Friday, March 26, 2010

Border Trade with Russia

Each provinces of Mongolia, that share border with Russia, has border passage checkpoints, making locals to do trading and traveling more easily under a special program.

One of those checkpoints is Borshoo, located on Uvs province’s northern border with Tuva Republic of the Russian Federation.

A small village on Tuvan side is called Khandgait where Tuva people do trading with Mongolian retailers mostly buying Chinese goods not only to fill domestic needs but also for further re-selling to neighboring Russian regions. In the Khandgait village, there are two major food and every day goods marketplaces as well as three or four cafes where usually Russian customs officers have meal.

Most interestingly, those people who are running retail trading business in those major marketplaces are mainly Mongolians came from neighboring Uvs aimag. They go to China through a border checkpoint at the Bulgan soum of Khovd aimag to do bulk trading and re-export to Tuva, selling goods in one of those two major marketplaces of Khandgait. Goods at the Khandgait markets reach Kyzyl, capital city of Tuva Republic, at almost over priced rate.

This road of cross-border trading, if we, Mongolians, can manage well, could lead to a huge potential of economic growth in the three western aimags by using their geographic advantages.

Population of Tuva is around 330,000, equal to Mongolia Bayan-Olgii, Uvs, Khovd and Zavkhan provinces. It is 1,170km to get to Ulaanbaatar from Ulaangom, a provincial center of Uvs, by air while it takes only 460km to get to the Kyzyl by paved road. Mongolia imports wheat, flour, gasoline, and energy from Russia, but it faces many difficulties to make export to Russia, especially in export of meat.

According to Tuvinsky Express newspaper (March 15, 2010), Russian veterinary authorities banned its import of more than 2,000 breeding animals from Mongolia on the grounds of 70 percent of the breeding animals were found to have “contaminated”. But an official at Tuva authorities has said that it plans to import 65,000 live animals from Mongolia. Anyway, boneless beef is 240 ruble (Russian currency) or US$8 at a central market of Kyzyl city. Same meat is US$3 in Ulaanbaatar while it is US$0.80 in Ulaangom, which shows us business opportunities of potential market there. On one side, meat trading looks profitable, even it has strict requirements to trade, on the other side cross-border thief of animal from Tuva side has no intention to stop.

If Mongolia cooperates with Russian side in veterinary health sector, by building meat plant with European veterinary hygiene standards, there is huge opportunities to do border trading.

In the south, there is huge capacity to produce any consumer goods, while in the north there is big market ready to buy. “Re-export” – supplying Siberian region of Russian Federation with China-made goods, is real moneymaking business we can go into today. Thus, five remote western provinces of Mongolia can join into a regional economic integration.

As a rule of global cross-border trading, supplier side builds major trading marketplaces to attract cross-border traders from other side. In this sense, Davst soum of Uvs province can act as Mongolia’s Erlian.
Development of Mongolia’s re-export of Chinese goods to Tuva can save time and cost for Tuva people because it has no railway, it is more costly for transportation to do further trading with Russians in their west rather than doing business with Mongolians. This is the advantageous side of Mongolia’s remote western provinces.

Clear example of this is Uvs province has organized trade fairs a number times in the past, for which more than 4,000 vehicles lined up from Tuvan side waiting to cross the Mongolian border. Local government of Uvs province has extended periods of the trade fair from two to four days, but Mongolian side has lack of business premises to accommodate those opportunities.

It is urgent to create favorable environment to bolster cross-border trading by building modern facilitated marketplaces, hotels, food and service industries around on the border with Tuva, if we look into its market potentials and further deep into Russian domestic markets. In Tuva, unemployment rate is 28 percent, and economic condition is what we had in the 1990s but there is still huge amount of cash at the hand of Tuva people.

Prior to the establishment of cross-border trading center on the border with Tuva, there is a strict demand to build commercial establishments in Ulaangom in firsthand. A central market in Ulaangom has even yet asphalted, unfortunately, and food is sold at open-air market, where it has rows of cargo containers.

Key to competitiveness is to have high local demand, and high consumer rights requirements. It becomes easier to reach foreign market if domestic demand is fully supplied. Food and service industries need to be improved in Uvs province to accommodate all passenger volumes.
It is time to make a smart move to promote business initiatives of the local people in Uvs province.

Kyzyl-Ulaangom

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