“Our focus has shifted to the private sector”

5th of 1, 2015
E.Odjargal asks the Ambassador of Japan to Mongolia, Takenori Shimizu, about how bilateral ties are getting stronger and much else besides.

Your first visit to Mongolia was almost 40 years ago. What impression did the country leave on you at that time?
Yes, I first came here in 1977. I had studied Mongolian at the University of Leeds in the UK for a year and took a train from Beijing to Ulaanbaatar. It was the beginning of September but the leaves had already begun to fall. I was surprised to see winter begin so early. But what really surprised – maybe I should say shocked – me was the society. Even conversing with a foreigner was prohibited. In the communist era, Mongolians were not allowed to open their mouth about Chinggis Khaan. Even though these things didn’t leave a good impression on me, I very much enjoyed my meeting with a Mongolian language teacher, some students and a few people who had a heart for Mongolia.

How did your diplomatic career get linked with Mongolia?
I chose Chinese as my foreign language for the examination at the Ministry of Foreign Affairs, and took a short trip to Taiwan to brush up on the language. However, after I had cleared the examination, I learnt that the human resource department wanted me to specialise in Mongolian. I refused but then they showed me that in my job application I had included Mongolian in the list of languages that I wanted to learn. My father was kidnapped after the war and was in Irkutsk among Buryat Mongolians, so maybe that was the reason why I had an interest in Mongolian. Thinking back now, I feel it was good that I did not get to specialise in Chinese, as I was appointed Ambassador to Mongolia only on my 4th assignment. That has been the culminating point of almost 40 years of familiarity with Mongolia.

What level has the bilateral economic partnership reached 42 years after diplomatic relations were established between Japan and Mongolia? And how do you see the future?
A general goal has been set to strengthen the “strategic partnership” in bilateral relations, and both sides have been devising and implementing mid-term programmes until 2017. So far, Japan’s economic ties with Mongolia have been based on the Official Development Assistance (ODA) programme of the Japanese Government, but now both countries are focused on letting the private sector strengthen bilateral cooperation and develop a mutually beneficial economic relationship.

Prime Minister Shinzo Abe’s visit to Mongolia last year in March made Japan’s private sector more interested in Mongolia and the number of Japanese companies operating in Mongolia has been constantly growing since then. However, Mongolia’s investment and business environment is still to reach its full potential. To move things faster, the two countries have decided to make an Economic Partnership Agreement (EPA). We hope the agreement will be signed without any further loss of time.

Another point to note is that following the rapid growth of Mongolia’s economy following the development of its minerals sector, Mongolia’s GDP per person has exceeded the limit eligible for Japanese aid and grants. There will be no new grants but ODA loans will be continued, repayable in 14-40 years with annual interest of 0.2%-0.3%. The low interest rate and the long repayment period will certainly help Mongolia. Right now, projects implemented with Japanese ODA loan include the new international airport, efficient energy production at power plant No. IV, and restructuring higher engineering education. The Japanese Government will continue to partner Mongolia and its people on their path to development.

Japan is Mongolia’s third strategic partner and No. 11 in terms of investment amount. How can this investment increase and what can hold it back?
This July, the Japanese Business Federation organised the first ever Japan-Mongolia Business Forum. Many leading members of Japan’s private sector took part in the meeting between Japanese and Mongolian business personalities held after the Forum. The number of Japanese making business trips to Mongolia is also growing. All this shows that Japan’s private sector is optimistic about potential business opportunities in Mongolia. I am sure that Japanese investment in Mongolia is set to rise. Obviously, implementation of the EPA will be a big factor in this.

If more investment is to be attracted, it is essential that Mongolia increases the transparency and predictability of its policy and legal environment. The past two years have seen concern among international investors on whether there is legal protection for foreign investment in Mongolia. Even if the right laws are there, are they effective on the ground? The legal environment must be made stronger and more stable. I have noted with sadness how in recent years growing corruption has been slowing the pace of foreign investment.

Mongolia’s growth potential is high but it is not exploited successfully. Once a foreign investment policy is adopted, it is important to adhere to it if it is felt to be right, or to fix it if it’s not right. Mongolia also needs to strictly enforce its laws and regulations on environmental protection and rehabilitation. I hope the new government will make positive efforts to draw foreign investment.

Does Sumitomo Mitsui Banking Corporation opening a representative office in Mongolia indicate more Japanese investment in the financial sector?
Two of Japan’s major banks now have a representative office in Mongolia. These are not branches and cannot run operations here. I believe investments will come through the information about Mongolia made available to Japan’s private sector by these offices. If Mongolia wants foreign banks to have a branch here, it must first consider how this will affect local banks now operating here.

How do you see the future of the two countries’ collaboration in the energy sector?
Mongolia will see an exponential growth in its energy demand as mining and other industries get going. At the moment, coal-based power plants generate 95% of the energy used and this is not going to change much in the coming years. But all the existing power plants are very old, and a new energy source must be found. A Japanese company is part of the consortium that has the concession to set up the 5th power plant. I hope the project will begin soon.

Soon after Mongolia’s transition into democracy, a Japanese Government grant was used to upgrade the 4th power plant, marking the beginning of our collaboration in the energy sector. Japan is ready to continue the collaboration in the coal sector to increase the efficiency of  power plants and also to to add value of Mongolian coal.

Do Japanese companies see any opportunity to participate in the international tender selection for the Tavan Tolgoi deposit?
Japan’s private sector has been interested in Tavan Tolgoi for long and we were shortlisted after the 2011 international tender. This will be held again, and we should still have the right to participate. However, some developments, such as a change of terms, don’t quite comply with international tender selection standards. The Japanese Government would like the private sector’s involvement, but it all depends on the companies’ perception of their profits and risks. As of now, I am not very hopeful of Japanese companies showing interest in participating in the tender.  

Would Japan’s metallurgical plants like to use Mongolian raw minerals?
Japan’s steel plants use imported iron ore and coking coal. If Mongolia offers a globally competitive price for them, including transport costs, its raw minerals can find a market in Japan. But Mongolia cannot increase its competitiveness if it continues to use lorries to transport mineral resources. With commodity prices falling, exporting to Japan is a real prospect, Mongolia needs to conclude transit transport negotiations with China. Without this, Mongolia cannot expect to export to any country other than China. The first and foremost thing is to construct a railway, and this could have been done if the entire $1.5 billion from the Chinggis Bonds had been spent on railway construction. I’m not trying to criticise the previous government but I do think Mongolians need to decide their priorities. The absence of such clarity of purpose makes it difficult for a third country to invest in Mongolia’s minerals sector.

How do you think proceeds from the Samurai Bond should be spent?
I personally want it to be spent on developing infrastructure and industry, but I have no information on the matter. The Government of Japan supported the release of the bond but it is up to Mongolia to spend the money the way it wants.

Do you see opportunities for the two countries collaborating in infrastructure development?
The Japanese Government has been implementing many infrastructure projects through ODA. Railways are especially important for Mongolia as it is a landlocked country and Japan has implemented two major projects on improving railway services and increasing the capacity of railway transport. The new airport project is also a crucial part of infrastructure development and this will be a major contribution to the Mongolian economy. This is also happening through Japanese ODA loan.

The tourism sector of Mongolia can play a very significant role in the economy in quick time. I’ve met with 500-600 Japanese businessmen in Mongolia in the past year, something that never happened before. This shows how the number of Japanese people interested in Mongolia is growing. Rapid and further growth of tourism can earn Mongolia a lot of money. The new airport is planned to be completed in December, 2016, so 2017 could be a very important year for Mongolia’s tourism sector.

What stage is the bilateral EPA in and what tax regimen will it offer?
EPA will be the biggest and most crucial part of our bilateral collaboration. In July 2014, we reached an agreement on principle, and now we have to work out the details. If we finish this work before the end of this year, the agreement will be signed in the beginning of 2015 and submitted to the parliaments of the two countries for approval. I cannot give you any detail of the goods and product tariffs, and I can only say that all products exported to Japan from Mongolia already in 2012 will be totally exempted from tax and the same applies to about 96 per cent of products exported from Japan to Mongolia in the same year.

What benefits will come from this trade facilitation?
There will be lots of positive economic benefits from facilitating bilateral trade by reducing or cancelling customs tax, simplifying customs clearance and adopting common standards. Bilateral trade will be expanded, State and private sectors’ profits will increase and of course prices will come down.

What kind of tax policy does Japan have, especially with its imports?
Japan’s customs tariff is classified into two types: internal tariffs and WTO/EPA tariff. The tariffs determined by legislation are also divided into General Rates, Temporary Rates (applicable only during certain times), and Preferential Rates applied to designated developing countries. Once the EPA is signed, Mongolian exports to Japan will become more competitive.

Does Japan support Mongolia becoming a member of APEC?
Japan thinks it will be a positive step.

What are your viewn on the three-sided relationship between Mongolia, Russia and China?
It is right for Mongolia to have active and friendly relations with all countries, particularly its two neighbours. I also support Mongolia’s national security principles that discourage too much dependence on the two neighbours and call for stronger relations with its third neighbours.

As a third neighbour and the only country that is a Strategic Partner of Mongolia, besides the two neighbours, Japan will continue to develop its relation with Mongolia. I strongly believe that in order to develop the economic relations between our countries, it’s crucial to solve the transit transport issues with neighbouring countries. I believe the time will come soon to sign a three-sided agreement to open sea ports to Mongolia and thus open up the way to export to third countries including Japan.

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