Regional economic development
Programme description
Title: Regional economic development
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Mongolia
Lead executing agency: Ministry of Economic Development
Overall term: 2002 to 2013
Context
In rural areas in particular, the transition process that started in Mongolia in the 1990s has led to a drastic drop in commercial trade and a severe decline in public and social services. In contrast to urban centres, the resources available locally to the regional economy have so far not been sufficiently exploited under free-market conditions to generate any added value in the regions. Furthermore, the products that are developed frequently lack any competitive edge. The chambers and associations that are supposed to provide companies with information and advice lack the appropriate specialist management know-how and their services are not yet geared to actual needs. Urgently needed investments in technical facilities are not made because of the lack of financial services.
In the political and administrative realm the lack of orientation, concepts and methods for promoting the regional economy and the insufficiently qualified personnel represent obstacles to development. The Mongolian Government has therefore decided to promote the regional economy intensively. However, the existing political requirements and ideas concerning regional economic promotion have not yet been implemented on the regional level.
Objective
Conditions have improved for bringing greater dynamism to the economy in the programme regions while using local resources sustainably, in particular by supporting regional economic processes and their institutional framework.
Approach
The project concentrates on promoting micro, small and medium-sized enterprises (MSMEs) and supporting financial service providers. These providers should enable companies to access sources of funding. Training measures for financial service providers and the provision of long-term refinancing funds are of prime importance. To achieve this, the project has also established an indemnity bond fund. This new financing instrument was expanded in 2011 by the foundation of a national Credit Guarantee Fund.
Business-plan competitions are used to stimulate entrepreneurial activities. The project concentrates on building up value chains for the production, processing and marketing of regional resources and products, especially wool and leather. The major project partners are rural cooperatives.
The project implements a wide range of promotional measures supporting regional economic policy in order to improve the planning and steering of regional economic development and to enhance procedures and instruments used in public economic promotion. Economic, trade-policy and administrative problems at company level are to be resolved for the long term through cooperation with the relevant committees and administrations. Here, the focus is on generating a business-friendly environment in rural areas of the country. This includes setting up service points to provide entrepreneurs with support and advice.
Results achieved so far
The Law on Credit Guarantee, passed by Parliament in February 2012, was an important step towards giving the instrument the permanent institutional form of a bank. The bank will advise on financial and organisational issues to foster the desired development of SMEs by means of financing instruments. Private banks, other non-governmental organisations active in promoting the SME sector, and the Mongolian Ministry of Finance are now being requested to contribute as necessary to the fund. The not-for-profit status required by the statutes of the Credit Guarantee Fund is to be realised as soon as possible.
The indemnity bond fund has significantly improved access to funding for local MSMEs. Around 400 new long-term jobs have been created in the programme regions due to the company training measures and the business plan competitions. A total of126 loans amounting to 2.1 billion tugrik (equivalent to around EUR 1.3 million) have been guaranteed. Nearly half of these loans were paid out to women.
The programme’s training activities have not only led to local service providers extending their range of services but also to better quality services, as proved by the increasing demand for them. A total of more than 4,000 services had been delivered by the end of May 2011. Customer satisfaction with public services has risen from 45 per cent when the project was launched to 85 per cent (in 2012), not least because of the founding of the citizens' bureaus and the business desk for firms.
The increased attention paid to members’ interests has focused the available services more on actual needs. Improved self-marketing activities and higher quality services have increased the membership of the local chamber from 198 to 217 within one year. Introduction of an official price list is also enhancing the financial sustainability of the chamber and helping to continually boost revenues.