Mongolian trade flow prior to the reform /1930-1990/
During communist era, which is from 1930 to 1989, Mongolia traded with then communist countries, mainly with USSR and followed CMEA trade regulations. There were very little fraction of trade with UK and Japan later on.
Until 1952 Mongolia had trade relationship with the USSR only. Even China was bordered with Mongolia, they didn’t trade officially until 1953 because of China’s political regime and its cold relationship with USSR. During 1960s trade with China amounted to 18% of Mongolia’s total trade volume.
After entering into CMEA, Mongolia started to trade with other socialist countries other than USSR and its trade volume increased rapidly. Although trade with USSR were still significant comparing to other countries, accounting 80% of total trade volume of Mongolia.
According to statistics provided by Country data , in 1986 Mongolian export to communist countries accounted 96.7%, which are 94.2% belongs to CMEA trade bloc countries and China and North Korea imported remaining 2.5%. only 3.3% of total trade was with capitalist countries namely Japan and UK. In import side, 98.3% were with communist countries, which are 96.7% is with CMEA trade bloc countries and remaining 1.6% were with other socialist countries. Capitalist countries import accounted 1.7% only. Mongolia couldn’t intensify its trade with capitalist countries due to cold war atmosphere between USSR and capitalist nations and lack of US dollars.
Mongolia had comparative advantage in animal products especially in cashmere and wool industry. The following table shows then Mongolia’s export and import commodities corresponding to its main trading partners.
Table 1. Trade flow before transition
Trading country Export commodities Import commodities
USSR Minerals, processed food items, consumer goods such as cashmere and wool products Machinery and equipment for agriculture; car, food, mining and construction materials, fuels, consumer goods; apparel;
Hungary Animal hides, fir, leather product, processed meat Equipment and spare parts of light industry and food processing plants; telecommunication and laboratory equipment; medicine; textile; cosmetics;
Czechoslovakia Copper, tin and tungsten concentrates, fluoride, wool, leather, fur products; Diesel generator, equipment for leather, footwear and clothing industries; equipment for cement plant; chemical products; medicine, heavy duty machineries; apparel;
East Germany Minerals, leather and fur products, carpet, wool products; Machinery and equipment for light and food industries; electrical equipment; chemical products;
China Timber, wool, sheepskin, cashmere, fur; Textile (silk), fruit, light industry products;
Japan Industrial raw materials, cashmere, camel hair and wool products; Electronic and technical equipment such as colour television and power generators
Yugoslav Unspecified Unspecified
Source: http://www.country-data.com/cgi-bin/query/r-8979.html
Figure 3.Trade volume from 1924 to 1990 in US million dollars
Blue: total turnover; Dark green: export; Green: import; Orange: trade balance
Source: National Statistics Office, Mongolia
This graph shows that Mongolia’s trade has increased dramatically from 1960s, after its entrance into CMEA trade bloc and continued its success until socialist regime collapsed.
In 1988, total trade reached to 1.8 billion US dollars which are export amounted to 716 million US dollars and import were amounted to 1.1 billion US dollars leaving large trade deficit.
During that time trade between Mongolia and China amounted to US$ 33million and trade with Japan amounted to US$ 30 million, which was the half of Mongolia’s trade amount with non-communist countries. (Countrydata.com)
Transition to the market economy and the crisis
After the USSR integration and collapse of centrally planned system Mongolia has suffered severely, but was able to regain its economic stability in short period time thanks to privatization of state owned enterprises and wealth (livestock) and liberalization of market barriers. Government of Mongolia took advice from international donor agencies to reform and build its legal framework for market liberalization and established government bodies to perform these activities promptly. (Spoor, 1996)
Table 2. Macro-Economic Indicators of Mongolia, 1989-1994
1989 1990 1991 1992 1993 1994
GDP growth
(% per annum) 4.2 -2.1 -16.2 -7.6 -1.3 2.1
Agriculture 13.8 -0.8 -6.9 -5.9 -2.5 –
Industry 11.4 0.7 -12.3 -15.9 -4.7 3.7
Exports (mill. US$) 796 445 347 356 360 324
Imports (mill. US$) 1912 1024 501 400 361 222
Inflation (% per annum) – – 154.3 321.1 183.0 66.3
Sources: National Statistical Office of Mongolia; World Bank (1992, 1994); UNDP (1995), Spoor (1996)
Transitional crisis were evident and there were no food and clothing available for consumption. Mongolian Government were forced to implement food tariff system which is translates to one bread per family. GDP declined dramatically by 25.2% and inflation rate boosted to tiple digit numbers during this crisis time which were from 1990 to 1993. (Spoor, 1996)
From 1993, some signs of slight improvement has shown in result of reforms done in finance and banking sectors. The government has decreased its expenditures and started to privatize state owned properties, which were substantial income for government to overcome transitional crisis and food supply shortage. In 1994, inflation rate has decreased to 66.3% and some economic indicators were improved including positive GDP rate, comparing to previous financial years. (Spoor, 1996)
As noted before, dramatic decline in GDP in the beginning of 90s (see Table 2) was fully due to sudden shutdown of import supply from CMEA countries including USSR. USSR and its partner countries supported Mongolia with food and other manufactured goods during Soviet Union time continuously and Mongolia was highly dependent on it. Mongolia was producing some basic food items including meat and dairy products, but lost its supply chain system which used to connect herders/farmers to city consumers during this first phase of the transition. Factories which were operating in the cities faced to shut down as a consequence of raw material shortage which were imported from CMEA countries.
Privatization has been considered main part of transitional process in these transitional economies. Mongolian economy was no different in any other transitional economies and Mongolian government implemented privatization promptly after the collapse of socialist regime. Overall Mongolian privatization has been assessed quite successfully by international donor agencies. However, some of the results were negative in terms of supply chain network, which was linking herders and its corresponding trade streams. The privatization of livestock to its herders free, has brought a positive impact on this agricultural sector, however herders were not able to exchange their livestock products into income, making them vulnerable in the transitional economy. (Spoor, 1996)
Current trade flows and its challenges
Mongolian economy has developed positively with its ups and downs in recent decades. The economic growth of the country has been evident and but not stable in recent years. The average GDP growth rate is 5.44% from 1991 until 2017, and highest record was in the fourth quarter of 2011 reaching 17.5% comparing to fourth quarter of 1992 record, which was minus 9.30%.
The economic growth comes from mining sectors mainly, and other sectors such as processing industry, agriculture and construction are catching up the mining sector, which will lead to balanced and sustainable economic development.
The banking and financial sectors are building up its strengthens after experiencing challenges related to fragile banking sector which lead to bankruptcy of few commercial banks and credit unions. Currently, the foreign reserves of the country reached to over 1 billion US$. This existing quite high level of foreign currency reserves is thanks to the high prices of key export commodities such as copper, gold and coal on the global markets. The table below shows Mongolian key economic indicators from 1995 to 2010.
Table 3. Mongolia: Macro-economic Indicators
1995 2000 2005 2010 2015 2017
Output, Employment and Prices
GDP growth
(%, per annum) 6.4 1.1 7.3 6.1 2.4 5.1
Industrial Production index
(1991. 2005 =100) 84 91 94 120.5 – –
Unemployment rate (%) 5.5 4.6 3.3 3.3 7.5 7.3
Foreign Trade
Trade balance (US$ million) 58.0 -78.7 -119.5 -378.7 871.8 1865
Exports of goods (US$ million) 473.3 535.8 1064.9 2899.2 4669 6200
Imports of goods (US$ million) 415.3 614.5 1184.4 3277.9 3797 4335
Foreign Direct Investment
(US$ million) 9.8 53.7 257.6 422 21000 16000
Reserves, (US$ million), gross 151.5 202.1 430.3 2091 1323 1234
Memo:
Nominal GDP (MNT billion) 593 1038 2780 8255 21251 27200
Nominal GDP (US$ million) 1252 947 2307 6690 10652 11179
GDP per capita 900 3764 3791 3480 (2016)
Source: National Statistical Office of Mongolia; Mongol bank statistics
In Mongolian economy international trade plays vital role now. Mongolian international trade turnover is continuously increasing after its adoption of market economy where everyone can trade with other countries.
In 2017 Mongolia has traded with 132 countries and approached total trade turnover to 10536.12 million US$, consisting of 6200.66 million US$ of export and 4335.47 million US$ of import. External trade balance showed a surplus of 1865.20 million US$, largely due to increase of coal price in commodity market. Total external trade turnover increased by over 2 billion US$ comparing to 2016. Mongolia was experiencing continuous trade deficit until 2014, which were mainly due to large import amount comes from mining and agriculture sector machinery and its parts.