EuroChamber hands over first policy white paper to Government of Mongolia

EuroChamber handed over first policy white paper to Government of Mongolia: Export Credit Guarantee Agency (ECA) is needed to Support Mongolian Export Growth on 1 September 2020

EuroChamber has successfully concluded a four-month study on Export Financing for Mongolian companies and SMEs, handing it over to Deputy Prime Minister Mr. Ya. Sodbaatar on Tuesday, Aug.25 during an public-private-dialogue event at MNCCI.

Press conference, presentation of detailed results & recommendations and stake-holder discussion was held on Friday, Aug. 28.

According to the Export Finance Study conducted by EuroChamber Mongolia in cooperation with MNCCI and funded by the European Union via the TRAM Project, Mongolian non-mining exports can be increased by 50-80%, if suitable export financing solutions would become available. Export Credit Guarantee scheme, as a cornerstone of Government’s export promotion scheme is a necessary prerequisite for this.

• Export financing accounts today for less than 0.5% of the total corporate & SME loan portfolio of Mongolian commercial banks.

• The creation of an institutional and legal framework for export promotion is urgently needed (i.e. establishment of an ECA). Pre-export financing guarantee scheme is critically important, in addition to post-shipment export financing, both for non-mining as well as mining products.

• The European Union will continue supporting Mongolia's economic diversification and equitable growth.

• EuroChamber Working group to be established to improve the legal framework for international trade finance instruments, esp. factoring and forfaiting.

The discussion was attended by more than 25 representatives of exporting companies, from the Ministry of Finance, the Ministry of Foreign Affairs, domestic commercial banks, international financial institutions, the EU Delegation to Mongolia, the MNCCI and the TRAM project team.

Opening the discussion, Mr. Marco Ferri, First Deputy Ambassador of the EU Delegation to Mongolia, said: “The European Union will support Mongolia's economic diversification and equitable growth. We will attempt to share know-how from relevant experience of the European Union.”

The main finding of the study was that export financing in Mongolia accounted for less than 0.5% of the total corporate and SME loan portfolio of commercial banks. Study also shows that new banking products, esp. pre-export financing, lower interest rates and less demanding collateral requirements are desired by exporting companies.

"The availability of government-backed export credit insurance will enable Mongolian commercial banks to provide better, cheaper and more accessible financing to exporters." - Tomas Bravenec, Executive Director of EuroChamber Mongolia.

The main recommendation of the research team is to establish a “Berne Union” type Export Credit (Guarantee) Agency. This way, Mongolia has the potential to increase export of value-added products, increase the access to export financing by SME and large exporters, reduce the cost of financing, as well as impact of Covid-19 on the economy, and stimulate economic growth.

“Mongolia has a lot of untapped potential, and the involvement and support from the private sector is very important in establishing the Export Credit Agency (ECA). The alternative to this, which is loan interest rate subsidies, is non-scalable, a “one-off” approach. Whereas using the same amount of funds for establishing an ECA would reap much more, an longer term benefits" - Carl Krug, Senior Private Sector Development Specialist, Mongolian Trade Promotion Project (TRAM).

EuroChamber Mongolia is envisaging working closely with public as well as private sector stakeholders to make the establishment of an ECA a strategic priority of the Government, as well as to work towards improvement of bankability of companies through capacity building.

“We are looking forward to continue our cooperation with EuroChamber on this strategically important topic. Export promotion, Government support and increased competitiveness of our exporters is at the heart of our work at MNCCI.” – T. Duuren, CEO of MNCCI

Based on proposal of the participants, EuroChamber Mongolia will establish a working group to create legal environment for enabling international trade financing instruments such as forfeiting and factoring to be used widely by commercial banks in Mongolia.