Invest Mongolia 2014

1. Value chain analysis
Case of Mongolia
Raw hides and
Skins
Wet blue
Crust
Finished
Leather
End
Productions
DegreeofTechnologicaloperation
1
2
3
4
5
Brand
Degree of Value add creation
Reserve Export
R&D
solution
No Value
creation
But
opportunity
No Value
creation
But
opportunity
Legends Value not
added
Less value
added
Value
added
Current
condition
Source: R & F research
• The fact that Mongolia’s leather
industry adds the least added
and exists in the reserve stage of
the raw material confirms the
requirement to develop as a
cluster with an Industrial
complex.
• We think that Mongolia needs
more elaborate organization
than the cluster to develop the
export-oriented hide and leather
complex in order to have high
added value of processing.
• The stage which requires most
numerous processing and earns
least cost is primary processing
stage. Therefore, we need to
increase the current added value
and further develop into the
stage where such end-products
as leather are made based on
the high and advanced
technological processes.

2. Mongolian Cashmere Industry Overview
CASHMERE PRODUCTION
85%
Exported
15%
Processed
China
60%
Other
5%
Mongolia
35%
ANNUAL GROSS REVENUE FROM RAW CASHMERE
/herders/
-
100.0
200.0
300.0
400.0
500.0
600.0
2007 2008 2009 2010 2011 2012 2013 2014
156.6
87.4
163.8
276.4
226.8
318.1
455.0
595.0
(billiontugrug)
FAMILY INCOME DEPENDANCY
Other
70%
Herders
30%
PERCENTAGE IN EXPORT
Cashmere
9.5%Other
90.5%
Cashmere
20%
Other,
80%
AGRICULTURE SECTOR

3. Mongolian Cashmere Industry Overview
v Factories:
Cashmere factory: 10
Primary processing factory: 23
Knitty factory: 49
Home run businesses: 150
ANNUAL GROSS SALES /companies/
- 100 200 300 400 500
2013
2012
2011
₮148
billion
₮468
billion
₮112
billion
Sales revenue
v Workforce:
6000 workers
85-90% women
PROCESSING CAPACITY
235%
82%
37%
48%
68%
Washing Dehairing Spinning Knitting Weaving
Required
capacity
100%
Installed capacity
000
4 970
tons
3 250
tons
7.0 million
pcs
2.5 million
meter

4. Mongolian Government Policy on Cashmere
7000 tons
Raw cashmere
I-st stage /2014-2017/ II-nd stage /2018-2020/
Scouring
7000tons/100%
Dehairing
4900 tons /70%
Spinnig
4000 tons /60%
Export
900 tons/ 18.3%
Knitting
2600 tons /65%
Weaving
1400 tons /35%
7000 tons
Raw cashmere
Scouring
7000tons/100%
Dehairing
7000tons /100%
Spinnig
7000tons/ 100%
Knitting
4200 tons /60%
Export
2100 tons/ 30%
Gross value added $1.055 billion:
- Herders $330 million
- Manufacturers $725 million
Gross value added $1.55 billion:
- Herders $350 million
- Manufacturers $1.2 billion
Weaving
2800 tons /40%
As of today
7000 tons
Raw cashmere
Scouring
7000tons/100%
Dehairing
1050 tons /15%
Spinnig
620 tons /15%
Knitting
434 tons /70%
Weaving
186 tons /30%
Export
430 tons/ 40.9%
Gross value added $335 million:
- Herders $330 million
- Manufacturers $82.2 million
Export
5950 tons/ 85%

5. Major challenges and investment opportunities
1. Raw material
funding for local
manufacturers
2. Capacity
increase
3. Factory
building
CHALLENGES REQUIRED FUNDING
5
4. Workforce
and foreign
market
About 85% or 6000tn of raw cashmere exported to other countries
unprocessed. ≈ U$300 million
Domestic market - U$ 212 million,
U$1.6 billion foreign market required after capacity increase
Current industry workforce - 6000.
7000 skilled and trained workforce required after increasing processing capacity
≈ U$145 million
7000 m2 of more factory space required for production and machinery
installation
≈ U$35 million

6. Year Government
programs
Amount Implementation % Purpose
2011 Gov.resolution
№30
₮ 100 billion 100% working capital financing
2013 Gov.resolution
№126
U$ 68 million 55% technical and technological
modernization
2014 Gov.resolution
№87
₮ 250 billion 9% cashmere production and export
2014 Gov.resolution
№165
₮ 40 billion = cashmere production
Government support programs for the Mongolian cashmere
industry
Commercial
Bank
Mongolian
cashmere
companies
Mongolian
Government Secured loanGovernment
funding
- collateral (real estate, land)
- credit history, image
- additional cost (bank margin)
Cashmere project financing model

7. Cashmere industry investment opportunities
Mongolian government jointly with Mongolian cashmere industry invite your
cooperation through FDI, mezzanine financing, Concession agreements, JV, purchase
order financing etc.,
№ Amount Required financing
1 U$145 million Cashmere processing machinery and equipment
2 U$ 300 million Working capital financing
3 U$ 35 million Factory building and infrastructure