How do big and small businesses react to the government?


Start bravely, but without knowledge

Ulzii said that the main reason for the bankruptcy of her company was the more than 20 percent annual interest of her bank loan. First, she used the value of her real estate, a two-room apartment, for a 30 million tugrik loan that was dedicated to her business plan for a dry dog and cat pet food enterprise. She rented a very expensive facility located out of town and all the food’s labels and plastic bags were made in China, because she couldn’t find any bag industry in Ulaanbaatar.
She admits that she didn’t have any information or financial knowledge, and no feasibility study had been conducted for her project before she started the business. She was just a pet seller and noticed that pet owners were regularly asking about food. That was when her new business idea was born. Her business failed because they did not conceive of any advertisements or marketing to consumers, and because after conducting her whole manufacturing process through China, their budget was finished. Also, the large dry food maker operated at only 20 percent capacity.
One year later they still have their equipment and have recently submitted a new business proposal to the government. This time they have more experience and a more calculated plan. They determined the reasons for the failure of their business and Ulzii said, “No marketing, no money.” If their project is approved by the government, they will advertise their dry food through the endorsement of happy police dogs.
She decided to run her own business when her husband, who was working as a home appliance salesman at a top company said, ”My salary doesn’t cover enough to buy two meals a day, and if I always have lunch outside, I don’t take home any salary.” Ulzii and her family are considered a middle income household with an 800 thousand tugrik annual income. The dry dog and cat food plan was a means to improve their financial situation. They wanted to keep their family’s elders from running to the bank for a pension loan every Tsagaan Sar. And when their little brother and sister, both students, asked for pocket money, they wanted to be able to help them. They wanted to stop living from paycheck to paycheck and see riches portrayed in the new Hollywood film, “The Wolf of Wall Street”. Unfortunately, their dream failed, but life is rich and new chances always arise.
In Mongolia, we only have a chance at survival in this ”wolf” banking economy. The wolf earns food only by himself, without the help of others. It has no mercy for prey animals, and just cuts the throat until an animal takes its last breath. It is very similar to unmercifully high bank loan interest rates. Annual interest of 20 percent or more is killing the passion and heart of first time entrepreneurs. If a game warden enters the field, I mean government, and suggests lower interest rates for loans of at least seven or eight percent, businesses have a fighting chance.
Over 90 thousand companies have been registered with the Ministry of Justice since 1990, but half of them have ended in bankruptcy. Twenty-five percent have remained as companies in name only. A common experience among the failed businesses was no plan and the pressure of high interest loans.

With support from the government

During the National Security Council held last year, Former Prime Minister D.Sodnom said that part of the Chinggis Bond funds were spent on road and infrastructure construction, but we can’t pay back the bond by constructing roads. Therefore, we should spend this money on projects that can produce profit.
Once, a wise man said that life is a dream for the wise, a game for the fool, a comedy for the rich, a tragedy for the poor. Four years ago, the national average rate of poverty was 38.7 percent. In 2012, poverty fell to 27.4 percent. The National Statistical Office of Mongolia has been conducting the Household Income and Expenditure Survey since 1966, and claims that the poverty rate is declining, but citizens are still running to the bank before every birthday party for small loans and everybody owes someone else, caught up in a debt web.
Recently, government and its citizens are realizing that the only solution is to have a stable currency rate and to support national industry. President Ts.Elbegdorj said that no less than 70 percent of bonds should be spent on national industry projects. He also put forward a recommendation to select projects which can increase exports and reallocate the Chinggis Bond for specific purposes. The government needs to find good projects and finance them.
Everybody sees that running away from life’s responsibilities is a tragedy for the poor. Everybody is trying to run a business and do something they enjoy to increase their monthly income. When Ulzii submitted a business plan to the ministry, she saw a long queue of applicants in front of her. She thinks that everyone wants to at least improve their monthly income and create for themselves.
The government announced a competition for all businesses and aspiring entrepreneurs, held from December 23 through January 17. The government has now completed the registration of all applicants’ business projects. As the competition’s deadline approached, 1,151 projects had been submitted. In the category of industrial projects, there were 899 proposals to manufacture products which could replace imports, 77 to increase exports, and 175 additional projects that were not specified. The majority of proposals were focused on the construction, mining, and agricultural industries. Fifty percent of the projects were for supporting newly established businesses, 25 percent were for expansions and improvements of older businesses, and the remainder were focused on starting new businesses. The minimum investment proposal was 8.2 million MNT, and the most expensive project proposed and investment of 680 billion MNT. A total of 9.8 trillion MNT was proposed for investment.
Among the over one thousand business proposals submitted, were plans for businesses focused on seaweed, bubble gum, coffee, costumes, diapers, soap and washing detergent, bicycles, motorcycles, buses and dry pet food. Some small businesspeople proposed funding of 10 million tugrik. The big company Max Group registered a bus industry project. This group proposed the manufacturing of bus technology from South Korea’s Daewoo Group. Over 40 construction projects were registered, but most of them were focused on the cement industry and construction heating material made from sheep’s wool, with plans to replace imported products.
Mandakh Gazar company director A.Agiimaa said, “It is possible to produce tea infusions. Our company imports coffee and health tea from Korea. We see the ingredients, composition and production technology of imported products. We have the capacity to produce this kind of tea, packet tea, tea infusions, and coffee. Mongolia has a rich source of marshmallow and herbal plants. We can use this rich source and produce healthy green tea because we have the raw materials. Also, recently, Mongolian coffee consumption has increased. Following this coffee consumption, coffee imports are getting higher and bigger. We face our dollars flowing into the foreign market, which means we need to produce coffee domestically.”
An expert from the Center to Support Small and Medium Sized Manufacturers told us, “One thing important to the real purpose of this project financing, is that we support products that replace imports. But most of the projects were agricultural proposals. Some small and medium sized manufacturers aren’t working on products that will replace imports.”
On the other hand, people are starting from small ideas, not huge ones. According to our import analysis, we need to produce machinery and equipment, fuel, cars, food products, industrial consumer goods, chemicals, building materials, cigarettes and tobacco, appliances, soap and detergent. Imports also include electronic devices, recorders, and televisions. China provides 37.6 percent of our imported goods , Russia 25.7 percent, the U.S. 9.4 percent, South Korea 6.1 percent, and Japan 4.9 percent.
But we do have some good news. The nation’s industrial production growth rate is at eight percent (from a 2012 estimate) and GDP-composition by industry breaks down to: agriculture 14 percent, industry 29.9 percent, and services at 56.1 percent. With domestic manufacturers trying to develop the agricultural sector, we have one way to protect domestic vegetable consumption from increased imports. Maybe that’s a good first start.

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