“The Formalizing enterprises in Mongolia: Challenges and policy directions” report published

Mongolia’s economy is one of the fastest-growing in the world, however the continued expansion of the informal sector remains a significant barrier to the country’s future economic success. Estimates quoted in the report suggest the informal economy may account for as much as 35 per cent of Mongolia’s official total GDP, although an accurate assessment is difficult.

The report, “Formalizing enterprises in Mongolia: Challenges and policy directions”, was compiled by the Mongolian Employers’ Federation (MONEF), the Economic Policy and Competitiveness Research Center (EPCRC) and the International Labour Organization (ILO).

A media launch of the report was organised on March 11^th, 2015 at Blue Sky hotel. Representatives from the EPCRC and MONEF presented key findings and policy recommendations from the report during the event.

The report’s key findings include:

• The number of people employed in the informal sector is rising – in 2013 the number of people in formal employment increased by just 4 per cent while those in the informal sector rose by 15 per cent.
• Enterprises fully understand the benefits of registering: security, stability and – particularly – easier access to finance. The primary reasons businesses were unable to get loans were insufficient collateral, high interest rates and a lack of support services.
• The costs of formalization are a concern. 55 per cent of firms surveyed cited tax laws and regulations as the biggest barrier to registering their businesses.
• Requests for informal payments remain a significant challenge for nearly half of enterprises. The most frequent request for an informal payment is in order to get a necessary permit or to procure government business.
• The Government’s enterprise registration process has become easier. Better information and advice will incentivise additional enterprises to register.
• Enterprises need more help to understand and comply with labour laws. More than half of those surveyed described labour laws as “ambiguous and complicated”.
• More could be done to help smaller enterprises bid for Government tenders. When asked if Government tenders favour and support new enterprises, 65 per cent of respondents answered no.
• Small enterprises need more support to provide training for their employees. Only 40 per cent of formally registered enterprises offered employees anything beyond basic ‘on the job’ training, and only nine per cent of informal businesses offered such training.
• The number of SMEs who compete successfully in export markets is very low. Only four per cent of firms surveyed directly exported their goods or services. Many cited difficult export procedures as a barrier.

The research involved interviews with senior managers from 100 formal and informal enterprises based in Ulaanbaatar, decision makers from 17 state organizations that provide public services to private businesses, and representatives from 10 service providers that offer financial and non-financial business support services.

The report lays out a number of key recommendations. This includes creating a more business-friendly environment for SME’s, including easier access to finance, simpler regulations and taxation, and help for enterprises wanting to export. The full report will be uploaded on this website soon.