1. Export Potential Assessment in Mongolia
Project MON/A1/01A:
Creation of Geographical Indications in Mongolia
Co-financed by the European Commission & the International Trade Centre
Market Analysis Section
International Trade Centre
January 2006

2. 2 / 2

3. 3 / 3
Table of contents
Preface ..........................................................................................................................5
Executive summary......................................................................................................6
Introduction ................................................................................................................14
1. Comparative analysis of the industries ...............................................................19
Index 1: Mongolia’s current export performance.............................................................20
Index 2: Domestic supply conditions...............................................................................22
Index 3: World markets...................................................................................................23
The overall export potential index ...................................................................................27
2. In-depth analysis by industry................................................................................28
Hides, skins, and leather ................................................................................................28
Textile fibres ...................................................................................................................35
Knitwear products...........................................................................................................45
Meat ...............................................................................................................................51
Carpets...........................................................................................................................57
Blankets..........................................................................................................................62
Vodka .............................................................................................................................65
Conclusion..................................................................................................................70
Crosscutting issues.........................................................................................................70
Crosscutting recommendations ......................................................................................71
Bibliography ...............................................................................................................73
Annex ..........................................................................................................................76
Annex 1. Composite indices ...........................................................................................76
Annex 2. Preferential tariff index.....................................................................................78

4. 4 / 4
List of tables
Table 1. Sector positioning according to the potential and the importance of exports in 2003 ....7
Table 2. Export potential of industries and priority actions ..........................................................8
Table 3. Mongolia’s main exported sectors and products .........................................................15
Table 4. Mongolia’s exports of the seven selected product groups...........................................16
Table 5. Mongolia’s exports of the seven product groups and product items............................17
Table 6. Underlying indicators for the composite index “Mongolia’s export performance”.........21
Table 7. Underlying indicators for the composite index “domestic supply” ................................23
Table 8. Underlying indicators for the composite index “world markets” ...................................24
Table 9. Overall index of the export potential of industries........................................................27
Table 10. SWOT analysis for hides, skins and leather..............................................................29
Table 11. Mongolia’s exports of hides, skins and leather..........................................................30
Table 12. Mongolia’s production and exports of hides and skins ..............................................31
Table 13. Selected livestock in Mongolia (1,000 heads) ...........................................................31
Table 14. SWOT analysis for textile fibers ................................................................................37
Table 15. Mongolia’s exports of textile fibers ............................................................................38
Table 16. Head of goats and raw cashmere production in Mongolia.........................................39
Table 17. Production, purchase and exports of cashmere in Mongolia.....................................39
Table 18. Comparative table of Chinese and Mongolian cashmere quality indicators...............40
Table 19. Camel population in Mongolia (1,000 heads) ............................................................42
Table 20. Number of yak and yak hybrids in different years (in 1,000)......................................43
Table 21. SWOT analysis for knitwear products .......................................................................47
Table 22. Mongolia’s exports of knitwear products ...................................................................48
Table 23. Comparison of the cashmere yarn industry in Mongolia and China...........................50
Table 24. SWOT analysis for meat ...........................................................................................52
Table 25. Mongolia’s exports of meat .......................................................................................53
Table 26. Number of livestock, meat production and exports....................................................54
Table 27. SWOT analysis for carpets .......................................................................................58
Table 28. Mongolia’s exports of carpets ...................................................................................59
Table 29. SWOT analysis for blankets......................................................................................63
Table 30. Mongolia’s exports of blankets..................................................................................63
Table 31. SWOT analysis for vodka..........................................................................................66
Table 32. Mongolia’s vodka exports..........................................................................................66
Table 33. How to standardise indicators from 1 (low) to 5 (high): An example..........................76
Table 34. Indicators for the composite index of export potential ...............................................77
List of figures
Figure 1. Export potential index: Underlying dimensions and indicators ...................................19
Figure 2. Mapping industries: Mongolia’s export performance versus world markets ...............26
List of boxes
Box 1. Supporting Industries.....................................................................................................23
Box 2. Environmental issues and hides and skins sector..........................................................34
Box 3. A comparative analysis of cashmere quality in China and Mongolia..............................40
Box 4. Camel wool supply, regional origins and quality ............................................................42
Box 5. The characteristics of the yak production in Mongolia....................................................43
Box 6. Cashmere production steps...........................................................................................48
Box 7. Pet food export opportunities for Mongolian meat..........................................................55
Box 8. Carpets characteristics of the major country producers .................................................59
Box 9. Shortages of wheat production in Mongolia ...................................................................67

5. 5 / 5
Preface
This export potential assessment for Mongolia is part of the Technical Cooperation Project
“Creation of Geographical Indications in Mongolia” (MON/A1/01A). A geographical indication is
a sign used on goods that have a specific geographical origin and possess qualities or a
reputation that are due to that place of origin. Most commonly, a geographical indication
consists of the name of the place of origin of the goods (WIPO).
The project is implemented by the International Trade Centre UNCTAD/WTO (ITC) and the
Mongolian Ministry of Industry and Trade (MIT), and co-funded by the European Commission
and ITC through the Asia Trust Fund (ATF). The project is intended to
− (i) facilitate an informed policy decision of the Mongolian authorities on its international
position related to geographical indications, including the implementation of its obligations
regarding geographical indications under the WTO framework, in particular the TRIPs
agreement; and
− (ii) familiarize relevant Mongolian interlocutors (Ministry of Industry and Trade, International
Trade Research Centre, business associations, government agencies, interested
companies, etc) with the concept of geographical indications and build capacity so as to
enable Mongolian Industry and communities to use relevant geographical indications to
their advantage.
This report was prepared by Dr. Thierry Paulmier (Associate Expert) and Dr. Michael
Freudenberg (Senior Market Analyst) at the Market Analysis Section of the International Trade
Centre UNCTAD/WTO (ITC).
The report benefits from major input of three national consultants, who collected sector-specific
information in Mongolia and conducted interviews with enterprises:
− Mr. Dovdonbaljir Javzan (for research on cashmere fibres, knitwear, and blankets);
− Ms. Ariuntuya Tsend-Ayush (for research on raw hide skins, camel wool and yak wool); and
− Ms. Tsolmongerel Tsilaajav (for research on vodka and carpets and meat).
The authors would like to thank Dr. Jean-Michel Pasteels (Market Analyst) for discussions,
comments and suggestions, and Ms. Aïssatou Diallo (Consultant) and Ms. Maike Barth (Intern)
for excellent research assistance.
The authors would also like to thank the ITC/MIT team for their support, especially Mr. Koen
Oosterom, Office for Asia-Pacific, Latin America & the Caribbean (OAPLAC), Division of
Technical Cooperation Coordination (DTCC), International Trade Centre and Mr.
A. Erdenepurev, Deputy Director, Policy Coordination & Strategic Planning Department, Ministry
of Industry and Trade of Mongolia. Lastly, the authors would like to thank all interviewees who
kindly answered the ITC questionnaire.
While efforts have been made to verify the information contained in this document, the
International Trade Centre UNCTAD/WTO cannot accept responsibility for any errors that it may
contain. The opinions and comments reported in this study reflect those of the authors and do
not necessarily concur with those of the experts, their organisations or the Mongolian Ministry of
Industry and Trade. The usual disclaimers regarding responsibilities apply to this report.
For further details on the present study, please contact Thierry Paulmier
(email: paulmier@intracen.org) or Michael Freudenberg (email: Freudenberg@intracen.org).

6. 6 / 6
Executive summary
This study assesses the export potential of seven sectors in Mongolia. It compares and ranks sectors
according to several dimensions, including Mongolia’s current export performance, the international
environment (dynamism of world demand and Mongolia’s market access conditions), and domestic
supply conditions. Statistical analysis and a literature survey are complemented by interviews with
local stakeholders in Mongolia, both from the public and private sector, to gain first-hand insights into
the domestic business environment that affects enterprises in Mongolia in the various product sectors.
The report also includes an in-depth analysis of individual industries, including an assessment of
strengths, weaknesses, opportunities and threats (SWOT analysis), and possible target markets for
diversification for each industry. In addition, the study provides information on the socio-economic
impact of each industry. The study also identifies key areas of intervention and related policies that
can promote future export growth.
Mongolia’s export potential appears highest for hides, skins and leather and for textile fibres. In
contrast, the export potential seems limited for meat products and cashmere knitwear. Vodka is in an
intermediate position.
Measuring the export potential of sectors and identifying industry-specific policies can only be part of a
much larger undertaking that tackles the real issues at stake in Mongolia. The authors would like to
stress that Mongolia should not only support specific industries, but also provide a business
environment that is conducive to risk-taking, entrepreneurship, creativity and innovation in all sectors.
Background and purpose
Broadening the industrial basis and diversifying the export base is a major issue for Mongolia,
especially because its trade balance shows a structural deficit. Mongolia is a small, landlocked,
developing economy in Northern Asia. As such, it displays a number of characteristics that
render its socio-economic situation difficult. Mongolia’s exports are extremely dependent on
mineral and agricultural products, which are mainly exported with little added value, due to the
absence of significant domestic downstream activities. As a landlocked country remote from
major world markets, Mongolia suffers from transportation costs that are significantly higher
than those of many of its competitors. As a result, Mongolia’s enterprises are disadvantaged in
processing inputs and producing goods that are heavy or voluminous, or for which delivery time
is a major issue. In addition, given the small domestic market, enterprises in Mongolia tend to
produce small volumes and are thus disadvantaged in sectors based on economies of scale.
The objective of this study is to identify sectors that have significant potential for export growth
in Mongolia. When a government, donors and other stakeholders want to support non-traditional
sectors, it is essential to focus on those with the highest potential for future growth.
Method
To gauge the export potential, each of the sectors is examined along three main dimensions:
(i) current export performance, (ii) the domestic supply conditions, and (iii) world markets.
− The current export performance of Mongolia, such as its exports in value, world market
share, and growth rates of exports.
− The domestic supply capacity, such as the quality of products and the efficiency of
supporting industries.
− The characteristics of world markets, such as growth of world demand and Mongolia’s
access to international markets;
In total, the study uses 14 indicators and provides rankings for each dimension as well as an
overall ranking of export potential that can be used to draw the attention of policy-makers. The

7. 7 / 7
resulting industry rankings however should be interpreted with caution, especially when
absolute differences are small, since many indicators lack precision.
The study is based on inputs by ITC’s market analysis team and three national consultants. The
research was undertaken during Summer 2005. It combines desk research with fieldwork in the
country, and is based both on quantitative information, including trade statistics and market
access data, and qualitative information, including a survey of existing studies and information
collected from field interviews with enterprises.
− Quantitative information includes trade statistics and market access data. For market
access conditions, tariff data are from ITC’s Market Access Map database
(http://www.macmap.org/). Trade data come from ITC’s Trade Map (www.trademap.org),
which is an online database of global trade flows and market access barriers for
international business development and trade promotion, providing detailed export and
import profiles and trends for over 5,300 products in 200 countries and territories. Users in
Mongolia have free access to Trade Map. The International Trade and Market Research
Center of Mongolia (itmrc@mit.pmis.gov.mn) or Mr. Erdenepurev at the Ministry of Industry
and Trade (erdenepurev@mit.pmis.gov.mn) provide free usernames and passwords (see
http://www.trademap.net/mongolia/login.htm).
− Qualitative information included a review of relevant literature and information collected
from surveys based on an ITC questionnaire and interviews with enterprises and business
associations. The latter is to validate the results and to gain first-hand insights into the
domestic business and policy environment that affects enterprises in the various product
sectors. In addition, national consultants identified sector-specific government strategies. It
was unfortunately not possible to examine domestic supply conditions via interviews with
enterprises for all industries.
Main results
Bringing together the three indices of Mongolia’s current export performance, world markets,
and domestic supply conditions into a summary measure suggests that Mongolia’s export
potential is highest for hides, skins and leather and for textile fibers. These are not only
Mongolia’s currently most important breadwinners in terms of export turnover among those
industries under review, but also they are likely to remain so in the future, as they have the
highest export potential index (Table 1).
In contrast, the export potential seems limited for meat and animal products; cashmere knitwear
and carpets and wall covering. Vodka is in an intermediary position.
Industry-specific findings and main recommendations are summarised in Table 2.
Table 1. Sector positioning according to the potential and the importance of exports in
2003
Low potential Medium potential High potential
Important
(More than
USD 40 million)
--- ---
Hides, skins and leather
Textile fibers
Medium
Cashmere knitwear
Meat and animal products
--- ---
Less important
(Less than
USD 1 million)
Household and
furnishing textiles
Carpets and
wall covering
Vodka ---
Source: TradeMap and Market Access Map, survey with enterprises and business associations.
* The export potential does not take into account domestic supply conditions due to lack of comparable data.

8. 8 / 8
Table 2. Export potential of industries and priority actions
Industries
(Evaluation:
index)
Comments Priority actions
Hides, skins
and leather
(High: 3.7)
Large and dynamic international demand for leather
product.
Good exports performance despite fierce international
competition.
Favourable market access conditions throughout the
world, but not in China, which takes almost all of
Mongolia’s exports.
Little value-added, as most hides and skins are
exported either in raw form or only after the first stage
of processing (“wet blue”).
Poor and declining quality.
Poor sanitary and veterinary services and
slaughtering system.
Outdated and highly polluting tanning process.
Smuggling to China and Russia is major problem.
Increase the value-added of domestic manufacturing
by further processing goods.
Focus on market niches to avoid competing on price
against Chinese and other products.
Acquire and use of modern equipment and methods,
especially Environmentally Sound Technologies
(E.S.T.).
Attract foreign direct investment that brings
technological transfer, know how, and modern
management methods to Mongolia.
Textile fibers
(High: 3.3)
Mongolia’s textile fibres mainly composed of
cashmere, camel and yak wools.
Cashmere is the third most valuable commodity in
Mongolia after gold and copper, and the cashmere
industry is Mongolia’s single largest source of
employment. A principal source of livelihood for
Mongolia’s poor.
One of the major world suppliers for fine animal hair
products.
Recent decline of exports
Herding sector may well have surpassed the total
herd size that can be sustained by Mongolia’s
pasturelands.
Good quality of Mongolian cashmere although
recently declined.
Most Mongolian cashmere is exported with only little
value added, mainly in the form of raw or
dehaired/tops cashmere.
About half of Mongolian production is unofficially
exported, mainly as raw cashmere to China for
processing.
Mongolian companies underutilize their production
capacities, as they lack cash flow to buy raw
cashmere, and suffer from the fierce competition of
Chinese companies.
Optimistic outlook for cashmere products. As a luxury
fibre, cashmere commands some of the highest prices
in the world of textiles. Cashmere will also have
increased demand in blends: silk, wool, cotton and
synthetics.
Very rare camel species called Bactrian, but
decreasing rapidly and in danger of extinction in the
years to come.
Very low Mongolian camel wool production and poor
quality
Lack of modern de-hairing plants and equipment.
Second population of yaks of the world after China.
Provide long-term loans to herders with low interest
rate and short-term loans to purchase raw cashmere.
Review the cashmere export tax system and reduce
income tax
Remove distortionary taxes –including export taxes.
Tax holidays for processors could also be used to
lower their costs,
Adapt the current customs valuation methods for
processed cashmere to international standards.
Improve access to market information
Introduce a special policy for cashmere export
development and promotion.
Support the Cashmere Association to encourage the
breeders to produce a finer and whiter fibre.
Develop attractive production sites for cashmere
products.
Improve the cashmere production/supply chain
management.
Introduce Environmentally Sound Technologies
(E.S.T.) urgently in wool, and cashmere processing
industries.
Set-up an Export Processing Zone (EPZ) in Mongolia,
especially in an existing industrial area.
Encourage aid agencies to provide long-term
technical assistance in production, quality control,
design and marketing.
The cashmere producers should be encouraged to
participate in trade fairs and exhibitions, to build
partnership with foreign trading houses and to seek
long-term contacts with retail store chains.
Improve quality: Better understanding of quality
control processes and systems.
Improve technology of dehairing processes to reduce
coarse hair content.

9. 9 / 9
Industries
(Evaluation:
index)
Comments Priority actions
Vodka
(Medium: 2.8)
Around 200 companies operate in the vodka sector,
employing several thousands of people.
Marginal share of Mongolian exports.
Questionable social impact because of alcoholism.
Favourable market access conditions in major
importing markets, whereas Mongolia’s neighbouring
countries are rather protective.
Declining export value despite a fast growing
international demand.
Long production experience of Mongolian companies
Few companies seem able to export
High quality of vodka with a unique soft taste.
Modern process technology
Reasonably low production costs compared to major
world and regional exporters.
Improving business environment especially in terms of
tax laws.
Lack of a brand image although relatively high
marketing skills.
Low capacity utilization due to lack of raw materials
and too numerous local companies.
Poor packaging services.
Render taxation policy stable and tightly control vodka
producers in terms of tax discipline.
Control the quality and licensing of vodka producers.
Control the quality of imported products.
Improve the bureaucratic handling of service to
businesses, with more flexibility and less control.
Household
and furnishing
textiles
(Low: 2.5)
Fast growing exports in dynamic international market
High quality of Mongolian camel and cashmere
blankets.
Limited local production capacities.
Positive outlook for cashmere-weaving industry.
See also textile fibers
Develop spinning capacity and improve technology or
better usage of existing spinning equipment to
improve yarn quality.
Carpets and
wall covering
(Low: 2.5)
Exports remain marginal, although growing strongly in
a context of declining international demand in recent
years.
Mainly exporting to China and Russia.
Favourable market access conditions except in the
neighbouring countries.
Future global demand for carpets may be negatively
affected by the existence of substitutes and changes
in consumer preferences.
Only few carpet producers in Mongolia.
Poor quality, old and not very original designs.
Most inputs and equipments are imported.
Outdated and inflexible equipment in plants
Higher production costs relative to major regional
exporters, such as China.
Carpet plants do not operate at full capacity, because
of an insufficient supply of sheep wool.
Low marketing skills.
Provide domestic producers with the same tax breaks
that are given to foreign and joint venture companies,
such as import duty and VAT exemption.
Investment for new production machinery is crucial for
the domestic producers.
Resolve the bad debt problem of the domestic
producers
Assist domestic producers taking part in fair and
exhibitions and making contacts with foreign buyers
and trading houses.
Producers should learn how to utilize internet-based
promotion and advertising, and to position themselves
in the international market.
Address the problems of poor end-user behaviour with
the help of practical research and development on
scouring and setting stages in the production process.
Improve designs and product development
capabilities in collaboration of the Mongolian Textile
Institute (MTI) and through linkage programmes with
foreign design institutes.

10. 10 / 10
Industries
(Evaluation:
index)
Comments Priority actions
Cashmere
knitwear
(Low: 2.4)
One of the major manufacturing and employing
sectors, providing approximately 28% of all industrial
employment in Mongolia. Its importance for exports is
limited though, representing only 2.6% of total
exports, a share in relative decline.
Weak export performance, strongly concentrated
geographically.
Four fully integrated producers of knitwear products in
Mongolia.
Domestic processing companies operating below
capacity. Product quality satisfies the high demands of
foreign buyers in Europe or the United States, but
design remains basic.
Higher production costs than in China, and low labour
productivity.
Almost inexistent domestic supporting industries, and
insufficient spinning capacities.
Poor marketing skills, and channels of distribution
almost inexistent.
High and sometimes discriminatory tariffs applied to
Mongolia in its current exporting markets.
See also textile fibers.
Develop spinning capacity, and improve technology or
better usage of existing spinning equipment to
improve yarn quality.
Meat and
animal
products
(Low: 2.4)
High socio-economic impact. Around
380,000 herdsmen and 170,000 herdsmen’s families.
Limited quantity of Mongolian processed meat.
Little export-oriented and exports little value-added
products, mostly raw meat, with a prevalence of beef,
Rapidly changing composition of exports in favour of
horsemeat. Almost exclusively exported to one
country, Russia.
“Natural meat”, unique taste and ecologically clean.
Bad packaging, lack of chilling and refrigeration
facilities, and inadequate quality control.
Higher production costs relative to major regional
exporters (Russia, China).
Difficult collecting animals from the small-scale
farmers.
Opportunities for product diversification (pet food and
horsemeat).
Highly concentrated International demand for the
meat products on a very few market and not
particularly dynamic.
Not favourable market access, especially for beef,
while conditions are slightly better for horsemeat.
Secure funding for the modernization of factories and
the development of adequate and efficient storage
and transport facilities, notably by giving access to
loans at low interest rate.
Reduce VAT rate.
Reduce import duties on machineries and equipments
to facilitate the modernization and the development of
the industry.
Improve veterinary services to meet the international
sanitary norms of the WHO/FAO Codex Alimentarius.
Formulate a long-term strategic vision, jointly with the
public and private sector, for the (long-term)
development of the meat industry, to utilise the
country’s large livestock resources.
Intensify government-to-government negotiations to
reduce the high import tariff on some big markets,
such as Russia, and to get technical assistance to
address the non-tariff barriers related to hygiene and
sanitation in the EU and US markets.
Source: TradeMap and Market Access Map, survey with enterprises and business associations in Mongolia.
* Points range from 1 (lowest potential) to 5 (highest potential). Industry rankings should be interpreted with caution,
especially when absolute differences are small, since many indicators lack precision. But very low rankings may indicate
potential areas for improvement..

11. 11 / 11
Crosscutting issues
Low volume
Mongolia is a small economy with a limited workforce. In many sectors, insufficient production
capacity was mentioned as one of the major obstacles to export growth, mainly due, according
to those interviewed, to a lack of available capital.
Limited value added
In many sectors, one of the major obstacles to export and export earning growth is the inability
to process the commodities, and accordingly to add value and diversify products. Again, the
results of the surveys indicate a lack of available capital along with a shortage of skilled
workers.
Insufficient cost competitiveness
In most sectors, Mongolia’s exports are curbed by high production costs. The government and
other stakeholders need to pay attention to two major cost factors compromising Mongolia’s
competitiveness: labour cost vs. productivity and transportation costs.
High transportation cost
The national transport network faces two weaknesses: the small density of the population and
the physical barriers of the country (for example mountains and deserts). As a result, Mongolia
suffers from high shipping costs. Despite an increase in competition between the transporting
companies, the costs for intra-regional transportation are still higher than for international
transportation.
Limited entrepreneurship and marketing skills
From Mongolian companies interviewed, there is evidence that Mongolia entrepreneurs lack
basic skills for export business and a genuine entrepreneurship mentality. Very few of the
interviewed managers speak English, which is essential for trading. Some acknowledged they
do not know how to find clients abroad. The general lack of awareness of the importance of
quality is another issue. Therefore there is a wide gap in terms of export readiness between
foreign and domestic companies.
In addition, professional consulting and advisory services are not available in Mongolia. Since
exporters cannot find any information on foreign markets in Mongolia, they tend to rely on
families and friends living abroad. Companies indicate they are prepared to pay for services
they require, especially for advisory, consultancy, information and training services and have
resources to do so.
Moreover, Mongolian exporters marketing and promotion activities are very limited. The main
promotion instrument is a participation of foreign fairs organized by the Chamber of Commerce
or other organizations. Instead of actively looking for partners and buyers, they rather wait until
a potential buyer will find them in Ulaan Baatar.
Limited access to finance
Exporters underline that financing export from Mongolia is one of the major constraints to export
development. They do not have sufficient working capital that could support the process of
exporting. The other difficulty is lack of reliable source of information about foreign markets,
tariff, documents, packaging and labelling as well as competition.

12. 12 / 12
Limited access to raw material supply
Another major problem indicated by exporters is deficit of traditional Mongolian raw material
such as cashmere and leather. Cashmere and leather are sold and smuggled to China and their
storage on the domestic market makes prices higher.
The SME’s Research Centre at the Technical University carried out in 2004 a survey in order to
find out what kind of policy entrepreneurs are expecting from the Government and how the
current policy affects their business. In the opinion of the entrepreneurs, the main obstacles to
business development are taxation, corruption, unfair competition, high interest rates, obtaining
external finance, shortage of human resources, lack of access to new ideas and technology,
and shortage of business development services.
Crosscutting recommendations
Support entrepreneurship and marketing skills
Entrepreneurs are at the core of the economic dynamism, since they take a risk, undertake
investment and innovation and create business activities, wealth, jobs and development. The
government could provide courses to Mongolian entrepreneurs on the basic skills relative to
business (English, accounting, marketing).
It is essential to know and to meet the taste and the needs of customers as well as their
demands in terms of product characteristics and quality, time delivery, packaging and related
services. In addition, the government could provide needed market information and promote
their participation to international exhibitions.
Introduce measures to attract foreign investment
The distinction between Mongolia companies and foreign companies is economically irrelevant.
There are just companies who are competitive, creating wealth, jobs and reducing poverty and
companies who are not. In addition, foreign companies bring into the country marketing skills
and modern process technologies, in additional to financial resources. As such, they are a major
channel for knowledge transfer and capacity building.
The government could give preferential treatment to foreign companies that can bring into the
country capital, technology, technical and marketing expertise, and training. Staff from Ministries
in contact with foreign companies needs to be able to communicate in English.
Promote the image of Mongolia Inc.
There is evidence that Mongolia is not well known around the world. However some small
countries have managed to raise their international profile. For example, awareness of
Botswana recently increased because it was ranked number one in Africa for the Corruption
Perceptions Index (Transparency International) and thanks to Miss Botswana who recently
became Miss Universe. Likewise, New Zealand has become better known internationally
because the movies “Lord of the Rings” were shot in the country. Since then, the tourism
industry has boomed in New Zealand. To a much lesser extent, the Mongolian movie “Weeping
Camel” also impacted tourism industry in Mongolia.

13. 13 / 13
Possible next steps
The study has examined the potential for export growth in the seven pre-selected product
groups using a conceptual framework mainly based on relatively “objective” economic
judgements (Mongolia’s export performance and supply conditions, and global demand
patterns). There are three main extensions to the study:
− Obtain additional information on less-examined industries. For some industries, it was
problematic to obtain background information (statistics, reports, studies, industry news)
from business associations or relevant Ministries, and to find enterprises to respond to the
questionnaire. Though for some industries, absence of information might be an indication of
missing export potential, this is certainly not true for all industries. Future studies should
thus make a special effort to cover these industries better and monitor closely domestic
supply conditions.
− Increase the scope of the study and include services. Services, which are the fastest
growing component of international trade, were excluded from the current study mainly for
reasons of comparability of the method. Future studies should certainly adapt the
methodology and examine selected services.
− Select priority sectors out of those with high potential. If the government wants to select a
limited number of industries for particular treatment (e.g. sector-specific export strategies),
the analysis of the export “potential” has to be complemented with an evaluation of various
socio-economic criteria (social desirability) that allow identifying “priority” sectors. For this,
more subjective criteria can be introduced, by taking into consideration sector socio-
economic impact and political objectives. The Government of Mongolia could set priorities in
its export strategy by taking into account additional factors, such as job creation, rural and
female employment, poverty reduction, technology advancement and industrialisation,
backward and forward linkages with other sectors and spillover effects to the rest of the
economy, foreign currency generation, environmental sustainability and food security.

14. 14 / 14
Introduction
Background
Mongolia is one of the largest developing economy, landlocked in Northern Asia between China
and Russia. As such it displays a number of characteristics that renders its socio-economic
situation difficult:
− Mongolia is a small developing economy. With a population of 2.7 million and a gross
domestic product (GDP) of USD 1.2 billion in 2004, per capita income amounted to
USD 480. About 36% of the population earn less than the minimum wage of about USD 1
per day. Mongolia is one of the poorest countries in the world, currently ranked 114th out of
177 countries in terms of human development by UNDP (2005). In economic terms, this
means that Mongolia is a small player for most sectors on both the supply and the demand
side. As such, Mongolia can be considered a price taker both for inputs and outputs, having
insufficient productive capacity and a small domestic market with low purchasing power.
Individual enterprises in Mongolia, since they tend to produce small volumes, are also
disadvantaged in sectors based on economies of scale. This translates into difficulties in
penetrating major foreign markets. Mongolia industrial basis is narrow, and raw materials
and commodities from mining or agricultural sectors dominate production. Due to the
absence of significant domestic downstream activities, the bulk of exported goods have little
added value. Infrastructure and the education system are not efficient and are of low quality,
and the stock of human capital and of skilled workers is limited.
− Mongolia is a large country with very few inhabitants. With a land area of 1,564,116 km2
and a population of about 2.7 million, the population density is very low (1,5 hab/km2). Land
is the abundant production factor in Mongolia so this country has a natural advantage for
industries that use land intensively, and not labour intensive industries.
− Mongolia is a landlocked country remote from major world markets. Mongolia is landlocked
by the People’s Republic of China (PRC) and the Russian Federation and is remote from
major developed markets. This results in high transport costs. Given these factors,
Mongolian enterprises are disadvantaged in processing inputs and producing goods that
are heavy or voluminous, or for which delivery time is a major issue. The distance from
major world markets reinforces this disadvantage. Fast moving markets demand short
response times to buyer’s requirement. Mongolia could require appropriate cross-border
agreements with the two neighboring countries. Meanwhile, Mongolia can serve as a
corridor for transit traffic between the two countries, reducing their transport costs and
providing a sustainable source of foreign exchange earnings for Mongolia.
− Mongolia’s exports depend on a few products. Mongolia is heavily dependent on commodity
exports, notably copper, gold and cashmere (Table 3). Mineral products, of which copper
concentrate is the largest single item, accounted for half of total export earnings in 2003.
This dependence makes the economy vulnerable to shifts in world commodity prices.
Mongolia also exports agricultural commodity goods, such as cashmere (Mongolia accounts
for 30% of worldwide cashmere production), textiles, and meat.
Given these constraints, broadening the industrial base and diversifying the export base is a
major issue for Mongolia on its national policy agenda, especially as its trade balance shows a
structural deficit.

15. 15 / 15
Table 3. Mongolia’s main exported sectors and products
2-digit and 4-digit groups of Harmonised System
Export value
(USD 1,000)
Share of
total (%)
1999 2000 2001 2002 2003 2003
26 Ores, slag and ash 128,363 166,667 153,197 150,451 179,341 29.1
2603 Copper ores and concentrates 119,215 160,276 147,902 140,238 163,707 26.6
2613 Molybdenum ores and concentrates 9,025 6,155 5,078 10,117 15,300 2.5
71 Pearls, precious stones, metals, coins, etc 3,124 6,074 684 76,282 139,904 22.7
7108 Gold unwrought or in semi-manuf. forms 3,088 6,058 682 76,278 139,877 22.7
62 Articles of apparel, accessories, not knit or crochet 30,682 74,274 73,079 59,270 61,852 10.0
6204 Women's suits, jackets, dresses skirts etc. & shorts 3,832 19,670 22,877 21,179 31,449 5.1
6203 Men's suits, jackets, trousers etc & shorts 5,527 28,288 26,589 14,474 11,743 1.9
6205 Men's shirts 10,170 12,476 10,411 10,334 9,556 1.6
6201 Men's overcoats, capes, windjackets etc 5,990 6,397 3,910 2,988 3,424 0.6
6208 Women's singlets, slips, briefs, pyjamas, bathrobes etc 146 70 229 750 2,480 0.4
6207 Men's singlets, briefs, pyjamas, bathrobes etc 90 608 2,577 7,039 2,133 0.3
41 Raw hides and skins (other than furskins) and leather 24,059 38,141 57,389 45,521 54,499 8.8
4105 Sheep/lamb skin leather 0 3,090 30,738 26,326 33,948 5.5
4104 Leather of bovine/equine animal 61 85 8,779 7,383 10,311 1.7
4101 Raw hides&skins of bovine/equine animals 10,071 18,232 10,121 7,484 5,963 1.0
4106 Goat/kid skin leather 0 19 845 417 3,020 0.5
61 Articles of apparel, accessories, knit or crochet 22,332 31,454 29,204 42,590 53,973 8.8
6110 Jerseys, pullovers, cardigans, etc, knitted or crocheted 20,073 25,944 18,913 18,792 20,451 3.3
6104 Women's suits,dresses,skirt etc&short, knit/croch 296 393 1,674 4,924 10,987 1.8
6106 Women's blouses & shirts, knitted or crocheted 225 576 1,291 2,724 7,210 1.2
6105 Men's shirts, knitted or crocheted 405 54 224 7,912 6,741 1.1
6103 Men's suits,jackets,trousers etc&shorts, knit/croch 902 712 116 4,040 3,265 0.5
6109 T-shirts, singlets and other vests, knitted or crocheted 14 132 3,507 2,608 2,875 0.5
6107 Men's underpants,pyjamas,bathrobes etc,knit/croch 5 0 0 72 1,808 0.3
51 Wool, animal hair, horsehair yarn and fabric thereof 73,245 84,897 67,568 41,417 46,073 7.5
5105 Wool & fine or coarse animal hair, carded or combed 48,736 56,465 58,991 32,709 27,616 4.5
5102 Fine or coarse animal hair, not carded or combed 16,902 24,116 3,670 2,881 11,602 1.9
5101 Wool, not carded or combed 6,012 2,950 3,898 3,990 5,293 0.9
5103 Waste of wool 1,008 383 720 1,363 1,362 0.2
25 Salt, sulphur, earth, stone, plaster, lime and cement 17,027 19,406 20,347 19,022 21,363 3.5
2529 Felspar; leucite; nepheline & nepheline syenite; flourspar 17,014 19,356 20,319 16,956 21,057 3.4
27 Mineral fuels, oils, distillation products, etc 1,322 2,260 3,838 3,434 13,879 2.3
2701 Coal; briquettes, ovoids & similar solid fuels manuf. from coal 0 0 0 1 5,846 0.9
2709 Crude petroleum oils 1,161 1,813 1,778 3,093 4,547 0.7
2710 Petroleum oils, not crude 156 441 2,050 280 3,474 0.6
2 Meat and edible meat offal 15,617 16,046 17,614 20,248 13,469 2.2
202 Meat of bovine animals, frozen 13,194 14,283 12,020 13,826 9,321 1.5
205 Meat of horses, asses or mules - fresh, chilled or frozen 28 5 3,070 5,342 3,831 0.6
05 Products of animal origin, nes 5,706 6,603 7,469 7,083 6,951 1.1
0504 Guts, bladders and stomachs of animals other than fish 4,038 4,645 5,115 5,104 4,986 0.8
0503 Horsehair 541 646 1,367 1,088 1,339 0.2
72 Iron and steel 2,709 3,213 1,996 1,467 3,962 0.6
7207 Semi-finished products of iron or nonalloy steel 0 13 7 11 2,369 0.4
84 Machinery, boilers, nuclear reactors, etc. 3,398 1,348 1,699 1,086 3,063 0.5
8431 Machinery part 787 795 530 6 1,063 0.2
74 Copper and articles thereof 2,560 1,695 2,299 2,374 2,392 0.4
7403 Refined copper and copper alloys, unwrought 2,411 1,229 2,161 2,330 2,378 0.4
01 Live animals 277 239 934 1,377 1,874 0.3
0106 Live animals, nes 173 239 831 1,377 1,867 0.3
55 Manmade staple fibres 4 0 8 791 1,579 0.3
5514 Woven fabrics of synthetic staple fibres, mixed with cotton 0 0 0 790 1,579 0.3
73 Articles of iron or steel 1,187 233 167 114 1,242 0.2
88 Aircraft, spacecraft, and parts thereof 2,405 0 1,096 111 1,165 0.2
97 Works of art, collectors pieces and antiques 7 19 29 21 1,123 0.2
9706 Antiques of an age exceeding one hundred years 2 4 0 2 1,110 0.2
All products 358,194 465,889 448,474 480,453 615,866 100
Only items with an export value of more than USD 1 million in 2003 are shown.
Source: TradeMap, calculations by ITC.

16. 16 / 16
Purpose
The objective of this study is to identify sectors that have significant potential for export growth
in Mongolia. Mongolia disposes of several products that contain certain qualities that are
specific for Mongolia.
These products, primarily meat, cashmere, leather and vodka have good potential to increase
exports. Geographical indications (GIs) could be an effective tool to support value-added
exports for these products and decrease Mongolia’s dependence on volatile raw material prices.
As a side effect, this would also facilitate protection to European GIs on the Mongolian market.
The study has a strategic focus, and aims to guide the government, the private sector and civil
society towards the most promising sectors. This is of particular relevance in the initial stage of
a National Export Strategy exercise.
Selected product groups
The Ministry of Industry and Trade of Mongolia together with ITC’s market analysis team
selected seven product groups for an in-depth examination of their export potential (Table 4).
Table 5 reveals one challenge of the study: the selected product groups differ substantially in
terms of export value and the number of underlying products. For instance, some product
groups are made of only product items (e.g. vodka), while others consist of more than a dozen
product items, as is the case for example for hides, skins and leather. It would have been
desirable to also include services to get an overall picture of potential sectors in Mongolia, but it
was decided to focus only on the goods sector, for which the assessment can be done in a
comparable manner.
Table 4. Mongolia’s exports of the seven selected product groups
Value
(USD 1,000)
Share of total exports
(%)
1999 2000 2001 2002 2003 1999 2000 2001 2002 2003
Hides, skins and leather 25,005 32,949 38,265 45,585 54,572 7.6 7.5 9.2 9.7 8.9
Textile fibers 65,691 80,898 64,684 36,866 42,858 20.0 18.3 15.6 7.8 7.0
Cashmere knitwear 19,344 26,236 16,839 13,435 16,157 5.9 5.9 4.1 2.8 2.6
Meat and animal products 12,671 14,067 14,813 19,125 13,151 3.9 3.2 3.6 4.1 2.1
Carpets and wall covering 118 152 379 779 872 0.0 0.0 0.1 0.2 0.1
Household and furnishing textiles 113 257 72 102 279 0.0 0.1 0.0 0.0 0.0
Vodka 812 907 3 40 47 0.2 0.2 0.0 0.0 0.0
Sub-total seven sectors 123,754 155,466 135,055 115,932 127,936 37.7 35.2 32.6 24.6 20.8
Total 328,547 441,911 414,692 471,993 615,368 100.0 100.0 100.0 100.0 100.0
Source: TradeMap, calculations by ITC.

17. 17 / 17
Table 5. Mongolia’s exports of the seven product groups and product items
HS 1996 6-digits Product label
Exports
(USD 1,000)
Share of
product in
Mongolia's
exports
(%)
Mongolia's
rank in
world
exports
Mongolia's
share in
world
exports
(%)
Trend growth of
exports in value
(% p.a. from
1999-2003
1999 2000 2001 2002 2003 2003 2003 2003 Mongolia World
Hides, skins and leather 25,005 32,949 38,265 45,585 54,572 8.86 .. 0.32 19 14
410512 Sheep or lamb skin leather, otherwise pre-
tanned
0 247 25,992 26,318 33,948 5.51 4 11.15 .. 4
410422 Bovine leather, otherwise pre-tanned 23 31 1,757 7,109 10,009 1.63 27 0.43 480 -5
410110 Bovine skins, whole, raw 445 587 1,327 5,980 5,397 0.88 30 0.46 108 41
410612 Goat or kid skin leather, otherwise pre-
tanned
0 0 476 416 3,017 0.49 9 1.66 .. 24
410221 Sheep or lamb skins, pickled, without wool
on
0 250 3,070 832 828 0.13 20 0.32 .. 1
410129 Hide sections, bovine, fresh or wet-salted 449 521 1,201 905 432 0.07 42 0.16 5 37
410431 Bovine and equine leather, full/split grains 0 0 33 29 302 0.05 72 0.00 .. 17
410310 Goat or kid hides and skins, raw 682 551 521 348 157 0.03 39 0.41 -29 21
410390 Raw hides and skins of animals 58 578 97 187 155 0.03 54 0.07 9 13
410121 Bovine hides, whole, fresh or wet-salted 6,799 13,088 246 598 134 0.02 92 0.01 -67 0
410790 Leather, nes 0 0 0 0 74 0.01 58 0.02 .. -5
430219 Tanned or dressed furskins, whole, not
assembled
196 214 935 400 57 0.01 62 0.01 -17 9
410210 Sheep or lamb skins, raw, with wool on 10,684 13,290 2,604 2,460 43 0.01 76 0.01 -72 30
430180 Raw furskins nes, whole 5,669 3,592 6 3 19 0.00 39 0.02 -84 23
Textile fibers 65,691 80,898 64,684 36,866 42,858 6.96 .. 3.56 -16 -6
510530 Fine animal hair, carded or combed 48,702 56,438 58,918 32,696 27,600 4.48 2 6.75 -15 -8
510210 Fine animal hair, not carded or combed 16,153 23,715 3,476 2,842 11,582 1.88 4 9.87 -24 -17
510121 Degreased shorn wool, not carded,
combed or carbonised
836 745 2,290 1,328 3,676 0.60 12 0.54 42 1
Cashmere knitwear 19,344 26,236 16,839 13,435 16,157 2.62 .. 0.31 -10 -1
611010 Pullovers, cardigans and similar article of
wool or fine animal hair, knitted
19,312 25,641 14,795 12,996 15,740 2.56 32 0.33 -10 -2
610461 Women’s/girls’ trousers and shorts, of wool
or fine animal hair, knitted
0 73 199 134 114 0.02 32 0.21 .. -9
610210 Women’s/girls’ overcoats, anoraks etc., of
wool or fine animal hair, knitted
0 238 13 4 81 0.01 55 0.09 .. 0
610451 Women’s/girls’ skirts, of wool or fine animal
hair, knitted
1 134 1 169 74 0.01 39 0.19 142 -14
610110 Men’s/boys overcoats, anoraks etc, of wool
or fine animal hair, knitted
0 0 0 1 66 0.01 45 0.09 .. 10
610341 Men’s/boys trousers and shorts, of wool or
fine animal hair, knitted
29 61 95 78 49 0.01 39 0.05 14 21
611691 Gloves, mittens and mitts, nes, of wool or
fine animal hair, knitted
0 8 15 30 15 0.00 47 0.03 .. 5
611410 Garments nes, of wool or fine animal hair,
knitted
2 68 1,680 1 10 0.00 62 0.01 -10 15
610441 Women’s/girls’ dresses, of wool or fine
animal hair, knitted
0 13 41 22 8 0.00 52 0.03 .. -20
Meat and animal products 12,671 14,067 14,813 19,125 13,151 2.14 .. 1.10 4 2
020210 Bovine carcasses and half carcasses,
frozen
10,378 13,799 9,880 11,196 7,329 1.19 5 3.56 -9 0
020500 Horse, ass, mule or hinny meat, fresh,
chilled or frozen
28 5 3,070 5,342 3,831 0.62 12 1.14 437 0
020220 Bovine cuts bone in, frozen 2,265 263 1,863 2,587 1,991 0.32 16 0.31 22 0
Carpets and wall covering 118 152 379 779 872 0.14 31 0.07 76 -7
570110 Carpets of wool or fine animal hair, knotted 118 152 379 779 872 0.14 31 0.07 76 -7
Household and furnishing textiles 113 257 72 102 279 0.05 40 0.22 9 4
630120 Blankets (o/t electric) & travelling rugs,of
wool or fine animal hair
113 257 72 102 279 0.05 40 0.22 9 4
Vodka 812 907 3 40 47 0.01 71 0.00 -59 36
220860 Vodka 812 907 3 40 47 0.01 71 0.00 -59 36
Source: TradeMap, calculations by ITC.

18. 18 / 18
Structure of the report
The structure of the report is as follows:
− Chapter 1 highlights the main findings, by comparing the seven industries along each of the
three main dimensions (Mongolia’s current export performance and the domestic supply
conditions, and world markets) and along the overall index of export potential assessment.
− Chapter 2 presents the main findings for the industries with the highest export profile. It
includes, to the extent possible, a SWOT analysis and identifies possible target markets for
diversification in each product group.
− The conclusion examines the major crosscutting issues that affect the competitiveness of all
sectors.
− Finally, the annex presents in more detail the methodology used to calculate each of the
indicators. It discusses the conceptual framework, the definition of the relevant indicators,
and the limitations of the method. It also discusses how the underlying indicators are
transformed so that they can be compared, and how the indices are weighted to obtain an
overall measure of the export potential for each industry.

19. 19 / 19
1. Comparative analysis of the industries
This chapter seeks to estimate and compare the export potential of Mongolia in seven
industries. The term “export potential” is used here in a broad sense and is defined as the
capacity to expand exports. Some industries can be considered as having high potential
because they have an already established and proven export record, as witnessed for example
by high export values or high export growth rates over the last years. For other sectors,
however, exports may still be negligible, but many of the necessary conditions for future growth
may be in place.
An assessment of the export potential of industries requires taking into account very diverse
multidimensional factors, both from the demand and the supply side. The large amounts of
heterogeneous information are summarised using composite indicators, which provide a broad,
albeit simplistic, picture of reality that can be used to draw the attention of policy makers. To do
so, each industry is examined along three main dimensions: Mongolia’s current export
performance; world markets; and Mongolia’s domestic supply conditions (Figure 1). In total,
14 indicators are used in this study (Annex, Table 34).
To allow comparisons, the underlying variables for each dimension have to be normalised
before they are aggregated into composite indicators. The normalisation method used here
converts each indicator into a range of 1 (weak performance) and 5 (best performance). For
each indicator, it gives 1 point to industries with values below a certain threshold value and
5 points to industries with values above the threshold value.
For the overall measure of export potential these three dimensions are combined: the most
interesting industries are those where all three indices are high, i.e. industries for which there
are not only an important and dynamic international demand, but also an efficient and
competitive domestic supply and an already good export performance. In other words, the
export potential is considered highest in those industries:
− where international demand is growing fast and where Mongolia enjoys low or preferential
access conditions in major international markets;
− where Mongolia’s exports are important, represent a high world market share and are
growing fast;
− where production processes in Mongolia’s enterprises are efficient and product quality high;
and where domestic supporting industries are efficient and enhance the sector’s
competitiveness.
Figure 1. Export potential index: Underlying dimensions and indicators
Exports in value
World market share
Relative trade balance
Growth in exports
Current export performance
Processes and products
Supporting industries
Domestic supply conditions
Dynamism of world demand
Market access conditions
World markets
Export potential index

20. 20 / 20
It must be noted here that composite indicators have some limitations. They are sensitive to the
choice and weight of the underlying indicators. Therefore, the indices provide only a crude
measure of the performance and potential of individual industries. The choice of indicators was
partly driven by data availability. For example, in order to assess market access conditions, it
would have been useful to incorporate not only tariff barriers but also non-tariff barriers,
especially technical barriers to trade (TBT) and sanitary and phytosanitary measures (SPS).
However, though this information is available for many sectors, it does not lend itself easily to
strict quantitative comparisons. In addition, the selected indicators are backwards looking
(prospects are based on recent trend growth). Though a measure that takes into account the
recent past does not necessarily have a strong predictive power of future trends, it reveals
structural shifts in the world economy. Finally, informal exports cannot be examined for obvious
reasons.
To minimise these limitations, the statistical analysis and literature survey are complemented
with interviews with local stakeholders in Mongolia, both from the public and private sector. A
member of ITC’s Market Analysis team and three national consultants carried out a survey of
companies in Summer 2005, based on an ITC questionnaire. This was done not only to give a
better understanding of the situation in the examined sectors, but also to come up with
judgements that were used for the composite index of export potential.
Index 1: Mongolia’s current export performance
The first main composite indicator for the study, Mongolia’s current export performance, gauges
how successful its enterprises perform in the international markets for the selected product
groups. Well-performing sectors have already proven their export capacity and can thus be
considered as also having high potential for future exports. The composite index is made up of
four sub indices that can show such capacity: (1) Mongolia’s exports in value; (2) Mongolia’s
world market share; (3) Mongolia’s relative industry’s trade balance, and (4) Mongolia’s export
growth.
In total, the index for Mongolia’s export performance is highest for textile fibres; hides and skins;
and meat. In contrast, Mongolia’s export performance is particularly unfavourable for vodka.
Carpets; cashmere knitwear and household and furnishing textiles are in an intermediate
position.
Exports in value
From a strategy point of view, big export sectors are Mongolia’s current “bread winners”, and as
such require special attention. Exporters in these sectors have already proven their
competitiveness over recent years, and should be well positioned for future exports. In other
words, the larger a sector’s exports are currently in value terms, the greater is its potential for
future growth.
Mongolia has significant exports for hides, skins and leather (accounting for almost
USD 55 million in 2003); followed by textile fibers (about USD 43 million); cashmere knitwear
(USD 16 million); and meat and animal products (USD 13 million) (Table 6). In contrast, exports
are negligible for the moment for vodka; household and furnishing textiles; and carpets and wall
covering (less than USD 1 million).
World market share
This sub-index calculates Mongolia’s world market share in each individual product group. This
indicator is partly to compensate for the previous indicator --export value--, which favours large
industries and thus introduces a bias against small industries. However, by dividing export value
by world exports, even small sectors can achieve a high market share, as is for example the
case for honey. The world market share is thus a good indicator of the competitiveness of an

21. 21 / 21
industry. In 2003, Mongolia represented 0.01% of total world trade. A product group with a world
market share above that number represents an “over-performer”, suggesting a competitive
sector. Those below 0.01% are considered to be relative “under-performers”.
Mongolia has a substantial world market share in textile fibres (3.6%), meat (1.1%), and to a
lesser extent in cashmere knitwear and hides and skins (each about 0.31%, Table 6). In
contrast, Mongolia’s world market share for vodka (0.004%) is significantly below the national
average.
Relative trade balance
This sub-index uses Mongolia’s trade balance in 2003 as an indicator to gauge the efficiency of
the productive capacity of industries. The trade balance for a product group is calculated as the
difference between exports (X) and imports (M). If exports exceed imports representing a trade
surplus, national production exceeds national consumption. All things being equal, this suggests
that the industry has efficient productive capacity and can be considered competitive. In
contrast, if exports are lower than imports representing a trade deficit, national production is not
sufficient to cover national consumption. Rather than presenting the trade balance (X-M) in
absolute terms (e.g. US dollar), it is presented relative to the industry’s total trade (X+M). This
reduces bias against large industries, which tend to have either strong deficits or surpluses.
On the basis of the relative trade balance in 2003, it appears that hides and skins, textile fibers,
carpets, meat, knitwear products and blankets are almost exclusively exported and not imported
at all (Table 6). In contrast, available statistics suggest that Mongolia is a net importer for vodka.
Export value growth
Sectors with rapid export growth in value terms between 1999 and 2003 suggest that Mongolia
is competitive on the world markets, while stagnant or declining growth rates indicate the
reverse. Everything else equal, fast growing exports, even in small absolute numbers, point at
product groups for which Mongolia has a particular potential worth studying more in detail.
These trends are likely to reflect Mongolia’s future trade.
Over the period 1999-2003, carpets and wall covering experienced exceptional growth, growing
more than 50% per year on average between 1999 and 2003 (Table 6). Other industries with
positive growth rates are hides and skins (+19% per annum), household textiles (+9%) and
meat and animal products (+3.8%). In contrast, three sectors show declines of exports: vodka (-
88% per year), textile fibres (-16%), and cashmere knitwear (-10%).
Table 6. Underlying indicators for the composite index “Mongolia’s export performance”
Export
value, 2003
Mongolia’s
world market
share
Relative
trade balance
Export value
growth,
1999-2003
(USD
million)
Sub-
index
(%) Sub-
index
(%) Sub-
index
(p.a.%) Sub-
index
Index
Current export
performance
Textile fibers 42.858 4.1 3.574 5.0 100 5.0 -16.4 3.0 4.3
Hides, skins and leather 54.572 5.0 0.319 1.4 100 5.0 18.9 4.0 3.8
Meat and animal products 13.151 2.0 1.075 2.2 100 5.0 3.8 3.5 3.2
Carpets and wall covering 0.872 1.1 0.063 1.1 100 5.0 56.3 5.0 3.0
Cashmere knitwear 16.157 2.2 0.311 1.3 99 5.0 -10.3 3.2 2.9
Household and furnishing
textiles
0.279 1.0 0.215 1.2 96 4.9 8.8 3.7 2.7
Vodka 0.047 1.0 0.004 1.0 -69 1.0 -88.2 1.0 1.0
The indices range between 1 (lowest ranking) and 5 (best ranking). For each indicator, the three industries with values
above the upper threshold obtain 5 points, and the three with values below the lower threshold value obtain 1 point. All
other industries obtain between 1 and 5 points, depending on their distance from the two threshold values. Industry
rankings should be interpreted with caution, since many indicators lack precision.
Source: Comtrade, calculations by ITC.

22. 22 / 22
Index 2: Domestic supply conditions
For domestic supply conditions, the study is based on qualitative information stemming from a
survey of companies with a questionnaire and interviews carried out by national consultants in
Summer 2005.
Favourable supply conditions may not only exist in already exporting industries (those that score
high in the index “current export performance”), but also in industries that do not yet export but
that are “export ready”. The better the supply conditions and competitiveness, the greater the
future export potential, everything else equal. The composite index concerning Mongolia’s
domestic supply conditions used here indicates whether domestic productive capacities are
well-performing and competitive in terms of (1) the efficiency of the production process and the
product quality, and (2) the importance of backward and forward linkages and the efficiency of
supporting industries.
In total, this index is highest for hides and skins; and vodka. In contrast, Mongolia’s domestic
supply is unfavourable for carpets and wall coverings; and meat and animal products. Textile
fibers; Household and furnishing textiles; and Cashmere knitwear are in an intermediary
position.
Product quality and efficiency of production processes
The more efficient the production process and the higher the product quality, the higher the
export potential can be considered. An efficient production process means that production costs
are low and/or productivity is high compared to competitors.
The questionnaire used for this study included five questions: (1) The quality of exported
products; (2) Labour productivity in comparison with major world and regional exporters;
(3) Labour cost relative to major world and regional exporters; (4) Production cost relative to
major world and regional exporters; and (5) The state of the process technology in the sector.
Each of these criteria was scored from 1 (worst possible performance) to 5 (best possible
performance). A simple average score for “process and products” was then calculated
(Table 7).
The composite index for “product and process” is highest for hides and skins; vodka; textile
fibers; and household textiles. In contrast, the index is relatively low for carpets; and meat and
animal products.
Importance of backward and forward linkages and efficiency of supporting
industries
Industries that are strongly integrated into the national economy through backward (upstream)
and forward (downstream) linkages and that benefit from efficient supporting industries tend to
have a higher export potential. A dollar of exports of one industry may not affect the economy in
the same way as a dollar of exports of another industry, as their added value may be very
different. Some industries are effectively integrated into the national economy (through
backward linkages to suppliers and forward linkages to clients for further processing), whereas
others are not. As such, strongly integrated industries can exert positive pull and push effects
for other domestic industries. But the effect can also go the other way, i.e. industries with
important upstream linkages tend to benefit more if the supporting industries are efficient. Thus,
the higher the upstream or downstream linkages to the economy and the more efficient the
supporting industries, the more attractive it is for the economy, everything else being equal.
The questionnaire thus included two questions relative to (1) the general efficiency of supporting
industries (Box 1); and (2) the extent of upstream or downstream inter-industry linkages. Each
criterion was scored from 1 (worst possible performance) to 5 (best possible performance).
The composite index for “supporting industries” is highest for hides and skins and for vodka
(Table 7). It is lowest for carpets; meat; and household and furnishing textiles.

23. 23 / 23
Box 1. Supporting Industries
Supporting industries refers to the supply of intermediate inputs into the production of finished products, i.e. the
“industry” in the middle of a vertical supply chain. Activities include parts manufacturing (screws, springs etc) and
processes (pressing, forging etc.), though the definition of supporting industries depends on the sector (some also
include services, such as human resource development). The type of industry also determines the scale of
supporting industry necessary. The rationale for supporting industries is to increase competitiveness of assembly
firms, so it is vital that these companies can satisfy quality, cost and delivery standards.
Source: Ichikawa (2005), Ohno (2005).
Table 7. Underlying indicators for the composite index “domestic supply”
Sub-index 1
Process and product
Sub-index 2
Supporting industries
Number of
interviewed
companies
Product
quality
Labour
productivity
Labourcosts
Production
costs
Process
technology
Average
Infra--
structure
Linkages
Average
Index
Domestic
supply
conditions
Hides, skins and leather 4 3.0 2.5 4.5 3.7 2.7 3.3 2.7 1.7 2.2 2.7
Vodka 2 4.0 2.0 3.5 3.3 3.5 3.3 3.0 1.3 2.1 2.7
Textile fibers 3 3.7 4.0 2.5 2.5 3.5 3.2 2.3 1.5 1.9 2.6
Household and furnishing textiles 1 4.0 3.0 3.0 3.0 3.0 3.2 2.5 1.0 1.8 2.5
Cashmere knitwear 2 3.5 2.5 3.3 3.0 2.5 3.0 2.0 1.8 1.9 2.4
Meat and animal products 1 3.0 2.0 4.0 2.0 2.0 2.6 2.5 1.0 1.8 2.2
Carpets and wall covering 1 3.5 1.0 2.5 2.5 1.0 2.1 2.5 1.0 1.8 1.9
The indicators and indices range between 1 (lowest ranking) and 5 (best ranking). Industry rankings should be
interpreted with caution, especially when absolute differences are small, since many indicators lack precision.
No information is available for cashew nuts and other nuts; coffee; communications and telecommunications equipment;
cut flowers; dairy products; honey; jute and products made from jute; packaging materials; and wood and wood
products.
Source: Based on ITC survey with enterprises in Mongolia, calculations by ITC.
Index 3: World markets
The third composite indicator concerns the characteristics of world markets, examining whether
the international environment is favourable for Mongolia for the selected product groups. It is
made up of two sub-indices taking into account respectively (1) the dynamism of world imports
between 1999 and 2003 and (2) Mongolia’s relative market access conditions. Where import
markets are dynamic and access conditions are favourable, this study assigns a higher
potential.
Based on the indicators used, the international environment is very favourable for vodka and
hides and skins. World markets are also favourable for textile fibers. In contrast, the
international environment is particularly unfavourable for meat and cashmere knitwear.
Dynamism of world imports
Fast growing global markets are more likely to produce net gains for an exporting country than
slow growing, stagnant or declining markets. All things being equal, the more dynamic world
imports (or “international demand”) the higher the probability of future export growth.
The dynamism of international demand for each industry is measured by the trend growth rate
of world imports between 1999 and 2003. The growth rate of imports is measured both in value
terms (e.g. US dollar) and in volume terms (e.g. tons).
The most dynamic industries in terms of world import growth rate were vodka (+18% per year in
value); and hides and skins (+14%) (Table 8). In contrast, world imports declined for textile
fibers (-5.5%), carpets (-5.1%), and cashmere knitwear (-1.4%).

24. 24 / 24
Market access conditions for Mongolian exporters
Tariffs can penalize and even prevent an export-ready industry from translating export potential
into real exports. All things being equal, the better the country’s market access conditions, the
higher an industry’s export potential. These conditions can be absolute and relative, i.e. tariff
barriers can be low in absolute terms or low relative to main competitors.
Mongolia benefits from various international trade agreements. As a developing country,
Mongolia is currently a beneficiary of the Canadian, EU, Japanese and US preferential schemes
under the Generalized System of Preferences (GSP). The authorities are concerned that the
envisaged full integration of textiles into the multilateral trading system by the end of 2004 would
promote relocation abroad of joint ventures in the textiles sector. Mongolia is currently
negotiating a Transit Transport Framework Agreement with China and Russia to aid the transit
of Mongolian products through its neighbouring countries to third countries. The authorities
expect that this would help to make the transit of Mongolian exports in the North-East Asian
region more efficient, which would improve the international competitiveness of Mongolian
products destined for third countries. Mongolia has also concluded various bilateral trade-
related arrangements.
The “preferential margin index” indicates to what extent Mongolia enjoys preferential treatment
in international markets in terms of tariff barriers (Annex 6). Based on the data, each product
group is determined either to have preferential or discriminatory access to world markets. In the
case of Mongolia, however, all industries tend to face discriminatory access, though to different
degrees, and are at the best “neutral”.
In fact, Mongolia suffers from discriminatory market access for all sectors under review: it has
rather disadvantageous tariffs throughout the world. However, market access conditions are
relatively better in textile fibers, vodka, and hides and skins (Table 8). Access conditions
throughout the world are particularly unfavourable for meat, blankets and knitwear products.
It would have been useful to incorporate not only tariff barriers but also non-tariff measures,
especially technical barriers to trade (TBT) and sanitary and phytosanitary measures (SPS).
Non-tariff measures have become more and more important for several reasons: the growing
concern of consumers (especially in developed countries) regarding environmental and sanitary
risks; the argument of environmental risks is sometimes a convenient justification to
protectionism; and the growing relative importance of residual obstacles when tariffs are very
low. Unfortunately, though this information is available for some sectors, it does not lend itself
easily for strict quantitative comparisons and therefore these barriers are not included in the
indices. Non-tariff barriers will be included, where possible, in the brief descriptions for each
product group.
Table 8. Underlying indicators for the composite index “world markets”
World
imports*
Growth of
world imports
Mongolia's access to
international markets
(USD million) (Value,
% p.a.)
(Volume,
% p.a.)
Sub-
index
(-100,
100)
Sub-
index
Index
World
markets
Vodka 1,309 17.8 5.0 -1.5 4.7 4.8
Hides, skins and leather 16,753 14.3 7.2 4.7 -2.3 4.4 4.6
Textile fibers 1,076 -5.5 -7.4 1.0 -0.4 5.0 3.0
Carpets and wall covering 1,341 -5.1 -1.2 1.9 -6.6 3.2 2.5
Household and furnishing
textiles
122 3.1 6.3 3.6 -12.9 1.3 2.4
Cashmere knitwear 5,464 -1.4 -2.1 2.1 -11.6 1.6 1.9
Meat and animal products 1,359 2.3 -0.9 2.6 -13.7 1.0 1.8
* For information only
The indices range between 1 (lowest ranking) and 5 (best ranking). Industry rankings should be interpreted with caution,
especially when absolute differences are small, since many indicators lack precision.
Source: Comtrade, calculations by ITC.

25. 25 / 25
Comparing the indices for “Mongolia’s current export performance” and “world
markets”
Mapping the industries along the two dimensions of “Mongolia’s export performance” and “world
markets” brings out four polar cases (Figure 2):
− Performers in attractive markets, where both world markets and Mongolia's export
performance are high and/or dynamic. This is the case for hides, skins and leather. Textile
fibers can also be considered to be part of this group. Exporters of these products from
Mongolia have proven their competitiveness over recent years. Trade promotion efforts for
these products are less risky, as there are national success stories that can serve as
reference points. Promotional efforts should aim at broadening the supply capacity.
− Underachievers in unattractive market: represent the opposite case, as both world
markets and export performance for these industries are low and/or have little dynamism.
Trade promotion efforts for product groups in this category face an up hill task, as export
prospects tend to be bleak. None of the industries under review is part of this group.
− Underachievers in attractive markets: while world markets for these industries are
favourable, export performance by enterprises from Mongolia is at present weak. These
industries represent particular challenges for trade promotion efforts in Mongolia, as the
bottleneck is in general not world markets (demand is strong and/or markets are open), but
domestic supply factors. It is essential to identify and remove the specific bottlenecks that
impede a more dynamic expansion of exports. Vodka belongs to this group.
− Performers in unattractive markets, where export performance by enterprises from
Mongolia is strong, but where world markets are unfavourable. These industries represent
particular challenges for trade promotion efforts in Mongolia. Niche marketing strategies are
required to isolate the positive trade performance from the overall decline in these markets.
Meat and to a lesser degree cashmere kniting are in this group.

26. 26 / 26
Figure 2. Mapping industries: Mongolia’s export performance versus world markets
Meat
Cashmere knitwear
Blankets
Carpets
Textile fibers
LeatherVodka
1
1.5
2
2.5
3
3.5
4
4.5
5
1 1.5 2 2.5 3 3.5 4 4.5 5
Mongolia's export performance
World markets
Underperformers in
attractive markets
Performers in
attractive markets
Underperformers in
unattractive markets
Performers in
unattractive markets
Nota Bene: The size of the bubbles corresponds to the value of Mongolia’s exports in 2003. Export values are not
included in the Mongolia’s export performance index in this chart. That explains the scores are slightly different from
those in table 8.
Source: TradeMap and Market Access Map, calculations by ITC.

27. 27 / 27
The overall export potential index
Bringing together the three indices of world markets, country’s current export performance and
domestic supply conditions into a summary measure suggests that Mongolia’s export potential
is highest for hides, skins and leather and textile fibers (Table 9). In contrast, the export
potential seems limited for meat and animal products; cashmere knitwear and carpets and wall
covering. Vodka is in an intermediary position. It should be noted however that industry rankings
should be interpreted with caution, especially when absolute differences are small, since many
indicators lack precision.
The remainder of this chapter provides detailed information on these overall results and
compares product groups along the three important dimensions of export potential: the first
section examines the current export performance, the second one the domestic supply; and the
final one presents findings relative to the world markets.
Table 9. Overall index of the export potential of industries
Export value
(USD million)
Index* 1
Export
performance
Index* 2
World
markets
Index* 3
Domestic
supply
conditions
Overall
Export
Potential
Index*
Export
Potential
Assessment
Hides, skins and leather 54.572 3.8 4.6 2.7 3.7 High
Textile fibers 42.858 4.3 3.0 2.6 3.3 High
Vodka 0.047 1.0 4.8 2.7 2.8 Medium
Household and furnishing textiles 0.279 2.7 2.4 2.5 2.5 Low
Carpets and wall covering 0.872 3.0 2.5 1.9 2.5 Low
Cashmere knitwear 16.157 2.9 1.9 2.4 2.4 Low
Meat and animal products 13.151 3.2 1.8 2.2 2.4 Low
* The index ranges from 1 (lowest ranking) and 5 (best ranking). Industry rankings should be interpreted with caution,
especially when absolute differences are small, since many indicators lack precision.
Source: Comtrade data, ITC survey with enterprises in Mongolia, background reports by national consults, calculations
by ITC.

28. 28 / 28
2. In-depth analysis by industry
This chapter presents the main results for the seven sectors. The sectors are presented in
descending order in terms of the export value in 2003.
Hides, skins, and leather
The socio economic impact of hides, skins, and leather for Mongolia is high. Taken together, these
products represent about 15% of total industrial outputs and almost 10% of exports. Though the direct
employment impact is relatively small and decreasing, indirectly this industry generates substantial
revenues to herders. Livestock is the main source of livelihood in Mongolia.
The export potential of hides, skins, and leather appears high. There is a large and dynamic
international demand for leather products, and Mongolia’s exports have performed well over the last
five years, despite fierce international competition. The composition of exports has changed
dramatically within a few years, away from hides and skins towards leather. Mongolia’s market access
conditions for hides and skins are favourable throughout the world, but not in China, which takes
almost all of Mongolia’s exports.
However, Mongolia has to face numerous challenges. The industry generates little value-added, as
most hides and skins are exported either in raw form or only after the first stage of processing (“wet
blue”). The quality of hides and skins is considered poor and seems to be declining. Sanitary and
veterinary services in Mongolia are poor, the slaughtering system has been deteriorating in recent
years, and the leather process technology in the tanneries is outdated and highly polluting, thus
having a negative impact on the environment. In addition, a significant share of the production of hides
is commonly smuggled to China and the Russian Federation.
Priority actions to improve the export potential of Mongolia’s hides, skins, and leather sector include
the following:
Industrial policy:
− Increase the value-added of domestic manufacturing by further processing goods (most
hides and skins are currently exported only in raw or semi-processed form).
− Focus on market niches to avoid competing on price against Chinese and other products.
− Acquire and use of modern equipment and methods, especially Environmentally Sound
Technologies (E.S.T.) that are most urgently needed in the leather processing industry.
− Strengthen the Armono Leather Research Centre to provide consultancy services to the
leather product industries.
Business environment:
− Encourage the banking sector to advance working capital on commercial basis to tanneries,
which require large amounts of cash during the relatively short slaughtering season of
November-December.
− Attract foreign direct investment that brings technological transfer, know how, and modern
management methods to Mongolia.

29. 29 / 29
Table 10. SWOT analysis for hides, skins and leather
Strengths (to build on) Weaknesses (to cover)
Production:
Low labour costs and production costs.
Large excess capacity in production facilities.
Supporting industries:
Large livestock available.
Infrastructure:
Low costs for utilities (electricity, water, etc.).
Business environment:
Strategic location between the Russian Federation and
China offers big export opportunities.
Product:
Poor quality of hides and skins.
Limited value added: only semi-finished products, and most
hides and skins exported in raw form or as wet blue.
Quality of finished products is highly variable.
Production:
Declining labour productivity.
Limited capacity of SMEs to produce export quality
products.
Outdated technology and design in large tanneries.
Lack of modern de-hairing plants and equipment.
Limited amount for research & development activities.
Marketing:
Lack of in-house marketing skills to explore new markets, to
provide incentives for herders and farmers.
Lack of market information.
Business environment:
Weak veterinary services.
No enough incentives for FDI, limited number of foreign
companies.
High transport costs via China by land and sea.
Opportunities (to cover) Threats (to defend against)
International demand:
Dynamic and large for leather products.
Market access:
Free access into EU markets.
Very low tariff in the United States.
Production:
Sanitary conditions, including animal diseases and
malnutrition.
Business environment:
Smuggling of hides to China and Russia.
Competition of Korea and Turkey, which enjoy duty-free
access to the Mongolian market.
Bad climate (Harsh winters, dry summers)
Desertification
Socio-economic impact:
Environmental pollution.
Source: Interviews with companies, UNIDO (2002), WTO (2005).
Current export performance
Hides, skins, fur skins and leather are one of the most important industries for Mongolia, and
represent 9% of Mongolia’s total exports in 2003. Exports have more than doubled between
1999 and 2003, from USD 25 million in 1999 to USD 55 million in 2003, corresponding to an
average growth rate of 19% per annum over the period (Table 11).
Hides, skins and leather in Mongolia can be considered as “Performers in attractive markets”,
since both Mongolia's export performance and world markets are high and/or dynamic.
Mongolia has gained world market shares, as its exports grew faster (19% per year on average)
than world exports (14%). This suggests that Mongolian exporters of hides, skins and leather
have proven their competitiveness over recent years, and promotional efforts should aim at
broadening the supply capacity.
The composition of exports within the sector has changed dramatically within a few years, away
from hides and skins towards leather products. Between 1999 and 2003, exports of hides, skins
and fur skins declined from USD 25 million to USD 7 million, while leather products grew from
insignificant amounts to USD 47 million in 2003. Especially in the case of sheepskins, it seems
that Mongolia has successfully moved down the value chain, away from exporting raw materials
(from almost USD 11 million in 1999 to USD 43 000 in 2003) towards pre-tanned or tanned
products (from no exports in 1999 to USD 34 million in 2003). Sheep or lamb skin leather

30. 30 / 30
(HS 410512) has become by far the most important export item, corresponding to almost two
thirds of total exports in the sector, followed by bovine leather (HS 410422).
Mongolia’s exports are extremely concentrated geographically, which suggests scope for
market diversification. China represents about 99% of all exports, the rest going to markets such
as the Russian Federation, the Czech Republic, Spain, Japan, and Hong Kong.
Mongolia has become a leading world exporter for sheep and goat leather. Mongolia is the
fourth biggest exporter of sheep and lamb skin leather in the world, with a market share of more
than 10%, and is also among the top ten world exporters for goat or kid skin leather.
Table 11. Mongolia’s exports of hides, skins and leather
HS 1996 6-digits Product label
Exports
(USD 1,000)
Share of
product in
Mongolia's
exports
(%)
Mongolia's
rank in
world
exports
Mongolia's
share in
world
exports
(%)
Trend growth of
exports in value
(% p.a. from
1999-2003)
1999 2000 2001 2002 2003 2003 2003 2003 Mongolia World
Hides, skins and fur skins 24,982 32,671 10,007 11,713 7,222 1.17 .. 0.12 -30 ..
410110 Bovine skins, whole, raw 445 587 1,327 5,980 5,397 0.88 30 0.46 108 41
410221 Sheep or lamb skins,
pickled, without wool on
0 250 3,070 832 828 0.13 20 0.32 .. 1
410129 Hide sections, bovine, fresh
or wet-salted
449 521 1,201 905 432 0.07 42 0.16 5 37
410310 Goat or kid hides and
skins, raw
682 551 521 348 157 0.03 39 0.41 -29 21
410390 Raw hides and skins of
animals
58 578 97 187 155 0.03 54 0.07 9 13
410121 Bovine hides, whole, fresh
or wet-salted
6,799 13,088 246 598 134 0.02 92 0.01 -67 0
430219 Tanned or dressed fur
skins, whole, not assembled
196 214 935 400 57 0.01 62 0.01 -17 9
410210 Sheep or lamb skins, raw,
with wool on
10,684 13,290 2,604 2,460 43 0.01 76 0.01 -72 30
430180 Raw fur skins, whole 5,669 3,592 6 3 19 0.00 39 0.02 -84 23
Leather 23 278 28,258 33,872 47,350 7.69 .. 0.42 644 ..
410512 Sheep or lamb skin leather,
otherwise pre-tanned
0 247 25,992 26,318 33,948 5.51 4 11.15 .. 4
410422 Bovine leather, otherwise
pre-tanned
23 31 1,757 7,109 10,009 1.63 27 0.43 480 -5
410612 Goat or kid skin leather,
otherwise pre-tanned
0 0 476 416 3,017 0.49 9 1.66 .. 24
410431 Bovine and equine leather,
full/split grains
0 0 33 29 302 0.05 72 0.00 .. 17
410790 Leather 0 0 0 0 74 0.01 58 0.02 .. -5
Hides, skins and leather 25,005 32,949 38,265 45,585 54,572 8.86 .. 0.32 19 14
Source: TradeMap, calculations by ITC.
Domestic supply conditions
Most hides and skins produced in Mongolia are sheep or goat skins (Table 12). Mongolia
produces annually more than 6 million pieces of sheep and goat skin, followed by horse and
cow hides, and some 30,000 pieces of camel hide. Exports in volume are composed mostly of
horse hides (200,000 pieces in 2004) and sheep skins (100,000 pieces). China, Kazakhstan,
and Japan are prominent buyers of Mongolian hides. Hides are commonly smuggled to China
and to Russia, where import taxes for skins and hides imposed by Russian authorities are high
(UNIDO, 2002).

31. 31 / 31
Table 12. Mongolia’s production and exports of hides and skins
Production
(1,000 tons)
Exports
(1,000 pieces)
1999 2000 2001 2002 2001 2002 2003 2004
Sheep skin 4,571 5,183 5,131 4,425 853 449 91 98
Goat skin 3,302 3,020 2,689 2,269 87 69 32 6
Cow hide 857 1,265 1167 586 370 55 13 2
Horse hide 394 712 590 489 355 439 360 199
Source: Mongolian Statistical Yearbook, 2004.
Chinese companies dominate the sector in Mongolia. There are currently 66 hides and skins
processing SMEs, of which some 20 operate properly. Since 1997 Chinese companies have
become increasingly active in Mongolia, and most SMEs are Chinese-Mongolian joint ventures.
The companies were mainly established for primary processing, but also for processing of fur,
leather and tanneries products. All exports semi-processed leather (wet-blue) is going to China
source.
There are some signs of interest from foreign companies to invest in Mongolia’s hides and skins
processing industry. Recently, Korean, Chinese and Russian companies made some
investments, which brought the installed capacities of the industry to the level of being able to
provide initial processing for the raw materials collected in the country1
.
The domestic value-added of hides, skins and leather in Mongolia is limited. Most hides and
skins are exported in raw form or as wet blue to China, and the production of leather products
remains very low. Low Mongolian customs duty on export of raw materials, and comparatively
high prices offered by Chinese traders for hides and skins entail a scarcity of raw materials in
Mongolia. In addition, local processing units are unable to compete with mass production and
technology-intensive production abroad, though recently an integrated leather garment and
shoe factory was established for production for both domestic consumption and export.
The processing industry in Mongolia suffers from problems with the procurement of raw
material, linked both to the herding sector and the slaughtering system.
− The decrease in the number of livestock potentially endangers the steady supply of hide
and skin for domestic processing. The provision of services to the livestock sector is very
difficult because of a severe continental climate, extremely large distances and a nomadic
system, which has expanded dramatically since the break-up of state livestock farms (FAO,
2000). The collection of hides and skins across the countries is difficult. In addition, the
number sheep, goats and cows has decreased over the last years (Table 13) due to natural
disasters (harsh winter), draught and animal disease.
Table 13. Selected livestock in Mongolia (1,000 heads)
1970 1980 1990 2000 2001 2002 2003 2004
Sheep 12,631 14,400 14,265 15,191 13,876 11,937 11,797 12,000
Goats 3,902 4,715 4,959 11,034 10,270 9,591 8,858 9,000
Cattle 1,991 2,477 2,693 3,825 3,098 2,070 2,054 2,200
Horses 2,249 2,079 2,200 3,164 2,661 2,192 2,200 2,100
Camels 635 600 558 356 323 285 275 272
Source: FAO Statistics (www.fao.org).
− The decline of the slaughtering system in Mongolia. The development of the hide and skin
processing industry in Mongolia is based in the raw materials of about 8–9 million animals
1
Source: Interview with Mr. Tuvshinbat President of Leather Association, Aug 2005.

32. 32 / 32
slaughtered yearly in Mongolia. During the socialist period, raw skins were supplied from
abattoirs, while nowadays only 60% raw skins are purchased from butchers or household
slaughters. In slaughtering houses, the quality of raw skins is under control, de-hiding is
done mechanically, excluding possible damages with knives. In contrast, in household or
manual slaughtering, there is a lack of control over the process, leading to damages and
waste: plenty of cuts are found in the suede, the flesh is not evenly taken off, the salting
process is not done properly or at times its not done at all. However, private slaughtering
activities are widely practices in Mongolia2
.
The leather process technology in Mongolian tanneries is outdated and highly polluting,
compared to processing techniques in other countries (UNIDO, 2002). There has been an
increase in the number of tanneries in Ulaanbaatar following the industry’s virtual collapse in the
1990s. Some tanneries are located in the Leather Association Industrial Park; most of them are
in the Tolgoit area of the city. The latter group is unconnected to any pre-treatment facility
discharging either directly into the Central Waste Water Treatment Plant (CWWTP), causing its
serious malfunctioning, or dumping the waste, causing serious soil and groundwater
contamination. Almost none of the tanneries satisfy CWWTP inflow standards3
. Unsafe storage
of chemicals and use of outdated Chinese technology are common and enforcement of
Environmental Investigation Agency (EIA) provisions has been ineffective. The pre-treatment
plant of the skin processing companies is fast becoming inoperable. According to some
observers, the processing of animal skins in central Ulaanbaatar is in violation of current
sanitary restrictions on the movement of animal products into the city (ADB, 2004).
The quality of hides and skins is poor and has deteriorated over the last ten years. The National
Metrology & Standardisation approved 30 standards for leather processing in 2001. On a scale
of 1-5 used internationally, Mongolian leather ranks only 4, because most skins are damaged by
parasites like ticks or by perforation. The perforations render the production suitable only for
small items, such as bags, boots or wallets. According to experts, this situation stems from
mistakes made by the privatisation of veterinary services and the lack of differences in the
pricing policy considering quality of skin. This lack of difference in the price policy has affected
the production quality of Mongolian skins, because herders pay attention not to quality but
quantity. Hides and skins are paid according to length, leading to stretching and damage. In
addition, Mongolian animals have smaller size and weight4
.
Sanitary and veterinary services are considered poor. After privatisation, veterinary services
bankrupted because the herders have lost interest in promoting the required sanitary standards.
International Veterinary Medicine (IVM), which is in charge of the study and diagnosis of
livestock diseases and the development of vaccine, is the only organization for veterinary
education and research in Mongolia. However, after the transition to a market economy,
information from overseas was stopped, and the progress of research technology in IVM
stagnated. As a result, the quality of public livestock sanitation service declined in IVM.
Consequently, outbreaks of serious infectious diseases among the livestock are likely to
happen, which might impede the government’s plan to increase agricultural farming products
(JICA, 2002).
Mongolia displays a large excess capacity in production facilities. It is estimated that larger
companies, such as Buligar, Shevro, Nekhii and Sor are operating at only 10% of their
production capacity.
Labour costs are considered low, but transportation and communication infrastructure in
Mongolia seems costly and ineffective. Though labour costs are lower in Mongolia than in
China, Indonesia and India (UNIDO, 2002), labour productivity appears to be declining (WTO,
2005). Limited domestic and international transportation and communication infrastructure
render the collection of raw materials ineffective. Moreover, the small size of the economic
2
Source: Interview with Mr. Tuvshinbat President of Leather Association, Aug 2005
3
Concentrations 5-20 times the permitted norm are not unusual, e.g. 50 mg/l of chromium against 2.5-5.0 permitted.
4
Source: Interview with Mr. Tuvshinbat President of Leather Association, Aug 2005

33. 33 / 33
activity, especially in rural area, cannot support the construction of necessary infrastructure
facilities.
The sector suffers from a lack of marketing and distribution channels. Marketing and
promotional efforts are of prime importance for the sector, together with marketing training for
the companies’ staff. Companies interviewed also recognized the need to adjust their product,
design and packaging to the requirements of foreign markets. In terms of marketing positioning,
a focus on the luxury leather product market is desirable to avoid fierce price competition from
Chinese and other products, but seems currently unrealistic because of the quality and design
requirement (GTZ, 2005).
World markets
International demand is particularly dynamic for skins and hides: Over the period 1999-2003,
world demand increased particularly strongly for bovine skins (HS 410110, 41% per annum) and
bovine hide sections (HS 410129), but declined for bovine leather (HS 410422) by -5%
(Table 11).
Mongolia is a major player on the world market for sheep or lambskin leather. For sheep or
lambskin leather (HS 410512), Mongolia’s exports represented some 11% of the world market
in 2003, its main competitors being New Zealand (world market share of 14%), Iran (13%), and
Saudi Arabia (12%). By contrast, Mongolia is a marginal supplier (less than 1% of the world
market) for bovine leather (HS 410422) and bovine skins (HS 410110), where it has to compete
with very large suppliers such as the United States, Australia, and Brazil.
Mongolia’s market access conditions for hides and skins are favourable, except however in its
main current export destination. The European Union and the United States are very open, with
MFN tariffs of 0% for the EU and between 0 and 3% for the US in leather products. Russia also
applies low tariffs (5%). By contrast, China’s tariffs are much higher, between 9% and 20%
according to the products.
Socio-economic impact
The direct impact on employment of leather industry is small and decreasing. While the leather
industry employed 15,000 workers before 1990, it employed only less than 2,000 workers in
2002. The leather sector corresponds to 15% of total industrial outputs and 10% of exports.
Indirectly, this industry generates substantial revenues to herders. Animal husbandry account
for one-third of Mongolia’s GDP and comprises three-quarter of its agricultural output.
The leather industry has a negative impact on the environment: chemicals used in leather
processing are generally untreated and pollute rivers and streams. Fragments of skins and offal
thrown away also contribute to environmental pollution (UNIDO, 2002).