Diversification, Entrepreneurship and Wealth Creation

Because of its communist past, the Mongolian government has a predisposition for large scale economic projects. This is very useful for things like mining and infrastructure, but it doesn't help small businesses and little entrepreneurs who are finding it increasingly difficult to get started because of high inflation and the high cost of borrowing.

Mongolia is currently in need of diversification in its economy.  It dependence on large-scale mining and agriculture (herding) make the economy extremely vulnerable to price shocks.  It is important that Mongolia diversify vertically and horizontally, meaning that they encourage new businesses across many industries and at different scales.  This kind of scaled diversification can be built from the bottom up, by encouraging the development of small businesses through micro-lending and by creating and educating entrepreneurs.  If a small start up business is successful, then it can be scaled.

The U.S. Agency for International Development (USAID) has already initiated this process to some extent through its recent introduction of a Business Plan Initiative, meant to enhance the role of the private sector in Mongolia, to coincide with the observance of World Quality Day.  Their program attempts to inspire and support government strategies to advance policies that benefit private sector businesses by increasing competitiveness and creating a favorable financial environment for borrowing.

Here is just one idea for a successful small-scale private industry and why it would work:

Textiles: Mongolia is well positioned to have a successful textile industry, but the country currently imports almost all its non-traditional clothing.  Mongolia has domestic sources of wool and cashmere and there is already small scale cashmere and wool production.  A Mongolian textile industry would benefit from its close proximity to northeaster China, which is the highest producing cotton region in the world.  A close supply network for wool, cotton and cashmere would make raw materials cheap and easy to access.  In the ger districts surrounding Ulaanbaatar, most people do not participate in the national economy.  These districts are a good supply of affordable untrained labor and they have pockets of undeveloped land suitable for small textile factories.  A factory would have to be located on the perimeter of a ger district and adjacent to a developed part of the city in order to get access to the city's electricity and water infrastructure.  A Mongolian clothing company could easily access the retail market through one Ulaanbaatar's department stores, most likely the State Department Store, where a great number of the city's 1 million inhabitants buy their clothing.  The business strategy can be scaled to produce for a larger national or international market.  (If you want more information about this business plan, leave a comment with your contact information)