Mongolia:Cementing growth

Source: Oxford Business Group The government’s approval of a bond release over the next two years to help fund major infrastructure projects should provide a much needed boost to the construction housing and transport sectors, with affordable housing and road connectivity cited as top policy concerns. On September 19, the government confirmed the release of bonds worth up to $5bn from the Development Bank to fund “large-scale projects, such as improvement of the railway network, road construction, and energy and power supply developments”. The government has identified 5572 km of roads and 900 km of highways that require restoration under the umbrella of a MNT4.9trn ($3.5bn) development programme. Additionally, there are plans to overhaul rail links with Russia and China. In total, the government plans to invest MNT30.9trn ($22.11bn) in infrastructure, as well as a number of sectors, including mining, construction and energy, between 2010 and 2015. As part of its development plans, Ulaanbaatar also wants to build 100,000 affordable family homes across the country by 2016 as part of the Development Bank-funded “Homes for 100,000 Households” programme, with 75,000 of these to be built in 17 different locations in and around the city. The project will require approximately 2.3m cu metres of concrete mortar – an increase of at least 400,000 cu metres of concrete mortar annually – in the coming five years. Current market demand is around 800,000 cu metres annually, according to a report by Frontier Securities, a local securities firm. Speaking at an international conference held in September that focused on the plans for overhauling Ulaanbaatar’s housing and public transport network, Mayor E. Bat-Üül said he was studying Tokyo as a model for the city’s urban construction system, due to the speed, efficiency and safety levels seen in the Japanese city’s post-earthquake re-building. Given the expected rapid urbanisation that will likely see Ulaanbaatar’s population swell in the coming years as an indirect result of the wealth generated from the country’s vast coal and copper mines, such grand public transport schemes will be required to sustain growth. Ulaanbaatar is already home to 42% of the population, a figure expected to rise to 55% over the next 18 years. As development plans forge ahead, concerns over the supply of construction materials have eased with the announcement in September that FLSmidth, a Denmark-based cement and engineering firm, had been awarded a contract worth approximately $111.2m from Mongolyn Alt (MAK) Group to build a greenfield cement plant with a capacity of 3000 tonnes per day. The MAK plant will be located near a limestone deposit, some 330 km from Ulaanbaatar. Domestic firm Remicon JSC also confirmed earlier this year that it was planning to build an $8m cement production facility with a 250,000- to 300,000-tonne capacity. Should Remicon double its capacity and become the country’s principal supplier by 2016, analysts have suggested its earnings could rise more than sevenfold. According to a World Bank report, cement consumption has grown more than tenfold in the past decade and is expected to reach 2m tonnes in the near term. At present, some 80% of the cement currently supporting Mongolia’s surging construction growth is imported from China. However, transport delays for materials have worsened in the past year, the bank has written, with reports indicating that the amount of time required to import materials has increased from 15 days to around 45. Another major issue facing the industry is human resources. In a June 2012 update, the World Bank reported, “capacity constraints are likely to prove a significant impediment to the massive road building and social housing plans announced by the government, as well as to housing developments planned by the private sector”. The labour market is currently dependent on Chinese labour, but officials have complained that this raises nationalistic tensions. Critics also say that the government must enforce the laws that stipulate the number of foreign workers should not exceed 3% of the 2.8m population, and that nationals from one country should not exceed 1%. While the release of new funds raises the prospects of Mongolia achieving its ambitious infrastructure goals, measures that ease the supply of materials and labour to avoid timing and funding issues will also be necessary to continued building.