Navigating Through Mongolia's Economic Booms and Traffic Jams

Economically blessed due to its geographical placement between two major industrial powers, Mongolia is the world’s 19th largest country by land mass – yet, with only three million citizens it is also the most sparsely populated.  It has been largely isolated from the global economy until recently, when foreign mining companies reached an agreement with the government to extract its enormous natural resources – about US$1.3 trillion in proven reserves of minerals, coal, and other untapped commodities.

Such resources are of critical importance to its southern neighbor; China remains the world’s most voracious consumer of commodities. The resulting economic boom sparked impressive double-digit GDP growth for Mongolia for several consecutive years.  A combination of macroeconomic factors and government mismanagement has slowed that growth since 2012, however even amidst this ‘slowdown’ the country recorded  GDP growth of 7.8% last year.

Despite the country’s vast expanse with landmass comprising an area larger than France, Germany and Spain combined, 45% of the population lives in one city, the capital of Ulaanbaatar. According to the Asian Development Bank, this urban center is growing by about 40,000 people each year. Attempts to upgrade and expand the city’s aging Soviet-built infrastructure on the heels of an unprecedented urban migration are not keeping pace.View from center to the slums of Ulaanbaatar city, Mongolia

Mongolia’s commodities boom is now creating a rapidly-expanding middle class among Ulaanbaatar’s 1.3 million inhabitants. This, coupled with an influx of thousands of foreigners who work in mining and related activities, is producing congestion and strains on infrastructure that Soviet-era urban planners could never have imagined. When designed, the city was conceived as a town for no more than 600,000 individuals – a compact city center erected along a river valley, ringed by the hills of the endless Mongolian steppe.

The city’s central business district (CBD) remains by far the busiest part of town for both businesses and residents. Property developers are keen to cater to market demand for prime office space and modern apartments, and therefore continue to build vertically rather than punting on new development corridors lying further afield. Nonetheless, many of the hundreds of thousands of Mongolian migrants in Ulaanbaatar, accounting for about 60% of the population, now live in the peripheral of the urban sprawl, among the bordering hillside.

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We recently spoke with Christopher de Gruben, CEO of MAD Mongolia, a real estate investment firm that works to service the needs of an emerging Mongolia.

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Chief among issues facing the city is its infamous gridlock (which some say is equal to what one would experience in notoriously congested Bangkok). Cars – ever the status symbol – are vital in Mongolia for those who can afford them, and offer both comfort and relief from the country’s brutally cold winters.

With each passing year, thousands of new cars enter Ulaanbaatar’s potholed city streets. While the city’s outdated layout is certainly a factor in the congestion problem, the lack of parking facilities also exacerbates the situation. Cars are routinely parked alongside major thoroughfares in the CBD, preventing usage of traffic lanes and stifling movement. Many say it’s not unheard of for an individual to simply idle their car in the street while shopping in downtown stores. Even Ulaanbaatar’s newest luxury apartment buildings and posh shopping centers have been launched without the incorporation of adequate parking structures. The result is that parking spaces in central Ulaanbaatar can cost several hundred US dollars per month – a level that is on par with London, New York, and the world’s other most expensive cities.

Ulaanbaatar’s structural issues have not gone unrecognized by the Mongolian government, and it indeed does have a number of public works projects planned to help alleviate some of the city’s overcrowding. Arguably the most ambitious of the lot is the development of an entirely new capital, Maidar City, designed for 300,000 people, that lies just 30km beyond Ulaanbaatar. Another involves billions of dollars in infrastructure enhancement in the gerdistricts, the outlying communities interspersed throughout the hills of the country’s capital. However, many are skeptical that Mongolia’s government will be able to pass the necessary legislation, and secure requisite financing for these projects in a timely manner. The country has a vibrant democracy that is known to be raucous at times. Tenders for other ambitious public infrastructure projects such as a Metro have also been announced, but many questions surround the completion date and other challenges to implementation.

Judging by the scale of these projects and their nascent stage, the private sector has a rather large window of opportunity to provide innovative solutions that cater to a seemingly unrelenting demand for urban living and all that such a lifestyle beckons.

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