companies mainly finance from local banks and non-bank financial institutions.
Manufacturing industry features:
There are several national laws and regulations are applicable when assessing manufacturing sector
development:
 Law on Small and Medium Enterprises (2007)
 The Mongolian Millennium Development Goals-based Comprehensive National Development
Strategy43 (2008)
 Mongolia’s industrialization program (2009)
Page 49
Title of the Paper: Analysis of the sources of finances in the
selected sample of Mongolian medium-sized enterprises.
 Mongolian Parliament approved a resolution to support `An increase of local production and
workplaces` in 23 Sep, 2011.
 Manufacturing Sector Guideline for banks providing debt or equity to the Manufacturing
sector or manufacturing activities was developed as a companion document to the Mongolian
Sustainable Finance. (2014, developed by IFC)
In along with above stated terms and conditions, manufacturing industry is available to collect
long term debts by lower interest rates.
Servicing industry features:
Service providing industry follows below national laws and regulations on their daily business
operations.
 Law of Company (2011)
 Law on Small and Medium Enterprises (2007)
 Laws and regulations for different range of services (including consulting, baby care, postal,
health, good & grocery etc.,)
Regarding the servicing industry, there is no specific support and services on their financing
options.
Descriptive statistics conclusion:
 Banking industry of Mongolia still accounts the majority of the financial sector of the country
 Non-banking financial institutions and stock exchange activity and contribution in the financial
sector development are still limited
To explore the sources of finance for medium-sized enterprises in Mongolia
Based on the empirical study, only 6 main sources of finances are commonly used selected 3
industries.
Table 3: Top sources of finances by industries
Equity
finance
Short
term
Internal
sources
Short
term
Long
term
Venture
capital
Trading
Manufacturing
Service
providing
Using
sources
Total
companies
%
Ranking
Ordinary
shares
5
5
4
14
14
100
1
Overdrafts
5
4
3
12
14
86
2
4
5
3
12
14
86
2
3
3
1
7
14
50
3
Bonds
1
3
1
5
14
36
4
Venture
capital
0
3
1
4
14
29
5
Total
18
23
13
54
14
Retained
earnings
Short-term
loans
Source: Author`s empirical study
Manufacturing industry uses 77% of common 6 sources and uses 23 out of 30 sources (special
industry that uses multiple types of sources of finances). Trading industry uses 60% of common
sources (18 out of 30) and service providing industry uses 54% (13 out of 24) of common sources
of finances (Table 3).
Title of the Paper: Analysis of the sources of finances in the
selected sample of Mongolian medium-sized enterprises.
Page 50
Table 4: Comparison of sources of finance by industries
Trading
Manufacturing Service providing
TOP-3 sources of finances for industries are including ordinary shares (14 out of 14), retained
earnings
(12 out
of 14), Ordinary
overdraftsshares
(12 out of 14) and
Equity
finance
5 short term loans
5 (7 out of 14).
4
But, comparing with trading an service providing industries, manufacturing companies are using
6 types,
23 term
sources outOverdrafts
of 30 that means who uses
Short
5 higher financial
4 leverages on their
3 activity.
Trading industry uses much lower financial leverages from external sources and who mainly uses
Internal
internal
and short term sources.
Retained Trading
earningscompanies4uses 5 types, 18
5 sources out of 30 3who mainly
sources
use internal sources of finances including ordinary shares, overdrafts and retained earnings (Table
4). Above result approves that the sources of finance don`t varies by industries.
Short term
Short-term loans
Long term
3
1
Table
4: Comparison of sources
Bonds
1 of finance by industries
3
Equity finance
Short Venture
term
capital
Internal sources
Short term
Long term
Venture capital
3
Trading
Venture capital
Ordinary shares
Overdrafts
Using
sources
Retained earnings
Short-term
loans
Total
companies
Bonds
Source:
Venture
capitalAuthor`s
Using sources
Total companies
0
5
5
18
4
3
30
1
empirical
0
18
30
Manufacturing
3
5
4
23
5
3
30
3
study result
3
23
30
1
Service providing
1
4
3
13
3
1
24
1
1
13
24
Source: Author`s empirical study result
Figure 3: Sources of finances by generations
Figure 3: Sources of finances by generations
100%
80%
50%
43%
54%
60%
Internal sources
40%
20%
0%
External sources
50%
Trading
57%
46%
Manufacturing Service providing
Source: Author`s empirical
study
resultstudy result
Source:
Author`s
empirical
Based
areare
50%
external,
Based on
on the
the comparison
comparisonbetween
betweenindustries,
industries,trading
tradingindustries
industriessources
sources
50%
external,
manufacturing
industries
external
service
providing
industry
uses external
45% external
manufacturing
industries
are are
57%57%
external
and and
service
providing
industry
uses 45%
sources
sources
on their
business operations.
Above
results
that
sources don`t
of finance
varies
on their
business
operations.
Above results
shows
that shows
sources
of finance
variesdon`t
by industries.
by industries.
To assess whether the sources of finance varies by the type of enterprises and also by
their financial performance
9 of ratio analysis based on the 3 years financial
The present study analyzed 5 groups, 16 types
statements on the selected enterprises. Before calculate a ratio analysis, calculated each enterprises
average to see a general tendency. Based on the ratio analysis, ranked enterprises from 1-14
depending on the each ratio feature and calculated sum of ranking. Based on the sum ranking,
re-ranked enterprises from 1-3. So, lower sum of ranking enterprises have higher performances
(Florenz C. Tugas, 21 November, 2012).
Page 51
Title of the Paper: Analysis of the sources of finances in the
selected sample of Mongolian medium-sized enterprises.
Table 5: Comparison of performances by type of industries
Ratio types
Manufacturing
Trading
Servicing
58
162
142
82
98
542
108.4
3
85
150
136
54
113
538
107.6
2
55
86
104
70
57
372
93
1
Liquidity ratio
Working capital ratio
Profitability ratio
Solvency ratio
Financial leverage ratios
Total
Average
Ranking
Source: Author`s empirical study result
Based on average scores (Table 5), servicing industry ranked at 1st place by 93 scores and
that means service industry had a better financial performances comparing with other 2 industries.
Trading 107.6 scores 2nd place and manufacturing 108.4 by 3rd places (Chandran, 28 November,
2015).
Based on the financial performances ranking sums, enterprises divided into 2 groups and 6 of
them are well performing and 8 of them are non-well performing categories.
When we see comparison of sources of finances between well and non-well performing
enterprises financial sources (Table 6), well performing industries mainly use 100% ordinary shares,
100% retained earnings and 67% use overdrafts. They have a lower usage of short term loan,
bonds and venture capitals. But non-well performing industries uses, 100% ordinary shares, 100%
overdrafts, 75% retained earnings and 62.5% short-term loans. 50% uses bonds only. Thus, it can
be concluded that Financial sources don`t vary by industries financial performances.
Figure 4: Comparison of Sources of Finance between Well performed and Non-well
Figure 4: Comparison of Sources of Finance between
performed companies
Source: Author`s
Well performed and Non-well performed companies
120
100
100
100 100
100
75
80
67
62.5
60
50
40
33
Well
Performed
(6)
33
25
0
Not well
Performed
(8)
17
20
Overdraft
Short term
loans
Bond
Venture
capital
Ordinary
share
Retained
earnings
Source: Author`s empirical study result
Source: Author`s empirical study result
Title of the
Paper: Analysis
of the
sources of
finances
Enterprise
capital
structure
and
type in
ofthe
industries
selected sample of Mongolian medium-sized enterprises.
Based on the comparison of Profitability, Debt and Equity between well performed and Nonwell performed companies, well performed enterprises have 21.5% profitability margin mean
Page 52
Enterprise capital structure and type of industries
Based on the comparison of Profitability, Debt and Equity between well performed and Non-well
performed companies, well performed enterprises have 21.5% profitability margin mean and only
33.7% debt and majority of sources are funded by 74.7% shareholder`s equity.
Figure 5 Comparison of profitability, Debt and Equity Equity between
Well performed and Non-well performed companies
Source: Author`s empirical study result
But non-well performing industries have an average -18% profitability and 91.4% (standard
deviation
34.27)
debt andindustries
18.9% equity
Main
factor
for this negative
result
was S3
But non-well
performing
havefinancing.
an average
-18%
profitability
and 91.4%
(standard
(meat 34.27)
preparation
and18.9%
servicing
company
works
during
3 consecutive
years
and
deviation
debt and
equity
financing.
Main with
factorloss
for this
negative
result was S3
(meat
preparation
andlong
servicing
company
works with
loss during
consecutive years and 1.1B MNT long
1.1B MNT
term debt
with average
revenue
667M3tugrigs)
term debt with average revenue 667M tugrigs)
Figure 6: Comparison of Debt to Equity, Debt and Equity between Well performed and
Figureperformed
6: Comparison
of Debt to Equity, Debt and Equity between Well performed and
Non-well
companies
Non-well performed companies
100
91.4
80
74.7
71.6
60
40
29.2
33.7
18.9
20
0
Well
Performed
(6)
Debt to Equity
Debt (%)
Not well
Performed
(8)
Equity (%)
Source: Author`s empirical study result
Comparison of Debt to Equity, Debt and Equity between well performed and Non-well performed
Source:DE
Author`s
studydebt
result
companies, well performing industries
ratio isempirical
29.2% (33.7%
and 74.7% equity), but Nonwell performed companies have DE ratio is 71.6% (91.4% debt and 18.4% equity), that means nonwellComparison
performing industries
a higher
usage
debts. between well performed and Non-well
of Debt have
to Equity,
Debt
andof Equity
performed companies, well performing industries
DE
29.2%
(33.7%
debt
and 74.7%
Title of
theratio
Paper: is
Analysis
of the
sources
of finances
in the
selected sample of Mongolian medium-sized enterprises.
equity), but Non-well performed companies have DE ratio is 71.6% (91.4% debt and 18.4%
equity), that means non-well performing industries have a higher usage of debts.
Page 53
Summary of observations:
The major sources of finance were observed to be Short term loan, Retained earnings, Overdraft and
Ordinary shares. The sources of finances were observed to be not varying by the type of enterprise.
The well performing enterprises were observed to be using less short term loans and bonds as the
source of their finance. The use of Equity was observed to be more common among well-performed
enterprises as compared to those seen in NWP enterprises. Debt to equity ratio (71%) and Debt (%)
was observed to be higher among NWP enterprises. The existing and optimal capital structure was
found be varying by the type of enterprise.
Conclusion:
1. Sources of finance do not vary by type;
2. Sources of finance varies by financial performances
3. Debt to equity and Debt (%) was found to be related to the financial performances of the
enterprises.
Recommendation:
1. Enterprises need to learn deeply about sources of finances and better to increase a type of
sources.
2. Most selected companies are using short-term sources of finances and companies need to
define their long term financial strategy/planning and investments.
3. Majority of selected industries (manufacturing, trading) have higher amount of working
capitals and companies need to improve their working capital management efficiency.
References:
•
•
•
•
•
•
•
•
•
•
•
ACCA. (2009). Paper F9 Financial Management. London: BPP Learning Media Ltd.
Bank, W. (2014, October 29). http://www.worldbank.org/en/news/press-release/2014/10/29/
mongolia-continues-to-improve-its-regulatory-environment-for-small-and-mediumenterprises. Retrieved from http://www.worldbank.org
Boundless.
(n.d.).
https://www.boundless.com/business/textbooks/boundlessbusiness-textbook/introduction-to-business-1/what-is-a-business-22/the-goals-of-abusiness-129-10246/. Retrieved from https://www.boundless.com .
C.Paramasivan, T. (n.d.). Financial Management . New Delhi: New Ace International P Limited.
Center, S. a. (2014). Database for Small and Medium Enterprises. Retrieved December 2015,
from http://sme.gov.mn/.
Chandran, T. A. (28 November, 2015). Ranking of Commercial Banks in Uganda: A Comparative
Analysis. International Journal of Multidisciplinary and Current Research, 3-4.
Corporation, I. F. (2014). SMEs and Women-owned SMEs. Washington: International Finance
Corporation.
Florenz C. Tugas, C. C. (21 November, 2012). A Comparative Analysis of the Financial Ratios
of Listed Firms Belonging to the. International Journal of Business and Social Science, 7-18.
General Department of Taxation, M. (n.d.). http://www.mta.mn/pages/137.
https://www.boundless.com/business/textbooks/boundless-business-textbook/introduction-tobusiness-1/what-is-a-business-22/the-goals-of-a-business-129-10246/. (n.d.). Retrieved from
https://www.boundless.com/business/textbooks/boundless-business-t.
IFC. (2014). http://www.ifc.org/wps/wcm/connect/d85f65804697b853a598bd9916182e35/
Women+SME-Mongolia-Final.pdf?MOD=AJPERES. Retrieved from http://www.ifc.org
Title of the Paper: Analysis of the sources of finances in the
selected sample of Mongolian medium-sized enterprises.
Page 54
•
•
•
•
•
•
Mongolia, L. I. (2007, July 27). http://www.legalinfo.mn/. Retrieved from http://www.legalinfo.
mn/
Mongolia, N. S. (2015, December 31). http://www.1212.mn/. Retrieved from http://www.1212.
mn/
OECD), T. O.-o. (2005, December 02). https://stats.oecd.org/glossary/detail.asp?ID=3123.
Retrieved December 04, 2001, from The Organisation for Economic Co-operation and
Development (OECD): OECD, 2005, OECD SME and Entrepreneurship Outlook: 2005, OECD
Paris, page 17
Securities, F. (2015, October 4). Retrieved from 2014 performance of financial sector and
banking industry of Mongolia: www.frontier.mn
Stephen A. Ross, R. W. (2013). Fundamentals of Corporate Finance (10th ed., Vol. Standard).
New York, USA, United States of America: McGraw-Hill/Irwin.
Togtokhbuyan Lkhagvasuren, H. X. (2014). Analysis of the returns of small and medium-sized.
Journal of Finance and Accounting, 7.
Page 55
Title of the Paper: Analysis of the sources of finances in the
selected sample of Mongolian medium-sized enterprises.
Methodology to set living standard of households:
On the example of Ulaanbaatar City
Gantumur. P, Bolitogtokh. D, Badamkhuu. B, Erdene. S
University of Finance and Economics
Abstract
The paper explores the researched methodologies to set living standard of households in Mongolia.
1008 households were randomly sampled from 5 districts of UB city. Methods used are as follows:
Household livelihood level was evaluated and concluded by creating “Assets Index” from the main
indicators of household livelihood and by using Principle Component Analysis in conjunction with
scaling, by creating an expense index by using the regression coefficients of multiple factors and
by using the method of income substitution. Poverty risk coefficient was determined by using the
Wolf Point of equilibrium point method. Gini index was calculated using income, outcome variation
coefficient and Lorenz curve was used to determine uneven distribution of income and outcome.
The results of the research showed that 28% were “Extremely poor”, 60% were “Average” 12% were
“Wealthy”. Factors that are influencing the household livelihood level are as follows: The household
with disabled member; Head is unemployed or low educated; Household size is 6 or more; has no
source of income; Family leaves in a Ger. The income level of workers in “Cooperative”, “Locally
owned” and “Others” groups were relatively uneven. The index value average was determined at
0,931 with a standard inclination of 0,999 by the “Principal component analysis” index. This means
if the household lives in an apartment, it will get 0,244 units higher than a household without an
apartment. If the household has stove, it will get 0,232 units higher than a household without stove,
whereas a household with capitals will get 0,113 units higher than a household without capital.
Key words: household, living standard, household revenue, household expenses, Lorenz Curve,
revenue replacement methodology, poverty risk coefficient,
Methodologies to set living standard levels
The following methods are described and used to define the Living standards: Variation coefficient,
GINI index, Theil Index, Asset index, Revenue replacement methodology, Poverty risk coefficient
references and calculation methodologies.
Variation coefficient is a simple statistics method to describe uneven income distribution. Variation
coefficient is determined through comparative ration between average income and standard income
deviation. When income is distributed comparatively evenly, standard deviation level is lower thereby
making variation coefficient less. It is easier to calculate variation coefficient; however, it requires
full data on personal income. In addition, too low or too high meaning of income or other deviation
meanings may influence on standard and average deviations used for calculation of variation
coefficient. All of these show that income distribution can be uneven; therefore, variation coefficient
cannot express approximate measurement of uneven income distribution.
GINI index measures distribution of income, or in some cases, consumption expenditure among
individuals or households. Within the framework of the research, work we have estimated changes
in distribution of total income and expenditure by GINI index depending on the number of family
members.
This survey used two indices of Theil to measure uneven income distribution of households in
a way available to transfer into a sum or to provide intended features as a measure of inequality
in well-being; i.e, average independent (income must be of one type) as a principle of repetition in
regression, (Pigou-Dalton) transfer principle are provided. We have used T and L indices of Theil for
measurement of inequality. (Bourguignon, 1979, Shorrocks, 1980) Total inequality is expressed by the
sum of inequality inside groups or between the groups; however index of inequality can be changed
Methodology to set living standard of households:
On the example of Ulaanbaatar City
Page 56
into a sum of inequality indices. Average independent refers to non-change of inequality index when
family revenue changes by similar interrelations for every household. Regression is independent
when inequality indices do not change when number of households changes proportionally to every
income level; i.e, inequality indices are dependent only on absolute population frequency only in
every income level; however, it does not depend on absolute frequency of population. (Pigou-Dalton)
transfer principle is considered on basis of an idea to make any income transfer from rich household
to poorer households or to reduce inequality indices without any changes in absolute income order.
We did analysis on considering it is possible to group all the households by different features of
regression or social-economic data such as but not limited to age or education as we shall work on
unified income data (data divided into deciles).
The main deposit of our analysis is “long term treasure of a household is explained by the biggest
variation of asset variables”. There is no test to check this deposit directly.
Living standard of households is set by income replacement methodology in addition to revenue
and expenditure.
Table1: Income Replacement Methodologies
№
Methodology
Features
1
Income replacement
It summarizes pack data of living standard setting.
methodology
2
Poverty vulnerability It grants a possibility to determine poverty through setting percentage
coefficient
of poverty in total population.
3
С method
It chooses the most suitable variable among similar variables included
into poverty vulnerability coefficient. Through logarithm of consumption
data of per person, coefficients are calculated through the smallest
quadratic method.
4
С1 method
It includes some additional variables that express household living
standards the best. Every research group makes calculation using 4
models. Calculation is made by the minimum quadratic method on
basis of logarithm of per persons consumption. This method is the best
suitable to determine the poorest households; however, it has some
disadvantages to set detailed differences between poor households
and the most vulnerable households to poverty.
5
PC method
This method sets asset index of households through setting the
percentage using correlations coefficient between household asset
data.
source: collection of researchers
SSO’s Household living standard methodology was approved by the joint resolution number
123/165 of Chairman of National Statistics Committee and Minister of Personal Development and
Social Welfare on November 07, 2013.
1
WolfPoint
Pointofofequilibrium
equilibriumpoint
pointmethod
method
calculatescoefficient
coefficientofofpoverty
povertyrisk
risk(K)
(𝐾𝐾)vulnerability
vulnerabilityby
1
Wolf
calculates
by
the
numbers
of
poor
persons
in
total
population
and
percentage
of
poor
people
the total
the numbers of poor persons in total population and percentage of poor people in the totalinpopulation.
population. Hereof 𝑃𝑃 percentage of poor persons, 𝑃𝑃𝑦𝑦н percentage of poor persons in total
Hereof Рях percentage ofяхpoor persons,Рун percentage of poor
persons in total population
population
𝑃𝑃𝑦𝑦н − 𝑃𝑃ях
𝐾𝐾 =
𝑃𝑃ун
This coefficient shows the risk of the household vulnerable the poverty through positive and
1
Tonegative
research modern
methodology
that determines
living
standard
of households
and people,
in comparison
with
meaning
while positive
numbers
show
far from
the poverty
line whereas
minus
some countries of same development level. Research report, 2005
numbers express higher vulnerability level to poverty.
To make the estimation, vulnerability
Methodology to set living standard of households:
Page 57
coefficient is deducted from wolf point of equilibrium point. Whereas
𝑌𝑌𝑛𝑛 is anofestimation
On the example
Ulaanbaatar of
City
living standard dependent on the data.
𝑌𝑌𝑛𝑛 = 1 − 𝐾𝐾
This average estimation data shall become an average living standard estimation, which is
1
Wolf
Point
of equilibrium
point method
of poverty
riskpeople
(𝐾𝐾) vulnerability
by the
numbers
of poor persons
in total calculates
populationcoefficient
and percentage
of poor
in the total
by
the
numbers
of
poor
persons
in
total
population
and
percentage
of
poor
people
in theintotal
population. Hereof 𝑃𝑃ях percentage of poor persons, 𝑃𝑃𝑦𝑦н percentage of poor persons
total
population. Hereof 𝑃𝑃ях percentage of poor persons, 𝑃𝑃𝑦𝑦н percentage of poor persons in total
population
population
𝑃𝑃𝑦𝑦н − 𝑃𝑃ях
𝐾𝐾 =𝑃𝑃𝑦𝑦н − 𝑃𝑃ях
𝑃𝑃ун
𝐾𝐾 =
𝑃𝑃
This
coefficient
shows
the
risk
of
the
household
vulnerablethe
thepoverty
povertythrough
throughpositive
positive
and
This coefficient shows the risk of the householdунvulnerable
and
This
coefficient
shows
the
risk
of
the
household
vulnerable
the
poverty
through
positive
and
negative
meaning
while
positive
numbers
show
far
from
the
poverty
line
whereas
minus
numbers
negative meaning while positive numbers show far from the poverty line whereas minus
negative
meaning
while positive
far from
the
poverty
line whereas
minus
express
higher
vulnerability
level tonumbers
poverty.
Topoverty.
make
the
estimation,
vulnerability
coefficient
numbers
express
higher
vulnerability
level show
to
To make
the estimation,
vulnerability
numbers
express
higher
vulnerability
level
to
poverty.
To
make
the
estimation,
vulnerability
is deducted
from
wolf pointfrom
of equilibrium
point.
Whereaspoint.
Vn isWhereas
an estimation
of estimation
living standard
coefficient
is deducted
wolf point of
equilibrium
𝑌𝑌𝑛𝑛 is an
of
coefficient
fromonwolf
dependent
on is
thededucted
data.
living standard
dependent
the point
data. of equilibrium point. Whereas 𝑌𝑌𝑛𝑛 is an estimation of
living standard dependent on the data. 𝑌𝑌 = 1 − 𝐾𝐾
𝑛𝑛
𝑌𝑌𝑛𝑛 = 1an− average
𝐾𝐾
This average estimation data shall become
living standard estimation, which is
This average
average estimation
estimation data
datashall
shallbecome
becomeananaverage
averageliving
living
standard
estimation,
which
This
standard
estimation,
which
is is
calculated by the following formula:
calculated
by the
following
formula:
calculated
by the
following
formula:
1
𝐿𝐿𝐿𝐿𝐿𝐿 =1 ∑ 𝑌𝑌𝑖𝑖
𝐿𝐿𝐿𝐿𝐿𝐿 = 𝑛𝑛∑ 𝑌𝑌𝑖𝑖
𝑛𝑛
Living standard estimation shall be divided into the following intervals to set their living
Living standard
bebe
divided
intointo
the following
intervals
to set their
living
standards:
Living
standard estimation
estimationshall
shall
divided
the following
intervals
to set
their
living
standards:
standards:
Table2: Living standard
estimation
Table2:
Living intervals
standard estimation intervals
Table2: Living standard estimation intervals
Living standard
Living standard estimation
Living standard
Living standard estimation
Living standard
Living standard estimation
Wealthy
-0,65
Wealthy
-0,65
Above
average
0,65-0,8
Wealthy
-0,65
Above average
0,65-0,8
Average
0,801-0,95
Above average
0,65-0,8
Average
0,801-0,95
Poor
0,951-1,115
Average
0,801-0,95
Poor
0,951-1,115
Very
1,115+
Poorpoor /deprived/
0,951-1,115
Very poor /deprived/
1,115+ Н.Тунгалаг, Я.Шуурав, 2005 он
Source: Х.Гүндсамбуу, Ч.Дагвадорж,
Very poor /deprived/
1,115+
Source: Х.Гүндсамбуу, Ч.Дагвадорж, Н.Тунгалаг, Я.Шуурав, 2005 он
Source: Х.Гүндсамбуу, Ч.Дагвадорж, Н.Тунгалаг, Я.Шуурав, 2005 он
Collective survey on household living standards of Ulaanbaatar city
Collective survey on household living standards of Ulaanbaatar city
Collective
surveyofon
household
standards of
Ulaanbaatar
city survey since
National Statistics
Committee
Mongolia
has living
been conducting
household
revenue
1966 while household revenue survey and living standard surveys have been reorganized into
NationalSocial
Statistics
Mongolia
been
conducting
household
revenue
survey
Household
and Committee
Economic of
Survey
sincehas
July
2007.
The survey
annually
chooses
11232
National
Statistics
ofrevenue
Mongolia
has on
been
household
revenue
survey
since 1966
whileCommittee
household
and
livingsex,
standard
surveys
been
households
of
Mongolia
through collection
of survey
data
ageconducting
limit,
educational
level,have
employment
since
1966 while
household Social
revenue
survey
and Survey
living standard
surveys
been
reorganized
into Household
andand
Economic
since July
2007. have
The survey
status
of family members,
income, revenue,
consumption
of households.
reorganized
into
Household
Social
and
Economic
Survey
since
July
2007.
The
survey
annually chooses 11232 households of Mongolia through collection of data on age limit, sex,
National chooses
Statistics Committee
of Mongolia
has been
cooperating
with
World
Bank
to enhance
annually
households
through
collection
of data
on
age
limit,
sex,
educational level,11232
employment
statusofofMongolia
family members,
income, revenue,
and
consumption
capacity
of
human
resources
in
statistics
sector
and
to
improve
methodology
to
calculate
living
educational
level, employment status of family members, income, revenue, and consumption
of households.
standard
and poverty line of Mongolia in order to show real changes in the living standard of
of households.
National
Statistics
Committee
Mongolia
has been
with World Bank to enhance
Mongolian
people
to reach
proper of
results
on basis
of thecooperating
suitable methodology.
National
of statistics
Mongoliasector
has been
cooperating
with World Bank
to enhance
capacityStatistics
of humanCommittee
resources in
and to
improve methodology
to calculate
living
In
accordance
with
results
of
regression
model
to
analyze
effects
of
consumer
goodsliving
on the
capacity
of
human
resources
in
statistics
sector
and
to
improve
methodology
to
calculate
standard and poverty line of Mongolia in order to show real changes in the living standard of
living
standard
of
the
people,
one
percent
growth
in
flour
price
increase
minimum
labor
wage
standard
and
poverty
line ofproper
Mongolia
in order
to show
real
changes
in the living standard of by
Mongolian
people
to reach
results
on basis
of the
suitable
methodology.
1.3 Mongolian
percent while
one to
percent
beef on
price
andofelectricity
payment
decrease minimum labor
people
reach growth
proper in
results
basis
the suitable
methodology.
In by
accordance
with percent,
results ofrespectfully
regression model to analyze effects of consumer goods on the
wage
5.69 and 3.87
In
accordance
results
of regression
model
to in
analyze
effects
of consumer
goods
the
living
standardwith
of the
people,
one percent
growth
flour price
increase
minimum
laboronwage
In accordance
with
model
toone
determine
factors
affecting
on increase
the average
monthly
household
living
standard
of
the
people,
percent
growth
in
flour
price
minimum
labor
wage
by 1.3 percent while one percent growth in beef price and electricity payment decrease
income,
0.75
percent
growth
inpercent
averagegrowth
monthlyinincome
of a household
increases
average
monthly
by
1.3
percent
while
one5.69
beef
price
and electricity
payment
decrease
minimum
labor wage
by
and 3.87 percent,
respectfully
expenditure
household
oneand
percent.
minimumof
labor
wage byby5.69
3.87 percent, respectfully
One percent growth in inflation rate decreases real purchasing power of households by 0.021
percent.
1 To research modern methodology that determines living standard of households and people, in
1 To research modern methodology that determines living standard of households and people, in
Permanent
andsome
transferring
main composites
of a household’s
comparison with
countries incomes,
of same development
level. Research
report, 2005 average income,
comparison
with
some
countries
of
same
development
level.
Research
report,
2005transferring incomes
generally grow in same speed depending on the time. In 2006, permanent and
3
were at same speed; since then, transferring income
3 growth has been dominating certain periods.
Within the research works, we have conducted various research works such as to divide
household income and expenditure sources into different categories such as age limit, sex,
educational background, status of head of family, number of family members, permanent and
temporary residence etc. in order to calculate living standard through extended calculation of poverty
vulnerability coefficient in some data, to make comparison, to summarize and research affects of
Methodology to set living standard of households:
On the example of Ulaanbaatar City
Page 58
inflation, price for main products, exchange rate changes on the household living standard through
development of econometric model of influences and analysis on household withdrawal structure
through classification of products, and setting real expenditure and revenue size for per member of
a household.
We have used information on UB city households from the data fund of “2013 national survey
to set household living standard” by National Statistics Office. We have analyzed results of the
research work to choose research methodology using information on UB city households and results
of collective survey on 1000 households randomly picked up among households using collective
research methods and other categories.
In accordance with variation coefficient analysis, male workers of 45-49 and above 60 age limits
and staffs of joint stock companies have higher level of uneven income distribution, while other
groups have comparatively same level of income distribution.
By GINI index of household income and expenditure, households that occupy almost 90 percent
of population earn 66 percent of income while wealthy families that occupy 10 percent of total
population occupy 34 percent of total income. In addition, there are many families with income lower
than minimum living standard.
Food consumption expenses are distributed evenly in families in comparison with other expenses.
Production, loan and savings expenses go to 10 percent of population, the wealthy group in the
society. By GINI index classified by branches, incomes are distributed unevenly for workers and
staffs in Joint Stock companies, Cooperatives, Local Property Enterprises, and Miscellaneous in
comparison with other sectors.
Households use 60 percent of total expenses in food, over 20 percent – clothes, around 5
percent for services, and approximately 15 percent for emergency.
We may name factors that increase household expenses such as but not limited to number of
family members, animal husbandry and land farming engagement, loan, family owned apartment
building, car, salary and stimulation income, pension and subsidy, and tax return: however sex of
head of family, human development subsidy, and other incomes may reduce expenditure.
We have also developed a methodology to calculate indices of household expenditure, according
to which, 9.5 percent of total households live wealthy while 55.6 percent of the households live below
minimum living standard (Table 3).
Table 3: Living Standard level based on Expenditure index, percentages of households
Living standard
Percentage
Wealthy and above
average
Average
Poor and very poor
9,8%
34,4%
55,8%
Source: By the calculation of researchers
On the research work, we have used research work of the living standard categories and some
surveys of living standard of the people.
We numbered households by their expenditure index. So, we divided households into groups by
the meaning of indices making “very poor” for 20 percent, “poor” for the next 20 percent, “average”
for third 20 percent, and “above average” for fourth 20 percent, and “wealthy” for the last 20 percent.
So, this classification is not based on any data of poverty and we hereby emphasize that we have
used common tendency to conduct research works dividing into quantiles and deciles.
By the result of our research work, an average family income of the household is 1536000 for
wealthy families, 768000-1536000 tugrik for average and 768000 for people below living standard
considered around 83 percent of the participants. By the total expenditure and the cost classification
of households, GINI index was calculated for households with female head of families or families
Page 59
Methodology to set living standard of households:
On the example of Ulaanbaatar City
with 5-8 members and other expenses categories are comparatively uneven; however, cost for per
member of the household was even.
PCA-principal component analysis
In accordance with asset index used for analysis of main composites to set asset variables index
with the “average” group households can be upgraded into wealthy classification when they have
comfortable apartment buildings, and when the head of the family becomes higher educated or
works for private sector, or gain a land to make some income.
However, very poor households can be upgraded into poor classification when they have some
savings, computer, fridge, washing machine and rice cooker in their asset.
Table 4: Living standard data based on asset index, quantiles of households
Source: By the calculation of researchers
For households involved into the survey works, we have used household living standard setting
methodology approved by National Statistics Committee and Ministry of Population, Personal
Development and Social Welfare totally 30 data in 10 groups and poverty risk coefficient were
used to make living standard estimation by 54 data in 10 groups. In order to calculate poverty risk
coefficient, we have used some results of the research works that involved over 12000 households
made by National Statistics Committee in 20122. In accordance with the result of the research work
susceptibility of the households could not be calculated due to lack of some data; therefore, we have
used some 54 data in 10 groups such as but not limited to location of households, number of family
members, educational background or employment of head of family, apartment condition, business
engagement of the households, number of employed members with salary or other incomes,
vehicles owned by family members, some assistance and supports obtained from others and social
susceptibility.
In order to calculate poverty risk coefficient3 which is based on household capacity of living
standard, around 23,3 percent of 1000 households in the survey works had lower consumption
level while 34,8 percent have above the average consumption that means households should
upgrade their estimation by around 0,3 units in order to transfer to upper or upgraded groups. In
order to estimate poverty risk coefficient, poverty and family location, poverty and number of families,
poverty and educational background for head of family, poverty and employment for head of family,
poverty and apartment condition, poverty and social susceptibility were used in accordance with
data “Poverty image 2012” calculated by National Statistics Committee. The rest 4 groups of data
used some results of collective researches 2012. In other words, poverty and vehicles owned by the
households were considered by their types and models, poverty and number of employed members
of the household poverty and personal transfer, poverty and household business engagement group
data were calculated jointly with the team members from the National Statistics Committee4. For
National Statistics Committee, Poverty image-2012,2013
The privilege is living standard is calculated using 14 data out of National statistics Committee, “Living standard
setting methodology”
4
National Statistics Committee, Household Social and Economic Research team calculations
2
3
Methodology to set living standard of households:
On the example of Ulaanbaatar City
Page 60
instance, we made calculations by 7 data such as company, savings, or shop, shopping malls,
cafeteria, private cattle, land to obtain some income or no assets.
Number of family members with certain income was calculated by members above 15 years
of age or members with monthly income of above 96.000 tugrik. Income is referred to as some
income obtained from animal husbandry, land farming, non-agricultural production, trade and service
related information obtained at the level of households. Therefore, in order to transfer household
income into personal income, we have considered revenue for members that directly answered
in the question about their main employment; however, the employment for other members of the
family should be considered as revenue directly to a head of the family if no answer was given into
the question. Pension and subsidy income include pregnant mothers or mothers with infant suckling
babies, subsidy for disabled people, children subsidy for the loss of feeder, temporary subsidy for
loss of labor capacity, and some income from human development fund, and so on. We have also
considered some rent income of their properties such as apartment building, car, equipment, land,
savings interest, dividend income, loan interest, securities income, and permanent or weekly, monthly
and quarterly donations and gifts and assistance for members of the family. Poverty and vehicle type
include all the types of vehicles in one family.
The factors that make living standard lower than average include higher number of family
members, lower educational level for head of family, inhabitant in ger, or when head of the family is
herder, unemployed or has no assets or vehicles or obtain some assistances from nongovernmental
organizations or other international organizations or head of the family is physically disabled.
Summary and Recommendations
 The research work was conducted by the methodology that may set living standard of
household not only at the level of Ulaanbaatar city but also at the state level. So, we can use
the information data in practice.
 It is very important to use GINI index that classified like type of organizations of staffs, number
of household members, their sex and age levels.
 Staffs in Joint Stock Companies and Co., Ltd. have uneven distribution in their salary and
stimulations in comparison with other sectors that you can see from the results of the research
work.
 In accordance with the asset index, about 27,5 percent out of 828 households go into a group
of “very poor” households.
 By main index of households around 30 percent of the households go into a group of “very
poor”
 Asset index and higher probability and vulnerability to poverty of households are shown in the
results of the research work.
 Correlation coefficient between asset basic index and asset index that include only properties
make 0,959 that means living standard level is comparatively good.
 PCA analysis methodology is available to make an estimation of living standards of households.
 To calculate index of household income, it is more suitable to create linear data of long term
period in order to make permanent estimation on living standard of these families.
 Data included into asset index calculation or that decreases living standard level, it is necessary
to conduct some policies that attract attention of the state and government.
Page 61
Methodology to set living standard of households:
On the example of Ulaanbaatar City
Bibliography
In Mongolian
1. Х.Гүндсамбуу, Ч.Дагвадорж, Н.Тунгалаг, Я.Шуурав: “Өрх, иргэдийн амьжиргааны түвшинг
тодорхойлж буй өнөөгийн аргачлалыг судлах, хөгжлийн ижил төстэй зарим орнуудтай
харьцуулах нь” судалгааны тайлан, 2005 он
2. Нээлттэй Нийгэм Форум, Монгол дахь ядуурлын асуудалтай холбогдох, ном зүй, 2004
3. Дэлхийн банк, Ядуурлыг бууруулах ба эдийн засгийн удирдлага, Зүүн Ази Номхон далайн
бүс, Монгол Улс, Ядуурлын байдлын үнэлгээ, 2006
4. Монгол Улсын ЗГ, UNDP, Монголын хүний хөгжлийн индекс, 2007, Хөдөлмөр эрхлэлт,
ядуурал
5. Дэлхийн зөн, Монголын хөгжлийн гарц ТББ, “Гэр хорооллын айл өрхүүдийн амьжиргаа,
боловсрол, эрүүл мэнд, орчны эрүүл ахуйн нөхцөл байдал” судалгааны тайлан, 2006
6. Үндэсний статистикийн хороо, Дэлхийн банк, Монгол улс дахь ядуурлын дүр төрх-20072008, 2009
7. МУИС, ЭЗС, Б.Батмөнх, Макро эдийн засгийн болон аж байдлын үзүүлэлтээр хийсэн
хүчин зүйлийн судалгаа, 2010
8. МУИС, ЭЗС, Статистикийн тэнхим, Өрх, гэр бүлийн байдал, Хүн ам, орон сууцны 2010
оны тооллогын үр дүнгийн сэдэвчилсэн судалгаа, 2011
9. Үндэсний статистикийн хороо, Дэлхийн банк, Монгол улс дахь ядуурлын дүр төрх-2012,
2013
10. Үндэсний статистикийн хороо, UNDP, Мянганы хөгжлийн зорилтууд болон ядуурлын
зураглал-2011, 2012
11. Монгол Улсын ЗГ,UNDP, Монголын хүний хөгжлийн индекс, 2011, Тогтвортой хөгжил
болон эрх тэгш байдлыг хүний хөгжилтэй хослуулах нь, 2012
12. Монгол Улсын ЗГ,UNDP, Монголын хүний хөгжлийн индекс, 2014, Залгамж үеийнхээ
төлөө, 2014
13. ҮСХ, “Өрхийн нийгэм, эдийн засгийн судалгаа”, 2012
14. ҮСХ: “Орлогыг орлуулан тооцох аргаар өрхийн амьжиргааны түвшинг тодорхойлох
аргачлал” , 2010 он
15. Засгийн газар: “Тогтвортой амьжиргаа II төсөл” 2010 он
16. Оюу-Толгой төсөл, Хөдөлмөр эрхлэлт ба амьжиргааны түвшин, 2012
In English
17. Inequality in the distribution of household expenditures in Indonesia: A Theil decomposition
analysis, Takahiro Akita, Rizal Affandi Lukman, Yukino Yamada, The developing Economies,
XXXVII-2, (June 1999): 197-221
18. A wealth Index of Household Living Conditions in Mauritania, EI-Houssainy Abdel Bar Rady,
Ahmed Amin EI-Sheikh, Mohamed ould Aly Oumar,
19. Estimating wealth effects without expenditure data-or tears: an appliocation to educational
enrollments in states of India, Deon Filmer, Lant H. Pritchett
20. Household Income and Expenditure Survey Analysis Report, Federated States of Micronesia,
Division of Statistics, Office of Statistics, Budget and Economic Management, Overseas
Development Assistance, and Compact Management Federated States of Micronesia, 2007
он
21. Household Structure, and Household Income, and its Components over the Life-Cycle in
Turkey, Productivity Commission Staff Working Paper, 2012 он
Methodology to set living standard of households:
On the example of Ulaanbaatar City
Page 62
22. Trends in the Distribution of Income in Australia, Jared Greenville, Clinton Pobke, Nikki Rogers,
March, 2013
23. Attanasio, O. P., & Székely, M. (2000). Household saving in developing countries –inequality,
demographics and all that: How different are Latin America and South East Asia?. InterAmerican Development Bank, Research Department, Working Paper No:427.
24. Tansel, Aysıt. (1994). Wage employment, earnings and returns to schooling for men and
women in Turkey. Economics of Education Review, 13(4), 305-320.
25. World Bank 2012, GINI Index, World Development Indicators, http://data.worldbank.org/
indicator/SI.POV.GINI (accessed 15 November 2012).
26. 2006, Household Expenditure Survey and Survey of Income and Housing, User guide 200304, Cat. no. 6503.0, ABS, Canberra.
Page 63
Methodology to set living standard of households:
On the example of Ulaanbaatar City
Performance of Automobile Industry of Mongolian
Sansarmaa. B, Ramnath Takiar
University of Finance and Economics
Abstract:
INTRODUCTION: For the last century, the car culture has spread over the entire globe Mongolia,
itself does not have a domestic car manufacturer; therefore, its passenger car market has to totally
rely on foreign-made cars imported from up to 40 different countries. The sale of new and old cars
in Mongolia is increasing every year. A study was therefore carried out to explore the status of
Automobile Industry in Mongolia to assess; OBJECTIVES: 1.The current status of Automobile
industry; 2. The performance of Automobile industry; 3. The new car sales in Mongolia and 4.Predict
the sales of new cars and to give appropriate recommendations. METHODS: The secondary data
related to registered car in Mongolia during 2013-2015 was utilized. The GDP, Consumer Price,
Bank Loans issued, Unemployment during the same period were utilized as Independent variables
to predict the car sales for the year 2016-17. Method of Moving averages and Multivariate regression
analysis was used for data analysis and interpretations. RESULTS: GDP, Bank loan issued, CPI,
Quarter value (time variant) and sales value was found to be significantly contributing to the model.
The prediction of new car sales in Mongolia came out to be 1507 and 1060 for the year 2016 and
2017, which happened to be 17% and 42% less as compared to previous year estimates suggesting
a decreasing trend in the car sales. Based on the accurate sales forecast, budgeting by monthly and
quarter basis is advocated. Seasonal trend in car sale should also be considered for cash budgeting.
Key words: Automobile industry, Current status, Performance, New car, Prediction of sales
Introduction
For the last century, the car culture has spread over the entire globe. In Europe alone, the automotive
industry accounts for roughly 12 million jobs (including related jobs); in the US, more than 8 million;
and in Japan, more than 5 million (McKinsey & Company , Inc, 2013). There are three major
automakers are leading in global market by its capital and business alliance. Those are Toyota
Motors from Japan, Volkswagen group from Germany and General Motors from USA. They are
expanding their existence by making business alliance with other small automakers and cooperating
in new technology development.
Mongolia, itself does not have a domestic car manufacturer; therefore, its passenger car market
has to totally rely on foreign-made cars imported from up to 40 different countries (Mongolian
Statistical Yearbook, 2014). Total registered units in Mongolia is increasing aggressively every year
which was 20 units in 1929 is now reached 437,677 units as of 2014. A research study was therefore
carried out to explore the status of Automobile Industry in Mongolia with the objectives of Assessing:
1. The Current Status of Automobile Industry
2. The Performance of Automobile industry
3. The New car sales in Mongolia and
Performance of Automobile Industry of Mongolian
Page 64
4. To Predict the Sales of New Car and Give appropriate Recommendations
The growth of vehicle in Mongolia is shown below in Fig. 1
Source: National statistics book 2014
The number of registered vehicles has almost increased more than5 times since the year
2005 in Mongolia. The growth of vehicles could be due to following reasons:
• Successful Shifting from a centrally planned economy to a market economy. Mongolia
has made good progress in undertaking fundamental economic reforms centered on
price liberalization, privatization, and in establishment of market institutions. Since that
time, Mongolia has joined many international conventions and agreements and foreign
trade expanded to other third countries.
• Mining sector development has been accelerated since 2000 and moreover, the intensive
mining has brought economic development and accelerated construction sector as well
increased use of private vehicles (Ministry of Nature, Environment and Tourism of Mongolia ,
2010).
•
•
•
Sustainable growth of rising household income and increase in population of urban cities.
Limited access of public transportation in urban areas and under-developing road
infrastructure condition.
However, this growth trend has changed in last five years particularly after the year 2011
vehicle’s import has gradually decreased by average 13% up to 2015 year (Fig. 2).
Page 65
Performance of Automobile Industry of Mongolian
Vehicles segment composition
Source: National statistics book 2014
If we see types of total registered vehicles in the market, in average 67% is passenger car, 24% is
trucks, 6% is buses and 3 % is special purpose vehicles. Of all the vehicles registered in Mongolia,
about 68% are registered in capital city Ulaanbaatar, alone (National statistics book 2014).
Vehicles age
Generally, cars in the market are classified by three categories by their age namely 1 to 3 years
old (brand new car), 4 to 9 years and 10 and more years (second hand cars). Based on the total
vehicles registered in year 2014, the percentage of cars in above categories were 5%, 20% and 75%
respectively (National statistics book 2014). Thus, it can be concluded that second hand vehicles
dominate the Mongolian vehicle market.
Dealers and distributors in mongolia
Currently in Mongolia, officially 17 passenger car dealer and distributor companies are operating inorder to represent the manufacturers brand and supply it with 1S to 4S (sale, service, system, spare
parts) service in the market. All dealers are found to be arranging loans for their customers (Table 1).
In case of Mongolia, automotive official sales representatives have both dealer and distributor
company function. Due to it’s developing stage of economy and small market size, some manufacturer
assign the local company directly or through the multinational trading houses (especially Japan
manufacturers are dealing with this business model).
Financial performance analysis
Financial ratio analysis is pretty powerful thing and is essential for successful decision-making. To
analyse each dealer company’s financial performance, researcher collected 12 sample companies’
financial statements for 3 continues years (2013 to 2015), out of 17 companies. Primary data is
collected from Taxation office in pure purpose of academic research. Due to company’s financial
information non-disclosure issues, I coded 12 companies by D1 to D12 order and showed their
results by dividing all numbers in digit 2 (Table 2).
To provide a basis for analysis, for each financial ratio, the firm adjusted as the best was given
one point and the next one, two points, and the last one as 12 points. The total points for each ratio
category were then computed to arrive at the composite score, an overall basis for analysis.
Based on financial ratio ranking and sales performance ranking, most well ranked company in
sales are not good at financial ratio ranking. For example, the dealer D10 was ranked as 1 in sales
Performance of Automobile Industry of Mongolian
Page 66
while based on ratios, it was ranked as 10 (Table 2).
Table1: Dealers and Distributors of Vehicles and Their Retail Finance type in Mongolia
No
Authorized Dealer
Official status
Brand name
Dealer Distributor
Retail finance type
Own finance
company
Bank
loan
1
Khet Motors LLC
Toyota
+
-
-
+
2
Wagner Asia Automotive
LLC
Ford, Land rover, Range
rover, Lincoln
+
+
+
+
3
Bodiz Automotive LLC
Toyota, Skoda
-
-
Mazda
+
-
-
+
4
Monnis Motors LLC
Nissan, Infinity
+
+
-
+
5
Bridge Group LLC
Suzuki
+
+
-
+
6
Mongolian Star Melchers Mercedes Benz, Jeep,
Group LLC (MSM Group) Dodge
+
+
-
+
7
Mongol Hyundai
Automotive LLC
Hyundai
+
+
-
+
8
BMMM LLC
Mitsubishi
-
+
-
+
9
Nomin Motors (Nomin
trading LLC)
Chevrolet, Citroen,
Hammer, Cadillac,GMC
+
+
-
+
Volkswagen
+
+
Toyota
+
-
+
+
Lexus
-
-
10
Tavanbogd Motors LLC
11
Naran Motors LLC
BMW
+
+
-
+
12
Mongol Subaru
Automobile Company
Subaru, Ssang Yong
+
-
-
+
13
Munkhada LLC
Toyota
+
-
-
+
14
Kia Motors Mongol LLC
Kia
+
+
-
+
15
Baz Automotive LLC
(Baz-International LLC)
Peugeot
+
+
-
+
16
Starchase Motorsports
Mongolia LLC
Porsche
+
-
-
+
17
Max Group LLC
Honda
+
+
-
+
(Source: Author’s observation and study)
Table 2: Performance ranking of each company based on both Sales and Financial Ratios
Well performing companies by sales value
Dealer
Companies
Sales units
Average Unit
Value
TTL Value earned
Sales
Ranking
Ratio
Ranking
Most well
performing
D2
D4
116
84
131,667,628
108,010,981
15,273,444,902.87
9,072,922,442.14
4
6
2
1
6
7
Page 67
Performance of Automobile Industry of Mongolian
D8
D6
D10
D1
D3
D9
D5
D7
D12
219
182
705
131
32
47
11
89
6
112,097,572
79,279,765
109,344,126
149,859,615
26,483,018
86,200,868
57,290,680
33,748,664
118,568,486
24,549,368,190.62
14,428,917,303.42
77,087,609,144.42
19,631,609,579.07
847,456,573.40
4,051,440,807.85
630,197,485.38
3,003,631,100.22
711,410,915.43
D11
3
53,052,963
159,158,890.11
2
5
1
3
9
7
11
8
10
6
5
10
9
3
7
4
8
12
8
10
11
12
12
14
15
16
22
12
11
23
Correlation of Sale and ratio
Grand Total
1756
107,171,774
188,193,635,145.30
Ranking is 0.12
Source: Author’s calculation
Sales forecast analysis for brand new cars
Sales forecast is a key element in conducting automotive dealership business. Accurate and good
forecasting helps developing and improving strategic planning and understands the market trend
itself.
In-order to forecast sales accurately, factors such as general economic conditions, consumers,
automotive global and domestic behaviours, dealer companies features and changes and periods
have been considered carefully.
Thus, by descriptive analysis, researcher concluded analysis of how key macroeconomic
indicators are affecting to the brand new car sales and what are their relationships based on last
three years data in a quarter interval. Significance of this analysis is, it enable financial planner to
calculate and predict how the brand-new car sales will fluctuate in accordance with macroeconomic
movement of the region.
To understand and select the major macroeconomic indicators, first studied theory of demand and
its determinants. Because demand and supply have also been generalized to explain macroeconomic
variables in a market economy, including the quantity of total output and the general price level
Selection of key determinants in car demand
GDP: The Real Gross Domestic Product is selected as one of the key macroeconomic indicator that
may affect the car sales. The GDP can be taken as a proxy to Income (a rise in a person’s income
will lead to an increase in demand, a fall will lead to a decrease in demand for normal goods) and its
distribution in the community
Gross domestic product is an aggregate measure of production equal to the sum of the gross
values added of all resident institutional units engaged in production (plus any taxes, and minus
any subsidies, on products not included in the value of their outputs). The sum of the final uses of
goods and services (all uses except intermediate consumption) measured in purchasers’ prices, less
the value of imports of goods and services, or the sum of primary incomes distributed by resident
producer units. (OECD, glossary of statistical terms)
The Real Gross Domestic Product is an inflation-adjusted measure that reflects the value of all
goods and services produced in a given year. Unlike nominal GDP, real GDP can count for changes
in the price level, and provide a more accurate figure. So Real GDP is taken in regards of income of
the community.
Bank loans for car purchase: Brand new car’s market price is generally high and is not affordable
by many customers to provide immediate cash for purchasing the vehicle. An alternative source of
finance to a customer in such a situation is loan and financial help provided by the dealer himself
or by the banks and other financial institutions. Since there is a limited availability in dealership
Performance of Automobile Industry of Mongolian
Page 68
financing, the most common available financial source is commercial bank’s loan. Currently all
commercial banks are providing financial loans for costumers who are planning to buy car based on
their credit rating.
Thus, it was collected leading 6 commercial bank’s 3 consecutive year’s loan amount per quarter
bases and analysed as one key macroeconomic indicator that may affect the car sales. Loans are
taken as a general habits for peoples spending and procuring habits.
Value of the product (without dealer margin): Official dealer companies’ sales are consists
of various brands and each brand varies by its price and technical features. Thus, the product input
value is selected as one of the key determinants of the demand (Table 3).
Time series: All data’s that is used for regression analysis is found in quarter basis for 3 years.
Therefore time analysis is based on 4 quarters for 3 years of interval and time values are taken 4
quarters by 3 years and total 12 months.
Unemployment: Unemployment occurs when people who are without work and are actively
seeking work. The unemployment rate is a measure of the prevalence of unemployment and it
is calculated as a percentage by dividing the number of unemployed individuals by all individuals
currently in the labor force.
Table3: Sales of the Cars by Brand and its Input Value (as of 2015)
Sales of the Cars by Brand and its Input Value
(as of 2015)
Brand
Sales number
Average Unit Value
(Mil Tug)
Toyota
Nissan
Land Rover
Hyundai
Mercedes-Benz
Porsche
Lexus
Jeep
Ford
Suzuki
Subaru
Volkswagen
Mazda
Peugeot
Chevrolet
BMW
Kia
Other
973
182
96
89
74
66
58
42
35
32
29
27
18
14
10
6
3
2
106.7
79.2
179.8
33.7
163.6
229.1
166.4
75.3
67.5
26.4
44.0
71.8
43.6
54.9
57.5
118.5
53.0
46.2
Grand Total
1756
Source: Summary based on Import statistics of 2015
Increases in the demand for labor will move the economy along the demand curve, increasing
wages and employment. The demand for labor in an economy is derived from the demand for goods
Page 69
Performance of Automobile Industry of Mongolian
Consumer Price Index (CPI): A consumer price index (CPI) measures changes in the
price level of a market basket of consumer goods and services purchased by households.
The CPI is a statistical estimate constructed using the prices of a sample of representative
items whose prices are collected periodically. The annual percentage change in a CPI is
and services. If the demand for goods and services in the economy increases, the demand for labor
used
as a measure
of inflation.
A CPI
can be Increasing
used to index
thesupply
real value
of wages,
salaries,
will increase,
increasing
employment
and wages.
money
in general
will increase
and
pensions
for regulating
and fordemand
deflating
show
changes
short-term
demand.
Long-term prices
the increased
willmonetary
be negatedmagnitudes
by inflation. to
A rise
in fiscal
expenditures
is (Investopedia,
another strategy 2016)
for boosting aggregate demand. (Wikipedia org, 2016)
in
real values.
Consumeranalysis:
Price Index
(CPI):
consumer
index (CPI)
in GDP,
the price
Regression
Sales
of Athe
car canprice
be believed
to measures
be relatedchanges
to Real
Loan
level of a market basket of consumer goods and services purchased by households. The CPI is a
amount
the leading
banks,
car'sof input
value,
unemplyoment
andprices
CPI in
statisticalissued
estimatebyconstructed
using
the prices
a sample
of representative
itemsrate
whose
accordance
demand
the datachange
was obtained
above
quarterly
are collected with
periodically.
Thetheory.
annual So
percentage
in a CPI ison
used
as a variables
measure ofin
inflation.
A CPI for
canthe
be used
indextothe
real value
wages, salaries,
andanalysis
pensions was
for regulating
prices
and the
basis
yearto2013
2015.
The of
multiple
regression
attempted
taking
for deflating monetary magnitudes to show changes in real values. (Investopedia, 2016)
car sales as dependent variable and real GDP, loan amount, time series, unemplyoment rate,
Regression analysis: Sales of the car can be believed to be related to Real GDP, Loan amount
car
input
and CPI
as independent
variables.
issued
by value
the leading
banks,
car’s input value,
unemplyoment rate and CPI in accordance with
The
future
trend
was on
obtained
in two ways.
1. Using
analysis
demand
theory.
Soin
thenew
datacar
wassales
obtained
above variables
in quarterly
basismulti-variate
for the year 2013
to
2015.
The
multiple
regression
analysis
was
attempted
taking
the
car
sales
as
dependent
variable
and 2. Seeing the trend in car sales by moving averages. The result of multi-variat analysis
and real GDP, loan amount, time series, unemplyoment rate, car input value and CPI as independent
showed
that, the sales value and quarter value which are significantly related to new car
variables.
sales.
unemplyoment
not found
to be 1.significantly
related
with sales
TheHowever,
future trend
in new car salesrate
waswas
obtained
in two ways.
Using multi-variate
analysis
and at
5%
level (Table
4). in car sales by moving averages. The result of multi-variat analysis showed
2. Seeing
the trend
that, the sales value and quarter value which are significantly related to new car sales. However,
unemplyoment rate was not found to be significantly related with sales at 5% level (Table 4).
Table 4: Result of multi-variate regression analysis by SPSS
Table 4: Result of multi-variate regression analysis by SPSS
Result of multi-variate regression analysis by SPSS
Model
B
t
1
(Constant)
GDP
Loan
874.880
0.100
8.93E05
Sales input value
0.008
Quarter Values
-33.962
CPI
-9.312
a. Dependent Variable: Sales
P value
2.012
3.831
1.732
0.0455
0.0045
0.067
18.807
-7.528
-2.055
0.001
0.001
0.043
GDP – Real Gross Domestic Product
Loan*- Loan amount that issued by leading 6 commercial banks for car procurement
QV – Quarter value time series
9
CPI- Consumer Price Indexes
Sales value – Car’s input value
* According to result, loan amount found to be not significant at 5% level but its probability of significance
was around 7%, and expected to have a definite role in sales, the sales was included in the multiple
regression equation as one of the independent variable. All the selected independent variable like
GDP, Loan, Sales value, Quarter value (representing the time), are theoretically known to influence
the car sales, one tail significance test was considered as appropriate for the analysis purposes.
Sales forecast for upcoming two years
Based on the collection of data, trend analysis was conducted and as a result no linear trend was
seen in car sales. This led me to conduct moving average method to prospect the upcoming two
years new car sales in the market in total by using multi-variate equation model.
Performance of Automobile Industry of Mongolian
Page 70
For the assessment of future values of selected independent variables like GDP, Loan, Quarter
value and Sales value, the moving average approach was utilized (Table 5). Accuracy for calculation
was analysed by comparing the actual result with forecasted numbers and result showed that average
accuracy of prediction was 99.97% (Table 6).
Table 5: Predicted values of parameters to be used in Multivariate equation.
Forecasting years
Time series
GDP1
Loan2
CPI1
Sales value3
13
3033
958563.9
98.1
24619.4
14
4409.2
1279377.7
101
86031.7
2016
15
4668.9
1005778.5
102
56297.3
16
4528.6
1294930.3
105.3
71095.3
17
3223.8
1095017.2
96.5
27087.9
18
4600
1415830.9
99.4
88500.1
2017
19
4859.7
1142231.8
100.4
58765.7
20
4719.4
1431383.6
103.7
30929.1
1
2
3
NSO of Mongolia-2015; Bank of Mongolia-2015; Mongolian Custom’s Statistics 2015
As a result, based on predicted macro-parameters by using multi-variat equation, new car
sales for upcoming two years are forecasted as below (Table 7).
Table 6: Forecasting of sales and it’s accuracy by the selected multi-variate model
Year
2013
2014
2015
Quarter
1
2
3
4
5
6
7
8
9
10
11
12
Sales (S)
Predicted (P)
% Accuracy =
(S/P)*100
446
703
717
525
461
1204
801
442
267
727
310
445
100.0
102.9
95.7
97.9
106.0
99.0
99.1
105.2
89.9
106.1
104.4
93.3
446
683
749
536
435
1216
808
420
297
685
297
477
Mean
99.97
5.22
Standard dev.
Source: Author’s calculation
Table 7: Multivariate equation model result
Forecasting years
Total Sales
Change % from 2015
2016
2017
1494
866
-18%
-103%
Source: Author’s calculation
But to make the sales more accurate, moving average for sales only was conducted. And result
found as below (Table 8).
Page 71
Performance of Automobile Industry of Mongolian
As a result both multi-variant equation and moving average method, upcoming years new car
sales are decreasing.
Table 8: Predicted new car sales in 2016 and 2017 by moving average method.
Forecasting
years
Time series
13
14
15
16
17
18
19
20
2016
2017
Predicted sales Total Predicted
(quarterly)
Sales
240
611
416
240
176
436
288
160
Change %
compared to
previous year
1507
-17%
1060
-42%
Source: Author’s calculation
Seasonal trend in new car sales
In-order to see whether new car sales follow any seasonal trend, data was obtained by years (2013
to 2015) and quarters (Q1 to Q4). So the seasonal variation was observed in the sales of the new
cars. The maximum sales were in Quarter 2 (37%) followed by Quarter 3(25%). Thus. Based on this
result, hypothesis is proved (Table 10).
2013
2014
2015
Q1
446
435
297
2013
2014
2015
Average
18.5
15.1
16.9
16.8
Table 10: Quarterly sales and trend
Q2
Q3
Q4
683
749
536
1216
808
420
685
297
477
Sales as Percentage (%) of Total sales
28.3
31.0
22.2
42.2
28.1
14.6
39.0
16.9
27.2
36.5
25.3
21.3
TTL
2414
2879
1756
100
100
100
100
* - Top sales; * The second top sales
Source: Author’s calculation
So based on research analysis, researcher recommends followings as a priority for automotive
dealer companies.
• Make accurate sales forecast by selecting appropriate indicators.
• Based on the accurate sales forecast, then make budgeting by monthly and quarter basis,
coordinate with investment plan.
• Make break-even point analysis
• Seasonal trend should be considered for cash budgeting
• Expand loan capacity by cooperating financial institutes
• When planning sales should be consider not only by value but also by brand reputation
• Expand share market and improve brand image
• Improve inventory management system (Just-in-Time etc.)
• Introduce costumer to costumer, face to face sales approach and find out potential customer.
Performance of Automobile Industry of Mongolian
Page 72
• Introduce Total-Quality-Management.
• Expand and improve sales-supporting business of spare parts and after-sales service.
Bibliography and reference source
•
ACCA. (2015). Paper P4 Advanced Financial Management. London: BPP Learning Media Ltd.
•
Arnold, G. (2008). Corporate Financial Management (5th Edition ed.). Pearson.
•
Bank of Mongolia. (2015 йил 5-January). www.mongolbank.mn. Retrieved 2015 йил
24-February from http://www.mongolbank.mn/eng/liststatistic.aspx
Clearwater industrials team report . (2013). Global Automotive Report 2013. In J. Pendrill (Ed.).
EIU/KPMG survey - forecasting with confidence. (2013).
IFC. (2013). www.ifc.org. (&. C. I. F. Corporation, Producer) Retrieved 2015 йил 24-February
from http://www.ifc.org/wps/wcm/connect/2497ac00420dd6e7a00bff494779b2ad/Mongolia_
Scorecard_2013_ENG.pdf
Invest-Mongolia. (2014). http://invest-mongolia.apip.com. (Invest-Mongolia, Producer)
Retrieved 2015 йил 5-January from http://invest-mongolia.apip.com/mining/foreign-miningcompanies
Investopedia. (2015). www.investopedia.com. (Investopodia, Producer) Retrieved 2014 йил
28-February from http://www.investopedia.com/articles/basics/12/beginners-guide-miningstocks.asp
KPMG. (2012). www.kpmg.com. (KPMG, Producer) Retrieved 2015 йил 20-February from
http://www.kpmg.com/MN/en/IssuesAndInsights/ArticlesPublications/Investment-2012/
Documents/InvestmentInMongolia2012.pdf
National Statistical Office of Mongolia. (2015 йил 5-January). Retrieved 2015 йил 24-February
from www.nso.mn: http://www.nso.mn/content/1072# , http://1212.mn/en/
OECD. (2009). The Automobile industry in and beyond the crisis.
Stephen A. Ross, R. W. (2013). Fundamentals of Corporate Finance (10th ed., Vol. Standard).
New York, USA, United States of America: McGraw-Hill/Irwin.
World Bank . (2009 йил June). www.worldbank.org. (WorldBank, Producer) Retrieved 2015
йил 24-February from http://www.worldbank.org/ifa/rosc_cg_mongolia_09.pdf
•
•
•
•
•
•
•
•
•
•
Page 73
Performance of Automobile Industry of Mongolian
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES:
REFLECTIONS OF THE HERDER GROUP LEADERS IN EXPERIMENTAL
LOCALITIES IN MONGOLIA
Nyamdorj. D, Freelance Consulting, Tserendash. S, Mongolian Academy of Agriculture Sciences,
Torno. T, Rural Development Expert, Mendbayar. B Pasture specialist
Abstract
A natural pastureland is considered as one of the important ecological factors that influence to
sustainability of animal husbandry in Mongolia. About 90% of the national pasture land is categorized
as a susceptible to desertification. Main factors that cause to the land desertification are climate
changes and human factors, which human factor contributes about 42 percent to. Due to a loss
of the traditional herding practices, there was occurred unpredicted deterioration of the pasture
conditions for last 30 years. A collaborative management, which is supported with combination of
indigenous and expert knowledge, will help to prevent from pastureland degradations. An industrial
research experiment on application of the collaborative pasture management was demonstrated
in Buutsagaan, Khureemaral and Zag soums (sub-districts) of Bayankhongor aimag (province)
in Mongolia in 2012-2016 under a financial support by ADB Japan Fund for Poverty Reduction Establishment of Climate Resilient Rural Livelihood Project. There were conducted two types of
studies, questionnaire and pasture surveys. The questionnaire survey was obtained from members
and leaders of herder groups, non-group herders, and local government officials. This paper
illustrates only reflections of the herder group leaders on usage of collaborative management of
pasture resources in those soums.
Key words. Herder groups, leaders, planning, implementation, control, vegetation
Introduction
The UN Climate Change Conference was organized in Paris in 2015 under a motto of “Last Chance”,
drawing attention of the global population into global warming problems (COP21, 2015). The global
warming much influences into animal husbandry, land use, and ecology (Dagvadorj, Natsagdorj,
Dorjpurev, & Namkhainyam, Mongolia Assessment Report on Climate Change 2009, 2010). According
to the 5th Biodiversity Convention Report, about 78% of pastureland of Mongolia is affected with
desertification, for which a human contribution is accounted as 39-44% (БОЯ, МУИС, 2015, хууд.
18). 90% of pasture was changed from its initial natural conditions, 80% of which was converted into
such situations that pasture land conditions could be recovered as result of improvement of pasture
use method (Булгамаа, Будбаатар, Анхцэцэг, Сүмжидмаа, Ганхуяг, & Брандон, 2015). There
have been implemented several donor projects in Mongolia in areas of improvement of pasture
management practices. All those projects comprised only limited scales: comparatively small pasture
areas and limited number of herder households. ADB “Establishment of Climate Resilient Rural
Livelihoods” the project that experimented collaborative pasture management practices activities
comprised about 80% of soum pastureland and 73% of overall herder households.
Background
World widely, livelihoods of about 1 billion people are dependent on pastureland, which comprises
about 40% of the dry land (David R. Kemp, 2013). As a landlocked and high elevated country,
Mongolia’s ecosystem is very much susceptible (Цэрэндаш, Төмөржав, & Гомбосүрэн, Газар,
бэлчээр, мал, 2003). Ancient people in the Central Asia were made an animal husbandry as a main
source of their livelihoods about five thousand years ago (Төмөржав & Эрдэнэцогт, Монголын
нүүдэлчин, 1999, хууд. 3). Mongols evolved a “classic” nomadic animal husbandry by many
centuries within complicated systems of nature, livestock, and human (Төмөржав & Эрдэнэцогт,
Монголын нүүдэлчин, 1999, хуудсд. 108, 110). Within these complicated systems the human plays
a role of the coordination and ruling (Төмөржав, Монголын бэлчээрийн мал аж ахуй, 2004, p. 38).
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES: REFLECTIONS OF
THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES IN MONGOLIA
Page 74
Pastureland. Mongolia has a territory of 156.4 million hectare, of which 72% is accounted as
pastureland. Overall forage resource is estimated about 46 million tones (Цэрэндаш, Лхагважав,
& Алтанзул, Бэлчээр судлал 50 жилд, 2011, p. 7). This makes about 98% of feed that national
livestock utilize annually (Цэрэндаш, Монгол орны бэлчээрийн нөөц түүнийг ашиглах, хамгаалах
бодлогын зарим асуудал, 2012). According to the SDC report, a livestock number has reached
to about 85 sheep units in 2014 (ШХА-Ногоон алт төсөл, 2015). But overall carrying capacity of
national pasture is estimated from 75 (ХХААЯ, 2013) to 86 million sheep units (Цэрэндаш, БуянОрших, & Цэрэндулам, Монгол орны бэлчээрийн чадавхи, экологи чанарын үнэлгээ, 2000).
These facts show that the pasture carrying capacity is nearly reached to the ceiling as of 2014.
Systematic and purposeful scientific researches concerning pasture vegetation have been
undertaken since 1921, and been accelerated since 1969, when a professional research institute
was founded in the country (Цэрэндаш, Лхагважав, & Алтанзул, Бэлчээр судлал 50 жилд, 2011).
According to the 5th Biodiversity Convention Report, about 78% of pastureland is affected with
desertification in certain degrees. For desertification a human effect is estimated 39-44% among
other factors (БОЯ, МУИС, 2015, хууд. 18). According to the SDC report, plant species that are
below a reference level are occurred in 65% of surveyed areas, and 30-35% of pasture land, except
a desert zone, was over utilized (ШХА-Ногоон алт төсөл, 2015, хуудсд. 15, 25).
Herds & herders. As shown on a below bar chart, a livestock number of the country was doubled
within 1989-2014 and a flock composition was dramatically changed because of the goat number
increase. At the same time, a herder numberArticle
was almost
too. Journal of Management
for thedoubled,
International
Article for the International Journal of Management
2014
2014
2013
2013
2012
2012
2011
2011
2010
2010
2009
2009
2008
2008
2007
2007
2006
2006
2005
2005
2004
2004
2003
2003
2002
2002
2001
2001
2000
2000
1999
1999
1998
1998
1997
1997
1996
1996
1995
1995
1994
1994
1993
1993
1992
1992
1991
1991
200%
200%
150%
150%
100%
100%
50%
50%
0%
0%
1990
1990
Figure 1 Herder numberFigure
changes1between
and 2014
Herder1990
number
changes between 1990 and 2014
Figure 1 Herder number changes between 1990 and 2014
The national statistical office classifies herder families into 10 classes in terms of their animal
NationalFor
statistical
herder
classes
terms
the animal
numbers.
last 25 office
years classifies
(1990-2014),
thefamilies
herdersinto
who10have
lessinthan
100of livestock
were
National
statistical
office
classifies
herder
families
into
10
classes
in
terms
of
the animal
number
they
hold.
For
last
25
years
the
herders
who
have
less
than
100
livestock
were
decreased, and the livestock are becoming to get concentrated with hands of a few herders.
number
they
hold.forFor
lastcategories.
25 years the herders who have less than 100 livestock were
decreased,
except
other
Figure
2 Herder classes change between 1990 and 2014
decreased, except for other categories.
35%
30%
35%
25%
30%
20%
25%
15%
20%
10%
15%
5%
10%
0%
5%
0%
2 Herder
classeschange
change between
19901990
and 2014
FigureFigure
2 Herder
classes
between
and 2014
1990-1994
1990-1994
1995-1999
1995-1999
2000-2004
2000-2004
2005-2009
2005-2009
2010-2014
2010-2014
Pasture management. According to the Mongolia’s Constitution, a pastureland is a state
Pasture
According
to thecommonly.
Mongolia’sIt Constitution,
a pastureland
is a state
property.management.
Pasture resources
are utilized
has non-excludable
and sub-tractable
property. Pasture resources are utilized
commonly.
has non-excludable
and Traditionally,
sub-tractable
featuresIt (Долгорсүрэн,
2015).
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES: REFLECTIONS OF
PageFigure
75
features
(Долгорсүрэн,
2015).
Traditionally,
Mongols
pay
high
significance
to
the
land
and
IN MONGOLIA
3 Traditional use of pasture (Ts.Tserendash THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES
2003)
high
significance
to the
and
consideredpay
it as
a base
of the state
in land
Xiongnu
Figure 3 Traditional use of pasture (Ts.Tserendash Mongols
2003)
considered
as a- base
of the
state in Xiongnu
Empire
(209it BC
93 AD)
(Википедиа,
2016).
Empire
BC Empire
- 93 AD)
(Википедиа,
2016).
During (209
Mongol
(1206-1405)
Chinggis
Pasture management. Mongols pay their high attention
to the land during Xiongnu Empire (209 BC - 93 AD),
and considered it as a “root of the state” (Википедиа,
2016). During the Mongol Empire (1206-1405) Chinggis
khaan solely owned the land, and from time to time it
shifted to aristocrats’ possessions (Баянжаргал, 2004)
till XX century and the herder had only user rights
(Батхүрэл & Дорж, 2011, хууд. 167). Traditionally,
Mongols understood and considered pasture always
within its ecosystem; had four season migrations and
frequent movements to utilize pasture resource and to
prevent from degradations (Цэрэндаш, Төмөржав, &
Гомбосүрэн, Газар, бэлчээр, мал, 2003). During a
socialist economy pastureland belonged to a public or
state. A herder cooperative “negdel” coordinated and
managed whole pasture area utilizations within its
soum territory. This was partly negatively influenced to
old traditional practices, but in other hand such
coordination helped to do land improvement, enrich pasture water supply, and to increase economic
return (Жигжидсүрэн, 2005).
Due to a collapse of the centrally planned economy in beginning of 1990s, those negdels
were dismantled and bankrupted (Авирмэд, 2014), and the pastureland became a state property
(Constitution of Mongolia, 1992). Pasture relations were left miserable, because pastureland
utilization was left for commons without clear distinctions and regulations (Минжигдорж, 2012). To
resolve current problems related with pasture utilization, it is necessary to introduce a proper pasture
management involving herders, to support cooperation among herders (Гансэлэм.Д, 2009), and to
introduce pasture use planning in the soums (Цэрэндаш, Төмөржав, & Гомбосүрэн, Газар, бэлчээр,
мал, 2003), (ҮХААЯ, 2012). Despite of a privatization or state management, researchers suggested
a third way to utilize common natural resources, which is to be managed by self-governing institutions
of the resource users (Ostrom, 1990) with coordination of other stakeholders. There are three main
stakeholders, namely a state, local government, and herders, who should have an equal collaboration
and cooperation to utilize pasture resources. Results of the collaboration may depend on who will
do what kind of activities when (Цэрэндаш, Төмөржав, & Гомбосүрэн, Газар, бэлчээр, мал, 2003).
According to the Mongolia’s Constitution, a pastureland is a state property. Pasture resources are
utilized commonly. It has non-excludable and sub-tractable features (Долгорсүрэн, 2015).
Figure 3 Traditional use of pasture (Ts.
Tserendash 2003)
Methods
Theory. Despite of a privatization or state control, there was suggested another way of utilizing
common natural resources by researchers. A self-governing institution that is self-organized by
resource users could be a potential solution for long term utilization of common pasture. There
was identified a framework of a long term enduring, self-organizing, and self-governing intuitions
with 8 principles, which are such clearly defined boundaries, congruence between appropriation
and provision rules and location conditions, collective-choice arrangements, monitoring, graduated
sanctions, conflict resolution mechanisms, minimal recognition of rights to organize, and nested
enterprises for larger systems (Ostrom, 1990). For doing pasture management there are required
three main parties such as state, local government, and herders. These parties must have an equal
right on cooperation to manage pasture resources. Results of the collaborative efforts depend on
who will do what kind of activities when (Цэрэндаш, Төмөржав, & Гомбосүрэн, Газар, бэлчээр,
мал, 2003).
Research goals. The research aimed to experiment a collaborative management practices in
certain neighboring soums covering majority of the pasture territory and the herder households by
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES: REFLECTIONS OF
THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES IN MONGOLIA
Page 76
organizing and improving local institutions for use of common pasture in order to reduce or prevent
from pasture degradations. Following steps were applied for executing industrial experiments.
• Investigate pasture conditions at the start
• Support herders in organizing self-governing (pioneer and satellite) herder groups based on
“neg nutgiinkhan, neg usniikhan”, (people from the same pasture and water resources)
• Strengthen a local capacity on application of the traditional practices combined with
scientific knowledge
• Enroll local herder, government leaders and specialists, into collaborative management
practices with assistance of national professional experts
• Elaborate a herder group level pasture use plan together with sketch map in consultation
with bagh (lowest administrative unit) governor, introduce to bagh khural (assembly) and
integrate them as a bagh level pasture use plan
• Organize an annual stakeholders’ consultative workshop on “Soum pasture use” in order to
integrate all herder groups or bagh level pasture use plans as a soum level pasture use plan
• Submit a soum pasture use plan to a soum government for integration into to a soum land
use plan, and to a soum citizens assembly for ratifications
• Establish a pasture use agreement between herder groups and a soum governor
• Assist to herder groups and bagh governors in implementing, monitoring, and planning
• Conduct a pasture vegetation study on experimental areas with participation of representative
of herders, bagh governor, and soum specialists.
Stakeholders of the collaborative management who participated in research three soums were
herder groups, herder group leaders, bagh and soum governors, soum pasture specialists, and
professional experts. For the research there were used (i) structured questionnaire surveys of
treatment and control herder households, herder group leaders, and bagh governors (ii) interviews
with soum and bagh governors, and soum pasture specialists, and (iii) pasture vegetation study on
experiment areas.
Samples. There were 74 herder groups, who involved into industrial experiments during 20122015. Out of which 70 herder group leaders were interviewed. A sample fully represents their
representative herder groups in the soums.
Content of questionnaire. It contains 3 sections such as background information, herder
origination, pasture use, monitoring, and results. The background section contains information about
age, size of family, years of herding, livestock number, possession of yards in a soum center, and
animal shelters. The herder organization section contains information such as a year of herder group
establishment, year of enrollment to a group, group objectives, rule coherence with local situations,
important points of the rule, roles of the group leader, problems faced at earlier stage, problems
resolved, group meetings, significance of the herder groups, decision making, monitoring, sanctions
for rule-breakers, disputes, local government attitude, and group goals. The pasture use section
contains information about pasture use planning at group and bagh, start of pasture planning,
stakeholder roles, cost of using pasture, implementation and monitoring, and impacts.
Results
This section contains only results of the questionnaire survey that was taken only from the (70)
herder group leaders in experimental soums.
Background section. Out of surveyed 16% were young, 77% were middle, and 7% were elders in
accordance with national statistical herder age classification. About 64% of group leaders had 3-5
family members, and 22% had 6-7 family members. In other side, 54% family had 3 adult members
for herding, 20% had 4 members, 15% had 1-2 members, and 9 had 5 or more adult members in
family. Out of interviewed 60% had a family use fenced land in soum centers.
Page 77
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES: REFLECTIONS OF
THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES IN MONGOLIA
Item
Members
Members, %
Adults for
herding,%
1
0
2
14
4
11
Table 1 Family member composition
Composition
3
4
5
6
19
19
26
16
54
20
7
0
7
6
8
0
9
1
1
0
1
Article for the International Journal of Management
Out of surveyed, 32% herder group leader family had 201-500 livestock, 23% had 501-999, 23%
had 1000-1499 livestock,Figure
and 21%
hadhousehold
less than
200inlivestock.
Out ofnumber
herder group leaders 89% and
4 Herder
classes
terms of livestock
81% had animal winter and spring shelters, and 86% had summer pasture.
40
29 of livestock number
Figure 4 Herder household classes in terms
21
21
16
30
20
10
0
0
1
0
-10
11-30
31-50
2
1
51-100
101-200
201-500
501-999
1000-1499
1500-
Herder group leader
Herder group section. Out of surveyed herder groups 47% were established in 2012, 27% - in
2013, 17% - between 2014 and 2015, and 8% - created before 2012. Whereas 49% group
leaders were elected in 2012, 29% - in 2013, 17% - between 2014 and 2015, and 6% - elected
Herder group section. Out of surveyed herder groups 47% were established in 2012, 27% - in
before 2012.
2013, 17% - between 2014 and 2015, and 8% - created before 2012. Whereas, 49% group leaders
were elected in 2012, 29% - in 2013, 17% - between 2014 and 2015, and 6% - elected before 2012.
Table 2 Years herder groups incorported and group leaders elected
Table 2 Years herder groups incorported and group leaders elected
Item
Item
Incorporated
Incorporated
Enrolled toto
Enrolled
herder group
group
herder
2002
2002
11
2010
2010
1
2011
2011
4
-
2
2
Year
2012
2012
33
34
2013
2013
19
2014
2014
88
2015
2015
44
20
88
44
Among surveyed herder groups a maximum had 33 herder group member households, minimum
Among surveyed herder groups a maximum had 33 herder group member households,
had 7 member households, and on average 17 member households.
minimum had 7 member households, and on average 17 member households.
group members
Figure
5 Number
herdergroup
group member
households
Figure
5 Number
of of
herder
member
households
35
30
25
20
15
10
5
0
0
10
20
30
40
50
60
70
80
herder group codes
3 per. Mov. Avg. (Series1)
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES: REFLECTIONS OF
THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES IN MONGOLIA
All herder group leaders assume that their group rule coherent with local situations. OutPage
of 78
surveyed, 57% herder group leaders replied that their groups aimed to properly utilize and
protect pasture resources, 27% said to collaborate and help each other, and 16% answered to
generate income. Out of surveyed, 57% herder group leaders replied that most important
Article for the International Journal of Management
All herder group leaders assume that their group rule coherent with local situations. Out of
sanction57%
rule-breakers
and leaders
to have replied
a free membership.
Concerning
most
important
in
surveyed,
herder group
that their groups
aimed to
properly
utilizearticles
and protect
the rules,
49% - pasture
use to
regulation,
31%
- cooperation
amongand
members,
10% - control
and
pasture
resources,
27% said
collaborate
and
help each other,
16% answered
to generate
income.
Out of
surveyed,
57%
group leaders replied that most important points in their group
sanctions,
and
remaining
didherder
not answer.
rule are to manage pasture resources, 31% said that to sustain cooperation among members, and
Concerning
most
difficulties
faced by the herder
at the beginning
was and
inactiveness
10%
said that to
control
over implementation
of the groups
rule, sanction
rule-breakers
to have aoffree
members (37%),
low understanding
goals
of members
(30%),
mistrust
foruse
eachregulation,
other (27%),
membership.
Concerning
most important
articles
in the rules,
49%
- pasture
31% low exchange
of members,
information
(3%),
and lack
knowledge
the leaderdid
(3%).
Nowadays as
cooperation
among
10%
- control
andof
sanctions,
andofremaining
not answer.
group
leadersmost
replied,
83% of the
herder
groups
resolved
their
problems. was
Theyinactiveness
assumed
Concerning
difficulties
faced
by the
herder
groups
atfaced
the beginning
that
most
significance
of
the
herder
group
operation
was
the
pasture
use
planning
and
of members (37%), low understanding goals of members (30%), mistrust for each other (27%),
and the collaboration
among
group members
lowprotection
exchange(53%)
of information
(3%), and lack
of knowledge
of the (47%).
leader (3%). Nowadays as group
leaders replied, 83% of the herder groups resolved their faced problems. They assumed that most
Concerning
government
attitude towas
the herder
groupuse
leaders,
soumand
government
significance
of local
the herder
group operation
the pasture
planning
protectionapplauds
(53%) and
supportsamong
with finding
(11%), helps
to resolve problems (4%), do not regard (13%), and
the(69%),
collaboration
group members
(47%).
disturbs
herder groups (3%).
Concerning local government attitude to the herder group leaders, soum government applauds
(69%), supports with finding (11%), helps to resolve problems (4%), do not regard (13%), and disturbs
Pasture use section. Herder group leaders described that a way of decision making related to
herder groups (3%).
pasture issues are as following: group member consultations (84%), group leaders solely
Pasture
section. (6%)
Herder
leaders
described(3%).
that a way of decision making related to
(7%),
fewuse
of members
or group
through
bagh meetings
pasture issues are as following: group member consultations (84%), group leaders solely (7%), few
of members
(6%)(a)
or 77%
through
meetings
(3%).
Out surveyed
usebagh
pasture
towards
pasture plan, 67% interviewed say their bagh use
Out surveyed
(a) 77% (b)
use93%
pasture
towards
pasture
plan,
67% interviewed
their bagh
pasture
under planning,
leaders
replied
that they
pasture
rotation, 9%say
- started
followuse
pasture
under
planning,
(b)
93%
of
the
leaders
replied
that
they
pasture
rotation,
9%
started
follow
pasture plans after 2012, (c) 97% interviewed responded that they participate in pasture
pasture
plans
after 2012,
97% of the
that they
participate
planning
processes;
67%(c)
- participate
in interviewed
group level leaders
planning,responded
37% -participate
in bagh
level in
pasture
planning
processes;
67%
participate
in
group
level
planning,
37%
-participate
in
bagh
planning, 7% - participate in soum level pasture planning, and (d) 27% leaders prefer to have level
a
planning,
- participate
soum
levelinpasture
leaders
prefer to have
plan in 7%
a group
level, 43in%
- a plan
a bagh planning,
level, andand
30%(d)
- a27%
planofinthe
a soum
level.
a plan in a group level, 43 % - a plan in a bagh level, and 30% - a plan in a soum level.
Herder
pasture
planning
should
bebe
(a)(a)
herders,
bagh
Herder group
group leaders
leadersassume
assumethat
thatstakeholders
stakeholders
pasture
planning
should
herders,
bagh
soum
government,
and professional
experts
(b) herders
and,
soum
andand
soum
government,
and professional
experts
(40%),(40%),
(b) herders
and, bagh
andbagh
soumand
government
government
(40%),
(b) only bag
government
(6%),
and (14%).
(c) only
herders
(14%).
Herder
groupthat
(40%),
(b) only bag
government
(6%),
and (c) only
herders
Herder
group
leaders
assume
leaders
assumeshould
that pasture
planning
should be
initiated
by (a)
herders
(56%),
(b) (c)
bagh
pasture
planning
be initiated
by (a) herders
(56%),
(b) bagh
citizens
meeting
(23%),
bagh
citizens
meeting
(23%),
(c)
bagh
governor
(16%),
and
(d)
soum
government
(6%).
governor (16%), and (d) soum government (6%).
Herder group leaders obtain pasture related information through group meetings (49%), neighbors
Herder
leaders obtain
pasture
related information
through
group
(49%),
(29%),
andgroup
bagh meeting
(23%). 41%
of responded
that they meet
4 times
permeetings
a year, 33%
meets
neighbors
(29%),
and
bagh
meeting
(23%).
41%
of
responded
that
they
meet
4
times
per a
2-3 times, 23% meets 5 or more, and 3% meets once a year.
year, 33% meets 2-3 times, 23% meets 5 or more, and 3% meets once a year.
Figure
6 Numbergroup
group meetings
perper
yearyear
Figure
6 Number
meetings
Number of meetins
10.00
8.00
6.00
4.00
2.00
0
10
20
30
40
50
60
70
80
Herder group codes
3 per. Mov. Avg. (Series1)
Page 79
7
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES: REFLECTIONS OF
THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES IN MONGOLIA
The main problem faced by herder groups at the beginning for pasture use planning was lack
of knowledge on pasture use planning (36%), mistrust among members (36%), non-group herders
(26%), and too much livestock (3%). 81% of the herder groups has resolved those faced problems
today.
As herder group leaders judge the most important activities for implementation of pasture use
planning is organization of herder groups (49%), pasture carrying capacity survey (24%), soum level
pasture planning workshops (16%), and pasture training (11%).
Out surveyed, 81% provide a control and 19% do not provide a control over implementation
of plans or rules. Only 46% herder group leaders respond that they do have a kind of sanction
against rule breakers such as convincing, talking over group meeting, reminding, reading the riot
act, fine with cash or livestock, additional works such as meal for group meeting, and exclude from
group. 67% said they have dispute related to pasture and well use (44%), allocation of goods (16%),
participation to group works (16%), cost sharing (11%), and communication (13%). The herder
group leaders replied that the control over implementation of pasture use plan should be done by
herders themselves (49%), bagh governor (33%), and soum government (14%).
Herder group leaders see results of the experiments as following: increased carrying capacity
(56%), collaborative use and protection of common pasture (37%), and no outputs (7%).
Conclusions and Recommendations
Within the research work there have been conducted several questionnaire surveys from different
stakeholders and field surveys on pasture conditions or health. This paper only considers reflection
of the herder group leaders about experiments on collaborative management of pasture resources.
As summarized findings of the questionnaire survey from the herder groups leaders.
• A sample of the survey fully represents herder group leaders in the research soums.
• The herder groups established themselves but received technical assistance from external
professional specialists.
• Governance of the herder groups is very independent, no influence from outside. A herder
group rule the groups are following is approved by members and they can revise it themselves.
In addition to the rule, a pasture use plan of the herder groups also devised by participation of
members, and accepted by local government.
• The herder group leaders well understand a key stakeholder who initiates pasture use planning,
implementation, and controlling is herders. A majority of the group leaders prefer to have a
pasture use plan in herder group and bagh levels.
• Nearly half of the herder group leaders consider importance of having external professional
body to be enrolled for pasture use planning events.
• About 80% of the herder groups provide internal control over implementation of the pasture
use plan. About half of herder groups have different kinds of sanctioning against rule-breakers.
• Herder group leaders think most important activities for implementation of pasture use planning
is organization of herder groups. They also gave an importance to activities such as pasture
carrying capacity survey, soum level pasture planning workshops, and pasture training.
• Almost all herder group leaders considered collaborative use and protection of common
pasture and increased carrying capacity were main impacts of industrial experiment
At this stage only given reflections of the herder group leaders concerning collaborative pasture
management. Therefore reflections of other stakeholders should be also be compared.
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES: REFLECTIONS OF
THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES IN MONGOLIA
Page 80
Bibliography
• Википедиа. (2016, 1 сар). Retrieved March 2, 2016, from Википедиа: https://
mn.wikipedia.org/wiki/%D0%9C%D0%BE%D0%B4%D1%83%D0%BD_
%D1%88%D0%B0%D0%BD%D1%8C%D1%8E%D0%B9
• COP21. (2015). UN Climate Change Conference. Retrieved March 1, 2016, from COP21:
http://www.cop21.gouv.fr/en/more-details-about-the-agreement/
• Dagvadorj, D., Natsagdorj, L., Dorjpurev, J., & Namkhainyam, B. (2010). Mongolia
Assessment Report on Climate Change 2009. Ulaanbaatar: Ministry of Environment,
Nature and Tourism.
• Dagvadorj, D., Natsagdorj, L., Dorjpurev, J., & Namkhainyam, B. (2010). Mongolia
Assessment Report on Climate Change 2009. Ulaanbaatar: Ministry of Environment,
Nature and Tourism.
• David R. Kemp, H. G. (2013, May 21). Innovative grassland management systems for
environmental and livelihood benefits. PNAS, 8370.
• Ostrom, E. (1990). Governing the Commons: The Evoluation of Institutions for Collective
Action. Cambridge: Cambridge Universsity Press.
• Авирмэд, Б. (2014). Хоршооны туршлагад суурилсан зөвлөмж. Улаанбаатар хот:
Спектр Хэвлэл ХХК.
• Батхүрэл, Г., & Дорж, Т. (2011). Монголын менежментийн сэтгэлгээний хөгжилт.
Улаанбаатар хот: Наранбулаг Принтинг ХХК.
• Баянжаргал, Ч. (2004). Чингис хааны эдийн засгийн бодлого, өв уламжлал.
Улаанбаатар: Содпресс.
• БОЯ, МУИС. (2015). Биологийн олон янз байдлын тухай конвенцийн 5 дугаар
тайлан. Улаанбаатар: БОЯ.
• Булгамаа, Д., Будбаатар, У., Анхцэцэг, Б., Сүмжидмаа, С., Ганхуяг, Н.-О., & Брандон, Б.
(2015). Монгол орны бэлчээрийн газрын экологийн чадавхи, түүнийг бэлчээр зохион
байгуулалтад ашиглах боломжийг судалсан дүнгээс. Монгол орны бэлчээрийн
нөхөн сэргэх чадамжийг бэхжүүлэх нь, Салбар хөрвөсөн эрдэм шинжилгээний бага
хурал (pp. 19-23). Улаанбаатар: Цогтпринт.
• Гансэлэм.Д. (2009). “Мал аж ахуйн хөгжлийг төрөөс дэмжих үндэслэл, зарим арга
зам” Бизнесийн удирдлагын ухааны докторын зэрэг горилсон диссертаци. Монгол
улс.
• Долгорсүрэн, Д. (2015, January 7). Чөлөөт шилжилт хөдөлгөөнтэй нийтийн нэгдмэл
нөөц: Монгол ба АНУ-д зохион байгуулсан эдийн засгийн туршилт. Улаанбаатар.
• Жерри, Х., Рекс, П., & Карлтон, Х. (2015). Бэлчээрийн менежмент, үндсэн зарчмууд
ба туршлагууд (6 дахь хэвлэл ed.). Улаанбаатао: Тэпэ ХХК.
• Жигжидсүрэн, С. (2005). Бэлчээрийн менежмент. Улаанбаатар: АДМОН ХХК.
• Минжигдорж, Б. (2012). Бэлчээр ашиглалтын уламжлал шинэчлэлийн асуудал.
Бэлчээр ашиглалтын тулгамдсан асуудлуудыг зохицуулах арга зам (pp. 44-48).
Улаанбаатар: Мөнхийн үсэг ХХК.
• Намжим, Т. (2004). Монгол улсын эдийн засаг (Vol. Боть 2). Улаанбаатар: Монгол
улсын шинжлэх ухааны академи.
• Төмөржав, М. (2004). Монголын бэлчээрийн мал аж ахуй. (Ж. Батаа, Ed.)
Улаанбаатар, Монгол: Олонлог сэтгүүлийн хэвлэх үйлдвэр.
• Төмөржав, М., & Эрдэнэцогт, Н. (1999). Монголын нүүдэлчин. Улаанбаатар:
Монголын мал эмнэлгийн холбоо.
• ҮХААЯ. (2012). Мал зүйчийн лавлах бичиг. Улаанбаатар: Мөнхийн үсэг ХХК.
Page 81
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES: REFLECTIONS OF
THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES IN MONGOLIA
• ХХААЯ. (2013). Бэлчээрийн хүрэлцээ. Гаргасан 2015 оны September 26, Хүнс, хөдөө
аж ахуйн яам: http://www.mofa.gov.mn/new/index.php?option=com_content&view=arti
cle&id=114&Itemid=207-аас
• Цэрэндаш, С. (2012). Монгол орны бэлчээрийн нөөц түүнийг ашиглах, хамгаалах
бодлогын зарим асуудал. Бэлчээр ашиглалтын тулгамдсан асуудлуудыг зохицуулах
арга зам (pp. 49-54). Улаанбаатар: Мөнхийн үсэг ХХК.
• Цэрэндаш, С., Буян-Орших, & Цэрэндулам, З. (2000). Монгол орны бэлчээрийн
чадавхи, экологи чанарын үнэлгээ. Улаанбаатар: ***.
• Цэрэндаш, С., Лхагважав, Н., & Алтанзул, Ц. (2011). Бэлчээр судлал 50 жилд.
Улаанбаатар: Мөнхийн үсэг ХХК.
• Цэрэндаш, С., Төмөржав, М., & Гомбосүрэн, Ч. (2003). Газар, бэлчээр, мал.
Улаанбаатар: Монголын шинжлэх ухааны акедеми.
• ШХА-Ногоон алт төсөл. (2015). Монгол орны бэлчээрийн төлөв байдлын үндэсний
тайлан. Улаанбаатар: Ногоон алт төсөл.
COLLABORATIVE MANAGEMENT OF COMMON PASTURE RESOURCES: REFLECTIONS OF
THE HERDER GROUP LEADERS IN EXPERIMENTAL LOCALITIES IN MONGOLIA
Page 82
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
Bumdelger. Kh
School of Economics and Business Management, Mongolian National University
Abstract
The increase in life expectancy and solution of social security of citizens of the pension age is
becoming one of the emerging issues for various governments across the world. The old age
pension is a complicated issue related to the person’s biology, psychology and level of the country’s
development. Mongolia has chosen a savings or accumulation method to use in implementing the
old age pension scheme which is appropriate to the current circumstances. Thus, in the present
study the issues of reform of the pension insurance system in the framework of the savings method
is considered. We suggest that all the working population to be involved in the pension insurance;
early retirement to be done on the preferential conditions and transfer it to the social security system;
To change the retirement age in accordance with the life expectancy of the population; create the
opportunities for the private sector organizations to run pension insurance activities along with the
state organizations; To distribute pension from the suggested main four sources of the state pension
fund and change the rate of deduction and reflect it in the law. We also suggest to increase the
pension fund money in the financial market, in accordance with these to create a legal environment
to protect the pension fund from the further business risks.
Key words: Old age pension, pension fund, life expectancy, retirement age, pension rate,
savings fund
Introduction
The increase in life expectancy and solution of social security of citizens of the pension age is
becoming one of the emerging issues for the states and governments of any country across the world.
Although it is proven that the old age pension insurance system being implemented nowadays was
one of the biggest reforms made in the social security sector during the transition period from the
central planning economy to the market economy, it does not meet the present-day requirements.
The increase in the number of population, trends in the balance of income and expenditure of
the insurance fund, the capacity of the state budget, and social requirements on supporting the
livelihood of the elderly population illustrates the necessity of reform to the pension insurance system
in Mongolia as in other countries. Implementing this reform, it is required to change some elements
of the pension system in accordance with the population factors(4,5,6: 5-6,10, 6 ), to provide pension
from the multiple sources, to increase the average pension as well as to reduce the burden on the
state budget.
Body
Since the old age pension is a complicated issue related to the person’s biology, psychology and
level of the country’s development, we considered the theoretical concepts of this research on the
stakes of the sciences such as biology, sociology, psychology and economics.
As there are no proper theoretical foundations and models for the complete solution of the old
age pension scheme in the world, each country is formulating and implementing the methodology
which fits to its special features according to the recommendations[1:364] and conventions of the
World Labour Organization. There is a dominating tendency in choosing the methods of raising
retirement age , unification of retirement age between men and women(2:№102, 71 дүгээр зүйл),
transition to multiple tier pension scheme and savings methods(3:№128, 17 дугаар зүйл). Mongolia
has chosen a savings or accumulation method to use in implementing the old age pension scheme
which is appropriate to the current circumstances. Thus we have considered in this study the issues
Page 83
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
of reform of the pension insurance system in the framework of the savings method.
The inseparable component of the state policy on improving social security is to create legal
environment appropriate to the Mongolian special features. We consider the following measures are
important to be taken regarding this policy:
• To change the current pension insurance system and to create the opportunities for
the private sector organizations to run pension insurance activities along with the state
organizations;
• To distribute pension from the main four sources of the state pension fund and change the
rate of deduction and reflect it in the law.
• To legalize that all the working population to be involved in the pension insurance;
• To change the current system of entitling early retirement on the preferential conditions and
transfer it to the social security system.
• To change the retirement age in accordance with the life expectancy of the population and
the size of sources of the pension fund.
We are drawing a conclusion that there is a reason for considering the issues of changing the
pension age based on the facts showing the continuous increase in the life expectancy and the result
of the survey conducted among the population on the increase of the retirement age. The retirement
age has not been changed since 1958 when it was legally adopted for the first time. If at that time
life expectancy of the Mongolians was 60(9: 327-347), nowadays male life expectancy is 65.42 and
female life expectancy reached 75.01 and average life expectancy became 70.2 which is 10 years
longer than it was in 1958.
In order to establish the correlation between the life expectancy and retirement age we have
studied the male and female life expectancy and retirement age of 51 countries using the regression
equation and graph.
Fig. 1: Correlation between male life expectancy and retirement age
Average life expectancy
Source: Researcher’s estimation
The coefficient of the linear correlation is 0.73 and this shows that life expectancy and retirement
age have a strong positive linear dependence. The determination coefficient is 54% and it shows
that the retirement age is affected by the life expectancy by R2=54%. This means that in most of the
countries, deciding the retirement, the life expectancy is also considered besides many other factors
which contribute to 46% of the variance.
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
Page 84
Figure 2. Correlation between female life expectancy and retirement age
Source: Researcher’s estimation
The study on the dependence of female life expectancy and retirement age illustrates that its
regression equation is y = 0.5327x + 20.429, and the coefficient of the linear dependence is 0.71, in
other words, it has a very high dependency, and the determinant coefficient is 0.50, which shows if
the life expectancy increases by one year, the retirement age will increase by 0.53 years.
According to this study the retirement age depends not only on the life expectancy, but also on the
many other factors related to the social and economic features of the counties. The life expectancy
and GDP per capita might be considered as the main factors in defining the retirement age based on
the comparison of the information from 51 countries involved in the study.
Female pension age
3
Average wages and salary
0.658
-
0.543
0.056
0.308
0.575
-
0.376
0.651
0.059
0.258
0.681
0.575
0.681
0.930
0.16
0.187
1.000
/in USD/
Average monthly
wages and salary /
in USD/
2
Number of
dependants per
employee
Male pension age
Percentage of net
annual growth of
population
1
GDP per capita
Indicators
Female life
expectancy
№
Male life
expectancy
Table 1: Matrix of the correlation between the factors affecting the retirement age
Source: Researcher’s estimation
When the research survey on the appropriateness of current retirement age (60 for men, 55 for
women) was conducted among the retirees, 31.1% of the respondents agreed that it’s rational and
the rest deemed it’s not appropriate. 79.5% of the male retirees answered that the retirement age
should be changed to 63 to 65, and 67.7% of the female retirees answered it should be over 60.
The researchers Tungalag and Dagvadorj conducted a similar research in 2011. At that time, 67.0%
of the retirees answered the most appropriate retirement age for men is 60 and 87.6% of them
answered - 50 to 59 for women.
The study shows that the life expectancy, GDP per capita and average monthly wage have
a strong impact on the retirement age for both males and females, but the percentage of the net
Page 85
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
The researchers Tungalag and Dagvadorj conducted a similar research in 2011. At that time,
should be changed to 63 to 65, and 67.7% of the female retirees answered it should be over 60.
67.0% of the retirees answered the most appropriate retirement age for men is 60 and 87.6% of
The researchers Tungalag and Dagvadorj conducted a similar research in 2011. At that time,
them answered - 50 to 59 for women.
67.0% of the retirees answered the most appropriate retirement age for men is 60 and 87.6% of
them answered - 50 to 59 for women.
The study shows that the life expectancy, GDP per capita and average monthly wage have a
annual
of on
thethe
population
andage
number
of dependants
employee
affect much
stronggrowth
impact
retirement
for both
males andper
females,
but do
thenot
percentage
ofon
thethe
net
The study
shows that the life expectancy, GDP per capita and average monthly wage have a
retirement
age.
annual growth of the population and number of dependants per employee do not affect much on
strong impact on the retirement age for both males and females, but the percentage of the net
Considering
the
retirement the
age.biological factor (life expectancy) and level of development of the country (GDP
annual
growth
of the population
and number
of dependants
per
employee
do notdependence
affect muchofon
per
capita) as the
factors
affecting
the retirement
age,
we of
calculated
a linear
Considering
the main
biological
factor
(life expectancy)
and
level
development
of the country (GDP
the retirement
age.
these
two using
regression
equation:
per capita)
as the
the following
main factors
affecting
the retirement age, we calculated a linear dependence of
Considering the biological factor (life expectancy) and level of development of the country (GDP
Retirement
agethe
forfollowing
men:
these
two using
regression equation:
per capita) as the main factors affecting the retirement age, we calculated a linear dependence of
Retirement age for men:
these two using the following regression equation:
Retirement age for men:
Retirement age for women:
Retirement age for women:
Retirement age for women:
Figures in brackets are Standard error.
Figures in brackets are Standard error.
Figures in(1)
brackets
Standard
error.
Equations
and (2)are
illustrate
that
1 year increase in the life expectancy causes the retirement
age for men increase by 0.236 years and retirement age for women increase by 0.351 years.
Equations (1) and (2) illustrate that 1 year increase in the life expectancy causes the retirement
Moreover,
1$ increase
of GDP per
capita
causes an inincrease
of 0.014 years
for men’s
and 0.067
Equations
and (2) illustrate
1 year
causes
the 0.351
retirement
age
for men(1)increase
by 0.236that
years
andincrease
retirement the
agelife
forexpectancy
women increase
by
years.
years
for women’s
age, life
and
age
for men
increaseretirement
by 0.236 age.
yearsThe
andcorrelation
retirementbetween
age for retirement
women increase
byexpectancy
0.351 years.
Moreover, 1$ increase of GDP per capita causes an increase of 0.014 years for men’s and 0.067
GDP
per
capita
was
resulted
high,
which
are
R
=0.662
for
men
and
R
=0.549
for
women.
y
x, y men’s and 0.067
Moreover, 1$ increase of GDP per capita causes anx, increase
of 0.014 years for
years for women’s retirement age. The correlation between retirement age, life expectancy and
years
for women’s
retirement
age.
Thewas
correlation
between
retirement
age, life expectancy
andthe
GDP
Rational
retirement
age until
2040
determined
based
on this principle
depending on
sex.
GDP
perwas
capita
was resulted
high,
which
are Rx,for
y=0.662 for men and Rx, y=0.549 for women.
per
capita
resulted
high,
which
are
R
=0.662
men
and
R
=0.549
for
women.
Rational
(Table 2)
x, y
x, y
Rational age
retirement
age was
untildetermined
2040 was determined
based
on this
principleon
depending
on the2)sex.
retirement
until 2040
based on this
principle
depending
the sex. (Table
(Table 2)
Table 2. Retirement age according to the level of development of Mongolia and
trends
the life expectancy
of to
the
Population
Table
2. in
Retirement
age according
the
level of development of Mongolia and
Table 2. Retirement age according to the level of development of Mongolia and
trends in the life expectancy of the Population
trends in the life
expectancy of the Population
Male Z=46.404+0.236X+0.014Y
Female Z=33.04+0.351X+0.067Y
6
1.708
1.708
1.446
62.562.5
62.3
1.446
1.446
1.295
62.362.3
61.9
75.01
77.48
77.48
75.01
79.37
79.37
78.99
2.232
2.232
1.97
61.1 61.1
60.9
62.862.8
62.5
78.99
78.99
78.4
2040
2040
2035
71.38
71.38
70.42
2.494
2.494
2.232
63.363.3
63.1
79.61
79.61
79.37
63.163.1
62.8
60.4 60.4
59.6
60.7 60.7
60.4
1.970
1.970
1.708
2.232
2.232
1.970
59.6
1.708
1.708
1.446
69.37
69.37
68.24
70.42
70.42
69.37
1.446
1.446
1.295
59.6
78.4
78.4
77.48
2030
2030
2025
2035
2035
2030
1.295
1.295
Options for
establishing
Options
Options
for age
for
retirement
75.01
61.9
establishing
establishing
retirement
retirement
age age
68.24
68.24
67.06
67.06
67.06
65.42
61.9
1.295
per capita
per capita
in in
thousand
thousand
USDUSD
2025
2025
2020
2020
2020
2015
1.295
Forecast for GDP
per capita in
Forecast
Forecast
for GDP
for GDP
thousand USD
65.42
65.42
Forecast for life
expectancy
22
1
33
2
44
3
55
4
66
5
2015
2015
establishing
establishing
retirement
retirement
age age
11
Female Z=33.04+0.351X+0.067Y
Options for
establishing
Options
Options
for for
retirement age
Years
per capita
per capita
in in
thousand
thousand
USDUSD
№
Forecast for GDP
perfor
capita
Forecast
Forecast
GDP
forinGDP
thousand USD
Years
Years
Forecast for life
№
№
expectancy
Forecast
Forecast
for life
for life
expectancy
expectancy
Male Z=46.404+0.236X+0.014Y
Female Z=33.04+0.351X+0.067Y
Forecast
Forecast
for life
for life
expectancy
expectancy
Male Z=46.404+0.236X+0.014Y
1.97
1.971.708
2.494
2.494
2.232
60.9 60.9
60.7
61.2 61.2
61.1
Source: National
Office. Updated
population calculations
2010-2040,
2040
71.38 Statistics
2.494
63.3
79.61
2.494 researcher’s
61.2 estimation based on the Mongolian national population and housing data of 2010.
According to estimates, it’s possible to change men’s retirement age to 62 starting from 20162017, 63 from 2035 and women’s retirement age to 59 starting from 2016-2017 and 60 from 2025.
One main factor influencing the expenditure of the pension insurance fund aside from the
population of pensioners is average pension. In 2014, 322.7 thousand people in Mongolia are
receiving pension from the social insurance fund, and 74.9 percent or 241.9 thousand of them are
old-age pensioners. In 2014, 984.6 billion MNT spent from the pension insurance fund to the pension
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
Page 86
fund. The Mongolian national pension insurance fund has increased by 18 times, or 24.2 percent
annually over the past 15 years. Including the pension insurance premiums income have increased
by 18.0 times, and the state budget subsidies for pension have increased by 17.1 times.
Table 3. Comparative study of the average pension and the average salary
Average salary,
Against average salary
18.2k
MNT
62.3k
percentage
29.2
2005
38.5k
105.4k
36.5
3
2010
126.9k
379.4k
34.2
4
2014
257.4k
844.0k
30.4
№
Year
Average pension, MNT
1
2000
2
Source: Estimates of researchers based on secondary data on http://1212.mn/statHtml/
statHtml.dо /labor, employment, unemployment, average salary/
The study compared the estimated average pension in the national scale to the average salary
of the employees and average pension equal to 29.2-39.1 percent of average salary between 20002014, and 91.8 percent of old-age pension receivers said that the current pension does not meet the
basic needs of living.
In the framework of improving the old-age pension insurance system, we also considered the
change of the retirement age as well as the improvement of the types, forms and premiums of
the insurance and balancing of the insurance fund revenues and expenditures and using it in the
financial market. For this purpose we’ve developed models to deal with these problems in case of
ensuring the independence of the pension fund. The balance of revenue and expenditure of the
pension fund is determined by our models in the following cases:
Ti, revenue ≥ Ti, expenditure
Ti, revenue –revenue of the pension fund during the i period ;
Ti, expenditure – expenditure of the pension fund during the i period;
Ti,revenue = ƒ(GDP, TP, N, M, W, LA) (1)
Ti,expenditure = ƒ(K, P, V, J) (2)
In order to estimate the formation of old age pension insurance fund we looked at the following
factors that affect the pension fund and its expenses:
1. Gross Domestic Product GDP
2. GDP per capita, thousand MNT = GDP:TP
3. Total Population
TP
4. The number of the working population
LA
5. The proportion of the working population in the total number of the population
N = LA:TP
6. The percentage of the working population involved in the social insurance= M
7. The number of people eligible for social insurance = LA:M
8. The number of pensioners K
9. The average wages W
10. Salary deduction percentage for pension insurance
L
11. The average pensionP
12. Operational costs of the insurance organizations V
13. The interest rate of the banks to pay the pension fund balance J
Page 87
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
11. The average pension
P
12. Operational costs of the insurance organizations
V
13. The interest rate of the banks to pay the pension fund balance J
We proposed the options for upgrading the factors by calculating the pension fund’s source by
function
Ti,revenuethe
= ƒ(GDP,
N, M, W, LA)
(1) and by
its calculating
distribution the
by function
= ƒ(K,
We proposed
options TP,
for upgrading
the factors
pension T
fund’s
source
by P,
i,expenditure
function
=
ƒ(GDP,
TP,
N,
M,
W,
LA)
(1)
and
its
distribution
by
function
T
=
ƒ(K,
P,
V,
J) to
V, J) T
(2)
by
changing
cases
when
there’s
fund
loss.
According
to
our
calculation,
it
is
suitable
i,revenue
i,expenditure
(2) change
by changing
cases when
loss.59
According
to in
our2020,
calculation,
it is suitable
to change
the retirement
agethere’s
to 62 fund
for men,
for women
63 for men,
51 for women
since
the2030,
retirement
age
to
62
for
men,
59
for
women
in
2020,
63
for
men,
51
for
women
since
2030,
the
the pension insurance premiums by 15 percent in 2030 and by18 percent in 2035. As a
pension
premiums by 15Mongolian
percent in people’s
2030 andpension
by18 percent
in 2035.will
As get
a result
of to
these
result insurance
of these measurements,
plan duration
closer
other
measurements,
Mongolian
people’s
pension
plan
duration
will
get
closer
to
other
countries’
average,
countries’ average, and the average pension increases to 80 percent of the average salary.
and the average pension increases to 80 percent of the average salary.
We’ve developed
developed the
the following
age
pension
and
We’ve
following model
model for
for the
thepossibilities
possibilitiesofofmultiple
multiplesources
sourcesold
old
age
pension
and
made
the
calculation
of
the
methodology.
made the calculation of the methodology.
Figure
3. Model
of Multiple
the old age
Figure 3. Model of
Multiple
sources
of thesources
old ageofpension
. pension .
State budget
Individual
Organisation
State pension
insurance fund
Pension
insurance fund
Voluntary
pension fund
Benefits
Benefits
Benefits
State pension
insurance fund
Pension
insurance fund
Voluntary
pension fund
Employer
pension fund
Employer
pension fund
Source: Model developed by researchers
Source: Model developed by researchers
We consider that introducing multiple sources of old age pension fund has many advantages,
We consider
that introducing
sources
age
pension
has many
advantages,
such
as the pensioner
will getmultiple
his or her
from of
theold
four
sources
of fund
the pension
fund,
and will be
such as the pensioner will get his or her from the four sources of the pension fund, and will be
protected from income risks in the future and increase life guarantee.
protected from income risks in the future and increase life guarantee.
Conclusions and recommendations
Although the old age pension is low, a pension insurance fund is not able cover its expenditure
with its income and it burdens the state budget. Average life expectancy of the Mongolian people is
increasing steadily, but the consequences of the retirement age being intact for many years show us
that it is essential to develop the legal environment.
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
Page 88
We recommend the following ways of improving the old age pension system on the basis of the
results of the study:
1. To change the legal environment for the old age pension
2. To increase the retirement age
3. To improve the old age pension insurance system.
The latest studies conducted on the improvement of the old age pension system, theories
and concepts proposed by the scientists are used as the theoretical and methodological grounds
designed to improve old age pension system.
Each country has been developing the pension system relevant to its special features based on
the common theory and methodology and there is a tendency to increase retirement age for men
and women, bring the women’s retirement age closer to the men’s retirement age and finance the
pension from multiple sources.
For the last 15 years, our average pension increase has not kept up with the price increase of
the consumer goods and commodity as well as has not met the minimum needs of living. In 2014,
average pension accounted for only 30.4 percent of the total amount of the average wages is one
example of this. It indicates that there is a need to implement significant measurements to change
our basic retirement system.
In the process of improving the pension insurance system, it is important to make the pension
insurance fund to be independent and transfer some of it to the private sector, expand the scope
of insurance eligibility, use the monetary assets raised from insurance premiums in the business,
change the rate of insurance premiums.
In accordance with the increase in the life expectancy and the country’s economic growth we
assume that it is necessitated to increase men’s retirement age to 62 starting from 2016-2017, 63
from 2030 and women’s retirement age to 59 starting from 2016-2017 and 61 from 2030.
We recommend some options for delivering the pension from the four different sources such
as “Basic pension” from the pension insurance fund, “Savings pension” from the savings pension
insurance fund, “Additional pension” from the operators of voluntary insurance activities and
“Pensions with specific criteria” from the pension fund provided by the employer in the framework
of the pension insurance savings method.
References
1. Олон Улсын Хөдөлмөрийн Байгууллага. “Зөвлөмжүүдийн эмхэтгэл”. (2012) Улаанбаатар
2.
3.
4.
5.
6.
7.
8.
9.
хот.
Олон Улсын Хөдөлмөрийн Байгууллага (1952) он. Нийгмийн хамгааллын доод хэмжээний
тухай конвенц.
Олон Улсын Хөдөлмөрийн Байгууллага (1967) он. Хөдөлмөрийн чадвараа алдсаны,
өндөр насны болон тэжээгчээ алдсаны тэтгэврийн тухай конвенц.
Aaron George Grech (2013) How best to measure pension adequacy.
David E. Bloom and Roddy McKinnon (2013) The design and implementation of public pension
systems in developing countries: Issues and options.
Peter R. Orszag and Joseph E. Stiglitz (1999). Rethinking Pension Reform:Ten Myths About
Social Security.
st
Robert Holzmann & Richard Hinz., (2006) Old Age Income Support in the 21 Century,World
Bank.
Salmen E. (1996) Unemployment Insurance in Algeria: Implications for a Labor Market in
Transition. Policy Research, and External Affairs, Country Economics Department. The World
Bank, Washington D.C.
Stadtman E.R. (1988) Biochemical markers of aging. Exp Gerontol,
Page 89
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
Интернетээс ашигласан Вэб хаяг:
1. www.social insurance in USA(Social Security (United States)-Wikipedia, the free
encyclopedia)
2. http://ndaatgal.mn/tailan/SIGO-REPORT-2014.pdf
3. http://1212.mn/
4. http://sonin.mn/news/politics-economy/480
5. http://databank.worldbank.org/data/home.aspx
6. http://data.worldbank.org/indicator/SP.DYN.LE00.IN
7. www.populationpyramid.com/Mongolia/free/
http://www.khun.gov.mn/files/web_pension.pdf
8. www.mongolmed.mn/article/983/
9. http://www.parliament.mn/law/project/541/category/2 /
THE WAYS OF IMPROVING THE OLD AGE PENSION SYSTEM
Page 90
Knowledge management In higher
education institutions: Concept, benefits & Problems
Atartsetseg. B
National University of Mongolia
Abstract
Background: The educational system needs to be changed in accordance to the new demands and
requirements of social and economic situation.One way of enhancing competitiveness and developing
a distinctive model of higher education institutions is to implement knowlegde management (KM)
promptly. The Knowledgement have five major components as Orgnization culture, Organization
structure, Orgznization’s Information technology, Common Knowledge and Physical environment.
Obectives: To assess what are the bottlenecks in implementation of KM policies in Higher Education
set up in Mongolia. Methodology: A survey was undertaken among 24 teachers who were teaching KM
subject in Universities and colleges in Mongolia. A predesigned questionnaire was used in carrying out
the survey. Results: Based on the survey results the top 5 benefits of KM were: It leads to Development
of more relevant and knowledge focused policies; Help in Establishment of goals, objectives which
is right and significant; Development of research atmosphere; Creation of learning atmosphere for
new knowledge, Effective teaching and learning process. The major three bottlenecks reported in
implementation of KM are: Lack of understanding of the value and benefits of KM; Organization’s
structure and processes are not designed for KM; Current mindset does not encourage Knowledge
sharing culture. It is believed that Implementation of KM will enhance academic quality, reduce
time and cost in decision making, improve student service, consequently create effective relationship
between stakeholders. The universities will be able to obtain more commercial opportunities and
research based benefits, specially promote creation and application of knowledge to meet their main
startegic objectives.
Keywords: Knowledge, Knowledge management, higher education, knowledge sharing and
application, Academic quality, decision making.
Introduction
There have been many organizations that have implemented KM principles, best practices and
tools. A knowledge management /KM/ approach is the conscious integration of people, processes
and technology. It enables the people within an organization to share what they know to improve
quality of service and outcomes. KM plays an important role in the improvement of organizational
competitive advantage through sharing of best practices, faster response to key institutional issues,
improving process and employee`s skills. The application of KM approach will enable institutions
to gain a more comprehensive, reflexive and integrative view of the organizational knowledge for
leading to improved knowledge sharing, more effective decision making, planning and performance
enhancing. In this turn means relevant and focused policies in compliance with institutional goals
and objectives, the ability to access information more quickly, improved academic and administrative
services, reduced costs and prevention of mistakes and failures. But the apparent failure in KM
initiatives is primarily caused due to lack of sharing culture, lack of awareness of the benefits of
it and failure to integrate KM into everyday working practices. The paper is included background
of knowledge management, feature of KM in higher education institutions, and what benefits for
implementing KM.
Overview of Knowledge management
In today`s global economy, knowledge is basis of competitive advantage. So what is knowledge?
Although there is no one standard definition on knowledge, definitions by leading KM gurus share
one common characteristic-knowledge increases capacity for effective action. There are some
Page 91
Knowledge management In higher education institutions: Concept, benefits & Problems
definitions of knowledge:
“Knowledge is information in action.” (Carla O’Dell and Jackson Grayson Jr. Essaides N.O et
al, 1998)
“I define knowledge as a capacity to act.” (Sveiby K.E., 1997)
“Justified belief that increases an entity’s capacity for effective action.”(Ikujiro Nonaka I., 1994)
“Knowledge is an information that changes something or somebody-either by becoming
grounds for action or by making an individual (or an institution) capable of different or more
effective action.” (Drucker, 1989)
KM practitioners “knowledge” is capacity for effective action, including information that is useful
for effective action, producing results, or creating value.
Knowledge can be classified into 2 general types as showing in the Fig. 1:
Fig. 1: Classification of Knowledge
Documents
Procedures
Manuals
Rules/Policies
Practices
Systems
Skills
Experience
Mind of individual
Explicit knowledge
Tacit knowledge
Explicit knowledge means that they have been codified so it is possible to touch, see, hear, feel
and manipulate them (e.g. books, reports, data files, newsreels, audios and other physical forms).
Tacit knowledge is the kind of knowledge that is difficult to transfer to another person by means
of writing it down or verbalizing it.
On knowledge management, it is the process of capturing, developing, sharing, and effectively
using organizational knowledge. It refers to a multi-disciplined approach to achieving organizational
objectives by making the best use of knowledge. The knowledge to be managed includes both
explicit-documented knowledge, and tacit-subjective knowledge.
Some definitions of knowledge management following are;
• “Knowledge management is the systematic, holistic approach to the sustainable improvement
of the handling of knowledge on all levels of an organization” (Eppler M. , 2002)
• “Knowledge Management is the discipline of enabling individuals, teams and entire
organisations to collectively and systematically create, share and apply knowledge, to better
achieve their objectives” (Ron Young, CEO/CKO Knowledge Associates International)
• “Knowledge management is … getting the right knowledge to the right people at the right
time and helping people share and put information into action in ways that strive to improve
organizational performance” (Carla O’Dell and Jackson Grayson Jr. Essaides N.O et al, 1998)
• “KM is an integrated approach of creating, sharing, and applying knowledge to enhance
organizational productivity, profitability and growth” (Asian Productivity Organization, 2013)
An important point in knowledge management is to pay attention to collective knowledge and
know-how and to evolve these things using teamwork. The goal of knowledge management is to
make organization work more effectively, so institutions can strengthen its competitive capabilities
and success. We need to have enough skilled workers and to educate them when needed. Therefore
it’s not just about the knowledge itself, but about how to use and spread the knowledge in the most
effective and wide way.
Knowledge management In higher education institutions: Concept, benefits & Problems
Page 92
Successful KM implementing is depends on many factors. KM infrastructure is most important
factors to implement KM in any organization. In an organizational context, the infrastructure
includes 5 major components (Becerra-Fernandez, 2010) (Table.1):
Table 1: Major components of Knowledge infrastructure
№
Infrastructure
Description
1
Organizational culture
Organizational culture reflects the norms and beliefs that guide the
behavior of the organization’s members. The most important challenges
in KM are nontechnical in nature – and have to do with lack of the
above organizational culture characteristics
2
Organizational structure
Hierarchical structure of the organization affects the people with
whom individuals frequently interact, and to or from whom they are
consequently likely to transfer knowledge
3
Organization`s information
technology system
The information technology infrastructure includes data processing,
storage, and communication technologies and systems
4
Common knowledge
It refers to the organization’s cumulative experiences in comprehending
a category of knowledge and activities, and the organizing principles
that support communication and coordination
5
Physical environment
The physical environment within the organization is often taken for
granted, but it is another important foundation upon which knowledge
management rests
1. Nature of KM in higher education
The contemporary university is the most important institution in the complex process of knowledge
creation and distribution, serving as home not only to most of the basis sciences, but also to the
complex system of journals, books, and databases that communicates knowledge worldwide.
(Serafin Talisayon, 2006)
Today`s academic world is very demanding and very competitive. Issues and challenges in
academics not only affect people, but also environment, industry standards and demands, educational
norms, growing competition and so on. The higher education institutes create knowledge during
their academic and administrative processes. Capturing and making the institutional knowledge
available will ensure continuity and will accelerate organizational learning. But most higher education
institutions face the difficult task of integrating their knowledge for improved knowledge sharing
and effective decision making. Academic and administrative processes of teaching, examination,
evaluation, admissions, counseling, training and placement and research and consultancy result in
many useful experiences and studies which may be defined as knowledge in the context of higher
educational institutes.
KM in educational settings should provide a set of design Huang /1998/ suggested the main
instruments of society for the constant pursuit of knowledge sharing and collaboration. They are (1)
making knowledge visible, (2) increasing knowledge intensity, (3) building knowledge infrastructure,
(4) developing a knowledge culture. The most generally recognized four organizational knowledge
management strategies are culture, leadership, technology, and measurement (The American
Productivity and Quality Center). KM in educational institutions aims at integrating the knowledge
produced at all levels and using it towards the institute`s goals and targets.
2. Benefits of KM in HEIs
KM application will bring many benefits for the university processes and services. The survey
respondents was 24 people who doing research work and teaching on KM and innovation
management field in higher education institutions of Mongolia. Table-2 illustrates the survey results
frequencies and percentages of the alternative questions.
Page 93
Knowledge management In higher education institutions: Concept, benefits & Problems
The survey result shows the most important benefits are Development of knowledge focused
policies, Research oriented-university system, Creation of learning organization, Effective teaching
and learning process, Improved human resource development policy. (Table.2)
Table.2 Benefits of KM by range activities
Range activity
Benefits of KM
Frequency
(%)*
Development of more relevant and knowledge focused policies
19
79.2
Establishment of goals, objectives which is right and significant
16
66.7
Creation
of
learning
organization
which
is
responsive
to
the
Planning and
16
66.7
new knowledge society
developing
Improvement of procedures and processes
13
54.2
Enhancement of ability to develop labor market-focused
8
33.3
strategic plans
Research oriented-university system
17
70.8
Increase of motivation for research
12
50.0
Increased competitiveness and responsiveness for research
12
50.0
Research
grants, contracts and commercial opportunities
Facilitation for interdisciplinary researches
11
45.8
Utilization of institutional resources and facilities
10
41.7
Reduced time and extra costs for research
10
41.7
Effective teaching and learning process /knowledge creating by
16
66.7
lecturers and students/
Improvement of teaching methodologies
14
58.3
Teaching
Motivation towards research in selected area and improved
13
54.2
and learning
student projects
Enhancing quality of curriculums and programs by leveraging
processes
11
45.8
best practices and monitoring learning outcomes
Development of Interdisciplinary curriculums
10
41.7
Development of internet technology based learning
8
33.3
Enhancement of responsibility and accountability
12
50.0
Improvement of services for students
11
45.8
Administrative Reduced service process cycle times
11
45.8
services and
Improved service quality and capability of faculty and staff
10
41.7
10
41.7
Student affairs Improved services for alumni
Improved efficiency of the administrative services
9
37.5
Effective and efficient decision making
9
37.5
Improved human resource development policy
16
66.7
Development of performance evaluation of faculty
14
58.3
Human
Creation of work environment and culture for knowledge
12
50.0
resource
sharing
Self-improvement and career development plans
11
45.8
management
Clear understanding of responsibilities and expectations
10
41.7
Motivation towards superior performance
9
37.5
Note: Respondents are chosen 3 main benefits
*- by duplicated percentages
3. Problems of KM implementation
There are obvious challenges to the implementation of KM in Higher education institutions. Question
was “Which of challenges are facing to implement KM for higher education institutions?” They ranked
challenges the most important one from 1 to 8. The following table shows a typical response to first
2 questions. Based on the responses, the sum of scores was obtained as 48 and 83 (Table 3).
Table.3
Knowledge management In higher education institutions: Concept, benefits & Problems
Page 94
Main problems
№
Lack of understanding of the benefits
of KM
Organization’s structure and
processes are not designed for KM
1
2
1
Frequencies of Ranking by respondents
3
4
5
6
7
2
8
Total
12
6
4
0
1
0
1
0
48
7
3
5
2
1
2
2
2
83
The following table shows the calculation of sum scores in first 4 questions. (Table.4)
Table.4
Lack of understanding of Organization’s structure Current mindset does not
Lack of appropriate
the benefits of KM
and processes are not
encourage Knowledge
information technology
designed for KM
sharing culture
and KM techniques
Rank
Freq
Sum
Rank
Freq Sum
Rank
Freq
Sum
Rank
Freq
Sum
score
score
score
score
1
12
12
1
7
7
1
1
1
1
3
3
2
6
12
2
3
6
2
4
8
2
4
8
3
4
12
3
5
15
3
5
15
3
3
9
4
0
4
4
2
8
4
2
8
4
7
28
5
1
5
5
1
5
5
3
15
5
5
25
6
0
0
6
2
12
6
3
18
6
1
6
7
1
7
7
2
14
7
4
28
7
0
0
8
0
0
8
2
16
8
2
16
8
1
8
Amount
24
48
Amount
24
83
Amount
24
109
Amount
24
87
The integrated calculation is shown in the next table. (Table.4)
Table.4
№
1
2
3
4
5
6
7
8
Main problems
Lack of understanding of the value and benefits of KM
Organization’s structure and processes are not designed for KM
Current mindset does not encourage Knowledge sharing culture
Lack of funding for KM
Lack of appropriate information technology and KM techniques
Lack of leadership and management support KM at all level
Lack of incentives and reward KM implementing
Inability to measure financial benefits of KM
Sum of score
48
83
87
89
109
126
128
138
Rank
1
2
3
4
5
6
7
8
The survey result shows the main problems are Lack of understanding of the value and benefits
of KM (I), Organization’s structure and processes are not designed for KM (II), Current mindset does
not encourage Knowledge sharing culture (III), Lack of funding for KM(4).
Conclusion and comments
A university environment and function seems to be by its nature especially suitable for the application
of knowledge management principles and methods. Therefore, we need to understand benefits
of creating knowledge management system in higher education institutions for sustainability
development in the future. Universities have more opportunities to use their existing resources
effectively and build knowledge management by solving faced problems. First step of implementing
KM system is to share and transfer best practices between universities.
In this 21-st century the internet and IT technologies have become key elements in the
contemporary knowledge network. We can implement some of the available practices:
Page 95
Knowledge management In higher education institutions: Concept, benefits & Problems
IT based KM system implementation
Capture and share knowledge and best practices from other best universities
Provide training corporate learning
Develop and support entrepreneurship programs
Manage intellectual property of university by researchers
Perform and enhance web based publishing for students and other customer
Development of E-learning subjects and programs
Support fruitful projects and researches
Enhancements of relationship with business organizations so on.
Basically in the coming years knowledge management would prove the right direction of all
education institutions.
References
•
•
•
•
•
•
•
•
•
•
•
•
•
•
APO, (2002), Entrepreneurship and innovation in the Knowledge-based economy, ROC
Applying Corporate Knowledge management Practices in Higher education
Asian Productivity Organization, (2010) “Knowledge Management Tools and Techniques
Manual”
Boydell T and Leary M; (2006) “Identifying Training Needs”; London; CIPD
Bryan Bergeron, (2003), Essentials of knowledge management, USA
Carla O’Dell Cindy Hubert , (2011), The New edge in knowledge management , USA
Christee Gabour Atwood, (2009), Knowledge management Basics, ASTD press, USA
Editor.Serafin Talisayon, Asian Productivity Organization, (2013) “Knowledge Management for
the Public Sector”
Eppler, M, (2002) Glossary definition: Knowledge management.Net Academy
Kimiz Dalkir, (2011), Knowledge management in Theories and Practices, MIT press
Mamta Bhusry, Jayanti Ranjan; (2011) Implementing Knowledge management in higher
educational Institutional Institutions in India: A Concepttual Framework
Philip G.Altbach,(2011) American higher education in the 21stt Century, The Johns Hopkins
University press
Ramlee Abdul Rahman; (2011), Asia-Pacific Conference Library & Information Education &
Practice,“Knowledge Sharing Practices
Serafin Talisayon, (2006), 99 paradigma shifts For survival in the global knowledge economy
Knowledge management In higher education institutions: Concept, benefits & Problems
Page 96
Factors associated with the wages of
Accountants in Mongolia.
Lkhagvasuren. D, Khishigbayar. Lk
National University of Mongolia
Abstract
Introduction: A previous study showed that working in state or private enterprises, gender,
qualifications, brand of university graduated, years of employment, workload and duty and
responsibility can be influenced on the scale of wages. Objectives: The paper aims to assess and
reveal the factors that are associated with accountant’s wages in Mongolia. Methods: The study
is based on survey of 153 subjects including accountants and financial professionals. In survey
questionnaire 12 questions were included and selected respondents are ask to answer them. Based
on their responses, the analysis was carried out. Results: The study concludes that the factors that
are influencing the wages positively are gender, work-place whether state or private enterprises, years
of employment, qualifications, workload and responsibility. But the brand of university graduated is
not related to scale of wages for accountants.
Keywords: workload, qualification and wage, years of employment
Introduction
Mongolian economic transition was started in 1990, since then the wage system has changed a lot.
Although the wages have been increasing from time to time but remained lower than the inflation.
This implies that the real income has not increased over the time. A total of 28763 workers of the
1731 enterprises are involved in the research that is carried out by the Ministry of Labor Research
Institute. Result of the study indicated that the average wages to be 528700 MNT and 818200 MNT
for those who work in Civil services and those in financial field1. These salaries raised to 70040 and
844800 MNT by the end of the year 2014. The minimum wage is observed to be192000 tugrugs. But
the wage growth is 8.0 percent lower than inflation rate. The 90 percent of total employee works in
small and medium enterprises in Mongolia. Civil servants receive wages that is dependent on the
year of employment, official position and duty. The qualifications, skills, official position and duty, job
performance and year of employment are the factors that influence the scale of wages for private
sector. This study aims to assess and reveal the factors that are influencing accountant’s wages.
Literature reviw
Many researchers have made study of factors that are influencing accountant’s wages. By using
a sample of accountants from US and Australia, Yvonne Stedham, Jeanne H. Yamamura (2006)
show that for both countries, to indicate that accountant’s assessment depends on their duty and
responsibilities from a gap in salary between male and female accountants. Job responsibility was
significantly related to salary whereas gender was not. Men who were accountants in Australia were
likely to have a higher level of education and more experience than women. In the US, female
accountants were marginally less satisfied with their salary than male accountants. This was not true
for Australia. Implications of these findings are discussed.
Salary factors are affecting wages items such as productivity, the organization financially,
management approach and professional needs, year of employment, gender, workload and the cost
of living. In 2013, by the survey of Ministry of Labor Research Institute, the average wage is 528700
thousand tugrugs. The research institute of State Great Hural is concluded “financial sector is kept
appriorate ratio between labor productivity and wages because as the labor productivity increasing,
wages come to be increased” under the study of “The factor analysis that is influencing labor
productivity”
5
Ministry of Labor Research, Salary structure survey, 2014
Page 97
Factors associated with the wages of Accountants in Mongolia.
The accountant needs, workload and scale of wages
The accountant profession is not included the list of 20 most popular professions of Mongolia in
2015. But the demand for certified accountant is 9th place of the list of 20 professional needs in the
world in 2013.2 In 2016, accountant profession is listed at 24th for occupations on U.S. News’ list of
the 100 Best Jobs of 2016.3 Good jobs are those that pay well, challenge us, are a good match for
our talents and skills, aren’t too stressful, offer room to advance and provide a satisfying work-life
balance.
Accountant profession is ranked 3th in Best Business Jobs. Jobs are ranked according to their
ability to offer an elusive mix of factors, such as salary, job market, future growth, stress, work life
balance. In the list accountant’s average score is 7.2 score (salary 6.4, job market 10, future growth
6, stress 6, work life balance 8). According to the BLS, the median annual salary for an accountant
was $65940 in 2014. The best-paid 10 percent earned roughly $115950, while the lowest-paid
made approximately $40850. The best-compensated accountants work in the fields of securities
and commodity contracts intermediation and brokerage and for the federal executive branch. The
highest-paid accountants work in the metropolitan areas of New York City, San Jose, California and
Salinas, California.4
“Mongolian Talent Network” corporate has concluded that the accountant and the auditor’s
average wage is 1800000 tugrugs in 2015. International organizations have concluded salary factors
that are affecting wages items such as responsibility, working conditions, workload, experience,
year of employment, qualification, job performance, geographic location and organization’s size.5
Accountant’s social guarantee has to be reliable because of the responsible for protection and usage
of asset.
Table 1: Accountant’s job comparison
•
•
•
•
•
•
•
•
•
4
5
2
3
International standart1
documentation of financial transactions
prepare the financial statements and records of
data analysis
create database provide financial information
safe
help internal management decisions
accounting policies, laws and regulations to
implement and do their analysis and answer
questions related to accounting
reliability of financial information and kept stable
organization operates without losing customer
confidence
Training workshops regularly participate in
regular manual reading textbooks specialized
books, and joining professional associations
and strengthen the constant ability of their
professional expertise.
Work will achieve a specific discharge
Team achieved relevant results contribute to its
work.
•
•
•
•
•
•
•
•
•
•
•
•
Mongolia2
record primary documentation and check, confirm
prepare financial and other reports
prepare half and full-year report
do financial analysis
do budget, plan and performance
process and review accounting policies
help to management decision-making
create a financial database and protect financial
data.
Improve financial internal control
study the laws related to accounting transformation
and suggest managers
provide reliable financial information
improve knowledge and skills
http://www.assa.mn/content/13130.shtml?a=education
http://money.usnews.com/careers/best-jobs/rankings/the-100-best-jobs?page=3
http://money.usnews.com/careers/best-jobs/accountant
http://www.careerprofiles.info/salary-factors.html
Factors associated with the wages of Accountants in Mongolia.
Page 98
Table 2: Scale of monthly salary comparison /MNT/
Similar
domestic
products
Similar economic and
social development
country
Other countries
Country
Mongolia
Thailand
Kazakhstan
USA
Russia
China
Average
wage
11107003
16625004
1254000-25080005
7192000
-123840006
79500007
72000008
Data analysis
The study is based on survey including total of 153 accountants and financial professionals. We used
12 questions to assess and reveal the factors that are influencing accountant’s wages.
The survey results show that 91% of respondents were accountants and it is more important
to reveal the factors that are influencing accountant’s wages. This study shows the 74 percent of
respondents are women, 57% of total respondents are less than 35 years old, 65% of respondents
have experience of 1-10 years while 35% have more than 15 years of experience.
About 63% of the respondents work at private sector and the remaining as civil servants. 71% of
About 63% of the respondents work at private sector and the remaining as civil servants. 71% of
our sample is graduated from State University. In private enterprise’s the accountant’s working
our sample is graduated from State University. In private enterprise’s the accountant’s working hour
hour
are between
10-13 ahours
a day. Fortunately,
civil servants
fora 8day.
hours
a day.
Every
are
between
10-13 hours
day. Fortunately,
civil servants
work for 8work
hours
Every
accountant
accountant
bachelor
degreethem
and29%
among
them 29% of
accountants
have
master
andand
doctor
has
bachelorhas
degree
and among
of accountants
have
master and
doctor
degree
33%
degree
and
33%
of
respondents
are
Certified
Public
Accountants,
Certified
Tax
Consultants
and
of respondents are Certified Public Accountants, Certified Tax Consultants and Certified Appraisers.
Certified Appraisers.
Our study shows that 85% of the respondent’s wages ranged between 500,000-1000,000
Our study
shows
thatmore
85%and
of the
respondent’s
wages
between
tugrugs,
tugrugs,
only
3% has
2000,000
tugrugs
scaleranged
of the wage.
68%500,000-1000,000
of them have not received
any
71%and
of accountants
have two
jobsoftothe
earn
additional
onlypromotion.
3% has more
2000,000 tugrugs
scale
wage.
68% ofincome.
them have not received any
promotion. 71% of accountants have two jobs to earn additional income.
Chart 1: A classification of profession for respondents (%)
Chart 1: A classification of profession for respondents (%)
3%
3%
Chart 2: A classification of scale of wage (%)
Chart 2: A classification of scale of wage (%)
11%
3%
3%
Accountant
Financial manager
25%
61%
Economist
treasurer
91%
500000-1000000
1000000-1500000
1500000-2000000
More than 2000000
WeWe
used
1212
jobjob
descriptions
of of
accountants
used
descriptions
accountantsand
andpresented
presentedthe
thepercent
percentofofevery
everyjob
jobperformance
performance
(Table
Documentation,
prepare
financial
and other
the most
job. Unfortunately,
(Table3).3).
Documentation,
prepare
financial
andreports
other was
reports
waspopular
the most
popular job.
20-30%
of accountants
a financial
database
and protect
financial
data. financial data.
Unfortunately,
20-30% create
of accountants
create
a financial
database
and protect
reveal
relevance
of factors
influencing
in wages:
WeWe
reveal
thethe
relevance
of factors
thatthat
areare
influencing
in wages:
• Gender and wage: The statistical result exhibits that men receive more pays than women
3). and wage: The statistical result exhibits that men receive more pays than women
 (Chart
Gender
(Chart 3).of required qualification and wage: In case of qualifications it is possible to get more
• Profession
wages (Chart 4).
 Profession of required qualification and wage: In case of qualifications it is possible to get
• Workload
and wage:
more wages
(ChartAs
4).the wages increase, workload also increases (Chart 5).
• Workload and years of employment: As years of employment increases, it is expected that few
 Workload and wage: As the wages increase, workload also increases (Chart 5).
promotions will also occur thereby there workload (Chart 6).
 Workload and years of employment: As years of employment increases, it is expected
Factors
associated
with(Chart
the wages
Page 99 that few promotions will also occur thereby
there
workload
6).of Accountants in Mongolia.

Wage and enterprises: Private sectors can be possible to receive more wages as
compared to state sectors (Chart 7).
•
Wage and enterprises: Private sectors can be possible to receive more wages as compared
to state sectors (Chart 7).
Workload and enterprises: Private sectors have more workload than state sectors (Chart 8).
•
Table 3: Job Performance among the Accountants
Responses
N= 153
142
148
78
66
59
48
73
31
31
31
50
50
58
58
87
87
87
84
84
84
77
77
77
Jobs
1
2
3
4
5
6
7
88
8
99
9
10
10
10
11
11
11
12
12
12
Record primary documentation and check, confirm
Prepare financial and other reports
Prepare half and full-year report
Do financial analysis
Do budget, plan and performance
Process and review accounting policies
Help to management decision-making
Createaafinancial
financialdatabase
databaseand
andprotect
protectfinancial
financialdata.
data.
Create
Create a financial database and protect financial data.
Improvefinancial
financialinternal
internalcontrol
control
Improve
Improve financial internal control
Studythe
thelaws
lawsrelated
relatedto
toaccounting
accountingtransformation
transformationand
and
Study
Study the
laws related to accounting transformation and
suggest
suggestmanagers
managers
suggestreliable
managers
Provide
Provide reliablefinancial
financialinformation
information
Provide
reliable
financialskills
information
Improve
Improveknowledge
knowledgeand
and skills
Improve knowledge and skills
Average
Average
Average
Chart 4: The scale of wages by qualifications (%)
Chart 4: The scale of wages by qualifications (%)
Chart 4: The scale of wages by qualifications (%)
PERCENT
PERCENT
OFOF
RESPONDENTS
RESPONDENTS
PERCENT
PERCENT
OFOF
RESPONDENTS
RESPONDENTS
Chart 3: The scale of wages by gender (%) Chart 3: The scale of wages by gender (%)
Chart 3: The scale of wages by gender (%)
70.0 53.7 62.5
70.0 53.7 62.5
60.0
60.0
50.0
50.0
24.4 24.1
40.0
24.4 24.1
40.0
30.0
17.1 11.6
30.0
20.0
17.1 11.6
4.9 1.8
20.0
10.0
4.9 1.8
10.0
0.0
0.0
100.0
100.0
80.0
80.0
60.0
60.0
40.0
40.0
20.0
20.0
0.0
0.0
81.4
81.4
48.9
48.9
33.0
33.0 11.9
13.8 6.8
11.9 13.8
6.8 4.3
4.3
SCALE OF WAGES (THOUSAND MNT)
SCALE OF WAGES (THOUSAND MNT)
SCALE OF WAGES (THOUSAND MNT)
SCALE OF WAGES (THOUSAND MNT)
man
man
Job performance
( %)
92.8
96.7
51.0
43.1
38.6
31.4
47.7
20.3
20.3
20.3
32.7
32.7
37.9
37.9
56.9
56.9
56.9
54.9
54.9
54.9
50.3
50.3
50.3
qualifications
qualifications
woman
woman
no qualifications
no qualifications
Percent
Percent
ofof
workload
workload
PERCENT
PERCENT
OFOF
WORKLOAD
WORKLOAD
Chart
5: The
relationship
of workload
and
year
of employment
6: The
scale
of wages
by by
workload
(%)(%)
Chart
5: The
relationship
of workload
and
year
of employmentChart
Chart
6: The
scale
of wages
workload
Chart 5: The relationship of workload and year of employment Chart 6: The scale of wages by workload (%)
70
90
61
79
70
90
61
79
54
80
53
60
51
54
80
53
60
61
70
51
45
50
61
70
45
60
50
60
43
40
50
40
43
40
50
40
40
30
40
30
30
20
30
20
20
10
20
10
10
10
0
0
0
0 500-1000 1000-1500 1500-2000 2000 more
1-5
6-10 11-15 16-20
>20
1-5
6-10 11-15 16-20
>20
500-1000 1000-1500 1500-2000 2000 more
Year of employment
Year of employment
SCALE OF WAGES (THOUSAND MNT)
SCALE OF WAGES (THOUSAND MNT)
Chart 7: The scale of wages by enterprises (%)
Chart 7: The scale of wages by enterprises (%)
spondents
ondents
Factors associated with the wages of Accountants in Mongolia.
100
100
80
80
60
60
40
80
80
51
51
31
14 31
4
15
15
2
3
Chart 8: The relationship of workload and enterprises
Chart 8: The relationship of workload and enterprises
Page 100
state sector
46
Per
0
1-5
6-10 11-15 16-20
Year of employment
10
0
>20
500-1000 1000-1500 1500-2000 2000 more
SCALE OF WAGES (THOUSAND MNT)
Percent of respondents
Chart
The
scale
of wages
enterprises
Chart
7: 7:
The
scale
of wages
by by
enterprises
(%)(%)
100
80
60
40
20
0
Chart
Chart8:8:The
Therelationship
relationshipofofworkload
workloadand
andenterprises
enterprises
80
51
14
31
4
15
2
3
46
state sector
59
private sector
Scale of wages (thousand MNT)
state sector
private sector
0
20
40
60
PERCENT OF RESPONDENTS
Our
study
concludes
thatthat
factors
thatthat
are are
influencing
in wages
are gender,
work work
in whether
state
Our
study
concludes
factors
influencing
in wages
are gender,
in whether
or private
enterprises,
yearsyears
of employment,
profession
of required
qualifications,
workload
and
state
or private
enterprises,
of employment,
profession
of required
qualifications,
workload
and
responsibility.
But
age
and
brand
of
university
graduated
is
not
related
to
scale
of
wages
responsibility. But age and brand of university graduated is not related to scale of wages for
accountants.
accountants.
Summary
•
•
•
•
•
•
•
•
•
•
•
The study is based on the survey of 153 accountants and financial professionals.
The working hours for private enterprises continues to be 10-13 hours a day. Fortunately, civil
servants work 8 hours a day.
Our study shows that about 85% of respondent’s wages are in the range of 500000-1000000
tugriks and, only 3% has more and 2000000 tugriks scale of the wage.
68% of the respondents reported that they never received any promotion.
71% of accountants are doing more than one job mainly to have additional income.
The wages of the accountants in Mongolia are less than the average wage reported
internationally.
The factor that are influencing the wages of the accountants are gender, work place whether
state or private enterprises, years of employment, qualifications, workload and responsibility.
The age and brand of university graduated is not related to scale of wages for accountants.
The statistical result exhibits that men receive more pays than women.
In case of higher qualifications, it is possible to get more wages.
The wages increase was positively related to workload and the position held by them.
In general the accountants in private sectors are expected to receive higher wages as compared
to those working in state sectors.
Page 101
Factors associated with the wages of Accountants in Mongolia.
References
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Bohning. W.R, The Differential Strength of Demand and Wage Factors in Intra-European
Labour Mobility: with Special Reference to West Germany, 1957–1968, 2009
Casey Jo Kyukendall, Key factors affecting labor productivity in the construction industry,
2007
Chimgee. D, SPSS for Windows 15.0 User Guide, 2015
Chuluuntsetseg. G, The analysis of wages, 2016
Derek A. Neal, William R. Johnson, The Role of Pre-Market Factors in Black-White Wage
Differences, 1995
Ministry of Labor Research, Salary structure survey, 2014
Oyun-Erdene. B, Labor productivity and wages statistical analysis, 2008
Wiji Arulampalam and others, Is There a Glass Ceiling over Europe? Exploring the Gender
Pay Gap across the Wage Distribution, 2007
Yvonne Stedham, Jeanne H. Yamamura, Gender differences in business ethics: justice and
relativist perspectives, 2006
http://www.assa.mn/
http://money.usnews.com/
http://www.careerprofiles.info/
Steven Bragg “Accountants’ Guidebook” 2nd edition
http://biznetwork.mn/
http://www.1212.mn/
http://worldwide.mn/
http://www.payscale.com/
http://www.indeed.com/
Factors associated with the wages of Accountants in Mongolia.
Page 102
DEVELOPMENT OF A TEACHER
Bolorsaikhan.O Mongolian national university of medical sciences, Baigalmaa. L, Mongolian national university of medical sciences, Otgonbayar.Y National University of Mongolia ,
Abstract
Backround: With the rapid changes in social life, the needs and interests of students have also
changed. In order to successfully fulfill the obligations to develop, mature, and socialize them it is
important to continuously promote a range of versatile skills among them. The education quality is
directly dependent on teachers’ development. Therefore a study was designed with the following
objectives: Objectives: To assess the teacher development in the tertiary education institution, their
current situation of legislative framework and its policy. Further to carry out the assessment of
teachers self-training activity, performing duties and influencing factors and to study further measures.
Method: The study was conducted in April 2015 involving 80 higher education teachers. The TPI
model questionnaire was used to understand personal teaching methods utilizing the concept of
self-assessment with scores, self-expression, and reflection of diversified understanding. In TPI
model questionnaire, there are 45 questions that are divided by 3 types of differences in belief,
objectives and operations, and have 5 main indicators by Likert scale with score up to 5. Results:
The analysis of the government issued policy documents shows high content repetition, unclear
and undefined goals, and indefinite results which decreases the value and importance of the these
documents. Based on teachers own assessment, the role of a teacher is very important in the reform
of higher education but there are negative factors that affect this, such as, inadequate assessment
of teaching, conservative, inflexible and passive approach in teaching, and, the number of students
causing a work overload.
Key words: teaching perspectives, teaching styles, development of a teacher, TPI
Introduction
The true nature of teaching is to develop the disciples’ mind, body and other aspects and teach
them learning methods and how to acquire knowledge. Furthermore, to fulfill that nature, the attitude
of a teacher plays an important role. The Law on Education of Mongolia states that, “The goals
of the education of Mongolia are to develop mental, moral and physical abilities, and to instill a
sense of humanity and independency in learning, working and sustaining life”1. As the reputation
and development direction of a university and institution is determined by the knowledge, skills and
experience of the higher education teachers, as well as the image they form, it is crucial for teachers
to seek constant improvement of their skills and knowledge and to be life-long learners.
In current society, higher education teaching consists of four activities, which are research,
training, service provision and management. In order to develop an effective system for assessment
of teachers, the following actions are required: training quality improvement, enhance responsibility,
appropriate and correct selection of assessment criteria and training and preparing a professional
evaluator.
People tend to fix and develop themselves only after acknowledging their own mistakes and
disadvantages. The international method to assess the competence of a teacher is to have them
assess themselves. The purpose of the study is to determine the advantages as well the importance
of this method2.
TPI model is an online questionnaire method for teachers’ assessment that consists of 45
questions divided into 3 types of differences: belief, objectives and operations, and has 5 main
indicators by Likert scale with a score up to 5. This questionnaire is available free online at www.
TeachingPerspectives.com and can be used by everyone. It helps to understand personal teaching
Page 103
DEVELOPMENT OF A TEACHER
methods by self-assessment with scores, self expression, and reflection of diversified understanding3.
- Difference in beliefs: Questions 1-15.
- Difference in objectives: Questions 16-30.
- Difference in operations: Questions 31-45.
Participants in the study circle the appropriate number from 0 to 5 in front of each sentence. Each
group has five indicators namely Transmission, Apprenticeship, Developmental, Nurturing, Social
reform. Each of these indicators will be assessed for their Belief, Intentions and Action with the help
of TPI questionnaire1,2. The questionnaire examines views on training (TPI) with five indicators that
measure the views and differences in “teaching”. The questionnaire helps to determine the belief,
objectives and operation differences of teaching, philosophical conflict in teaching, as well as selfassessment.
Transmission: accurate and definite content and study topics is effective teaching. A good teacher
understands the topic and study content. The main purpose of a teacher is to deliver accurate and
effective content to students, propose definite goals, effective teaching time, clarify misconceptions,
answer questions, give immediate feedback, correct mistakes, summarize, appropriate direction of
a student, require high standards, and assessment related to goals.
Apprenticeship: teacher is very skillful in classroom and experienced expert in the workplace.
The role model teachers determines what the student can do on their own and what can be done
under the teacher’s supervision, as well as teach students in “development zone”. The more
competent the student becomes, the more the responsibilities of the teacher changes. They give
students individual assignments and responsibilities, and provide passive students development
opportunities to become independent employees.
Developmental: the teaching program is designed from “student’s perspective”. It is necessary
for a teacher to understand the thoughts and explanations of students regarding the content of a
program. Students are taught decision making skills, how to review and reflect problems, develop
thinking skills by posing questions, and working on issues, cases and examples. Teachers provide
their own knowledge, adjusting to the students’ understanding and ability levels.
Nurturing: Requires long-term, stable efforts. Teachers create a trusting and supportive
environment, set an implementable but challenging goal for the student, help, support and encourage
students to reach their goals. They do not sacrifice their own true nature and their self-esteem in
order to succeed. That is why the training assessment is not a winning but a personal development.
Social reform: Attempts to change society in a real and independent manner. Teachers strive to
make students adhere to their own values and opinions during their training. From this perspective,
teacher’s training approaches not individuals but the public. During discussions, the teacher makes
a notice not only of the knowledge but on the reason for a student to participate in the discussion.
Although these responsibilities are defined separately, they are inter-related with the day-to-day
operations of a teacher creating a unified set of activities4.
Development of a teacher: From one side, development of a teacher is a qualitative change in
body, mind, mental stability, health, cognitive, ethical and emotional maturity, and on the other side
it is an understanding of a teacher’s professional activity (scientific research, study, training and its
methods, marketing, consultancy) and all other aspects that develop them5.
As the Law on Higher Education of Mongolia states in order to teach primary program higher
education, a teacher requires not only the teaching certificate but also at least a master’s degree6.
Teachers also shall prioritize to enhance their theoretical knowledge, teaching methods and skills,
become a technologist that organizes training to enhance the professional development with
other teachers6, Improve teaching methods, tools and curricula based on research and utilizes the
methodology of education and psychology sciences7.
Increasingly high demand for better quality training makes the education sector with teachers,
researchers and policy aim to prepare efficient specialists. Although the teacher development issue
is publicly acknowledged, it is seen both in real life and in research that training plans and programs
are inconsistent, and cannot meet the needs of a teacher. It is important to note that a significant
DEVELOPMENT OF A TEACHER
Page 104
investment is spent in order to prepare teachers, conduct trainings for professional development and
other events.
According to MECS commissioned research on teacher development in 2011: (29
universities and colleges with 785 teachers and 2051 students, including 65 managers
were recorded by researchers of the University), the majority of teachers think that
the most important things to affect teaching methods are their own personal skills and
then supporting materials. The most influential professional skills are teaching skill and
analytical skill.
The study above shows that teachers tend to prioritize technological education and skills
and the need to implement training programs consistent with it. The results of the survey
show that teachers are showing a more dominant effect on the teacher-student scale of
learning, and teachers focus more to enhance their teaching skills.
There is no unified standard and method to assess the training of higher education teachers in
our country. Higher education teachers’ performance has evaluated by following 3 main types of
work: training, research (creation, other creative activities, experiment, innovative works, service),
and other works (school, society, and public events). Teacher labor has evaluated by teacher set
time (TST). The total work throughout the academic year is 1600 points for Mongolian National
University of Medical Sciences (MNUMS), 26 TST for Mongolian state University (MSU), 23 TST
for Mongolian State Teacher’s University (MSTU), 27 TST for Agricultural University (AU), 28 TST
for State Technology University (STU)8. MNUMS has a separate unit of “Faculty development” for
development of a teacher. MSTU has renewed their policy and the fifth article is about the teacher
development. Other universities have no mention of teacher development and it shows evidence that
it is just the beginning. Teacher evaluation becomes valuable and meaningful when the environment
is set to support their development9.
.
Objectives
1. Research teacher development in the higher education institution, their current situation of
legislative framework and its policy
2. To obtain the self-assessment in the teaching activities by teachers
3. To determine performing duties and factors which influence them, as well as study further
measures
Materials and method:
The study was conducted by the combination of quantitative and qualitative random sampling
methods and a cross-sectional descriptive model.
Document studies were carried out to investigate the combination of valuation methods,
such as the legal framework and documents to external (higher education institutions Teacher’s
Development) and the self-assessment questionnaire survey. Five main indicators were chosen
such as Transmission, Apprenticeship, Developmental, Nurturing and Social reform and assessed
with the help of Likert scale with score up to 5. Collected quantitative data was processed using
SPSS 17.0, Windows Excel programs and analysis.
Page 105
DEVELOPMENT OF A TEACHER
RESULTS:
Teacher development
WB-school education
World’s quality uarantee
Optimal higher
education management
and financial systems
Human resources
Salaries and bonuses, a
complex social problem
Doctoral degree
proportion of teachers
University teachers
baseline annual leave
every 6 years
Time uncertain
To establish a teacher
and optimal workload
management personnel
and improve their work
planning and execution
process, criteria
and method for the
evaluation of
Declarative quality
Table 1: The current legal framework and policies on teacher development
1
“Education 2021”
+
-
+
2
“Higher education reform
mapping”
+
-
+
3
“Higher education reform
policy objectives of 2025.”
+
-
+
4
“Higher Education Reform
2012-2016”
+
-
+
+
+
+
-
+
5
A master plan for the
development of education
in Mongolia, 2006-2015
(MUZG.2008):
+
+
+
+
+
-
+
6
Higher Education Reform
mapping / 2010 - 2021
(Ministry of Education,
2010):
+
-
+
7
Higher Education Reform
(DBShT) - 2012-2016
“project (Ministry of
Education, ADB, 20122016):
8
“Education” national
program (2010-2021):
+
+
+
+
+
9
State for Education Policy
(2014-2024):
+
+
+
10-13
Source :
According to the information provided in Table 1, above, the analysis of the government issued
policy documents shows high content repetition, unclear and undefined goals, and indefinite results
which decreases the value and importance of the these documents. These documents include facts
like increasing the costs of professional development by 8% annually, or sending 100 teachers
abroad for training, but there is no specification on how to enhance the professionalism and how
to choose those 100 teachers. Although there are articles on teacher development, there are
unclear implementation tools, mechanisms, and solutions, with unrealized implementation to date,
declarative period with neared completion, and high repetition in the context, decreasing the value
and importance of these documents.
Results of self-assessment of teaching activity:
The study was conducted in April 2015 involving 80 higher education teachers. There were 33.5%
male and 66.5% female respondents. The mean age of respondents was 30-39, with the eldest
being 52.
DEVELOPMENT OF A TEACHER
Page 106
The results of the study found that teachers with the highest score indicator are role models and
evaluated their training activities using five indicators: The mean scores of selected five indicators were found to be significantly different
(P <0.001).
This shows that the apprenticeship indicator which has the highest mean of 39.27 with professional
teachers to teach and can be taken for a role models (Fig. 1).
The results of the questionnaire:
The study involved deans, teachers, training officers (28), students (6), and others as human
resource managers, engineers, and risk analysts of a higher education organization. According to
their graduate information 7 were from Mongolian State Teacher’s University (MSTU), 6 were form
Mongolian State University (MSU), and 11 were from State Technology University (STU). Of the
respondents 74% are people that worked for the state from 10 to 34 years, 68% of them have worked
in the education sector more that 10 years. Taking into consideration their age the range is from 17
to 59.
Fig. 2: Responsibility of a teacher in higher education development-reform activity
69 percent of teachers surveyed responded that they have a great role in decision making and
a responsibility in higher education development-reform activity. However, 30% responded that
teachers perform insufficiently to reach goals of higher education sector (Fig. 2).
Page 107
DEVELOPMENT OF A TEACHER
Fig. 3: Negative factors in higher education teacher’s activity
Negative factors in higher education teacher’s activity are: first, inadequate assessment of
teaching (56%); second, conservative, inflexible and passive approach in the teaching (52%); third,
the number of students and overload (47%); fourth, insufficient environment for a teacher to develop
(44%); and fifth, teacher’s social reform (38%).
How do you see the main direction and way for a teacher to develop and constantly educate
themselves, in connection with demands and new requirements set in higher education sector?
Figure 4. In connection with demands and new requirements set in higher education sector
To evaluate the main direction and way for a teacher to develop and constantly educate themselves,
in connection with demands and new requirements set in higher education sector, by the following:
First, base the training by research (79%); second, develop and renew teaching methods (58%);
third, connect the training to the life (50%); fourth, use technology in the training (44%); and fifth,
teacher should participate actively in social and civil position (37%) .
Conclusion: The TPI model is an online questionnaire method for teacher’s operation assessment that consists
of 45 questions that are divided by 3 types of difference in belief, objectives and operations, and
have 5 main indicators by Likert scale with score up to 5. This questionnaire is available freely online
on www.TeachingPerspectives.com and can be used by everyone. It helps to understand personal
DEVELOPMENT OF A TEACHER
Page 108
teaching methods by self-assessment with scores, self expression, and reflection of diversified
understanding14.
The questionnaire was accurately assessed by 100,000 respondent measurements that were
conducted in more than 100 countries over 10 years. The research determined the understanding
of the professional and legislative framework of teaching methods in various social conditions and
cultures. The half century study confirms the peculiar, diversified and comprehensive activity that is
the higher educational sector.
However, for the past few years and over many studies different teaching methodologies have
combined and showed high level results14.
For example, according the Kember study of 13 researches conducted during 1983 to 1996 the
teaching methodology includes 5 methods15. The methods that were mentioned in the study were
similar with the 5 methods mentioned above. The results show that although there are a lot of human
factors that exist the teaching methodology for adults (higher education) utilizes few.
The performance of social reform (34.66) and apprenticeship (39.27) received the highest
score. Comparing our study results with the Kember’s one we can see that the later study shows the
role model performance higher.
Outcomes:
1. Although there are articles associated with university and institution teachers in the government
issued policy documents, there are no implementation tools, mechanisms, solutions, unclear
results, unrealized implementations to date, declarative periods with failed completion, and high
repetition in the context, which decreases the value and importance of the these documents
2. The self-assessment of teachers shows that the highest rated performance category was the
apprenticeship (39.27) indicator, the following by the indicator is transmission (37.1), nurturing
(36.95), developmental (36.76) and social reform (34.66). According to the apprenticeship
indicator of 39.27 we can see that most esteemed teaching process is a apprenticeship,
as professionally teaching sets a role model. However, society reformer shows the lowest
performance.
3. Although the responsibility of a teacher in higher education reform is very high there are
negative factors that affect it; firstly, inadequate assessment of teaching; secondly, conservative,
inflexible and passive approach in the teaching; thirdly, the number of students and overload;
fourth, insufficient environment for a teacher to develop; and fifth, teacher’s social issue.
The following are the methods and directions in which teachers can develop and educate
themselves in relation to the new reforms and needs of higher education sector: first, base the
training by research; second, develop and renew teaching methods; third, connect the training
to the life; fourth, use technology in the training; and fifth, the teacher should live actively in
social and civil position.
Further attention focus:
In near future, it is necessary to implement teacher’s development that is based on evidence-based
theory. We must pay close attention the following, in order to improve teaching quality relating to the
following education reform policies and projects:
Technology assistance: Create web systems for e-assessment for higher education teachers
and their operations. The internet based system gives the definite security for assessment and
results can be further be used in multiple ways.
Self-assessment: By self-assessment teachers can define their strengths, and improve their
weaknesses with no external pressure.
Group assessment: The assessment from colleagues will help correlate with self-assessment
results and allow teachers to learn how to work with the team. The right to assess other colleagues
gives the feeling of satisfaction, equality and boosts the team spirit.
Page 109
DEVELOPMENT OF A TEACHER
Student assessment: Teachers can view their student assessment in the web system, and the
results will allow identification of issues to focus on in order to further develop themselves.
Management assessment: Management assessments of performance may be used in various
ways, as they can contribute to the promotion, reward, disclose their achievements to the public,
advertise, and direct the education development as well as improve the planning of human resource
policy, to be used with self-assessment, group assessment, and student assessment.
It is expected that by introducing the web based assessment system, the accreditation process
will become easier and defined to the foreign and domestic universities and institutions, and indicate
quality during accreditation.
Recommendations: the following measures should be taken into consideration in order to support
the higher education teacher’s development:
Education sector policy makers’ level:
1. Develop university research that can compete on the international scale, and introduce tenure
track in universities and institutes in order to create competitive environment based on social
needs. It is possible to create brand new requirements, criteria and evaluating environment for
teacher’s development.
2. Fulfill the independent position for higher education development by confirming the finance,
management, structure and operation legislative framework.
3. Support universities by introducing continuous “teacher’s development” programs, create
environments where teachers can freely work rotationally, gain experience, improve the
training and scientific side of their profession, while spending at least 3% of the profit to the
teacher’s development.
4. Define positive factors that can contribute to the higher education students’ achievement,
collect documents and information of teachers’ skills and form a database and further define
developing factors for teachers’ development.
5. Financially support summer and internet training developments that enhance the teachers’
professional and educational aspects, issue and renew annually a handbook that consists of
higher education skills and their work statements, written by specialists.
Higher education level:
1. Make research-teachers, relevant structure to direct research training in order to develop
research competency, provide academic freedom for teachers, create an environment for
implementation.
2. Include teachers in the planned training for development, share experience, issue and
implement strategy and plans for teachers’ development, create legislative environment for
continuous training
3. Define the teaching working hour overload based on real study, responsibility for academic
and intellectual freedom, as well as professional responsibility, create an external structure that
evaluates the benefits, results, and university quality.
4. Make evaluation one of the methods for teaching, create internet based assessment system to
evaluate teaching quality (introduce Singaporean implementation management, Finland’s selfassessment of teachers and implement international method for same-professional evaluation)
5. Define in detail the boundaries of training content by levels, create an adequate training
program, plan teacher’s methodology on development project, plan a training to improve skills.
DEVELOPMENT OF A TEACHER
Page 110
Teacher’s level:
1. Create an opportunity to use information technology in order to assess their own development
level, for example, internet portfolio and TPI methods.
2. Teacher must continuously improve their knowledge, teaching methods, and be a life-long
learner, as well as be highly self-disciplined.
3. Continues learning and using new technological ways of information distribution, and introduce
them in the teaching process.
4. Improve team building skills and share personal knowledge with other colleagues.
5. Remember that student’s knowledge comes from their teacher, always support and direct
students
References :
1. Comprehensive national development policy based Mongolian Millennium Development Goals.
2. Haynes, DD (2010). One teacher’s experience with National Board assessment. Educational
Leadership. 52 (8).
3. Linda Darling-Hammond. (2009). Teacher Preparation and Teacher Learning.
4. Tracz et al. (2005). Improvement in teaching skills: Perspectives from National Board for
Professional Teaching Standards field test network candidates. San Francisco.
5. Recommendations of the United Nations Educational, Scientific and Cultural Organization
(UNESCO), the status of university teaching staff. 1997.Giinyerönkhiibagakhural 29th session
of UNESCO.
6. Mongolian Parliament No. 36, 1995 “The State Education on Policy “
7. High Education Law . 2002
8. Ya.Otgonbayar (2015), university faculty development sociological analysis doctorial
dissertation UB.
9. J.Davaa. (2012), and high school and college teachers and methodological issues, and high
school and college teacher development, the Ministry of Education, State University, Head,
Research within the recorded lectures
10. Mongolian International Education, Culture and Science Minister position. 2003
11. High education reform scenarios (2010-2021) Education Current condition.
12. High Education of
the World Conference 2009. High Education a
new driving force and Social Change and on development studies (UNESCO, Paris, 7th May
5-8, 2009)
13. Mongolian International Higher education: policy documents . 2010.
14. John B. Collins and Daniel D. Pratt. ( 2010 ) The Teaching Perspectives inventory at 10 years
and 100,000 respondents; Reliability and Validity of a Teacher Self-Report Inventory.
15. Kember,D. (1997). A reconceptialization of the research into university academics. Conceptions
of teaching. Learning and Instruction, 7, 255-275.
Page 111
DEVELOPMENT OF A TEACHER
United States income tax policy and mechanism
Ariunbold. J, Unurjargal. Ch
University of Finance and Economics
Abstract:
There are two truths on the earth that a man is born and a man dies. Between these emerges one
more truth is that a man pays tax. In order to live and survive, people are required to earn money by
working, or doing business. By doing so, a person will have to pay tax no matter he or she lives. Due
to the second tax law reform in Mong3olia, individual income tax and corporate income taxes are
being examined and being revised again. According to this law reform, this paper aims to study the
specialty and distinction of one of the most prosperous and freest country United States’ income tax.
Preface:
We can see that for anyone who earn money and pay tax, the tax system is been designed simple,
transparent, fair and allows people to choose, and also depending on how much they earn the tax
rate differs for corporate and individuals.
The significant experiences, such as deducting essential living expenses from taxable income
and using graduated tax rate depending on the income, prove that US tax system is effectively
adjusted for citizens’ welfare and we should implement this form in Mongolia.
In Mongolia, income tax law was enacted in 2007 and applied10% fixed tax rate to
every taxpayer regardless of their income bracket. It is one of the factors which caused a huge gap
between poor and rich. And uncertainty about tax exemption and tax avoidance still exist (persist).
Main section:
In the US, the following forms of business entity are classified for tax purpose. When you are
starting a business, you must decide what form of business entity to establish. Your form of business
determines which income tax bracket you belong to and what kind of form you have to file.
1. Sole Proprietorship
The sole proprietorship is the simplest type of business under which one can operate a business.
It is not required for a sole proprietorship to register or get a separate identity under the law. A sole
proprietor reports the sole proprietorship income or losses and expenses by filing a Schedule C form,
which is along with individual income tax return (form 1040). For some sole proprietorship business,
employees are not paid paycheck, instead they are given their salary as a direct cash or a check. In
this case, employers are also responsible for paying their employment tax.
Private businesses that are not being to operate in specific form of business entity, will be included
in sole proprietorship. If you are an employee and earning some type of income in United States,
you must pay social security tax. It is approximately 15% of your total income. If you get paid by a
paycheck, your employer is responsible for paying the half of the social security tax on behalf you.
For self-employed individuals, they are required to pay the whole social security tax themselves.
2. Partnership
To form a partnership, business must be registered and need to establish a business name. It is
a relationship between two or more people who join to carry on a trade or business.
United States income tax policy and mechanism
Page 112
The partnership, as well as an entity treated as a partnership for federal income tax purposes,
uses Form 1065.But partnerships do not pay tax on their profits instead after filing Form 1065, copies
of Schedule K-1 must be furnished and sent to the partners with detailed information on an allocation
of the profit/loss is made to each partner on a Schedule K-1, based on their ownership percentage.
And each partner pays tax on their profit which will be considered as a personal income, and also
pays 15% of social security tax too.
3. S-corporation
S-corporation is a legal entity owned by two or more shareholders. If you elect an S corporation
status when forming a corporation, it has a responsibility to file an annual tax return on Form 1120S.
For tax purpose,S corporations do not pay tax, same like partnership. Also, they do not fill Schedule
K-1 based on their ownership percentage too. Shareholders must incorporate the amounts reported
on K-1 into their personal income tax return. Apart from sole proprietorship and partnership, they do
not pay social security tax additionally on their income tax and also file Schedule K-1 since they are
paying social security tax that comes from their salary.1
4. C-corporation
A C corporation is owned by shareholders, too. A C corporation is type of entity which is
distinguished from others by the fact that its profits are taxed to the States. A C corporation reports
a corporate tax information on Form 1120.For a C corporation, shareholders are taxed on both
personal level and the corporate level.
In order to determine the taxable income, people who have chosen to operate in one of these
business entities, will have to report their gross income and their business deductions included in
their tax report to determine the amount of profit.
Type of business deductions and common expenses:
1. Use of transportation expenses in a business. This is the most common business expense
which could be expensed by two different methods. People can choose the one that provides
the greatest deductible amount amongst the two method. For the specific car or truck expenses,
the deductible amount will be same each year. Therefore, regardless of choosing one of these
methods, bridge-and tunnel-tolls and parking fees are additionally deductible.
a. Standard Mileage Rate Under the standard mileage rate, people deduct a 57,5 cent for
every business mile you drive and the total amount will be their car use expense. Also they
must determine what portion of the total miles driven that are business miles. One method
to determine is to use odometer by recording the mile at the start and the end of the year
and determine the difference to calculate the expense.
b. Actual Expenses
To use the actual expense method, people can claim their education by including depreciation,
licenses, gas, oil, tolls, Insurance, parking fees, registration fees and repairs, receipts and
invoices to the expense report.
2. Commission fees
3. Outside service or Contract fee
4. Bank fees
5. Depreciation of business assets
6. Business Insurance
7. Legal and professional fees
8. Rent expenses
1
www.aicpa.com
Page 113
United States income tax policy and mechanism
9.
10.
11.
12.
13.
14.
Repairs, maintenance and replacement expenses
Business supply expenses
Taxes and licenses
Business travel expenses
Wages and payroll taxes
Meals and entertainment tax /Main purpose of entertainment had to be the active conduct of
business, and generally can deduct 50% of entertainment expenses/
15. Telephone expenses
16. Business use for home
If people use part of their home for business, they may be able to deduct some of expenses
related to business use of home. Such as cost of electricity, heating, maintenance, property
taxes and mortgage interest can be deducted depending on the portion of work-space area
of a home. In other words, when a person who working at home, is able to deduct individual
expenses from their taxable income.
17. Other expenses
Some other expenses, which incurred in operating a business and not been mention in categories
above, are able to be deducted. If it can be proved as business purpose expenses.
Above are the most common business expenses. Even though, in most cases, these business
expenses are deductible, there are still several restriction and need to be asked for professional
advice from certified tax accountant about which one is deductible and non-deductible in your case.
People, engaged in private business, should regularly estimate their business expenses within
a year according to the type of expenses above. Later, the total amount needs to be given to
accountants to estimate taxes. For everyone who is not estimating and considering the costs could
pay more taxes than they actually owe. Because it could be underestimated.
In addition, tax returns might be revised by the Internal Revenue Service (IRS). If you do not
estimate the exact costs, there is a risk for claimed deductions to be dismissed and also you would
be responsible for paying additional taxes. Tax is easier when determining the income and expenses,
and also will have no fear of the IRS by producing accurate reports. Therefore, taking some time to
estimate costs once a week or month is recommended by IRS. According to these, can calculate the
costs using Microsoft Excel, or using accounting software QuickBooks has recommended. And most
people, operating small businesses, follow these tips by using programs.
Depending on the type of business entity, each person earning income pays tax and receives
social services.
It is said that, paying tax is inevitable in the Unites States. Next section is about tax issues related
to individuals. If you are earning income and a U.S. citizen, citizen residing overseas, resident alien,
green card holder and nonresident, you are obliged to file your income return and pay any amount of
estimated tax by law. This report must be applied at the national level and the provincial level. But
in some regions, such as /Texas, Nevada, Washington, Florida, Alaska, South Dakota, Wyoming/ do
not have income tax. It is explained as an example of policy to reduce population density.
If you are reporting annual income to IRS, beside income you earned in U.S, it should also
include income from worldwide. This applies to a variety of individuals and organizations and each
of them fill out the different form of report and pay estimated taxes.
For filing tax return, all individuals and business entities estimate tax on their profit, after deducting
the allowable expenses from the gross income.
For individuals, there are five categories of tax filing status:
1. Single filer
2. Married person filing jointly or surviving spouse
United States income tax policy and mechanism
Page 114
3. Married person filing separately
4. Head of household
5. Qualifying widow(er) with dependent child
This section includes most common types of personal income that is taxable and must be reported
on tax return.
1. Wages and salaries - Received for performing services as an employee of an employer, and
must be included in gross income in the withheld.
Employer should provide a Form W-2, and employee must include all income and withholding
from Forms W-2 on tax return.
2. Interest received from bonds, mutual funds, certificate of deposits and demand deposit
accounts - receives Copy B of Form 1099-INT and reports interest income from Form 1099INT on tax return.
3. Dividend - receive a Form 1099-DIV and reports dividend from this form on tax return
4. Business income - Total revenues minus expenses to run this business, and remaining
amount will be taxed on. Claims both income and expenses.
5. Pensions and Annuities - If receive retirement benefits in the form of pension or annuity
payments from a qualified employer retirement plan, it is taxable. Reports from Form 1099R on tax return.
6. Social Security Benefits - People, used to work in U.S and paid social security tax, may start
receive at full retirement age of 65
7. Real Estate Rental income - Cash, property or service received for the use of real estate or
personal property is taxable as rental income and may deduct expenses of renting property
from rental income.
8. Other income such as Unemployment Compensation should be reported on tax return.
Some other uncommon income is not mentioned above.
This section is about adjustment and deduction from income mentioned above.
Some common examples are: Half of the private business tax, money for retirement pension
account, self-employed individuals’ social security, student loan interest payment, tuition payments
and etc.
If these things are deducted as allowed by law, it means taxpayer’s tax payment would be reduced.
And after eliminating exemptions and concessions from adjusted income, taxable income is
determined.
1. Standard or Itemized deduction
The standard deduction is a fixed dollar amount that reduces the income taxed on. Standard
deduction varies according to filing status. In 2015, the standard deduction was:
● For single or married filing separately - $6,300
● For married filing jointly or qualifying widow(er) - $12,600
● For head of household - $9,250
Itemized deduction includes:
● Large, uninsured medical and dental expenses
● Mortgage interest and real estate taxes payment
● States tax payment
● Investment interest expense
● Donation and other limited deductions
All or some of these expenses will occur and if the total amount is greater than standard deduction,
expenses could be itemized.
Page 115
United States income tax policy and mechanism
2. Exemption
Tax exemptions reduce adjusted gross income, by reducing the fixed amount multiplied by
number of exemption. The personal exemption amount for 2015 was $4,000 and for 2016 is $4,050.
If there are three exemptions, total exemption amount would be $12,000.
If the total income of exemption is greater than specific amount of adjusted income, it phases out.
At last the taxable income will be determined and taxed at a different rate according to the
adjusted income amount and type.2
In the following table shows, approximate tax rate. /2016/
Marginal
Tax
Rate[19]
10%
15%
25%
28%
Married Filing
Jointly or Qualified
Widow(er) Taxable
Income
$0 – $9,275
$0 – $18,550
$9,276 – $37,650
$18,551 – $75,300
$37,651 – $91,150 $75,301 – $151,900
$91,151 – $190,150 $151,901
–
Single Taxable
Income
Married Filing
Head of Household
Separately Taxable
Taxable Income
Income
$0 – $9,275
$9,276 – $37,650
$37,651 – $75,950
$75,951 – $115,725
$0 – $13,250
$13,251 – $50,400
$50,401 – $130,150
$130,151 – $210,800
33%
$190,151
$231,450
– $231,451
– $115,726 – $206,675 $210,801 – $413,350
35%
$413,350
$413,351
$413,350
– $413,351
– $206,676 – $233,475 $413,351 – $441,000
39.6%
$415,050
$415,051+
$466,950
$466,951+
$233,476+
$441,001+
After determining the taxable income, check if you may qualify for the any tax credits (EITC)
of IRS.A tax credit is a tax incentiveprovided by State government, and most common tax credits
are Earned Income Tax Credit, Education Credits and Child and Dependent Care Credit. Tax credit
amount is not regular and varies depending on the size of income and reporting forms. Also tax credit
applies in two types, first one reduces the amount of owed tax to zero and second one is, if your
owed tax is reduced to less than zero, you may get a refund. After the credits, the remaining amount
is a tax which the taxpayer should pay. It is just an income tax and if the taxpayer is an individual
business owner, self-employment tax should also be paid additionally. This tax isapproximately 15%
of the income after deducting business expenses. There are more taxes in addition to this two taxes
mentioned above, but those are not common.3
And one more thing to mention is, beginning in 2014, individuals must have health care coverage
and report any payment amount on tax return form.
Conclusions:
1. Putting every unit of taxpayers such as families and individuals in a form of defining their
tax themself, has created meaningful opportunitiesfor tax collection, as well as taxpayers.
2. The advantages of people filing taxes jointly with family members instead of separately,
may occur the improvement for accounting and reporting and it also meets the policy of
value-added tax intensive system
3. Individuals certain incomes such as pensions, benefits and etc, do not even be mentioned
in our income law. Therefore, this flaws of tax law should be fixed.
Form 1095-B and C Guidance for your 2015 Tax return
www.irs.gov
2
3
United States income tax policy and mechanism
Page 116
It is clear that deducting mortgage interest expense, self-employed health insurance premiums,
student loan interest payments and tuition payments, instead of confusing arrangements like
exemption of bought house and tuition fees in Mongolia, has influenced the tax reporting.
Progressive rate is the tax rate, that depends on the taxpayer earned revenue and it is also
essential part of the tax policy of any country.
Our very first mission we need to accomplish is, not to collect the maximum amount of tax,
instead educate public to accurately report their taxable income.
We can prevent unnecessary expenditure of budget and tax avoidance by coordinating tax policy
with population register /migration, marital status, family structure and etc/, social welfare policy, and
such other. Therefore tax policy is very important to ensure theconsistency of government policies.
Tax professionals’ advisory service is essential part of collecting estimated tax and filing income
tax return.
References
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
www.irs.gov/pub/irs-pdf/f1095c.pdf.
www.tcrs.com
www.aicpa.com
www.tax.mn
www.1098T.com
www.1095B.com
www.1095C.com
www.1095A.com
Credits and deductions. (n.d.). Cit.04/28/2016. Retrieved from Internal revenue service website,
https://www.irs.gov/Credits-&-Deductions
Understanding merchant tax regulations. (n.d.). Cit.04/28/2016. Retrieved from American
express
website,
https://www209.americanexpress.com/merchant/services/en_US/taxinformation
US Tax & Financial Services for Individual Tax. (n.d.). Cit.04/28/2016. Retrieved from US tax
and financial services website, http://www.ustaxfs.com/individual-tax-2/
Individual Federal Income Tax Rates by Tax Year. (n.d.). Cit.04/28/2016. Retrieved from US
tax and financial services website, http://www.efile.com/tax-rate/federal-income-tax-rates/
Filing your federal texes. (n.d.). Cit.04/28/2016. Retrieved from USA government website,
http://www.efile.com/tax-rate/federal-income-tax-rates/
Tax Types Accepted. (n.d.). Cit.04/28/2016. Retrieved from IRS Authorized tax payment service
provider ,https://www.payusatax.com/TaxTypes.aspx
Page 117
United States income tax policy and mechanism