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Business Plus Initiative

SECTION C – STATEMENT OF WORK

C.1 INTRODUCTION
The Business Plus Initiative (BPI) Project is designed to support an enhanced role for the private sector in
Mongolia's economic growth by complementing and supporting the Government of Mongolia’s (GOM)
strategy to advance the following objectives:

• Improved implementation of business enabling policies

• Strengthened private sector capacity and competitiveness
• Increased financial sector capacity and enabling environment

The project will promote these objectives by building on the Economic Policy Reform and
Competitiveness (EPRC) project and its predecessor, the Economic Policy Support Project (EPSP) as
well as the Competitiveness Initiative (TCI), the Gobi Project and the GER Initiative. BPI will contribute
directly to the achievement of Strategic Objective One (SO1): Accelerate and Broaden Sustainable
Private Sector Led Economic Growth.

As detailed in this document, BPI’s clearly defined components will focus on achieving measurable
results. However, it is also designed to have sufficient program flexibility to respond rapidly and effectively
to windows of opportunity such as new market or business opportunities, new economic reform
opportunities or requirements, as well as unexpected domestic, regional or international economic and
business developments. As such the BPI contractor must have a high level of managerial and technical
competence in core program areas, while maintaining sufficient flexibility to respond to critical USAID and
U.S. Government, GOM, private sector and NGO program assistance needs on an in-time, demand-
driven basis.

USAID encourages the contractor to take an innovative approach to implementation of the program
activities, bringing to bear international best practices and integrating it with local context and priorities.
The contractor is encouraged to connect with leading innovators in the private sector and academia in
Mongolia and beyond, and to access the recently created Development Innovation Ventures Fund -
where creative solutions can be funded, piloted and brought to scale, as well as to seek appropriate
opportunities to use the project as a catalyst to mobilize the resources of private corporations,
foundations, universities, and other non-government organizations interested in working in Mongolia
through the Global Development Alliance (GDA) Initiative.

C.2 BACKGROUND
In the last 20 years, Mongolia has made tremendous progress in its transition from a centrally-planned
state to a democratic, market economy. The transition has been successful overall with the private sector
currently constituting over 70 percent of the nation’s GDP. Despite initial challenges, Mongolia’s
economy grew rapidly largely thanks to the rising prices of natural resources. From 2004 to 2008, growth
averaged nearly 9 percent per year. Like much of the world, Mongolian experienced a down year in
2009, during which its economy contracted by 1.6 percent, but it is expected to grow by an annual
average of 7 percent between 2010 and 2011, indicating that Mongolia’s economy is rebounding
strongly. 1

Mongolia is a mineral rich country with some of the largest untapped gold, copper, and coking-coal
reserves in the world, in addition to a wide range of other mineral resources. Since late 2009, the GOM
has finalized an agreement with foreign investors to develop the vast Oyu Tolgoi (OT) copper and gold
deposit, and articulated plans to develop the Tavan Tolgoi (TT) coal deposit with a mix of state-run and
foreign investor-led development. Total investment to develop Oyu Tolgoi, Tavan Tolgoi, and other

1 World Bank, 2010

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announced minerals developments exceeds $6 billion in the next three years alone. Compared to 2009
GDP of $4.2 billion, this represents a significant financial injection into the economy. Many other
developments, ranging from several millions of dollars to a $1 billion iron-ore project, are waiting to be
developed depending on the investment environment. Observers speculate that, if these plans
materialize, GDP could double by 2015 and quadruple by 2020.

Although Mongolia anticipates unparalleled, mineral-driven economic growth, it is not prepared for either
the massive expansion or the speed of transition. Complex economic, governance, environmental, social
and capacity issues persist and require urgent attention. The undiversified economy is highly vulnerable
to price volatility in natural resources, unemployment remains high, and 35 percent of the population
continues to live under the poverty line. A big increase in commodity exports will put upward pressure on
the togrog, making other exports less competitive. Mining is a capital-intensive industry and will not
contribute significantly to reducing unemployment, and the country’s workforce may prove ill-suited to the
jobs created by the sector’s growth. Mongolia’s poor regulatory capacity is a deterrent to retaining world
class investors. Corruption, especially rent seeking activities, may also prove to be a long-term problem.
Growing public frustration about how the dividends from the mining sector are spent, as well as the
impact of mining on Mongolia's fragile environment, could also be a source of instability. The GOM has
signaled that it recognizes these challenges, and is looking to learn from the example of countries such
as Chile, Malaysia and Botswana to discover how economies have managed their mineral resource
wealth and rapid growth successfully.

Apart from the challenges and opportunities presented by its mineral wealth, Mongolia is struggling with
the enormous challenge of improving performance on a range of areas necessary to expand the benefits
of growth. They can be summarized as follows:

• Weak Administrative Capacity to Promote Business Enabling Environment

Mongolia made significant strides in building the legal and institutional framework necessary to
support a market economy; however, implementation and enforcement must improve in order to
promote competitiveness and sustained growth. Administrative capacity and procedures need to
be strengthened to enhance economic governance and to reduce the cost of doing business.

• Lack of Citizen Participation in Economic Policy

Private sector and individual "citizen" involvement in policy formulation continues to be minimal.
There are few effective business associations representing the views and advocating in the policy
making process on behalf of their members. Public-private dialogue will become increasingly
critical to ensure that revenues from the mining sector are effectively managed and that business
perspectives are considered in policy decisions that affect the enabling environment. Further,
confidence in public sector capacity for efficient service delivery is low. The concept of sound
corporate and economic governance is gaining traction in Mongolia but is far from adequate.

• Weak and Underdeveloped Financial Sector

Significant improvements in the financial markets are necessary in order for Mongolians to
capitalize on the rapid growth of the economy. Mongolian banks with steep interest rates
dominate the financial sector with over 96 percent of the sector’s assets. The nascent non-
banking financial sector lacks strong business managers, effective regulators and a financially
literate customer base. Better regulated banks and access to longer term non-banking finance
are necessary to support entrepreneurship, infrastructure development, and other ventures that
require increased private sector investments.

C.2a USAID Program

Since the dissolution of the Soviet Union in 1991, USAID has helped Mongolia build a solid
macroeconomic policy framework and lay the institutional foundations for a stable and sovereign
democracy. USAID programs focus on two of Mongolia’s most pressing concerns: strengthening the
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economy and improving governance. USAID has made vital contributions to Mongolia’s economic and
political transformation with limited funding. It has strengthened more than 7,000 small businesses,
increased the availability of business information to half a million people, and facilitated business loans
worth over US $6.4 million. USAID’s assistance was critical in transforming the troubled Agricultural Bank
of Mongolia into Khan Bank, one of Mongolia’s largest banks and the bank with the most extensive
branch network. After 20 years of engagement, USAID is seen as the lead donor in promoting private
sector-led economic growth and good governance.

The current USAID strategy in Mongolia is organized around a strategic vision that focuses on two central
Strategic Objectives (SOs):

-- First, USAID/Mongolia will work to accelerate and broaden sustainable, private sector-led
economic growth;

-- Second, USAID/Mongolia will work to achieve more effective and accountable governance.

USAID projects have contributed to SO1 in the following ways:

1) The Growing Entrepreneurship Rapidly (GER) Initiative: Implemented by CHF international, the
GER Initiative (2002-2009) promoted business development and employment services in the
rapidly growing ger (a traditional Mongolian dwelling) districts that surround Mongolia's urban
centers. The GER Initiative worked in five cities and their surrounding areas: Ulaanbaatar (UB),
Darkhan, Erdenet, Choibalsan and Bayan Ulgii. Activities included facilitating loans to four partner
banks, supply and demand linkages to larger businesses in city centers, and information services
in partnership with government authorities. The project was spun off into a local NGO,
Development Solutions, which continues to operate independently and sustainably in and around
the five cities.

2) The Gobi Regional Economic Growth Initiative Phase II: Implemented by Mercy Corps
International, the second phase of the ‘Gobi’ Initiative (2004-2009) promoted economic growth by
developing and strengthening rural businesses in the six southern aimags (provinces) of
Mongolia. Activities included facilitating financial transactions with local banks; technical support
for herders and small and medium-sized enterprises; and providing expanded business
information services through various media, including innovative radio programs and the monthly
magazine Rural Business News.

3) Economic Policy Reform and Competitiveness (EPRC) Project (2003-2011): Implemented by

Chemonics International, Inc. (http://www.eprc-chemonics.biz/), this project provides the GOM
with a quick-response mechanism for addressing a wide range of economic policy reform and
private sector development issues. Working in conjunction with high-level government
counterparts, long-term expatriate technical specialists provide information and analysis on key
issues related to trade, investment, private sector development and related issues. Specially
targeted emphases include commercialization of the energy sector and (until 2008) strengthening
industries such as tourism and cashmere - key sectors of the economy.

The Gobi and GER projects, although successful, ended in early 2009 due to budget constraints.
However, successor programs continue with USDA (United States Department of Agriculture) funding.

A new USAID strategy covering the period 2012-2016 is currently being prepared and will likely continue
to emphasize these two central themes. The BPI project will contribute to the USAID strategy by building
on the EPRC project and its predecessor, the Economic Policy Support Project (EPSP) as well as The
Competitiveness Initiative (TCI), the Gobi Project and the GER Initiative.

C.2b Mongolia’s Development Priorities

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Mongolia’s economic growth and development priorities and policies are defined in the fifth chapter of the
‘Millennium Development Goals-based Comprehensive National Development Strategy of Mongolia’
(MDGCDS) adopted in 2009. Key elements of the strategy include increasing labor productivity,
increasing investment efficiency, diversifying the economy, increasing exports, introducing technology,
improving the business environment, and improving infrastructure.

On the macroeconomic level, the government aims to enhance economic growth, ensure budget and
financial sustainability, increase incomes of the population and provide a sound welfare benefits system.
Taxation policy will strengthen private sector-led economic growth and allow for the growth of export-
oriented production and services. Inflation and external debt will be managed, interest rates lowered, and
favorable investment, trade and banking environments created.

Further, the country seeks to improve competitiveness and remove obstacles to private sector growth.
Although the mining sector features prominently in the strategy, the GOM acknowledges the need for
economic diversification, small and medium enterprise, food security, agricultural, and tourism
development.

On infrastructure, the GOM will address the needs of the population and economic development by
focusing on roads and transportation, energy, fuel, ICT, planning and construction.

C.3 SCOPE OF WORK

Flexibility and Creativity: BPI will be USAID’s primary implementation vehicle for achieving its economic
growth objectives in Mongolia. It is designed as a substantive policy implementation and private sector
strengthening project geared to deepening and accelerating economic growth. USAID recognizes the
need for flexibility and creativity in the contractor’s approach in order to achieve meaningful and
sustainable results. Use of innovation is highly encouraged.

Linkages and Synergies: BPI will retain certain positive elements of the EPRC project as well as its
predecessor projects, EPSP and TCI, while providing greater emphasis on synergies between policy
design and implementation on the one hand and private sector growth on the other. Furthermore, the
contractor should prepare its proposal and implement the project in a way to maintain synergies with
other USAID and USG funded development projects such as the Millennium Challenge Account (MCA),
and other donors.

Strategic Approach: BPI will support policy changes that contribute to inclusive economic growth and
permit Mongolians to participate in the growing economy. Its activities will influence the policy and
institutional framework in ways that increase investment opportunities, improve trade capacity, and
stimulate business growth, which will require addressing concerns in a broad range of areas affecting
Mongolia's economic growth and private sector engagement in it, in areas ranging from macro-economic
policy to business regulation to financing and regulation.

BPI will continue to be a demand-driven process, building on the results-oriented agenda to maximize the
benefits of economic growth. The broad range of potential interventions in contrast to the limited
resources available requires a strategic framework that identifies priority interventions necessary to
achieve objectives in the most cost efficient manner.

Cross-cutting Issues: USAID recognizes that meaningful success in the economic growth SO cannot
occur in the absence of progress in the democracy and governance SO. The critical importance of the
interplay between these two strategic objectives warrants particularly strong teamwork and linkages with
other activities in the USAID portfolio, especially in the areas of:

• Transparency
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• Public outreach
• Performance monitoring and evaluation
• Citizen engagement in the policy making process

Donor Coordination: The contractor shall actively coordinate and, where appropriate collaborate with
other donors so that USAID resources can be efficiently used to achieve its objectives. BPI should take
account of lessons learned from previous USAID-funded projects and other donors. Coordination may
entail participation in working group meetings as well as formal and informal information exchange with
other bilateral donors and multilateral organizations. USAID’s relatively small size in Mongolia heightens
the importance of leveraging donor coordination to maximize results.

USAID Gender Requirements: USAID has a special interest in the participation of women and is working
to improve women's equality and empowerment in developing countries. The Agency is increasingly
integrating gender into its program planning process. A gender assessment is mandatory for the design of
strategic plans and development objectives. USAID completed a gender analysis in 2005, which showed
that women have a higher share of jobs in professional and white collar occupations than men. However,
the higher education levels for women have not directly translated into higher salaries, senior-
management, or decision-making positions. Mongolian women have lower levels of income for similar
2
work, and higher levels of unemployment and poverty than men. With this in mind, the contractor shall
update this gender analysis as an initial task under this project. The contractor shall develop a strategy for
building gender into the work plan in accordance with USAID requirements. Progress of all related
activities will be measured and verified using indicators that are disaggregated by gender and will be part
of the project performance management plan (PMP).

Grants to local NGOs: The contractor will provide grant funding to local Mongolian NGOs, PVOs and
other organizations with the consent of USAID/Mongolia in support of the objectives of this project. The
amount of the grants may vary from year to year and the total value should not exceed $1,000,000 for the
life of the project.

Indicators and Targets: The contractor will be responsible for monitoring, evaluating and reporting
performance against an agreed upon framework of goals, objectives and results with indicators. The
strategic objective indicators presented in this document are presented as illustrative and are not to be
viewed as fixed.

C.4 EXPECTED RESULTS

Although economic growth prospects are promising, Mongolia faces a number of key challenges in
achieving sustainable and equitable economic growth. These include, inter alia, poor economic
diversification and independence, weak institutional capacity, under-developed financial sector, and weak
economic governance.

As noted earlier, a new USAID strategy covering the period 2012-2016 is currently being prepared and
will likely continue to emphasize the two central themes: economic growth and democracy and
governance. The focus going forward will be on policy implementation as it relates to private sector-led
economic growth and good governance. The USAID strategy takes a pragmatic approach to doing just
that. During the next and most critical years for Mongolia, USAID expects to allocate approximately $20
million to help Mongolia advance the financial sector, implement the policies and strengthen the private
sector that will ensure sustainable and equitable economic growth. BPI will be the primary vehicle to
achieving USAID/Mongolia’s SO1.

Under the SO1, USAID/Mongolia seeks to expand private sector growth in a more equitable and
sustainable way. This is accomplished through advancing three objectives:

2 Fitch, p. 4
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C.4a Improved Implementation of Business Enabling Policies

Mongolia has made significant strides in building the legal and institutional framework necessary to
support a market economy. However, implementation and enforcement must improve in order to promote
competitiveness and sustained growth. Significant improvements are required in institutional and staff
capacity to understand and communicate the provisions of the legislation, effectively administer the
provisions, work collaboratively with the private sector, monitor and evaluate the process of
implementation, ensure enforcement of regulations, and make policy adjustments as public and private
sector needs require.

Indicative results under the objective are:

1.1 Government capacity to implement economic policies and programs increased
1.2 Trade capacity strengthened
1.3 Licensing, standards and inspections streamlined and enforced
1.4 Public-private dialogue broadened

C.4b Strengthened Private Sector Capacity and Competitiveness

Despite significant improvements during the last few years, private sector capacity is far from adequate.
In fact, the private sector requires assistance to effectively manage and participate in the anticipated
strong economic growth.

Ambitious development plans require mobilization of substantial financial resources and GOM is aware of
the need to attract the private investment. Mongolia has taken the right steps in implementing the
Concession Law (February 2010) and the Privatization Guidelines for 2010-2012 (approved by the
Parliament). However, there was limited private sector engagement in drafting the law and it is not
sufficient for commercial transactions to be concluded in a timely manner. There are many details which
could complicate and delay commercial agreements. Therefore, it is important to further enhance the
understanding of key stakeholders and provide them with transaction-related support.

Business associations provide an important function in representing the combined views and advocating
on behalf of its members. In Mongolia, business associations continue to struggle to provide effective
services for their members, fail to effectively lobby their members’ interests to the GOM or create unity
and cooperation within particular industries. Strong business associations in key areas would promote
advocacy, information exchange, training, and other support services that enhance their competitiveness.

Indicative results under the objective are:

2.1 Foreign and domestic private sector investment increased in priority sectors as identified by
GOM;
2.2 Business associations capacity strengthened;
2.3 Partnership for entrepreneurship and innovation expanded.

C.4c Improved Financial Sector Capacity and Enabling Environment

Significant improvements in the financial markets are necessary in order for Mongolians to capitalize on
the rapid growth of the economy. As Mongolia undergoes significant mining sector led growth in the next
five years, there is an increasing demand for alternatives to bank financing. The business community and
the Mongolian citizenry need access to longer-term affordable capital in the form of instruments which are
suited to their needs. With the rise in income and complexity of development projects, the demand for
pensions, insurance, and sophisticated financial instruments is also expected to increase. This in turn will
provide the basis for development of non-bank investment products (beyond bank deposits) for domestic
and international investors wanting to invest in Mongolia’s growth.
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Expected results in these areas are:

3.1 Financial sector regulatory institutions capacity strengthened
3.2 NBFS financing and investment products increased
3.3 Corporate governance and transparency improved, as determined by both domestic observers
and respected international organizations

C.5 DETAILED WORK REQUIREMENTS

BPI will consist of four main interrelated tasks that will require experienced advisors throughout the life of
the project:

a. Implementation of Business Enabling Policies.

b. Private Sector Investment Support.
c. Financial Sector Deepening Support.
d. Public Outreach and Performance Monitoring and Evaluation.

C.5a Implementation of Business Enabling Policies

According to the WB, Mongolia ranks 73rd out of 183 countries in the 2010 Doing Business Index3;
suggesting that it is easier to conduct business here than it is in China, Russia and Kazakhstan, but more
difficult than in other countries of the former Soviet Union, such as Armenia, Azerbaijan, Kyrgyzstan and
Georgia. Particular advantages of doing business in Mongolia are declared to be the ease of registering
property, employing workers, the protection received by investors and the ability to enforce contracts.
Problematic areas include dealing with construction permits, customs procedures and closing businesses.

Increase Government Capacity to Implement Economic Policies. Mongolia made significant strides in
building the legal and institutional framework necessary to support a market economy; however,
implementation and enforcement must improve in order to promote competitiveness and sustained
growth. Administrative capacity and procedures need to be strengthened and streamlined to enhance
economic governance and to reduce the cost of doing business.

Illustrative Activities:
a. Technical assistance and training for selected government agencies.
b. Study tours for government officials to learn successful methods of reform.
c. Improve the skills of selected government agencies in the formulation, analysis, and
monitoring of regulations to implement laws and regulations.
d. Provide expertise, knowledge and tools to perform cost/benefit analysis of regulatory actions.
e. Develop regulatory, supervisory and monitoring functions of ministries and agencies, and
standards.
f. Improve administrative procedures and processes within government agencies and ministries
so as to reduce numbers of documents required, procedural hoops, timeframes,
administrative costs, regulatory burden, etc.
g. Introduce to relevant government organizations, the various alternatives for private sector
financing mechanisms, including direct investment, public-private partnerships (PPPs), equity
investments, joint ventures, build-operate-transfer (BOT), build-operate-own (BOO) and the
benefits/disadvantages of each.
h. Enhance public and private sector understanding of PPPs, assist in reviewing PPP proposals
and designing feasibility studies, develop PPP financing strategies, provide preliminary
transaction advice, and advise on strengthening policies, concluding agreements and
implementing PPPs. Support could be directed to a number of organizations including the
State Property Committee (SPC), Ministry of Finance (MoF), Ministry of Mineral Resources
and Energy (MMRE) and National Development and Innovation Committee (NDIC). The

3 World Bank Doing Business 2010

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contractor must also coordinate with the World Bank (WB) and Asian Development Bank
(ADB).

Trade Capacity Building. Mongolia ranks 116th in the world for its trading environment.4 There are a
number of reasons for the poor score, although many are related to the quality of transport infrastructure
for which short-term improvements in ranking will be impossible. Mongolia also ranks low on policy and
administrative procedures. Similarly poor results are disclosed by the WB with Mongolia ranking 158th out
of 183 countries in the Doing Business indicators relating to Trading across Borders.

Illustrative Activities:
a. Assist GOM revise import and export regulations to ensure they meet international standards
for trade facilitation.
b. Technical assistance to government agencies to establish rules and implementation
procedures for trade facilitation laws and regulations.
c. Training customs officials and other trade officials regarding new regulations.
d. Provide expertise, knowledge and tools to reduce the time required to trade across borders
based on risk analysis.
e. Assess the current practice against international best practices.
f. Introduce and assist GOM agencies in implementing effective procedures that promote trade
both domestically and abroad.
g. Coordinate and assist in improving coordination and collaboration among public institutions
such as the General Agency for Specialist Inspection (GASI), Customs General
Administration (CGA), the Agency for Fair Competition and Consumer Protection (AFCCP)
and private sector.
h. Assist in introducing and implementing trade facilitation instruments such as reducing foreign
exchange risk etc.

Standards and Inspections. Many private sector stakeholders felt burdened by the number and
procedures used for inspections. The MDGCDS highlights the need for improving, implementing and/or
enforcing standards in education, healthcare, taxation, the financial system, mining, food safety, tourism,
construction, transportation, urban planning, construction, environmental monitoring and property
registration.

Illustrative Activities:
a. Assist the GOM with the revision of standards in selected sectors including, as necessary,
inspection, certification and testing.
b. Draft an action plan to reform the standards of selected sectors.
c. Draft revised standards to be issued by the cognizant government agency.
d. Training events and workshops for GOM employees and the private sector.
e. Assist GOM ministries and agencies in revising/updating existing standards and inspection
procedures.

Business Regulation and Licensing. Mongolian businesses feel overly burdened by the regulations they
face and the situation is getting worse. Ranked 92nd in 2007 for the burden of government regulation in
the GCR, their rank has now dropped to 113th position. Related to this are poor scores for favoritism in
decisions of government officials (134th) and transparency of government policy-making (120th).

Illustrative Activities:
a. Improve transparency and public disclosure for issuing licenses and regulations.
b. Collaborate with and mobilize NGOs in regulation and enforcement procedures.
c. Strengthen regulatory capacity and create standards in the finance sector (within the
Financial Regulatory Commission (FRC) with regard to supervisory capacity, enforcement,
legislation harmonization, and the development and regulation of NBFI products.

4 World Economic Global Enabling Trade Index 2010

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Public Private Dialogue. The MDGCDS, which forms the basis for Mongolia’s economic growth policy,
has had little to no private sector involvement or consultation in its development. While some public
private dialogue is undertaken, largely through organizations such as the Business Council of Mongolia
(BCM), Mongolian Chamber of Commerce and Industry (MCCI), the Trade Unions Confederation (TUC)
and Mongolian Employers Federation (MONEF), it tends to be ad-hoc and private sector driven.

Through the MDGCDS, the GOM acknowledges the need to strengthen public private dialogue through a
consultative committee and ensure private sector participation in economic decision-making. However, at
present, there is no formal mechanism for public-private dialogue in place.

Illustrative Activities:
a. Facilitate communication between the GOM and the private sector to promote as much
consensus as possible.
b. Assist private sector actors, such as associations, foundations and federations to promote
voluntary compliance with economic reforms.
c. Technical support to expand and strengthen the role of business associations and other non-
governmental organizations in the implementation of economic reforms.
b. Provide guidance on revising the general policy-making process to ensure greater
collaboration, dialogue, public consultation and transparency.
c. Assist public organizations in public disclosure.
d. Assist NGOs in negotiating with public organizations and participating in policy making.
e. Initiate/innovate new public private dialogue mechanisms.
f. Facilitate platform for public private dialogue.
g. Assist public and private sector organizations in collecting, obtaining, analyzing and
disseminating pertinent information.
h. Strengthen formal and informal relationships between stakeholders in the mining, financial
and energy sectors to improve dialogue, consensus building, understanding, trust,
accountability and partnership, through training and facilitation.

C.5b Private Sector Support

Mongolia has registered around 9,940 foreign investors from more than 95 countries with a total portfolio
of some US $3.8 billion5. China, Canada, South Korea, Japan, Russia, the United States, the
Netherlands and Singapore led investment in 2009. 61.3 percent of total investment was targeted in
geology, mining and oil, 19.7 percent in trade & catering, 3.1 percent in banking and finance, 2.8 percent
in light industry, 1.9 percent in construction and 1.4 percent in animal by-product processing. Mongolia
has a modern foreign investment law, as well as double taxation agreements with 32 countries and
investment protection agreements with 40 countries.

Approximately 32,105 business enterprises are registered in Mongolia with 99 percent having less than
199 employees and 70 percent of businesses classified as small and medium size enterprises (SMEs).
Although the portion of the economy in private hands continues to increase, the state still controls many
strategic enterprises and the level of business sophistication lags far behind neighboring and
Commonwealth of Independent States (CIS) countries.

Private Sector Investment. In order to capitalize on the mining growth, Mongolia requires significant
private sector investment in not only the mines themselves but also in infrastructure, energy, technology,
and other productive capital. Development of the mines in the South Gobi region would require
substantial investment, not only for the mines, but also for the infrastructure. The infrastructure alone is

5 MCCI – Inspiring Mongolia Magazine – Summer 2010

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estimated to require US$5.2 billion6 including roads, railways, new townships, and power and heat
supply.

Mining investments are expected to be provided by private investors who will enter into an agreement
with the GOM. Infrastructure (not including power and heat) would require substantial participation of the
GOM; even if investments could be financed through PPPs, the GOM would be a strong participant along
with multilateral and bilateral banks and agencies.

Mongolia has introduced a concession law. However, key stakeholders who will be involved in PPPs lack
the necessary capacity to effectively structure the financial and legal agreements and are eager to
receive support.

The contractor shall support increased private investment through technical assistance to strengthen
relevant policies and implementation mechanisms. Working closely with key GOM partners, including, but
not be limited to SPC, Ministry of Finance (MoF), MMRE, Ministry of Foreign Affairs and Trade/Foreign
Investment and Foreign Trade Agency (MFAT/FIFTA) and National Development and Innovation
Committee (NDIC), the contractor shall provide technical advice and support for foreign and domestic
investment. Examples of assistance include independent analysis and advice on the structure, finance
and legal framework for PPPs and GDAs.

Illustrative Activities:
a. Assistance in formulating and articulating a robust set of alternatives for private sector
participation (direct investment; PPPs; equity investments; joint ventures).
b. Advise on improving the risk profile of the country.
c. Training and technical assistance to identify, evaluate and implement legal and financial
instruments for public private partnerships which are suitable for Mongolia.
d. Transaction support to develop a strategy for the transactions, train and advise key
individuals and assist in hiring the right transaction advisor.
e. Enhance public and private sector understanding of PPPs, assist in reviewing PPP proposals
and designing feasibility studies, develop PPP financing strategies, provide preliminary
transaction advice, and advise on strengthening policies, concluding agreements and
implementing PPPs.

Business Association Strengthening. Business associations provide an important function in representing

the combined views and advocating on behalf of its members. The recent Economic Growth Assessment
report observed the limited capacity within a number of Mongolian business associations. Evidence from
best practices and earlier projects suggest that the way in which a project works with associations is
critical. The role of these associations in policy making must be member-led with donors providing a
supporting rather than leadership role. A positive sign is the apparent willingness of the GOM to engage
with professional business associations.

Illustrative Activities:

a. Support and facilitate the creation or strengthening of an association of mining supply chain
enterprises and/or in other key sectors.
b. Support the associations in their efforts to obtain advice and guidance from universities, think
tanks and other relevant associations.
c. Assist the newly-created or expanded associations in developing capacity to advocate,
disseminate information, coordinate with other organizations, train members, and network
with other companies.
d. Create support structures for the association that enables them to obtain advice and
guidance from universities, think tanks and other relevant associations.
e. Support the implementation of training in the Centre for Banking and Finance.

6 Southern Mongolia Infrastructure Strategy, World Bank (2009)

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Partnerships for Entrepreneurship and Innovation. Given that universities and technical and vocational
training providers (TVETs) are responsible for providing the country’s future workforce, it is important that
they are closely linked with the private sector and government while the students go through their
education; not just handing them over when their education is completed.

It is also important for universities and research institutes to become involved in innovation and research
projects. Further research will need to be undertaken to understand the opportunities that may exist.

Illustrative Activities:
1) Better prepare university and TVET graduates for employment through the introduction and
continuation of internships with mining companies and supply chains.
2) Utilize the skills of MBA graduates in undertaking business development strategy (BDS)
assignments for developing market linkages in energy and financial services. Recent
graduates should be encouraged to undertake business planning, strategy development,
feasibility studies, market research, financial modeling and other tasks for companies pro
bono as a means to gain experience.
3) Encourage private sector engagement with universities through lecturing, organization of
research projects or competitions, etc.
4) Establish career guidance services or events within engineering and finance faculties to
provide information and guidance on identifying and working with mining and financial
services companies.
5) Integrate training components within PPP and financial agreements in order to build the skills
of local professionals and manual labor.
6) Establish, through training and study tours, a pool of local experts in the mining and energy
sectors than can advise government on policy, legislation and administrative issues.
7) Establish and support an entrepreneurship program in the mining, financial services or
energy sectors.

C.5c Financial Sector Deepening Support

Under this requirement, the contractor shall focus on the following areas:

a) Bank oversight and regulation,

b) NBFI strengthening and regulation,
c) Corporate governance and transparency.

Mongolia’s financial sector has grown exponentially over the past decade – but almost entirely within the
banking sector, which accounts for 96 percent of all financial sector assets. The banking sector expanded
14 fold from MNT 287 billion (US $263 million) at the end of 2000 to MNT 4.1 trillion (US $3 billion)7 in
July 20108; a singularly impressive achievement. However, Mongolia remains well behind its neighbors
and peers in the depth and breadth of its financial sector. Its nascent equity and debt markets are narrow,
illiquid, and not fully functional. Its excessive reliance on banks as virtually the sole source of financial
intermediation is a constraint to growth and diversification of the economy. In the absence of alternative
intermediation mechanisms, banks are essentially the only domestic source for financing, as well as the
only domestic vehicle for investment.

While not a constraint for the 30-50 ‘blue chip’ businesses which are large enough to source capital and
loans abroad, it is a large constraint for the vast majority of Mongolian enterprises which must rely on
Mongolian banks. Loans through the Mongolian banking sector are expensive (both in nominal and real
terms), are relatively short-term, and are heavily collateral-dependent. This presents a particular

7 Assuming exchange rates per USD in 2000 and 2010 of 1,091 MNT and 1,350 MNT respectively.
8 Mongol Bank
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constraint for those start-up and rapidly growing businesses which need the longer-term, affordable
credit, which is required for capital investment. It is also a constraint to poorer Mongolians (those without
capital or collateral which can be pledged) who want to invest in housing upgrades, education or new
business ventures.

Bank Regulation. The WB/International Monetary Fund (IMF) Financial Sector Stability Assessment,
completed in May 2008, concluded Mongolia’s bank supervisory framework largely complies with Basel
Core Principles. But the recent global financial crisis exposed weaknesses that need to be addressed.
Mongol Bank has been subject to political influences, and more decisive action on the consolidation of
Anod Bank and Zoos Bank might have resulted in a more optimal solution. Many challenges remain in the
banking sector and the Mongol Bank is in need of continued assistance in improving its regulatory and
supervisory capacity.

Illustrative Activities:

a. Assist the Mongol Bank in bank restructuring and improving regulation (in coordination and
collaboration with other donors.)
b. Support implementation of recently introduced/amended laws and related regulations such as
the banking law, securitization law and pledge law.
c. Assist in the development of a regulatory framework for debt markets
d. Strengthen the capacity of the Mongolian Stock Exchange.

Non-Bank Financial Institutions (NBFIs). Mongolia has a relatively large number of NBFIs, but they
constitute only 4 percent of overall financial sector assets. While the scope and activities of brokers and
securities firms at present are limited, these intermediaries could assume a significant role. Most of these
firms are small operations providing brokerage services, and when and if the securities market develops,
will be important in price discovery and imposition of market discipline. A few have licenses to perform
underwriting, debt placements, IPOs and bond issuance. These actors, in conjunction with the new bank
subsidiaries, are potential engines for introducing financial and advisory services to medium-size
enterprises, as well as in the development of investment funds, mutual funds and other collective
investment instruments.

The NBFI sector is regulated by the Financial Regulatory Commission (FRC) which was formed in 2005.
The FRC has a huge portfolio, which also includes oversight and regulation of the insurance sector and
domestic stock market, and faces enormous challenges as it seeks to develop its regulatory capacity.
The FRC is aware that this is a critical stage for Mongolia’s financial sector development. Their strategy
entails long-term support for capital markets infrastructure, development of corporate governance,
improved ICT, and reform of the clearinghouse and central depository. Additional areas of focus are
development of FRC capacity, and support for development of capital markets support services such as
improved financial reporting, audit and valuation services.

Given the rapidly expanding prospective domestic and international investor base, the Mongolian capital
markets are woefully underdeveloped. The Mongolian Stock Exchange (MSE) was established in the
early 1990s to provide a vehicle for trading shares of privatized state-owned enterprises and has not
evolved into a robust exchange. The MSE is chartered as an exchange for both debt and stocks.
However no bonds have been listed on the exchange for several years.

The equities market is essentially defunct. The current volume of equities trading is under US $100,000
per day. Total market capitalization of the top 20 firms is under US $300 million (total market
capitalization was only US $610 million in July 2010). And the most recent market capitalization as a
percent of GDP was only 8 percent compared with 400 percent for Malaysia, 295 percent for Korea, and
52 percent for Kazakhstan. Of the 339 companies listed on the exchange, 22 are still state-owned, and it
is estimated that as many as 200 of the 339 companies are no longer under operation.
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As Mongolia undergoes significant mining sector led growth in the next five years, there will be increasing
demand for alternatives to bank financing. With the rise in income, the demand for pensions and
insurance is also expected to increase. This in turn will provide the basis for development of non-bank
investment products (beyond bank deposits) for domestic and international investors.

Illustrative Activities:
a. Strengthen regulatory capacity and create standards in the finance sector (within the FRC)
with regard to supervisory capacity, enforcement, legislation harmonization, and the
development and regulation of NBFI products.
b. Advise on legislation and the assist with the creation of an action plan toward the creation of
a private pension system, in partnership with the MSWL.
c. Investigate appropriate areas for insurance reform.

Corporate Governance. The EPRC Project, since 2008, has focused significantly in the area of corporate
governance (CG) training of trainers, facilitating annual conference, research, standard setting, advocacy
and increasing public awareness of the importance of CG. The Corporate Governance Development
Centre (CGDC) was established in 2009 with support from the FRC, Institute of Finance and Economics,
several banks and MONEF.

The concept of CG appears to be gaining traction in Mongolia, particularly in the mining sector where the
Mongolian National Mining Association formed a partnership with CGDC in 2009 to undertake training
within the sector.

Illustrative Activities:
a. Facilitate training in financial reporting, auditing and valuation and seek to amend
accounting standard to comply with international norms (perhaps in coordination with
universities.
b. Assist SOE’s implement best practices in corporate governance.

C.5d Public Outreach and Performance Monitoring and Evaluation

Communicating the results of development activities funded by the American people is a critical
component of USAID’s work in Mongolia. The contractor will enhance USAID outreach and
communication efforts by attracting positive publicity and promoting public awareness and support for
USAID development programs. The contractor will also enhance the outreach capacity of local media and
civil society organizations. These organizations can increase public and private commitment and
community support to ensure program success. In carrying out this task, the contractor will coordinate
with the COTR, or her designee, in advance of any planned public community event, speaking
engagement, media release or scheduled media interview.

C.6 PERSONNEL REQUIREMENTS

The contractor has the ultimate responsibility for managing the contract, for achieving the performance
results in the activity areas, and for determining the appropriate staffing pattern in support of its technical
approach. Offerors must assemble a team with the required knowledge and experience in the
components mentioned above. The team should be a combination of expatriates with strong international
experience, preferably in Mongolia and the region, and strong long-term local professional staff,
supplemented by local and/or international short-term consultants. The proposed team structure and an
organizational chart must be included in the proposal with the names, positions and resumes of proposed
personnel.

The team should be composed of long and short-term expatriates, long and short-term local
professionals, and local and home office support staff. The long- term expatriates should include a chief
of party and up to three other long-term expatriate technical experts. The deputy chief of party, or one of
USAID/Mongolia RFP SOL-438-11-000001 Page 22 of 102 pages
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the long-term local professionals, should be designated deputy chief of party. Approximately 20 person
months per year should be allocated to short-term expatriate technical assistance. The contractor should
assemble and deploy for the life of the project a team of up to 16 long-term local professionals and up to
7 short-term local professionals covering each of the components of the project. The contractor may also
budget for an appropriate level of local and home office support.

C.6a Qualifications of Key Personnel

The contractor shall identify, by name, the key management and technical personnel who will work under
this contract. Substitutions of key personnel shall be made only as directed by the Key Personnel clause
in section F.

C.6a(1) Chief of Party

The chief of party should possess the intellectual and leadership qualities necessary to develop, articulate
and carry out a vision for the project. S/he must have a master’s degree in economics, business or
related field, with 15 years of progressively responsible experience and expertise to successfully achieve
meaningful and sustainable results in the areas of macro and micro economic analysis, policy formulation
and implementation. It is critical that the chief of party have extensive experience with counterparts at the
highest levels of government and the private sector in managing international development assistance
projects. S/he should have a proven record of success operating in cross-cultural environments, including
at least 10 years of experience as an advisor in transition or developing countries, preferably in post
command-control economies. Superb technical expertise combined with extraordinary communication
skills are essential for this position.

C.6a(2) Deputy Chief of Party

The deputy chief of party must have a master’s degree in economics, business or related field with 5 or
more years of relevant, progressively responsible experience, with a proven track record implementing
and/or managing economic policy reform projects in countries with socio-cultural and economic conditions
similar to Mongolia. S/he should possess a combination of technical familiarity and management skills
that spans the subject areas covered by the project and in-depth experience in at least one of the major
areas of involvement. The candidate should be able to demonstrate that he/she has the requisite
experience to: a) effectively backstop and reinforce the other long and short-term specialists; b) ensure
that synergies among project elements are capitalized upon; c) ensure that the project focus remains on
achieving results; and d) manage an effective monitoring and reporting system.

C.7 REFERENCES
USAID Development Experience Clearinghouse: http://dec.usaid.gov/

Asian Development Bank. Draft Country Partnership Strategy. Asian Development Bank, 11 August
2010.

Concessions Law of Mongolia. January 28, 2010

Corruption Perceptions Index. Transparency International (2005-09). www.transparency.org.

Doing Business in Mongolia: Business Guides for Foreign Investors & Traders. Mongolian National
Chamber of Commerce & Industry (2010).

Doing Business Report 2010. World Bank. www.doingbusiness.org.

“Dzud: A slow natural disaster kills livestock --and livelihoods-- in Mongolia.” World Bank (February 2010).
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Economic and Social Rights Fulfillment Index: Country Scores & Rankings. Human Rights Institute
(September 2009) http://hdr.undp.org/en/media/Human_rights_Randolph+
2009+et+al+rankings+UCONN+working+paper.pdf.

Economist Intelligence Unit. Mongolia Country Report. EIU, August 2010.

Employment and Enterprise Development. International Center for Research on Women.

http://www.icrw.org/employment-enterprise-development.

Enterprise Surveys. World Bank. www.enterprisesurveys.org

“February Economic Update: of Mongolia.” The Ulaanbaatar Post, April 06, 2010.

Fitch, Christopher. Mongolia Gender Analysis for USAID 2004-2008 Strategy. January 2003.

The Foreign Trade Overview of Mongolia in 2009. Mongolian National Chamber of Commerce & Industry
(2010).

Freedom in the World 2010. Freedom House. www.freedomhouse.org.

Global Competitiveness Report 2010. World Economic Forum.

Global Enabling Trade Report 2010. World Economic Forum.

Global Information Technology Report 2009-2010. World Economic Forum.

Hancock, Graeme. Mining Briefing Note. World Bank, June 2010

Index of Economic Freedom 2010. Heritage Foundation.www.heritage.org.

Interim Strategy Note for Mongolia CY 2009-10. Report No. 483 1 1 –MN. World Bank (2009).

International Monetary Fund. Press Release: Statement by IMF Staff on Mission to Mongolia. February
2010.

Khashchuluun, Ch., Industrialization policies of Mongolia and Development Bank of Mongolia, National
Development and Innovation Committee, Government Agency of Mongolia, 23 August 2010

Lawrence, Dave. “Mongolia’s Growing Shantytowns-The Ger Districts.” World Bank (July 2009).

“Mongolia: Power Sector Development and South Gobi Development.” World Bank/ECA (2009).

“Mongolia: Regulatory Analysis Report.” EBRD (October 2008).

“Mongolia: Renewable Energy Regulatory Development Road Map.” EBRD/ECA (2009).

Mongolia at a Glance. World Bank (December 2009).

Mongolia Country Statistics. UNICEF (2010).

“Mongolia – Enhancing Policies and Practices for Ger Area Development in Ulaanbaatar.” World Bank
(July 2009).

Mongolia Gender Assessment. Asian Development Bank (2005).

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Mongolia Mining Report Q4, Business Monitor International,

http://marketpublishers.com/report/industry/other_industries/mongolia_mining_report_q4_2010.ht
ml

“Mongolia Quarterly Economic Update.” World Bank (July 2010).

Mongolian International Capital Corporation. Press release. “Global downturn to impact Mongolian
economy through drop in foreign remittances.” November 21, 2008.
http://www.micc.mn/2008/11/21/global-downturn-to-impact-mongolian-economy-through-drop-in-
foreign-remittances/.

Mongolia’s Sustainable Energy Sector Development Strategy (2002-2010). United Nations Economic and
Social Committee on Asia and the Pacific.

Millennium Development Goals Implementation: Third National Report. National Development &
Innovation Committee (2009).

“Promotion of Energy Efficiency and Renewable Energy in Mongolia.“ GTZ (2010).

“Southern Mongolia Infrastructure Strategy.” World Bank (2009).

“TDB Set to Introduce New Remittance Service from Korea.” Mongolia-Web, August 20, 2010.
http://www.mongolia-web.com/business-and-economy/2841-tdb-set-to-introduce-new-remittance-
service-from-korea.

Terrazas, Aaron. Diaspora Investment in Developing and Emerging Country Capital Markets. Migration
Policy Institute (August 2010).

Travel & Tourism Competitiveness Report. World Economic Forum (March 2009).

USAID/Mongolia Strategic Plan, 2004-2008. USAID (2003).

USAID/Mongolia Strategy Concept Paper. USAID (June 2010).

“Women in the Workforce: The Importance of Sex.” The Economist (April 12, 2006).

World Bank Online Database. World Bank. http://data.worldbank.org/country/mongolia

World Governance Indicators Project. World Bank. http://info.worldbank.org/ governance/wgi/index.asp.

[END OF SECTION C]