The Project will be implemented in the Zamyn Uud, a relatively poor area. The region is a desert and many people are poor and the economic growth necessary to reduce rural poverty has failed to develop because of inadequate transport services and high costs. The local governments and people living in the region see the development of the logistics facility as a key investment for addressing this problem. Logistics development is a part of the Government's program for the integrated development of free economic zone in this poor region, which shares borders with the PRC and is the main gateway for Mongolia's trade with the PRC and other parts of the world. The development of this facility is expected to play an important role in facilitating and integrating this poor and underdeveloped region, and stimulating international, regional and domestic trade. The proposed Project is in line with the National Development Plan and the Government's Regional Development Strategy.
The Project is a key intervention in the transport sector, with many technical, operational, safety, and economic benefits. It seeks to introduce well developed logistics terminal equipped with modern technology and managed by private sector through a management contract for enhanced efficiency, increased throughput, and improved reliability--all of which will lead to a more affordable, faster, cheap, safe transport services in Mongolia. ADB intervention in financing this facility is expected to play a catalytic role in facilitating the flow of further foreign and private capital to finance the development of logistics in Mongolia.
|Project Rationale and Linkage to Country/Regional Strategy
Mongolia is a landlocked country and such countries face greater transportation challenges. Located between two large neighbors, Mongolia has no direct access to seaports and has to depend upon RF and the PRC for access to seaports. In the recent years, trade flows have been reoriented from RF and most of the imports (over 80%) are now coming from the PRC, from a border point in the southeast of the country called Zamyn Uud. The bulk of Mongolia's exports also travel through Zamyn Uud on its way to Tianjin port, the only port available to Mongolia for the export of its goods and international trade in the PRC. As a consequence the traffic handled at Zamyn Uud witnessed explosive growth rates in the recent years. However, Zamyn Uud is now badly congested, thereby affecting the imports, exports and the transit traffic. Though a number of reasons contribute to these delays (non availability of rolling stock, change of gauge, delays at customs), the main reason is the grossly inadequate development of logistics at Zamyn Uud in particular and in Mongolia in general.
Efficient and well developed logistics are identified as the key to a cost effective and competitive transportation. Trade logistics, or the capacity to connect to international markets to ship goods, is critical for developing countries to improve their competitiveness, reap the benefits of globalization, and fight poverty more effectively in an increasingly integrated world. A World Bank funded study based on a world survey of international freight forwarders and express carriers, indicates that facilitating the capacity to connect firms, suppliers and consumers, are crucial in a world where predictability and reliability are becoming even more important than costs. Countries ability to connect to global markets is fast becoming a key aspect of a country's capacity to compete, grow, attract investment, create jobs and reduce poverty, and for those unable to connect, the costs of exclusion are large and growing. Unfortunately, Mongolia's performance in all indicators of logistics management is at the bottom end. Based on a worldwide survey completed by more than 800 logistics professionals, World Bank developed a comprehensive cross-country assessment of logistics performance in 155 countries called logistics performance index. Mongolia has an overall logistics performance index ranking of 141 (1 is the best and 155 is the worst), and its ranking for customs procedures is 149, logistics costs (including freight rates) is 144, infrastructure quality is 133, ability to track and trace shipments is 122, and timeliness in reaching a destination is 147. Mongolia's ranking clearly indicates serious issues in the development of logistics, which in turn is hurting its competitiveness and has serious repercussions for country's economic performance.