Policy Issues in the Creation of Industrial and Technological Parks in Mongolia

|Mongolia

The development of industry plays an important role in the development of the economy and society of Mongolia, which in turn is one of the primary factors influencing the reduction of unemployment and poverty.

The government of Mongolia considers that the creation of industrial and technological parks is a key concern for the development of industry in Mongolia.

Additionally, it is considered that industrial and technological parks will make an essential contribution to the development of the economy of Mongolia, as well as play a major role in the creation of “incubators” for the transfer and introduction of new technologies.

In my opinion, the advantage of industrial and technological parks is the consolidation of manufacturing in one place, thus giving companies an opportunity to save on their general industrial expenses thanks to being linked to a uniform system of services for the maintenance of infrastructure. At the same time it also creates favorable conditions for the rational use of natural resources and for environmental protection.

There are noteworthy examples in many countries—for instance, China, Romania, Korea, Indonesia, Ghana, Singapore and Turkey—of the successful creation of industrial and technological parks and the achievement of real results by supporting the export of manufactured goods able to compete in the international market, and which have provided a stable development of the regions and remote areas, introduced completely new techniques and management methods in manufacturing, as well as promoting foreign investment.

In the case of Singapore, however, which has a population of only three million and a small domestic market, all production and services are directed toward export, and under this concept they have created industrial and technological parks by use of foreign investment and attained a high level of development.

To meet environmental constraints, some countries have relocated many industrial enterprises from the large cities to the regions and simultaneously solved the infrastructural and social problems of the regions. In this way Turkey has developed leather processing enterprises and the manufacture of finished products.

In order to establish a foundation for industrial development through the taking on board of the experiences of other countries in the creation of industrial and technological parks, in 2003 the government of Mongolia approved the concept of the creation of industrial and technological parks in Mongolia and is putting into force appropriate measures.

The aims of the policies for the creation of industrial and technological parks in Mongolia are to develop the manufacturing of export goods that are able to compete in the international market, to provide stable development to the regions, and to develop technology of a high level ensuring the active participation of Mongolia in the world market amid ongoing globalization.

The policy of the development of industrial and technological parks in Mongolia is aimed at establishing parks with support for the development of export-oriented goods manufacturing and the expansion of urban development.

Incubators for the development of technology and management will be created with the aim of supporting development in the parks and of developing export-oriented manufacturing which will introduce new techniques and technologies that will then further increase its own capabilities. The government of Mongolia considers that parks which aim to expand urban areas will certainly have a positive effect and make an essential contribution to the development of the regions.

In the creation of industrial and technological parks in Mongolia, the basic principles are as follows:

With the purpose of maintaining conditions of high profitability in investment in the creation of infrastructure and construction in cities with a population of over 500,000, there is a need to set up parks like “Subway” Park and to establish urban-type parks in several regions in places with a population of over 50,000, and to create regional parks in places with over 25,000 inhabitants.

Parks which include mining industry enterprises should be located in districts where road and train networks are already established, as well as having modern infrastructure.

There is a need to ensure the high transferability and use of technologies in industrial and technological parks, to form a new mechanism for cooperation with higher education and scientific research institutes for the strengthening and upgrading of national capabilities and the organization of research work toward commercial applications. The transfer of scientific research work to technological incubators will create the conditions for the best use of intellectual resources.

For the purpose of supplying international markets, the export-oriented goods produced in the parks are intended for export to Mongolia’s two neighboring countries. Furthermore, in order to implement appropriate measures, the establishment is needed of advanced economic, financial, and technological capabilities and human resources management and marketing services.

Parks are planned along the lines of “Tenant” Park, allowing the simultaneous resolution of problems related to the provision of a workplace and housing, giving work to beggars and people without the financial means to secure a place to live. The parks are planned to act as business incubators, and thus different sources of investment will be employed. These parks, as with “Tenant” Park, will have a positive effect on the reduction of poverty and increasing the market competitiveness of small businesses.

Industrial and technological parks will be developed; a) in the cities of Darkhan, Erdenet, Choir, and Choibalsan for export-oriented manufacturing; b) in the cities of Zuunmod and Ulaanbaatar for the development of high technology; and c) along the lines of “Tenant” Park in Nalaikh, for the support of manual manufacturing and business incubators.

Government support for the creation of industrial and technological parks:

The government of Mongolia is considering the following kinds of support for the creation of industrial and technological parks:

To establish a range of activities and forms of industrial and technological parks at each site or location;

To set the boundaries of industrial and technological parks and to clarify the ownership of the land;

To determine the size of payment for the use of land and to grant preferential rights to the land;

To develop a master plan for the creation of industrial and technological parks and to arrange financial assistance from the national budget. Additionally, to provide soft loans and to use international assistance in the implementation of these projects;

To provide financial support—from the state budget and the fund of the program for the reduction of povertya—for the creation of industrial technological parks on the lines of “Tenant” Park;

To create favorable conditions, such as the maintenance of services, the making available of relevant information to the highly-skilled experts—both Mongolian and foreign nationals—who will be working in those enterprises registered in the parks, and their safety in the workplace;

To give support to involving foreign investment in industrial and technological parks, within a framework of bilateral and multilateral cooperation between the government of Mongolia and other countries;

To arrange the reduction, at the establishment of tariff regimes, of the tariff and non-tariff barriers thought likely to arise on the export of goods produced by enterprises operating in the parks, within the framework of bilateral and multilateral agreements negotiated by the government;

To provide support to businesspeople and enterprises operating in the parks and involved in projects via the distribution of soft loans and the use of international assistance;

To take the necessary measures to establish investment and a development fund with the cooperation of the World Bank, the Asian Development Bank and donor countries.

The tariff and legislative situation in the development of industrial and technological parks

In accordance with the ideas (since 2003) of the government of Mongolia on the creation of industrial and technological parks, businesspeople working in Mongolia should enjoy special tariff and legislative regimes.

If an enterprise—except for those businesspeople working in parks like “Tenant” Park—is involved in export-oriented production, it has the right to concessionary terms on the payment of import and export customs duties, added-value taxes and income tax, as stipulated in the relevant laws of Mongolia.

Furthermore:

  1. Enterprises are exempted from income tax during the period of construction and of technology-upgrading. In addition, they pay 50% of the usual income tax for the three years from the date of commencement of manufacturing;
  2. Enterprises producing export-oriented goods are exempted from property tax for the three years from the date of commencement of manufacturing;
  3. Industrial equipment and tools imported from foreign countries for the purpose of the creation of new industrial enterprises in the parks are exempted from import customs duties and added-value taxes;
  4. Enterprises undertaking business, which by its nature leads to the development of new technology of a highly-technical level, and which are part of the structure of industrial and technological parks, are exempted from property and income taxes.,

In recent years a number of foreign-invested companies have created various types of industrial enterprises in Mongolia. Most of them, however, do not contribute to the construction of essential infrastructure, and they desire to make a lot of money quickly, exploiting Mongolia’s resources, with no consideration of the harm done to the environment and the health of the population in that area.

In this respect, I consider that the issue of the creation of industrial and technological parks in Mongolia, being a country covering a large area and with a small population, is the key issue for the government of Mongolia. Thus, I personally think that government policy is heading in the right direction. It is important to develop this policy further, make every stage of its implementation successful, and take the necessary measures so that it need not be dependent on the political situation in the country

The only thing which is necessary, irrespective of the political situation in Mongolia, is to correctly evaluate the progress of this policy and to make the correct decisions at each stage of its realization.