Transforming Mongolia's Trade: Strategic Investments to Enhance China-Mongolia-Russia Corridor
The World Bank's report highlights the need for strategic investments and policy reforms to enhance Mongolia's international trade and logistics through the China-Mongolia-Russia Economic Corridor, focusing on improving railway efficiency, border operations, and private sector participation. Addressing these challenges can reduce dependency on mineral exports and promote sustainable economic growth.
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A study by the World Bank focuses on strengthening Mongolia's international trade and logistics through the China-Mongolia-Russia Economic Corridor (CMREC). This initiative addresses Mongolia's potential and the challenges it faces in leveraging its rich mineral resources while diversifying its economy and improving its trade infrastructure. Mongolia, endowed with vast mineral resources, confronts significant hurdles in economic integration due to its expansive landlocked territory and dispersed population. The Central Corridor, which stretches from Sukhbaatar and Altanbulag at the Russian border to Zamiin Uud at the Chinese border, is pivotal for economic development. This corridor includes Mongolia's primary railway line, crucial for the country's transport infrastructure, handling the bulk of trade with China and Russia.
Central Corridor: The Lifeline of Mongolian Trade
The economic significance of the Central Corridor is evident in its role in facilitating imports, non-mineral exports, and transit trade. Presently, about 90% of Mongolia’s imports and 64% of non-mineral exports by value pass through this corridor. As freight demand, particularly between Zamiin Uud and Ulaanbaatar, is projected to rise, infrastructure improvements become essential. These include constructing the Bogdkhan Railway Bypass to alleviate Ulaanbaatar’s congestion and potentially doubling the rail line between Zamiin Uud and Ulaanbaatar. Railway efficiency and operations present another critical focus. The current rail network, primarily operated by Ulaanbaatar Railway Company (UBTZ), faces numerous challenges, including outdated physical infrastructure, operational inefficiencies, and regulatory issues. Addressing these issues through infrastructure investment, rolling stock enhancement, and regulatory reforms is crucial. Forecasts indicate that rail traffic is expected to double by 2030, necessitating substantial improvements and expansions to meet future demands.
Streamlining Trade Facilitation and Border Operations
Trade facilitation and border operations at key nodes like Ulaanbaatar and Zamiin Uud also require significant enhancements. Delays in trans-loading and customs procedures at these points contribute to logistical inefficiencies. Developing multimodal transport and logistics facilities, improving border processes, and enhancing communication and digitalization with neighboring countries are recommended to streamline trade. Private sector participation (PSP) in infrastructure development is emphasized as a key strategy. The recently enacted Public-Private Partnership (PPP) Law aims to address previous shortcomings and attract private investment in developing dry ports and other logistics facilities. However, systemic constraints on PSP, such as transparency, contract enforcement, and fair competition with state-owned enterprises, must be addressed.
Strategic Investments for a Robust Future
The proposed corridor strategy includes a sequential approach to improving the rail network, focusing on short- to medium-term operational improvements while laying the groundwork for long-term expansion. This involves mobilizing private capital, leveraging UBTZ’s internal resources, and attracting green finance for sustainable projects. The roadmap for developing the Central Corridor outlines policy reforms, node improvements, and investment in rolling stock and railway operations. Key recommendations include strengthening the operational and regulatory framework, operationalizing the PPP Law, improving border processes, developing multimodal transport facilities, and exploring options for railway concessions to enhance performance.
Tackling Inefficiencies in Import Logistics
To tackle the inefficiencies in import transport and logistics, the report identifies several causes. The severe long-term lack of investment in the central rail line results in slow and costly rail shipments. Mongolia’s dependence on imports through the busy Chinese port of Tianjin, which often leads to long delivery delays, exacerbates these inefficiencies. Moreover, the reduction in the number of block trains running between Tianjin and the Erenhot-Zamiin Uud Border Crossing Point (ZU BCP) contributes to the problem, likely due to delays at Zamiin Uud extending the circuit time for rail wagons. Processing delays at the ZU BCP, largely due to the rail gauge change requiring container transfers to Russian gauge wagons, further add to the inefficiencies. Additionally, delays in delivering goods to end-users in Ulaanbaatar are compounded by the scattered nature of freight terminals, many located in the congested downtown area.
A Vision for Sustainable Growth
The report suggests that improvement in the efficiency of Central Corridor infrastructure and logistics is central to Mongolia’s development. The key role of the railway is crucial, with necessary improvements to border infrastructure and processes also highlighted. Furthermore, Mongolia’s rich endowment of mineral resources has driven economic trends over the past 20 years. New rail routes built for mineral exports, primarily to China, are transforming the economy. However, these new infrastructures minimally impact imports, which continue to rely on the aging Central Corridor infrastructure. Therefore, a balanced approach that also focuses on non-mineral export growth is essential for sustainable development. The World Bank report underscores the importance of strategic investments and policy reforms to unlock Mongolia’s economic potential, reduce dependency on mineral exports, and create a robust trade and logistics infrastructure. By addressing the identified challenges and leveraging private sector participation, Mongolia can enhance its position in international trade and achieve sustainable economic growth.
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