Mongolia : Aimags and Soums Green Regional Development Investment Program - Tranche 1

Sovereign Project | 49430-006

The program represents a fundamental paradigm shift in applying a transformative model to promote green territorial development and urban-rural linkages, whereby livable human settlements - aimag (province) and soum (subunit of an aimag) centers - become anchors of green agribusinesses that promote sustainable, resilient, and high-carbon sequestration rangeland management. Initially focusing on Mongolia's western aimags, the program will promote climate finance and private sector investment mechanisms that can be replicated countrywide.

Project Details

  • Project Officer
    Heckmann, Arnaud
    Sectors Group
    Request for information
  • Approval Date
    22 March 2023
  • Country/Economy
    Mongolia
  • Sector
    • Water and other urban infrastructure and services
Project Name Aimags and Soums Green Regional Development Investment Program - Tranche 1
Project Number 49430-006
Country / Economy Mongolia
Project Status Approved
Project Type / Modality of Assistance Grant
Loan
Source of Funding / Amount
Grant 0885-MON: Aimags and Soums Green Regional Development Investment Program - Tranche 1
Asian Development Fund US$ 3.00 million
Grant 0886-MON: Aimags and Soums Green Regional Development Investment Program - Tranche 1
Green Climate Fund US$ 25.00 million
Grant: Aimags and Soums Green Regional Development Investment Program - Tranche 1
European Investment Bank US$ 10.50 million
Loan 4306-MON: Aimags and Soums Green Regional Development Investment Program - Tranche 1
Ordinary capital resources US$ 45.00 million
Loan 4307-MON: Aimags and Soums Green Regional Development Investment Program - Tranche 1
Concessional ordinary capital resources lending US$ 45.00 million
Loan 8441-MON: Aimags and Soums Green Regional Development Investment Program - Tranche 1
Green Climate Fund US$ 50.20 million
Loan: Aimags and Soums Green Regional Development Investment Program - Tranche 1
European Investment Bank US$ 52.90 million
Operational Priorities OP1: Addressing remaining poverty and reducing inequalities
OP2: Accelerating progress in gender equality
OP3: Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability
OP4: Making cities more livable
OP5: Promoting rural development and food security
OP6: Strengthening governance and institutional capacity
OP7: Fostering regional cooperation and integration
Sector / Subsector

Agriculture, natural resources and rural development / Agricultural policy, institutional and capacity development - Agricultural production - Irrigation - Land-based natural resources management - Livestock - Water-based natural resources management

Energy / Electricity transmission and distribution - Energy efficiency and conservation - Energy utility services

Finance / Finance sector development - Small and medium enterprise finance and leasing

Transport / Road transport (non-urban) - Urban roads and traffic management

Water and other urban infrastructure and services / Other urban services - Urban flood protection - Urban housing - Urban policy, institutional and capacity development - Urban sewerage - Urban slum development - Urban solid waste management - Urban water supply

Gender Effective gender mainstreaming
Description The program represents a fundamental paradigm shift in applying a transformative model to promote green territorial development and urban-rural linkages, whereby livable human settlements - aimag (province) and soum (subunit of an aimag) centers - become anchors of green agribusinesses that promote sustainable, resilient, and high-carbon sequestration rangeland management. Initially focusing on Mongolia's western aimags, the program will promote climate finance and private sector investment mechanisms that can be replicated countrywide.
Project Rationale and Linkage to Country/Regional Strategy

In 1990, upon disengaging from the Soviet Union, Mongolia entered a transitional period. Aimag and soum centers were unable to play their role as anchors of economic activities. The quality of animal products and livestock value chains, which began to rely on quantity with low price differentiation and incentives for quality, deteriorated. Herders started to migrate to urban areas in response to (i) the low value of livestock; (ii) higher exposure of their animals to disease because of poor livestock breeding, feed supply, and veterinary services; and (iii) massive losses of livestock caused by dzud (succession of droughts and severe winters), especially during 2000-2001 and in 2010. Many rural households settled on the outskirts of Ulaanbaatar and in aimag centers, overwhelming the capacity of cities to absorb them, and formed vast settlements, known as ger areas, which account for about 60% of Ulaanbaatar's population and more than 70% of the population of aimag centers. In 2021, the urbanization ratio in Mongolia represented about 69.4% of the country's 3.4 million population. This caused urban systems, already exceeding their planned service life, to further deteriorate and become undersized to meet existing and future needs for Mongolia's growing urban population. With 1.6 million population, Ulaanbaatar accounts for 69% of the urban population, and 63% of gross domestic product. The demographic and economic weight of the capital city illustrates the country's drastic territorial imbalance.

The combination of herders expanding herd size to compensate for anticipated livestock losses (especially from dzud), open access to pasture, unbalanced herd composition (with a high proportion of goats), and poor rangeland management practices has put Mongolia's rangelands under severe threat. Overgrazing is on average 22.6% above the rangeland carrying capacity, as a result, about 70% of pastoral land has been degraded. The situation has impacted livestock productivity and made herds more vulnerable to climate events and disease, resulting in deteriorating quality of meat, wool, and other livestock products and lower incomes for herders, who compensate by further increasing herd sizes. This vicious cycle has led to uncontrolled and exponential increases of livestock heads. While livestock numbers ranged from 20 million to 25 million heads during 1970-1990, it has reached 66.5 million in 2018 and 71.1 million in 2022. Ongoing rangeland degradation is also associated with considerable reduction of above- and below-ground biomass, and lessening the carbon storage capacity of soil. Improving rangeland management thus offers huge climate change mitigation prospects. It is estimated that Mongolia can avoid emissions of more than 440 million tons of carbon dioxide equivalent (tCO2e) over the next 20-year period from soil carbon sequestration.

During the last decade, the Government of Mongolia has set policies and objectives to reverse overgrazing trends and reduce overall livestock numbers to sustainable levels. However, those attempts failed to reverse the exponential increase of animals and overcome complex and interrelated barriers inherent to the livestock industry. The Swiss Agency for Development and Cooperation through the Green Gold project has established pasture user groups (PUGs) and rangeland use agreements (RUAs). Green Gold project activities were gradually handed over to the National Federation of Pasture User Groups and the Aimag Federation of Pasture User Groups. Yet, few RUAs have been officially registered and even fewer stocking adjustment rates have been formulated. PUGs lack incentives and marketing opportunities to sell animals and reduce herd sizes. The lack of well-functioning cooperatives, certification systems, and linkage with agriculture value chain led to a dearth of quality livestock raw materials and failure to establish sustainable mechanisms to reduce herds and ensure sustainable rangeland management.

Weak small and medium-sized enterprise development. Development of small and medium-sized enterprises (SMEs) in Mongolia is constrained by unaffordable interest rates and short-term loans; high and rigid collateral requirements, especially for immovable assets; overly complicated administrative procedures; and low financial literacy of SME borrowers. In remote aimags, SMEs lack access to appropriate urban and economic services. Local agricultural enterprises and value chains suffer from weak finance ecosystems; dominance of large agribusiness companies based in Ulaanbaatar; low entrepreneurial skills; and lack of start-up capital and support to access available financing, affordable financing products, and supportive national program and policies. These challenges impede agribusiness investments at the point of need, preventing job creation and local development, which are required to promote economic diversification, counterbalance Mongolian's overdependence on mining, and reverse the flow of migration to Ulaanbaatar.

Western aimags. The three western aimags of Bayan-Ulgii, Khovd, and Uvs have fragile ecosystems and rely heavily on mountain pastureland, high mountain water flow, and oases. The population and environment of these three aimags are particularly vulnerable to climate change. Melting permafrost and glaciers, rising temperatures, and changing precipitation patterns are severely affecting the composition and distribution of water resources. The overgrazing rate in the western aimags, estimated at 27.4% more than the carrying capacity, is five percentage points higher than the national average. The lack of investment in the three western aimags has left them isolated and underequipped, despite (i) being a strategically important trade and western development link along Central Asia Regional Economic Cooperation corridor 4a; (ii) the importance of the area in balancing Mongolia's territorial development and boosting regional trade; and (iii) the prominence of animal husbandry in employment (it accounts for about 38%-51% of total employment).

Government road map. The government is fully aware of the severity of the situation and has formulated Vision 2050, a two-stage framework to guide long-term development and promote human development, quality of life, green development, and sustainable regional development. The New Recovery Policy of the government aims to create the conditions to reach the objectives of the first implementation stage (2021-2030) of Vision 2050. It promotes Recovery of Operations of Border Ports, Energy Recovery, Industrial Recovery (especially through supporting agro-business industry development and increased value-added of local agro-processing industry for domestic and export markets), Urban Rural Recovery (especially though supporting the development of regional clusters, reversing migration to Ulaanbaatar, and decreasing the Capital City congestion); and Recovery through Green Development (especially though sustainable rangeland management and green urban development), and Recovery of Public Productivity. Finally, following the food security and promoting food supply resolution of the Parliament, the government, through MED, have developed a national food safety and sustainable food supply strategy based on Mongolia specific climatic, geographical, and local resources conditions using an integrated planning approach aiming to upgrade agricultural production, supply, and logistic clusters in selected soums. Ministries have developed sectoral plans and policies to support and guide the implementation of the Road Map. The Ministry of Construction and Urban Development (MCUD) and the MED are implementing territorial and regional development studies that formulate key strategic directions for aimag development and priority public and private investments. The Ministry of Food, Agriculture and Light Industry (MOFALI) formulated the State Policy on the Food and Agriculture Sector (2016-2025), 2015; the Mongolian Herders National Program, 2020; and the Mongolia Livestock II Program (2022-2024). Finally, Mongolia's Third National Communication drives the national climate action plan. The program is included in the public investments plan of Mongolia's Five-Year Development Guidelines (2021-2025).

Program priorities and approach. Implementing the comprehensive government road map in aimags and soums will help arrest the vicious cycle of interrelated and mutually reinforcing sector bottlenecks described above, further aggravated by the coronavirus disease (COVID-19) crisis. In this context, a piecemeal, short-term, or single sector-oriented approach would be unsustainable and insufficient. For example, investing solely in infrastructure in a stagnating economic context would be inefficient and would not promote a functional and dynamic urban development process. Providing financial support for agriculture and livestock husbandry while failing to address lagging infrastructure, complicated SME administrative services and the problem of poor animal value would not be enough. Supporting better management of natural resources would be unsustainable and less effective without parallel provision of services for herders and support for market links to promote inclusive and green value chains. Finally, promoting agricultural trade and ensuring sustainable food supply implies improving livestock health and promoting transboundary sanitary and phytosanitary measures, such as veterinary regulated quarantine zones. Through its comprehensive and multisector long-term approach, the MFF program of the Asian Development Bank (ADB) will ensure that real transformation takes place within rural communities, motivated and sustained by low-carbon and climate-resilient livestock and agrobusiness value chains (LCLVCs), with livable aimag and soum centers acting as anchors for private sector investment. The MFF program will incorporate this approach into a regional development strategy and develop a green agro-territorial model supported by policy reforms and institutional strengthening at both the local and national levels and building on agricultural production, supply, and logistic clusters model formulated by MED.

Policy framework. Aligning with the long-term strategic development objectives of the road map, the program will follow integrated and synergetic guiding principles for its policy framework, capacity development, and investment outputs: (i) inclusive and green urban-rural transformation, through improved living conditions and performance of priority urban settlements as anchors for local economic development, to attract LCLVC investments at the point-of-need and reconnect urban and rural economies; (ii) sustainable, climate-resilient, and low-carbon rangeland management, driven by incentives to encourage better rangeland management practices, grassroots organization, and transitional support for herders; improve animal feed, breeding, and health to support more productive and quality animals; reverse ecosystem degradation and increase its capacity for carbon sequestration; enhance rangeland and herder communities' resilience to climate change; and, by improving resource efficiency and food production, improve food security despite the adverse impacts of climate change; (iii) well-functioning and inclusive LCLVCs, hinged on accessible and responsive financial and non-financial support for herders, SMEs, and other stakeholders involved in the agriculture sector operating in the aimag and inter-soum centers; and (iv) improved planning, capacity, knowledge, and institutions, especially for all the stakeholders of the agriculture sector, to support transformational low-carbon, climate-resilient, and inclusive territorial development plans and policies.

Strategic context. The strategic context and long-term support of the road map (i) is consistent with ADB's country partnership strategy for Mongolia, 2021-2024, especially with its post-COVID-19 recovery action plan, and will contribute to overcoming economic contraction and exacerbated inequalities to promote sustainable economic growth, diversification, and inclusiveness; (ii) is aligned with the seven operational priority plans of ADB's Strategy 2030; and (iii) supports Central Asia Regional Economic Cooperation 2030 and its Common Agenda for Modernization of Sanitary and Phytosanitary Measures for Trade by contributing to agricultural trade and regional public goods, mitigating desertification and climate change, and containing transboundary animal health problems.

Impact

Green development, regional development sustainability, quality of life, and human development achieved

Project Outcome
Description of Outcome

Green and inclusive agro-territorial development advanced

Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Climate-resilient, low- carbon, and attractive aimag and soum centers developed

Climate-resilient, high-carbon sequestration, and sustainable rangeland and agricultural management implemented

Accessible financing for low-carbon and climate-resilient livestock and agro-business value chains created (financial intermediation loan component)

Institutional capacity and policies on low-carbon and climate-resilient agro-territorial development strengthened

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
Safeguard Categories
Environment B
Involuntary Resettlement B
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Responsible ADB Officer Heckmann, Arnaud
Responsible ADB Department Sectors Group
Responsible ADB Division Water and Urban Development Sector Office (SG-WUD)
Executing Agencies
Ministry of Economy and Development
Timetable
Concept Clearance -
Fact Finding -
MRM 09 Jun 2021
Approval 22 Mar 2023
Last Review Mission -
Last PDS Update 24 Mar 2023

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