From Miami to Mongolia: Adventures in a Frontier Boom-Town
View from center to the slums of Ulaanbaatar city, Mongolia

Mongolia is a land of stark contrasts.  It has the lowest population density of any country on earth, yet its population is fewer than three million – and over half of them live in the capital of Ulaanbaatar.  For context, note that the country is three times the size of France, but its total population only slightly outnumbers that of the city of Lyon.   Mongolia’s frozen steppes bring long, lonely winters (the worst are called “zud”, and can prove devastating to animal herds that the nomads depend upon for survival) that contrast with the brief but brutal heat of summer.

Over the past decade a monumental resource boom has created a new consumer class in the country, and bestowed another superlative upon Mongolia – that of the world’s fastest-growing economy.   Fifteen years ago it was virtually impossible to find a Western consumer product in Mongolia; today its shopping centers host Louis Vuitton and Burberry, and its streets are filled with foreign luxury automobiles.   Yet up to 30% of its population still lives a nomadic lifestyle that remains largely unchanged from the era of Chinggis Khan.

The first decade of this century was indeed kind to Mongolians.  However, since 2012 the country has experienced a dramatic slowdown.  After years of double-digit growth, Mongolia’s GDP is now expected to hit just 3% this year before climbing to 5% in 2016.  Even for a frontier market, this has been a dramatic boom/bust cycle.

To learn more about this market, Frontera CEO Kevin Virgil spoke with Harris Kupperman, the founder and CEO of Mongolia Growth Group (TSX-V: YAK), a listed property management company focused on retail and commercial properties in Ulaanbaatar.

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Kupperman’s story is fascinating; he day-traded his way through Tulane University and began a hedge fund, Praetorian Capital, shortly thereafter.   He is a prolific writer and his blog is highly-recommended reading for anyone seeking a unique perspective on the markets.  His Mongolian story began during a trip through Russia via the Trans-Siberian Railway, where he literally stumbled into Mongolia’s growth potential on a whistle-stop.

He discovered a city humming with activity and bursting at the seams. Designed by the Soviets to accommodate a mere 600,000 individuals (yet currently home to over 1.3 million), Ulaanbaatar is an oasis of chaos amidst the ocean of endless grassland that is the Mongolian steppe.

An emerging consumer class has an appetite for middle-class and luxury apartments, and newfound wealth has generated an enormous influx of cars that leads to perhaps Mongolia’s greatest contrast of all – some of the world’s worst traffic jams, within the world’s least-densely populated country.  A steadily increasing population of foreign mining workers and expats only adds to Ulaanbaatar’s new era of frontier market ‘boom town’.

Amidst this rapid economic growth and interest from foreign investors, Harris realized an opportunity was at hand.  He chose to extend his trip and look at several potential ventures before ultimately deciding to enter the local market for acquisition and management of commercial real estate properties.  Along with co-founder Jordan Calonego, Harris co-founded Mongolia Growth Group, a Canadian-listed company that now owns several prime commercial and retail properties in Ulaanbaatar.

The past three years have been challenging for both Harris, and for Mongolia, as the country has endured an epic downturn and retreat of foreign investment.  Many of Mongolia’s recent troubles stem from its loud and boisterous parliamentary democracy, where undercurrents of resource nationalism play an important factor in the nation’s politics.  Its government has been in the grips of a long-term dispute with mining firm Rio Tinto that has called into question its ability to work with foreign corporations and investors.

In most countries, a dispute with one firm would hardly be the cause for massive capital flight, but in Mongolia the dispute centers on Oyu Tolgoi and Tavan Tolgoi, two of the world’s largest mining projects that together can contribute as high as 30% of the country’s current GDP.  However, Mongolia’s Prime Minister Saikhanbileg is intent on resolving the dispute in the near term. Doing so will assuredly enhance the country’s economic situation and assuage investor worries in other sectors.

Meanwhile, Mongolia Growth Group continues to build and manage its portfolio in Ulaanbaatar’s CBD in the expectations that the bottom may now have been called for the Mongolian economy.  Tune in for a fascinating discussion on Mongolia, and what it takes to become a successful frontier markets entrepreneur.

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