The Mongolian National TV (MNTV) and UBS TV aired the fourth program of the Hot Topix series six times during the week of Monday 2 November. Produced in collaboration with the Mongolian Railway Authority (MRA), Mongolian Tumur Zum (MTZ) and TransCON LLC, the Transit Mongolia program focused on the constraints to Mongolia’s competitiveness as a transit corridor, including insufficient infrastructure and lack of investment. Introducing facts and figures about the potential of the land transit trade business between China and Europe, the program provided the general public with an understanding of the transit business opportunity that Mongolia might miss entirely.
The Mongolian corridor has a comparative advantage over its two competing corridors –Kazakhstan and Russia – offering the shortest distance between China, Russia, and beyond to the European markets. Despite this advantage, Mongolia loses more transit trade business to its competitors each year. For example, in 2006, Mongolia earned 4.6 times less than what Kazakhstan earned in transit revenue – USD 86 million compared with Kazakhstan’s USD 394 million. The demand to ship goods using the trans-Asia railway increased faster than Mongolia’s infrastructure could handle and limited investment to develop, maintain or expand Mongolia’s single railway, operated by UBTZ, stifled Mongolia’s ability to meet demand and compete effectively in the transit trade business. Between 1995 to 2007 Russia invested over USD 10 billion in its railway sector, Kazakhstan invested approximately USD 749 million while UBTZ invested only USD 210 million in the same time period. In the 2009-2010 World Economic Forum’s Competitiveness Index, Mongolia’s railway infrastructure ranked at 74 of 134 while Kazakhstan’s railway infrastructure ranked at 34 and Russia’s at 32.
To attract transit trade business, Mongolia would need to offer a competitive alternative by improving its infrastructure to enable efficient cargo transport with high quality service. The magnitude of investment required to improve railway infrastructure, from locomotives to signaling systems, is beyond the ability of Mongolia’s public sector. The program highlighted the critical importance of attracting private sector investment for infrastructure development. While the Government of Mongolia (GoM) took a step in the right direction by allowing for private investment in the railway sector under the 2007 Railway Transport Law, the Hot Topix program noted that this legal foundation was not enough. There is a need to develop an independent regulatory capacity in railroads to promote and support fair competition between UBTZ and other potential operators. In the absence of a predictable legal and regulatory environment for investment and operations, it will be difficult to attract any private investment in the sector and Mongolia will risk falling further behind its competition in the transit trade business.
The Mongolian corridor has a comparative advantage over its two competing corridors –Kazakhstan and Russia – offering the shortest distance between China, Russia, and beyond to the European markets. Despite this advantage, Mongolia loses more transit trade business to its competitors each year. For example, in 2006, Mongolia earned 4.6 times less than what Kazakhstan earned in transit revenue – USD 86 million compared with Kazakhstan’s USD 394 million. The demand to ship goods using the trans-Asia railway increased faster than Mongolia’s infrastructure could handle and limited investment to develop, maintain or expand Mongolia’s single railway, operated by UBTZ, stifled Mongolia’s ability to meet demand and compete effectively in the transit trade business. Between 1995 to 2007 Russia invested over USD 10 billion in its railway sector, Kazakhstan invested approximately USD 749 million while UBTZ invested only USD 210 million in the same time period. In the 2009-2010 World Economic Forum’s Competitiveness Index, Mongolia’s railway infrastructure ranked at 74 of 134 while Kazakhstan’s railway infrastructure ranked at 34 and Russia’s at 32.
To attract transit trade business, Mongolia would need to offer a competitive alternative by improving its infrastructure to enable efficient cargo transport with high quality service. The magnitude of investment required to improve railway infrastructure, from locomotives to signaling systems, is beyond the ability of Mongolia’s public sector. The program highlighted the critical importance of attracting private sector investment for infrastructure development. While the Government of Mongolia (GoM) took a step in the right direction by allowing for private investment in the railway sector under the 2007 Railway Transport Law, the Hot Topix program noted that this legal foundation was not enough. There is a need to develop an independent regulatory capacity in railroads to promote and support fair competition between UBTZ and other potential operators. In the absence of a predictable legal and regulatory environment for investment and operations, it will be difficult to attract any private investment in the sector and Mongolia will risk falling further behind its competition in the transit trade business.