New Highway to Open Up Trade, Investment in Western Mongolia

An ovoo or traditional shamanic cairn by the side of a road in Mongolia.
An ovoo or traditional shamanic cairn by the side of a road in Mongolia.

By Qing Zhang

Western Mongolia struggles to attract investment due to high transportation costs, but thus may soon change with the construction of a new regional corridor.

Dorjderem Dorjgotov owns a small wool processing company in Bayan-Ulgii, a province of western Mongolia endowed with endless steppes and close to the Russian border. The province produces 90% of the processed wool Mongolia exports to Europe. 

“We also want to export to China, but the transport costs are too high,” says Mrs. Dorjderem, one of many entrepreneurs who suffers from severely inadequate transport infrastructure in this part of the country, where dirt tracks meandering over the steppes barely connect one small village to another, making travel both slow and costly. 

Bayan-Ulgii, Khovd, and Uvs, the remote and sparsely populated western provinces of Mongolia, are home to some 185,000 people, and are much less developed than other parts of the country due to their isolation. Per capita GDP in the region is 75% of the national average and the poverty rate in 2009 was 47%, compared with the national rate of 35.2%. 

Western Mongolia struggles to attract investment in large part due to high transportation costs. These high costs make consumer goods more expensive for residents, especially herders who live far from urban areas while poor transport links mean they are cut off from basic social services like health and education. While most of the country has benefited from the recent mining boom, the western part has largely been left out of the picture. 

Soon, however, this situation is likely to change with the construction of a western regional corridor connecting Ulaanbayshint along the Russian border in northwest Mongolia with Yarantay, 743 kilometers south on the border with the People’s Republic of China (PRC). ADB is providing a $170 million loan to support this project, along with cofinancing from the governments of Mongolia and the PRC. Around two-thirds of the highway have already been built, and once completed, the road will cut travel time from north to south by half, as well as fill a gap in the 6,024-kilometer Asian Highway 4, which runs all the way from the port city of Karachi in southern Pakistan through Mongolia to the Russian city of Novosibirsk in southwestern Siberia. 

The impact of the near-completed road is already being felt at the customs office in Yarantay. 

“We have seen increased traffic since the completion of the road,” a customs officer told me. “The facilities now need to be expanded to accommodate the increased volume of trade.”

Western Mongolia has huge development potential. Widespread herding of livestock in a pollution-free natural environment helps produce high-quality meat and wool, and the breathtaking scenery constitutes a strong draw for tourists. Once the transport infrastructure is in place, this potential can be unlocked, and bring trade between Mongolia, the PRC and the Russian Federation—and beyond—to a whole new level.

“We currently export 500 to 1,000 tons of meat annually to Russia and Kazakhstan. We will be able to expand our exports to China and the Middle East once the cost of transportation comes down,” says the head of a meatpacking company in Bayan-Ulgii province. 

ADB’s investment project also involves the construction of about 35 kilometers of local roads connecting local and provincial centers in Western Mongolia to the regional corridor. This will bring greater access to markets and expand access to health care and education. 

Rural households are holding out high hopes that the road will improve their livelihoods. An ADB survey found that 53% of respondents regard the highway as a supplementary source of income in activities such as transport operations, road maintenance services, vehicle repair shops, lodging, and eateries. 

These employment opportunities are invaluable in rural areas, where sources of income are scant. They are also a blessing for entrepreneurs like Mrs. Dorjderem, who now feels closer to her goal of exporting wool to China: “Being connected is making the future look brighter.