Coronavirus starts to take toll on Mongolian economy
- By Dulguun Bayarsaikhan -
- Feb 13,2020
The Mongolian economy has started to waver as the coronavirus continues to ravage China and the world with no end in sight.
Unable to contain the new virus, China has shut down factories and restaurants, placed travel restrictions on millions of people, and trapped ships at ports. The largest export of intermediate manufactured goods now fails to provide for the Asian supply chain, which imports almost 40 percent of its intermediate goods from China, and the US, which imports around 10 percent of intermediate goods from China. The risk exposure outstretches to Russia, Europe and Australia based on a Bloomberg Economics analysis.
Mongolia has been free of the virus’s grasp thus far with no confirmed cases of the coronavirus as the government quickly ramped up defenses. However, prevention actions such as border closure and travel restriction are expected to bear massive economic impacts as the country’s trade is heavily dependent on China. Experts underlined that 80 percent of Mongolia's exports go to China. While policymakers say it’s too soon to measure the full impact, it’s become increasingly clear that Mongolia will suffer a substantial economic loss due to the virus.
SMALL BUSINESSES TAKE THE BIGGEST BLOW
Most businesses and traders make big money before Tsagaan Sar as people buy heaps of groceries, gifts and new appliances for their home in preparation for one of the biggest celebrations in the country. Unfortunately, preventive measures against the coronavirus have pushed businesses to the edge of loss as they’re unable to bring in supplies from Mongolia’s main trade partner, China, and authorities continue to encourage people to stay at home.
With streets empty and most people locked inside, markets and businesses have no way to attract customers. Most markets and stores have been closing early since the government started taking stringent preventive measures against the spread of the virus.
In late-January, the coronavirus outbreak in Wuhan, China created an outburst of misinformation and mass hysteria. This led a considerable number of people to stock up on food and other supplies causing volatile fluctuations in prices and supply. Some traders were able to thrive thanks to it by raising their prices but now the hysteria has died out and fewer people are out to spend their money.
Some businesses began offering delivery services and offer discounts in an attempt to make some kind of revenue. However, tables aren’t turning around as businesses run low on supplies.
Moreover, the government is considering banning Tsagaan Sar completely this year in an effort to mitigate risks of a coronavirus spread. This initiative is very likely to be enforced as more and more people express their support through social media and public polls. If the ban is placed, traders, especially small businesses, will have to brace for the impact.
One good thing that came out of the current situation is that a growing number of customers are now leaning toward locally produced goods, particularly clothing and food products. They say it’s a safer choice now that China has been debilitated by the coronavirus, swine flu and bird flu.
EXPORT DIMINISHES IN JANUARY
Exports currently account for more than half of Mongolia's GDP but the latest foreign trade report of the General Customs Office shows a significant decline in export. According to the report, both imports and exports plunged 6.2 percent and 24.4 percent respectively in January. Export reached 459 million USD, decreasing by 148.3 million USD compared to the same period of 2019, while import amounted to 473.3 million USD, down by 30.7 million USD. With import exceeding export, foreign trade came out with a deficit for the first time since 2014 and fell by 16.1 percent year-over-year.
Mineral products – coal, copper and molybdenum concentrate included – generate the most revenue from trade as it accounts for 87.1 percent of exports, according to the General Customs Office. In January, Mongolia managed to export 2.4 million tons of coal, 101,600 tons of copper concentrate, 815,500 tons of iron ore, 12,800 tons of zinc concentrate, and 287,000 barrels of crude oil to China. However, the State Emergency Commission ordered earlier this week to stop coal transportation through March 2, which would cause a heavy blow to coal exporters.
REVENUE FROM COAL EXPORT DOOMED TO FALL IN Q1
With borders closed, travel ban placed and customs security increased against the spread of coronavirus, economists and experts are certain that economic indicators for the first quarter will be disappointing.
Executive Director of the Mongolian Coal Association J.Zoljargal said, “Mongolia is losing its revenue from coal export in the first quarter of 2020. As the country’s export revenue largely comes from coal, it is a huge deal for the economy.”
Up until the State Emergency Commission suspended deliveries of coal to Mongolia’s southern neighbor, only around 100 trucks were passing through Gashuunsukhait border checkpoint a day where more than 1,000 would normally cross over the border. The Shiveekhuren border checkpoint is in the same situation – trucks passing through the border plunged from over 800 vehicles a day to less than 100 a day. Coal export tends to drop during the Chinese Lunar New Year and bounce back up afterward but the Chinese side has extended border closure, making it difficult for traders to sell their coal. Another problem obstructing the coal supply chain is truck arrangement.
“Most trucks used to transport coal is kept in China. To be more specific, Chinese trucks owners took back the trucks they allowed Mongolian drivers to use for coal shipping because they went on a break for the Chinese New Year. With the travel restriction, drivers can’t go to China and get their trucks,” said J.Zoljargal.
He said that Mongolia can only hope that the coronavirus spread gets contained by the end of March so that local coal suppliers can minimize their losses by working at their full capacity during peak season starting April.
“If export revives and we’re able to work at full capacity from April to October, we can avoid a crisis,” the mining experts noted, adding that coking coal price might rise since China is at risk of facing a shortage of raw materials for its steel factories.
He continued, “However, this would be temporary. Steel price slightly dropped last week. The current situation could affect consumption. If this situation prolongs, construction work will slow down. If construction work slows, steel demand will slump, causing coking coal demand to also fall. This will not be favorable for us.”
At the start of the year, the Mongolian government announced its ambition to raise coal exports to 42 million tons this year. However, it specified that this target would be met through customs and tax reforms, as well as intensified measures to boost exports. The government has already lost a quarter due to the outbreak of the coronavirus in Wuhan so it needs to step up and quickly enforce the planned measures before it loses more time and opportunity.