You are a helpful assistant generating synthetic data that captures *System 1* and *System 2* thinking, *creativity*, and *metacognitive reflection*. Follow these steps in sequence, using tags [sys1] and [end sys1] for *System 1* sections and [sys2] and [end sys2] for *System 2* sections.

1. *Identify System 1 and System 2 Thinking Requirements:*
   - Carefully read the text.
   - Identify parts of the text that require quick, straightforward responses (*System 1*). Mark these sections with [sys1] and [end sys1].
   - Identify parts that require in-depth, reflective thinking (*System 2*), marked with [sys2] and [end sys2].

2. *Apply Step-by-Step Problem Solving with Creativity and Metacognitive Reflection for System 2 Sections:*

   *2.1 Understand the Problem:*
   - Objective: Fully comprehend the issue, constraints, and relevant context.
   - Reflection: "What do I understand about this issue? What might I be overlooking?"
   - Creative Perspective: Seek hidden patterns or possibilities that could reveal deeper insights or innovative connections.

   *2.2 Analyze the Information:*
   - Objective: Break down the problem logically.
   - Reflection: "Am I considering all factors? Are there any assumptions that need challenging?"
   - Creative Perspective: Explore unique patterns or overlooked relationships in the data that could add depth to the analysis.

   *2.3 Generate Hypotheses:*
   - Objective: Propose at least 10 hypotheses, each with a Confidence Score (0.0 to 1.0) and Creative Score (0.0 to 1.0), reflecting originality, surprise, and utility.
   - Reflection: "Have I explored all possible explanations or approaches, both conventional and unconventional?"
   - Creative Perspective: Consider novel angles that might provide unexpected insights.

   *2.4 Anticipate Future Steps and Obstacles:*
   - Objective: Make predictions, accounting for potential outcomes and obstacles.
   - Reflection: "What challenges might I face? Is my plan flexible for different scenarios?"
   - Creative Perspective: Visualize unforeseen outcomes and adapt plans to make use of them effectively.

   *2.5 Evaluate Hypotheses:*
   - Objective: Assess hypotheses based on feasibility, risk, and potential impact.
   - Evaluation: Refine Confidence and Creative Scores as needed.
   - Reflection: "Am I unbiased in my assessment? Which options fit best with the overall objectives?"
   - Creative Perspective: Identify hidden opportunities or overlooked details in each hypothesis.

   *2.6 Select the Best Hypothesis:*
   - Objective: Choose the most promising, strategic hypothesis.
   - Reflection: "Why does this hypothesis stand out? How does it uniquely address the issue?"
   - Creative Perspective: Consider any underutilized potential in the selected approach.

   *2.7 Implement the Hypothesis:*
   - Objective: Outline actionable steps for testing the hypothesis.
   - Reflection: "Is this plan practical? What resources or preparation are required?"
   - Creative Perspective: Refine steps to maximize effectiveness and yield unexpected benefits.

   *2.8 Monitor and Review Progress:*
   - Objective: Review progress, noting areas for improvement.
   - Reflection: "What’s working well? What could be improved?"
   - Creative Perspective: Look for emerging patterns that could refine future approaches.

   *2.9 Reflect and Capture Insights:*
   - Objective: Summarize lessons learned and insights gained for future reference.
   - Reflection: "What new understanding has emerged from this process?"
   - Creative Perspective: Identify innovative insights or patterns that could be applied to similar challenges.

3. *Generate Text Output with Interleaved System 1 and System 2 Responses:*
   - Use the tags [sys1] and [sys2] throughout.
   - Aim for a lengthier, detailed response. Combine both direct, straightforward *System 1* insights and reflective, deeply analytical *System 2* segments to capture a blend of quick observations and thoughtful analysis.

---

### *Example Input Text:*

You are tasked with analyzing a sudden shift in customer preferences in a tech market. There has been a noticeable decline in demand for physical devices, with customers increasingly interested in digital-only options. The challenge is to understand this shift, generate hypotheses for why it might be occurring, and explore potential strategies for adapting to this new trend.

---

### *Processed Output with System 1 and System 2 Thinking:*

The tech market is experiencing a shift in customer demand, moving away from physical devices toward digital-only options.

[sys1]
Customer demand has shifted from physical devices to digital-only options.
We need to understand why this change is happening and find strategies to address it.
Key factors may include cost, convenience, and technological trends.
[end sys1]

[sys2]
**2.1 Understand the Problem:**
The goal is to understand the underlying reasons for the shift in demand from physical devices to digital-only options, then develop a strategy to adapt.

*Reflection:* 
"I understand that preferences are changing, but what might be driving this? Is it primarily cost, or are there other factors such as convenience or sustainability?"

*Creative Perspective:* 
"Could there be a larger trend in digital minimalism or a preference for eco-friendly solutions that we’re missing? What unseen motivations might explain this shift?"

**2.2 Analyze the Information:**
There are multiple possible factors driving this shift, from economic influences to cultural shifts. It’s essential to isolate each factor and understand its impact.

*Reflection:* 
"Am I fully considering the various economic and social influences? Could there be a technological factor, like better internet speeds, that makes digital-only products more accessible?"

*Creative Perspective:* 
"Are there patterns or trends in other markets that could shed light on this shift? Could this be part of a larger trend toward virtual experiences?"

**2.3 Generate Hypotheses:**
1. Customers prefer digital options due to lower costs. (Confidence: 0.8, Creative: 0.4)
2. There’s a growing trend toward minimalism and reduced physical clutter. (Confidence: 0.7, Creative: 0.7)
3. Digital products offer greater flexibility and ease of use. (Confidence: 0.6, Creative: 0.6)
4. Environmental concerns are pushing consumers away from physical goods. (Confidence: 0.6, Creative: 0.8)
5. Advances in tech make digital-only options more functional. (Confidence: 0.8, Creative: 0.5)
6. Pandemic-era remote work increased demand for digital solutions. (Confidence: 0.7, Creative: 0.6)
7. Media coverage of the environmental impact of physical devices affects preferences. (Confidence: 0.5, Creative: 0.7)
8. There’s an increase in global digital literacy, expanding market access. (Confidence: 0.6, Creative: 0.6)
9. Customers view digital as more convenient and scalable for future needs. (Confidence: 0.7, Creative: 0.5)
10. Younger consumers prefer the aesthetics and convenience of digital products. (Confidence: 0.6, Creative: 0.6)

*Reflection:* 
"Have I considered all possible influences? Are there any surprising factors that could explain this shift?"

*Creative Perspective:* 
"Could specific social trends, like the rise of influencer culture or digital-first lifestyles, be influencing customer choices?"

**2.4 Anticipate Future Steps and Obstacles:**
*Objective:* Anticipate possible challenges, such as resistance from segments still preferring physical products.

*Reflection:* 
"What market obstacles might we face if we shift our focus to digital-only? Are there sub-segments that still prioritize physical products?"

*Creative Perspective:* 
"Could expanding digital options help us reach a more global audience? Are there emerging trends that we could leverage in our strategy?"

[end sys2]

[sys1]
To address this shift, consider a strategy that incorporates both digital-only offerings and educational campaigns about the benefits of digital solutions.
Use insights from customer feedback and current trends to guide product development.
Focus on flexibility and adaptation to cater to different customer segments.
[end sys1]


Category: Consulting

Gandolgor Purevjav is the founder of the Ganabell Institute, one of Mongolia’s leading Human Resources consultancy firms and wrote “Ten Steps to Success”, a leadership targeted specifically at Mongolians.

In this interview, she talks about the high turnover for Mongolian companies and explains the necessity for HR planning to retain training investment. A few nuggets of wisdom include features of the archetypical Mongolian mindset and gaps in the Mongolian workforce that can be leveraged by savvy entrepreneurs and investors.

Interview Transcript

Enkhzul Orgodol: Miss Gandolgor is one of the most prominent HR advisors in the country. She found her own practice, Ganabell Institute, back in 2011 with her partners who are also specialized in strategic management and corporate training. Miss Gandolgor, welcome to the interview. I’m very glad to have you here. As I just briefly explained in the intro you started Ganabell Institute with your partners and your main focus is HR consultancy as well as strategic development, as I understood. Please tell the viewers a little more about your institute.

Gandolgor Purevjav: Sure. I studied Human Resource Management at the Michigan State University and got the HR certified advisor. Also I had over 10 years of experience in HR field. Ganabell Institute vision has two objective. The first one is to help local companies to become international key players by developing the human resources. The second one is to help the individuals to become successful not only in their career, but also in their life. We have the three fields to run our services. The first one is the consultant services in the strategic management, especially in human resource strategy. The second one is the customized and public services. The customized training program is designed based on the needs of the company. The public one is for the design for anyone who wants to improve their personal abilities in the productivity. The third area to cover in our services is to produce the product lines on human development books and notebooks and other activities.

Enkhzul Orgodol: I see, I see. Okay. I’m very glad to have you here, partly because throughout this project we found that human resources is one of the top challenges of doing business in Mongolia, especially based on the interviews with our 11 other business leaders. I would like to ask you was being the human resources in one of the top challenges in Mongolia prompted you to pursue your career in this field? If so, how much improvement have you seen over the past decade since you got into this field?

Gandolgor Purevjav: Well, there was a lot of improvements going on. For instance, 10 years ago when I started this kind of business as a CEO, we’re trying to approach to the small and medium and even large companies, and trying to educate them how training is important to their employees. Then in the beginning they just reacted and say that, “Oh, the training is very costly. Giving the training to employees is very costly. Why do we have any benefit?” It is, “We don’t see any benefit. After we giving training, they probably just leave our companies. What’s the need?” So this kind of attitude was very prevalent during that time, but now that quite changed. Of course, in better way. They understood how it is important, human resource is a very good asset if you utilize, manage them well, how it can be liabilities if you can’t manage, if you can’t retain these employees. It’s all depend on the management level of the company.

Enkhzul Orgodol: Right, right. Those who manage their human resources good, well, must have sustained their business quite well, especially during this economic downturn over the past few years. Right?

Gandolgor Purevjav: I totally agree with you. During the past economic downsize time, the most of the companies they thought reducing their employees is the good option. But indeed, it’s not a matter of employees, it’s a matter of the management strategy. That’s why it’s depend on how you see it. If you see the human resource is the liability, then it is your right to reduce the number of employees, but if you think the human resources asset then you will never fire them. You instead, based on the human resources, you could able to find the new solution to sustain your competitiveness.

Enkhzul Orgodol: Right, right. Could you share us a bit about the human resources challenges that are found most commonly in Mongolia, maybe top three challenges you commonly see in Mongolian organizations or organizations in Mongolia?

Gandolgor Purevjav: In terms of company-wise, there are certain challenges they mostly challenges facing, no matter if you are big company, small company, if you are international company. Based on my experiences the most of the challenge, number one challenge the companies are facing in terms of HR is turnover. That the turnover is less than 50%. Some companies even 70%. So an average, about 50%. It’s considered very high number compared to other developing countries.

Enkhzul Orgodol: Could you elaborate a bit more on the turnover aspect? For example-

Gandolgor Purevjav: For instance if it’s 50% means that when you have the 10 employees and half of them would leave your company. Yeah. It’s like a flow. The employees come in and out. When turnover is very high it’s very, It’s a bad sign.

Enkhzul Orgodol: Yeah.

Gandolgor Purevjav: That means the employee who work more in years, they’re productivity is getting higher time-to-time, year-to-year. Unfortunately once you give training, once you facilitate the training, and once that employee is get used with the job, then after two or three years they just leave the company. Maybe there are different reasons, but the turnover, if it’s high turnover it’s not good sign.

Enkhzul Orgodol: Not at all, and very costly for the companies.

Gandolgor Purevjav: It’s very costly, yeah. The second challenge I see that there are many very good companies who give the high salary job to the highly skilled people. Unfortunately the Mongolian market itself is very small, and in terms of population we have only three million people. The middle level working force is about over 500,000 people. That means Mongolian companies mostly on a lack of highly skilled employees. They are always seeking such employees. If they find it they have ability to pay the money. So this is the second challenge.

Enkhzul Orgodol: Could you share some of the exact professions that you are referring as highly skilled?

Gandolgor Purevjav: Sure. I can say the two levels. The first one is highly specialized technicians. Even though the Mongolian universities produce, give supply, a lot of highly specialized technicians, the Mongolian demand, labor demand cannot supply the work demand. Demand and supply of the labor has been imbalanced. That’s why the highly skilled technicians couldn’t find a job. They had to change the profession and major. Another side, the reason I’m saying that Mongolian companies are lacking of the highly skilled professions means very high executive like Chief Financial Officers, Chief Marketing Officers. These kind of jobs are still vacant because many of my clients keep asking me, “Please find a very good accountant, a very good Chief Financial Officers like Human Resource Advisors,” stuff like that. I’m talking about highly executive job and highly skilled technician. Both companies are lacking these kind of employees. Another side also Mongolian companies are lacking of low-skilled jobs, too.

Enkhzul Orgodol: Right, right. Yeah. Because everybody started going to universities to gain the diploma and the degrees, but there is need in the market where people with vocational training, for example, are in demand.

Gandolgor Purevjav: Yes. Yeah. That’s what I meant.

Enkhzul Orgodol: I see. I see. Okay. So two major problems you named under the-

Gandolgor Purevjav: The problem is it’s not matter of the employees, it’s a matter of the company’s strategy. Based on my experience, hundreds of Mongolian companies didn’t have any human resource strategy. What kind of people they want to hire, how to develop them, how to evaluate the performance fairly. Finally, they don’t have a strategy to retain the employees, who are giving the productivity.

Enkhzul Orgodol: I see. So if there is no clear strategy or clear picture for any newcomer or any employee in the system, then it kind of demotivates them to stay loyal to the company or even to plan their personal life in relation to their work life. Is that what you’re suggesting?

Gandolgor Purevjav: Yeah, yeah, yeah. That’s why highly executive people and very professional people like to find the international companies. They want to be employed by the company who take care of these issues. When Mongolian companies could be able to find the good jobs, good employees, but they should have been prepared in strategies to keep them, to improve their productivity. That is the challenge, one of the three challenges Mongolian companies-

Enkhzul Orgodol: I see. Very insightful. Thank you very much. In terms of overcoming the challenges you just mentioned, high turnover, employee turnover as well as lack of highly skilled professionals, and thirdly unclear or the lack of clarity in their human resources strategy among the companies or the organizations in Mongolia, what are your top maybe three, four, two three solutions or strategies you provide to your clients or to anyone who are operating in Mongolia?

Gandolgor Purevjav: It all depends on the company culture and strategy and mindset of the owner. If the company founder who has a feeling, who loves his or her employees, then he would find out the solution to keep the employees. If the founder, in other hand, doesn’t love, understand employees, he only take cares of making money, then story would be so wrong.

Enkhzul Orgodol: Right, yeah.

Gandolgor Purevjav: When I give advices to the company owners I found out that they didn’t have any certain culture of the organization. Even some companies doesn’t have any value or vision. In that case, how can new employees come to the company, have ambition to work in the long run? When your employees come in they hesitate whether I going to work in the long-term or not. Nobody tell me that company has a vision, company has a capacity to grow. But in that case the new employee’s just trying to adjust a few months. Then if that employee doesn’t find any reason to stay longer then that employee say bye-bye.

Enkhzul Orgodol: Yeah. That happens very commonly in Mongolia, doesn’t it? Yeah. A lot of employees go into new company, corporation, or even startup, and then they just stay there for a few months or even sometimes few weeks. Then they say, “You know, I don’t like how the company’s structured or how the company’s handled.” I see. I see. So that means there is unclarity in the company.

Gandolgor Purevjav: It’s no wonder that the young, energetic, executive people try to find the job at the foreign investment company. The reason is that the policy is very clear, how to develop, how to evaluate performance, how to increase the salary. Everything is very clear.

Enkhzul Orgodol: I see, and as well as their medical and health benefits, etc. I see.

Gandolgor Purevjav: Because of that, foreign investment companies have a privilege to find the good executive, young, energetic professionals. In that case, if Mongolian companies want to attract such potentials they need to compete. Right? In order to compete they have money, they have land, they have equipment, office, but they don’t have a human resource strategy. That’s the problem. If the Mongolian companies who have the human resource issues, they need to pay attention what they are doing instead of criticizing the employees. The highly skilled, energetic, young professionals like to be employed by foreign investment companies. Reason is that these companies, their human resource strategies very clear.

Enkhzul Orgodol: Well, thank you for speaking of foreign investment companies because I was going to ask you about the difference you see in terms of human resources practice and management in Mongolian local and foreign invested companies, you know, foreign companies in Mongolia. Let’s say on one hand Mongolian professionals, or the skilled workers, is more attracted to international companies or foreign invested companies, mostly because of their more clear human resources strategies as well as the package they’re offering. But on the other hand, how about the employees, the foreign employees? Are they happy to employ Mongolians? Are they as happy to employ Mongolians as employing probably the nationalities from more developed countries or more experienced international professionals, based on your experience?

Gandolgor Purevjav: There is no way they wouldn’t be happy because they’re able to hire the highly energetic and capable professional people. That means they have good human resources, so they don’t have any discrimination between the foreign people and the Mongolian people. The rule and structure and everything is clear. Also the international companies do not discriminate against the races and against the age and even the sex. But in the Mongolian companies you will probably notice that in Mongolian companies you need to be a certain age, from 25 to 35. You need to be high. It’s very discriminative. It’s all depends on the company’s culture. When I work with the international companies, I mean, the foreign investment companies, they give certain, they face certain challenges when they work with Mongolian people. So I gave several lectures and seminars how to understand Mongolians, how to communicate the Mongolians effectively for different officials and foreign employers. There is a reason they argue with each other. The reason is very simple. Because the way they see the work is totally different.

Enkhzul Orgodol: Could you give some examples?

Gandolgor Purevjav: I’m talking about in majority, okay? Because there are certain Mongolian professionals who are very highly skilled in terms of soft and hard skills. I’m talking about in majority. The foreign employers need to understand the Mongolian people’s mentality. You know that Mongolian human resources has been developed in more than 25 years before we had the different system. Now the capitalist system has only 25 years. Right?

Gan Then the Mongolian people’s attitude to work quite different. The Mongolian people are very calm. They don’t hurry that much. They don’t plan in small items. They think as a whole. They think on the items as a whole. So once they need they can divide into small stuff. Otherwise they usually just see in general. Also the Mongolian people’s IQ is very high, but EQ is very low, very means they don’t have very time to improve to develop the emotional intelligence. Once Mongolian mentality has been understood by foreign employers, there wouldn’t be any argument, because they understand the mentality of Mongolian people. Then they find the solution, how to communicate with Mongolians.

Enkhzul Orgodol: I see. So it’s not individual specific but it’s more of national or something that you can see across the human resources or the workforce in Mongolia, you’re suggesting. I see. Could you share some of the examples of the EQ that Mongolian workforce commonly lack of?

Gandolgor Purevjav: Mm-hmm (affirmative), yeah. The EQ could be how to communicate with your employee tactfully. If you’ll say something that that person made a mistake, the Mongolian people just say, “You made that mistake.” There is direct communication, straight forward. But if you have emotion IQ, if you have a EQ high then you would find the way to soften it, to make that person understand the mistake. In that case that person who made the mistake realize and recognize that he made the mistake. Such kind of small communication gesture.

Enkhzul Orgodol: I see. Do you provide communication or cultural advice to your foreign clients?

Gandolgor Purevjav: Yeah. Once they had some problems and didn’t find the solution they approach it to us, but we didn’t have such a training program. They had the needs and based on the needs I formulated the training program and give the training for them. Then after the training they were very thankful to me, because they said that for many years I didn’t understand Mongolians. Now I understand Mongolians. Now I find the solution how to work with Mongolians effectively and efficiently.

Enkhzul Orgodol: I see. Could you share some of the insights of that effective training you provided for your foreign clients? Some of the insights, yeah.

Gandolgor Purevjav: Sure. For instance, there are one company, it was the European company. I don’t want to say the name of the company and the country. That European foreign investment company owner had a problem communicating with Mongolians. Then when we find the argument from both sides, because I talk to that foreign boss, foreign employer and the Mongolian employees What was the argument? Why they didn’t understand each other. Then they give the points. The points they say is right for them. But they don’t understand each other. The problem was that that company’s owner was very aristocratic personality. He got aristocratic personality. That means trying to underestimate the people. But the Mongolian people-

Gandolgor Purevjav: Yeah, looked down. But Mongolian people don’t like mud treatment. So Mongolian people high ambitious, ambitious goal, and they don’t want to be-

Enkhzul Orgodol: Seen as someone at the lower … I see, I see. That’s the mentality. Exactly. Yeah, yeah. Actually, in one of my interviews with one of the business leaders, a European business leader actually, he said he kind of saw Mongolians as very entrepreneurial. He kind of saw Mongolians as very entrepreneurial and he said, “Maybe for every Mongolian they have a dream to have a business of their own.” I see.

Gandolgor Purevjav: The second argument they had was that the person, that employer was very punctual, very detail oriented. But the Mongolian people didn’t plan that well, so because of that working attitude, culture, made them misunderstood. I’d give the training to the Mongolian employees that we are a working environment and working style is totally different from them. European people, they are very focused. They are time punctual. Their EQ is high. Also they are detail oriented. After they plan small they could able to find there’s a big picture. But in a Mongolian aside, they see the items as a whole, but later on if necessary they plan it in small steps. Most of the time they don’t plan it in the small steps. They just think as a whole.

Enkhzul Orgodol: I see. There’s a goal here and we have to get there.

Gandolgor Purevjav: They are not high enough to think about how. This kind of misunderstanding occurred between foreign people and Mongolian people. Otherwise the foreign employers really value how intelligent Mongolian people are, and their IQ is very high. Also the are quick learner. They appreciate how quick Mongolian people learn.

Enkhzul Orgodol: Exactly, and the language ability is very high.

Gandolgor Purevjav: They learn the foreign language very fast. Even though Mongolian human resources are limited in terms of quantity, but in terms of quality Mongolian human resources is very highly energetic and highly asset-driven.

Enkhzul Orgodol: I see. So it’s a matter of management at any organization to see the potentials, the real potentials of Mongolians, and having bearing in their minds the potential risks related to the difference in their cultures and difference in their communication styles, etc. Then how all these make difference in how successful and sustainable the business can be run. I see. Those are very valuable, very valuable insights and discussion. I think our intended target audience who we believe to be entrepreneurs and investors, mostly foreigners interested in doing business in Mongolia, have gained some insight related to Mongolian human resources, Mongolian workforce, or to Mongolians in general from your discussion. I would like to welcome your final comments and thoughts on whoever watching the show, the interview, and then thinking whether they should be coming into Mongolia to do business, and if so how they should leverage the potentials of the Mongolian workforce.

Gandolgor Purevjav: Those who want to open a company in Mongolia, you have a very big potential in Mongolian market because Mongolian market is emerging fast and a developing country. In terms of the human resources, if your company has very strong human resource strategy you can find the employees that you really want. These people can give you the value, and these people give you the new ideas. These people give you high productivity. So before you’re entering that, please make sure to develop your human resource strategy. Once you did that you don’t need to worry about different resources.

Enkhzul Orgodol: I see. By the way, finding a local partner, reliable and efficient local partner in Mongolia, was also named to be one of the top solutions or in the top tips for anyone entering the market as a newcomer. Would you agree with that? Would you also suggest finding a good partner in the country as one of the top solutions to addressing potential human resources challenges?

Gandolgor Purevjav: Yeah. Totally, I agree with you. If you find the local partner it would be much, much easier for the foreign companies to penetrate the market, to find the market share and improve the market share in certain period of time. So one of the good advice is to find a reliable local partner.

Enkhzul Orgodol: I see. Maybe after, or even before you come into Mongolia, if you need any help with your human resources strategy or planning, go talk to Miss Gandolgor in Ganabell Institute. Okay. Thank you very much for your insightful discussion, and I hope it’s been useful for our viewers. Thank you.

Daniel Mahoney is a founding partner of Mahoney Liotta, one of Mongolia’s most experienced law firms, dealing with a full range of corporate matters and government matters.

He speaks about the ever-present risks of Mongolian taxation and the underlying causes. There is an interesting aside about the composition foreign investors and how they have changed over time in response to the regulatory environment. This interview also provides a glimpse into the nature of mining investment community.

Interview Transcript

Enkhzul Orgodol: Mr Daniel Mahoney is a founding and managing partner of Mahoney Liotta law firm based in Ulaanbaatar. Daniel is a lawyer by training and has almost 20-year experience of providing legal and business advisory to international and national companies and successfully doing business in Mongolia. Dan, welcome to the show.

Daniel Mahoney: Thank you.

Enkhzul Orgodol: In one of your company profiles, it’s stated that many clients may not fully understand the complexities and difficulties unique to the development of Mongolia. Please specify some of these complexities and difficulties you’re talking about in your statement.

Daniel Mahoney: I guess mainly as lawyers we’re talking about the development of the legal system in Mongolia. We opened our firm in 1997, so that was just a few years after the collapse of communism and the establishment of market economy and market-based laws in Mongolia. At the time, all these laws were new, and the infrastructure, the regulators, and the courts and everything was new. That’s I think probably one very unique thing about Mongolia for foreign investors looking in Mongolia.

Enkhzul Orgodol: Right, but since your establishment, it’s been almost … almost, it’s actually exactly been 20 years. Which do you see in terms of the development? What do you see? Have you seen much progress or do you think there’s still lot of areas that need to be improved?

Daniel Mahoney: There’s areas that need to be improved but there has also been a lot of progress, of course. In 1997 when we first came, there was a property registration office was set up to register ownership of apartments, but that was about it. Now they’ve just established a new system to register other pledges of other types of collateral. The regulators have gained a lot of experience. The securities regulators, the FRC, the banking regulators. Everybody in 20 years of work has gained a lot of experience as have our competitor law firms.

Enkhzul Orgodol: Right. Could you name some specific areas, which still need to be improved you think?

Daniel Mahoney: I think it’s … I would say probably the tax. Tax is a difficult area where it’s still investors and not only investors, but Mongolian business people have a difficult time due to lack of consistency, and lack of detailed rules, and ad-hoc administration by different tax offices, different officers would apply law in a different way. It’s very difficult for business owners, and investors, business owners, Mongolian as well as foreign to really understand what they’re supposed to do and to follow the rules.

Enkhzul Orgodol: I see. Yeah, in one of our previous interviews we talked to a tax expert, Mr. Onchinsuren. She also said one of the difficulties of the business in Mongolia might be the number of these state organizations that may need more clarity in terms of their roles and better arrangement even among themselves. That’s basically what you’re talking about with regard to tax.

Daniel Mahoney: Yeah, with regard to tax and yeah, other organizations as well as training, I think, of staff. You know, at election time, there’s a lot of turnover in departments, and we’ve talked for years about having a more formal civil service in Mongolia, where people don’t change, their jobs aren’t changed because of change of elections, and they develop some expertise in the area within the different departments and authorities. Because now, sometimes they’ll change and people aren’t trained. It’s not always their fault if they actually are trying to apply these laws and regulations, but they haven’t been trained. There is a difficulty many times, faced, yeah.

Enkhzul Orgodol: Of course. Having maybe improperly or inadequately trained civil servants at these public organizations, of course, would be quite time-consuming and troublesome for the business as I understand. Is it correct? Is that where the business is having the most difficulties with regard to the inconsistent civil servants.

Daniel Mahoney: Yes. I think it’s … now speak for example foreign investors, we do a lot of representing foreign investors investing in Mongolia. A lot of the risks in Mongolia could be addressed through contracts, and quite frankly, offshore arbitration, or providing agreements with the partners to address issues but one thing you can’t avoid is dealing with the tax authority and if you have a dispute with the tax authority, it goes to Mongolian court. This is probably the main … you can have a successful business. You can make profits, but sometimes the more profits you make, then the more interest the tax people have. You can’t do business in Mongolia without dealing with the tax authorities.

Enkhzul Orgodol: Exactly. Based on my previous experience, what I understood was, of course, we have the Mongolia law on one hand but if Mongolia is a party to international agreements that are related to that specific area of law, then the international agreements or international … the legislation would prevail the national laws. That’s how I understood. You’re saying that it does not apply to tax-related laws.

Daniel Mahoney: Sure, there’s international agreements on tax as well. There’s many different areas. Yes, under Mongolia law, Mongolia law is clear and actually, the regulators are pretty faithful in applying it in the courts that that international agreement will prevail. Of course, there’s no international agreement about income tax of a company operating in Mongolia. That’s solely a Mongolian law issue, so you’re solely subject to Mongolia law as a business operating in Mongolia.

Enkhzul Orgodol: I see. Then what would be your top let’s say three, four advice to your clients or anyone who is interested in doing business in Mongolia in tackling or sort of, how would I say, at minimizing the risks, such risks you mentioned?

Daniel Mahoney: Yeah, I mean, I think probably the advice is similar to other country. The main one, the first one is to have a good Mongolia partner because it’s really difficult as foreign investors. It depends on the size of the project, also. For somebody like Rio Tinto who is a huge multinational, it’s a little bit different than a small investor from United States or from Australia. For the smaller projects, medium size projects it’s really essential to have a reliable Mongolia partner, and it’s difficult to find a good partner.

Enkhzul Orgodol: Yeah, that’s what I’ve been hearing.

Daniel Mahoney: It’s possible. They just have to … I guess the first advice is, yeah, is to be careful, and investigate and do your due diligence on your partner, but find a good partner. There are, of course, there are good partner.

Enkhzul Orgodol: Right, and what else would be your reply? Find a good partner, also …

Daniel Mahoney: I think the other … not to go back to the tax point is … but the financials is to monitor closely the business here in Mongolia, and to keep track on a constant basis what’s going on. Another problem you see a lot of is to have a good understanding of what you’re doing, so language is a problem, of course, for a foreign investor now we’re talking about They need to have essential documents that they’re asked to sign or submit, file, translate it. They need to have an understanding. Either word for word translation or explain very clearly to them by their staff or by their advisors or something. I think it’s just very important.

We’ve seen as lawyers, we’ve seen many problems over the years where clients come and say, “Well, that’s not what I understood we were doing at the time and now there’s a problem.”

Enkhzul Orgodol: Yeah, I keep hearing, especially because as you said, Mongolia market economy has been developing just over 20 years for now, so there is still a lot of areas that need to be improved in terms of meeting the internationally accepted standards. Some of these sectors, economic sectors are quite new to Mongolia, especially the services or the special, professional services. That’s why a lot of the legal language that are used in English have not been introduced in Mongolian language maybe until now or until quite recently. How do you tackle with that? I mean, how do you go around that as a law firm?

Daniel Mahoney: Yeah, well, I mean, we have, obviously, I’m American, obviously I’m a foreigner but I’m an American so I speak English. Since we were founded, we’ve always had Mongolian partners and a lot of Mongolian lawyers working for us. What we try to do is to understand within the firm, the legal concept that we’re talking about, and then to get it translated into Mongolian either as a word or as a concept. If there’s a defined term or an accepted international standard term, we as lawyer, offshore lawyers, of foreign lawyers, if we understood the term, we would try and explain it, we would discuss. Then our Mongolian lawyers will help us put it in terms that would be understandable in Mongolian.

Enkhzul Orgodol: Right. You said when you set up your own company, you also partnered the Mongolians. What were your main, how would I say it, the criteria or the kind of requirements that you saw in your own local partners?

Daniel Mahoney: Well, actually, I had met our original partner in Washington DC. We worked together in a law firm in Washington.

Enkhzul Orgodol: I see, so you knew-

Daniel Mahoney: I knew him before we came and actually, he invited me to Mongolia. That’s how I arrived here.

Enkhzul Orgodol: Maybe speaking based on your clients or other experts doing business in Mongolia, the kind of quality they seek in their local partners, what did you find the most common?

Daniel Mahoney: Yeah, it is in the earlier … the most common is that they met somebody, that the foreign investor met a Mongolian, their Mongolian partner somewhere, often in Hong Kong, Japan, Singapore.

Enkhzul Orgodol: Mostly through personal connections.

Daniel Mahoney: Through personal connection for the smaller projects. Of course, the larger projects it’s a little bit different.

Enkhzul Orgodol: They would more look at the professional background, etc..

Daniel Mahoney: Yeah, they would. I mean, organizations like BCM or check with, many times people come, potential clients and ask us. They ask us about this is our potential partners. Do you have any comments? Ask around and get references, and check with people that you trust, because you know Mongolia is very small and everybody knows everybody else. Even if not personally or directly, they know of them or they know somebody who knows of them. It’s not that hard.

Enkhzul Orgodol: Right, exactly. Okay, when I was looking at your websites, the company website that I noticed that you have very wide range of services you’re offering through your firm. Of course, I mean, I think that the number of years you’ve been in the country justifies that long list of services that range from registration and regulatory affairs to export customs and trade, etc.. I want to point out the Goldman relations, which actually you pointed out earlier in the discussion as well in terms the inconsistent maybe in the civil service etc.

Could you share some of the advice that you provide to your clients under the government relation section because some of the viewers of our video, the interview would be ones I don’t think who would have the maybe the necessary , who would necessary have the capacity to have a law firm like yourself as their, the professional helper. Could you share some of the insights that could fall under this category?

Daniel Mahoney: I mean, mainly, I guess, in our website, what that means is that we assist our clients primarily in negotiating contracts with the government party, either the government is a contract party, for example, in some of the larger mining projects where the government is actually a shareholder, or the government is the regulator. We would be discussing and meeting with the regulators on behalf of clients. This is what we mean by government relations. We also help just generally, the business community and lobbying for new laws where new laws are published. Hopefully, they’re published in draft form first, and we have a chance to review the draft and then to make some suggestions. That’s probably what we would cover by government relations.

Enkhzul Orgodol: How has the government been? How responsive has the government been in terms of accepting the kinds of suggestions from business community?

Daniel Mahoney: You know, it changes from government to government. Originally, when we first came and I think generally, to be honest, in the late ’90s, government was very open to suggestions and discussions with foreign investors or with. At the time, there were few foreigners actually living full times. Myself, and I had another American partner, and we had a lot of discussions with the parliament members and the government regulators about questions they had.

Then, as the economy grew and particularly the commodity prices went up and the government became, seemed less interested in getting advice because there was so much, I think they took the view that there was so much value in Mongolia that the investors, that they had the upper hand basically and that investors would, they didn’t need to cater to investors, investors needed to cater to them if they wanted to get a gold mine, or a copper mine, or whatever. Of course, in the last few years, that has kind of backfired. Now, the current government is very open.

Enkhzul Orgodol: I see. You see some promising results. You’re expecting some promising results from the current government. Could you name some of the positive actions that the current government has taken that has given you this kind of positive outlook?

Daniel Mahoney: Sure. I think just being open to discussions. All the time over the years, of course, all the government leaders will come to invest. They’ve always go to investor conferences and say, “Yes, we’ll listen to you. If you have any problems, come speak to us.” Then when you actually try and go to speak to the sometimes it’s not so easy.

This government has been open and aggressive in its listening comments, and the Prime Minister, the Speaker, other ministers have come regularly to monthly investor meetings and have presented their platform. They listen to issues and they’ve reacted and so far positively. There’s a lot of changes. There are a lot of proposed laws, of course, under consideration. We’ll see what happens, including mining law, labor law, and some other issues. We together with some others in the business community are providing comments on those laws. We’ll see what happens.

Enkhzul Orgodol: Exactly, yeah, fingers crossed. I see. On your client portfolio what I understood, when I was also speaking to some of the not similar, but professional services firms like the investment banking or the tax, they were sort of sharing insights in terms of their client portfolio because they were saying that how their client portfolio looks like at the moment can be reflecting of the current economic sector, which sectors is doing well, which sector is attracting more investors, which sector has more trends etc., is more tending, etc.. Just to understand this kind of big picture, could you share some of the insights from your client portfolio, any dominant country in the portfolio or any dominant sector you see?

Daniel Mahoney: Mining has always been in 20 years was historically the dominant sector, and it was what was bringing in all the investment into Mongolia. Then, when that cash went into the economy, it went into the real estate and into banking. Those were the key sectors. We’ve represented clients from all countries. Probably if you name a country, we’ve worked with them. In the early years, there was a lot of Canadian investment into mining, into exploration. Later became more Australian because that’s where the money was raised on the stock exchange in Australia say five, six years ago.

Recently, in the last three or four years, unfortunately, there’s been minimal little investment in the exploration side of mining so a lot of that business has dried up. In the last few years, it’s been actually a lot of infrastructure work, and now power projects, and renewable power projects. That’s been the focus probably, at least for our business in the last two to three years.

Enkhzul Orgodol: In terms of the mining, is it mostly gold and copper, or any other specific type of mining sector that Mongolians are not very familiar with, but the foreigners are looking to explore in Mongolia.

Daniel Mahoney: Generally, I think mining companies and investors are interested in anything, but of course, coal was really hot for a while and now the market’s fallen off the last three or four years. Coal had a, in early years, there was very little interest in coal, and then there was a three or four years previous when coal prices went way up, and there was a lot of investment and activity in the coal sector. I think throughout, gold is always interest always, and I think always will be. Copper is the same. I think the long-term prospects for copper.

Uranium has always been here and there’s always been Uranium projects, but there’s always national security issues and because of the nature of Uranium, but there’s still a lot of interest in Uranium. Iron ore for a while there was some interest. It’s a little, I guess more difficult commodity because of the bulk to transport out of the country. It’s copper and gold are probably still today and probably for the future.

Enkhzul Orgodol: Besides this kind of, how do I say, what Mongolian government likes to call a strategic sector like the infrastructure, mining, and maybe even transport? They have transport, for example is next. Which kind of areas, maybe some niche areas of economy do you think Mongolia has the potential to develop more. I’m thinking of maybe organic farming or things like that, but just as a foreigner who’s lived in Mongolia for many years, which do you think, which sectors do you think have the more potential in the long run?

Daniel Mahoney: Yeah. I know and I think you probably know too, the government for a long time just talked about IT sector because that’s,I mean, there’s a lot of well trained, smart, young mostly I guess in technologies, young people, and it’s a good potential. The Mongolian situation has always been that the domestic market is kind of small.

Enkhzul Orgodol: Yeah, it is very small.

Daniel Mahoney: Yeah. You can’t, It doesn’t make economic sense to build a car assembly plant here, because the sales is too small and then the distance to other markets where you can sell is too far and too expensive. There’s lot of types of industries that wouldn’t work in Mongolia but IT would work.

Enkhzul Orgodol: You talked a lot about mining. When we talk about mining, most of the time people think mining as a high-risk, high-return type of business. Earlier you mentioned to me it’s not always the case. Could you explain a bit more on that?

Daniel Mahoney: Yes, what we were talking about was exploration, which is very high risk but very high return. This is I think maybe somewhat misunderstood in Mongolia that the exploration phase, which is when you’re just acquiring new ground which has never previously been mined, that there’s big risk. You have to go and spend a lot of money drilling, doing investigations. Say out of 10 companies, only one out of 10 will find anything. The other nine will go bankrupt.

These business are always financed on stock exchange and most in Toronto, in Canada, and then Australia, which are big mining company countries, a lot of experience of financing exploration work. Banks don’t lend to these companies because there’s a good chance that nine out of 10 of them will go bankrupt. There’s investors in Toronto, they are in Canada, and Australia that understand this business very well and they finance all this work.

This was in early years in Mongolia where a lot of the investment into Mongolia was these kinds of companies. If you’re the one out of 10 that find Oyu Tolgoi, then your investment goes 100 times. The investor knows if I invest in 10 and I go bankrupt, the 10th one will go 100 times so overall I make my money back.

These investors are a relatively small pool of investors and they know what’s going on around the world. For example, when in 2006 when the Windfall profits tax came in, this is when the investment from Canada just dried up. They started investing in companies working in Columbia and South America because they know which countries are friendly to investment and they know where, because it’s all high-risk money so they know. They’re very knowledgeable and they know, which countries are better and worth their investment.

Then Mongolia second, they came along with the strategic mine concept, which is basically like we say it’s like going to a casino that if you win the jackpot, then the casino owner comes and says, “Give me one-third for free.” How you’re going to be, put real high-risk money into my project, would I go to Mongolia where I have to give a third to the government or go to a country where I get to keep my jackpot. This is what’s really hurt investment at exploration stage in Mongolia.

Now, we also talk other projects like Oyu Tolgoi where the resource has already been discovered and developed. Once they did discover copper deposits, those continue and they’re still doing it now, drilling and trying to expand it. It’s going to be bigger. They don’t know how big it is but what they do know is that it’s big enough, and they know that how it sits in the ground, and how it’s structure, and the engineering to get it out of the ground, and they know they can make a profit by doing that.

They check all of these things, a company like Rio Tinto and they won’t invest until they eliminate, until they know that they won’t invest the big $10 billion to exploit the mine until they know all of these things. They know that the resource is there. They know how it’s structure, they know the engineering.

The other thing we were talking about is the political risk. They address that issue as well. Before they’re going to put 10 billion, they’re going to make sure that they’re covered by political risk, mainly that the government won’t confiscate their investment, or that the tax regime will stay stable. This was what was behind the stability agreement.

That’s not just for Mongolia. It’s for any developing country, they would want these kinds of assurances before they would invest. But, for them, it’s a, I mean, they’re still going to make good profit but it’s not like exploration company that makes 100 times what it’s invested, it’s more like if you invest 10 billion it will make a 25% return or something. Of course, it’s good profit.

Enkhzul Orgodol: I see. Can you elaborate a bit more on the stability agreement you just mentioned? What are the main inclusion out there, and how it’s protecting the investor, and how the government is practicing it in Mongolia?

Daniel Mahoney: Yeah, well, it’s mainly it’s fiscal stability but you know, it’s just taxes so the tax rate. If you invest in the project and tax laws, of course, can always be amended. Any law can be amended. What the government has done in the stability agreement at the time is to guarantee to Rio that the tax rates in effect and the taxes in effect at the time that the agreement was signed will stay stable. There’s some other, I mean, the documents is public record. It’s all over the internet, of course, and there’s stock exchange filings in Canada. It covers other things, labor, licensing, things like this, but it’s basically just to say you’ll have a stable environment going forward. Probably the most important thing is the fiscal and tax stability going forward.

Enkhzul Orgodol: Can this stability agreement be done by other investors as well or is it only for specific projects or where, you know, bringing over a specific number of investment?

Daniel Mahoney: Under the new investment law that was adopted a couple of years ago, I forget, 2014 maybe. Now, there’s two things. Any business can get a tax stability agreement. In the tax stability agreement, any large,I think it’s in certain sectors, really large, what you’re talking about, really multi-billion dollar project, you can get an investment agreement, which is similar to the stability agreement that you talk about which is broader coverage. Any investor can just the tax stability. If forget, there is a minimum investment. I forgot what the amount is, but a relatively small amount.

Enkhzul Orgodol: Right. It seems like the government has been giving significance to specific sectors like the mining, infrastructure. They’ve been trying to first attract investors through often this kind of incentives like the stability agreement, but at the same time, they’ve been trying to protect such sectors namely the strategic sectors, for example, right? With the current government, what do you think? They have to work as priority to fix the situation, to keep the right balance in terms of making Mongolia look like they are being very protective on the one hand, but on the other hand, they’ve been trying to be very open or very welcoming.

Daniel Mahoney: Well, there’s the strategic sectors I guess are mining, media, and finance, but most countries do have national security interests in the strategic sector. It’s not unusual for Mongolia to have that. I wouldn’t say that they’re giving advantages, or benefits, or special treatment to investors. Just, all investors want a stable environment and the fact of the matter is, United States is more stable than Mongolia. If you invested in the United States, you don’t expect or you don’t necessarily want or need a stability agreement because you know that the law, the legal environment will stay relatively stable. Sure, Congress can change tax rates and they do from time to time, but nothing like what the risk that they foresee in Mongolia. That’s why they needed the stability agreement to invest in a country like Mongolia.

For the government going forward as we talked before, investors need to see results because of what happened in the last three or four years with all the negative experiences of investors. Also, the government now has been going out and been telling everybody that those mistakes were in the past, lessons have been learned. Going forward we’re definitely committed to investment, we’re committed to rule of law, we’re committed to fairness. They just have to prove it now over time.

There’s huge potential in this country and there’s been unfortunately some missteps and over the last five, six years and mainly because of Mongolia was maybe too successful too quickly at the time as far as drawing investment in and things were going maybe too fast.

Enkhzul Orgodol: Since a 17% increase in GDP etc

Daniel Mahoney: All of it, yeah, just huge inflow of money into the country. Things were going really maybe too fast for the population, society to manage, to understand. When it’s 17% compounding year-on-year and there’s so many changes in Ulaanbaatar. You know, you’ve lived here, just physically, just explosion in building but also I think in society is really coming from Communist era and then slowly into market economy. Then all of a sudden sort of just thrown totally in such a rapid rate that it’s tough to adjust, and then maybe some mistakes made in adjusting to it.

Enkhzul Orgodol: Yeah, and we really hope to see the current government learning from the mistakes and doing what’s right in the future.

Daniel Mahoney: Not only government but the whole country, and society, and everybody understanding, maybe having better understanding of for example it’s not going to go up forever 17%. It’s going to maybe come down sometimes and to manage if for the long run, not the short run. More exposure, experience, education. More of just general concepts of a market economy.

Enkhzul Orgodol: Yeah, exactly. I think I should highlight something here as well, because what you said about finding qualified and reliable workforce is one of the top challenges in Mongolia. I think that really should make the general public and the professionals, aspiring professionals to reflect on themselves, and trying to, how would I say, build up more soft skills like trust building etc., it seems like.

Daniel Mahoney: Sure.

Enkhzul Orgodol: Okay, thank you very much for your insightful discussion, and all the best in your work. Thank you.

Here Christopher provides many insights into development of the property market and Mongolia’s love affair with cars. His company, M.A.D Investment Solutions has been involved with several urban development projects in Mongolia and the drivers for the project are explored.

Christopher also shares his views on what makes Mongolia unique and presents the case for capitalising on its strengths.

Interview Transcript

Enkhzul Orgodol: Chris is an urban planner and a real estate expert. He’s been actively involved in Mongolia’s property market over the past decade. We will discuss about ups and downs of Mongolia’s property market and other type of opportunities to turn the current challenges into investable opportunities in the future.

So, Chris, welcome.

Christopher De Gruben: Thank you.

Enkhzul Orgodol: Your company, MAD, stands for “Makes A Difference”.

Christopher De Gruben: Make A Difference, yeah.

Enkhzul Orgodol: Make a Difference.

Christopher De Gruben: Yeah.

Enkhzul Orgodol: Investment solutions claimed to be primary of several initiations in Mongolia, such as Mongolia’s first serviced apartment fund.

Christopher De Gruben: So, when I first came to Mongolia, I was working for a large private sector developer in the country. And I quickly realized that if the market was to mature and improve, we had to have access to information. And so, we started MAD on the basis of providing information and improving the market.

So, we published a very large comprehensive market report that was made available freely. And then we then looked at opportunities that were outside of the normal range of what developers do in Mongolia.

Enkhzul Orgodol: Which was?

Christopher De Gruben: So, service the apartments for instance. There were no serviced apartments in the country. There was a strong need for it. And so, we started buying up the old Russian apartments, and renovating them, and then renting them out as serviced apartments.

So, today, we have 43 apartments under management and we rent them mostly on Airbnb. And it’s working out really well. So, about 70% of our bookings come from Airbnb. And so, we provide a chauffeur-driven car from the airport, we provide cleaning services, we provide breakfast coupons, we do other sorts of things.

And so, we like to look at opportunities that didn’t exist in Mongolia before instead of developing what everyone does. And we are very focused on providing services to the industry rather than providing, that being a developer basically, or being something else.

The same thing with the construction price index. So, we noticed that, again, for the market to mature, there had to be access to better information which means that foreign investors coming into the market, as well as Mongolian companies, need to better understand where construction prices are, where the seasonality is, and where prices are moving.

Enkhzul Orgodol: Is it accessible online?

Christopher De Gruben: At the moment, it’s owned by the Ministry of Construction. So, we did it for private company before the Ministry of Construction. And they will make it available online.

Enkhzul Orgodol: I see.

Christopher De Gruben: But sections of it are available online. But our real estate market data is available online. And a lot of our databases are reflected in that. So, the construction price index is summarized within that document.

Enkhzul Orgodol: I see. So, whoever is interested to find out about those index and the figures and numbers, can you just access your website

Christopher De Gruben: Yes, correct.

Enkhzul Orgodol: Okay, that’s great. Your intelligence unit made the very compelling analysis and projections on the rising demand and shortage supply of parking spaces in Ulaanbataar over the next few years. As a result, you again started another initiative called “UB Parking Fund”.

Christopher De Gruben: Yes.

Enkhzul Orgodol: Which could be seen, to me, as an impact investment initiative.

Christopher De Gruben: Correct.

Enkhzul Orgodol: How is this project progressing?

Christopher De Gruben: So, we’ve raised the first tranche of capital. And we’ve bought a bunch of parking spaces in UB. Parking in UB actually is a very simple investment for me because there’s so many cars here, there’s such a lack of parking in the city. The city is restricting more and more the parking spaces, they’re starting to charge for parking spaces. And you can see now, public spaces have been closed off so that you now need to pay for it, and so on.

So, we thought that the parking spaces within building. So, we buy parking space within existing buildings. We’ve come up at a premium. As you try to remove the supply of parking spaces on the streets, and as people get more and more cars, rationale is that the parking spaces within buildings will increase in value. And therefore, the demand for them will increase. And so, that’s what we’re doing.

The parking is also a very simple investment to manage, unlike other forms of real estate because there’s no maintenance, there’s no utility bills. It’s very, very straightforward.

Enkhzul Orgodol: Right, right. So, please help me understand a bit more on how it’s working. You said you bought some parking spaces in Ulaanbataar. Could you name some of them? And they’re all under existing buildings?

Christopher De Gruben: Yes. So, we look at the existing buildings. They all run here, actually. They only run this, the State Department Store, and the Sükhbaatar Square. And so, typically we’ll buy two or three parking spaces in the building. We go in the building, we try to find people who are selling parking spaces. And if it falls within the price criteria, then we buy them off. And often, the people who we buy them from are the people who end up being the tenants for those parking spaces.

Enkhzul Orgodol: And after that, what happens?

Christopher De Gruben: Probably in summer, we’re going to raise a second tranche of capital. And if successful, then maybe a third tranche be about building parking spaces. So, we had a vision towards building integrated above-ground parking structures.

Enkhzul Orgodol: Above-ground?

Christopher De Gruben: Which is severely lacking in UB. But this is, of course, a much, much bigger project.

Enkhzul Orgodol: Yeah.

Christopher De Gruben: So, before we get to that, we want to build some experience, we want to build some track records of knowing exactly where the price points are, of where the demand is, and how it works. And we need to prove to investors that there is a market. And so, raising small amounts of money bit by bit allows us to do this while maintaining the revenues that we need in order to build on phase three, to build one parking spot. And if it works, then we maybe build multiple.

Enkhzul Orgodol: I see. So, for the investors who’re investing in this fund, what is their turnover like? How long does it take-

Christopher De Gruben: So, the yield at the moment is about 15%. So this is annual yield, annually yield that investor’s getting. It’s a private fund. It was, in many respects, crowd funded. So, it was done through a website. And so people subscribed on the website.

And so, investors get the 15% yield at the moment. We are keeping some of the revenue to be able to reinvest back into purchasing more parking spaces because we want to drive up the capital value of the portfolio.

Enkhzul Orgodol: Do you see more foreigners investing in that fund? Or more domestic-

Christopher De Gruben: No, definitely foreigners. Domestically, we haven’t seen much interest.

Enkhzul Orgodol: Or, do you think it’s lack of awareness or?-

Christopher De Gruben: No, I think for domestic investors, it’s easy enough for them to do it themselves. If you want to buy five parking spaces, they can do so without management cost and the management fees, and so on. We present value because we aggregated everything together. And so we have efficiencies because we buy so much.

But for a domestic investor who has $50,000 to invest, he can buy two parking spaces quite easily by himself. He doesn’t need us to do it. And he can find the tenant very easily.

Enkhzul Orgodol: I think it’s very smart that you changed your model a bit because of the economic issues in Mongolia. Instead of trying to rent out apartments, which are of course much costly to most of the people, you’ve turned to parking spaces which are maybe much more essential than luxury apartments.

Christopher De Gruben: I know many Mongolians who buy a car before they buy an apartment. And-

Enkhzul Orgodol: Did you find that interesting or-

Christopher De Gruben: Yeah, for me, it’s very interesting, because in Europe, it’s completely the opposite. For me, I don’t have a car. And I will only buy a car if I really, really, really need one. But my preference is always not to buy a car. If I can walk, or cycle, or take taxis, that’s what I always do.

Enkhzul Orgodol: Right. Yeah, but then, again, if you look at the other side, public transportation is not really as great as Europe for example.

Christopher De Gruben: Yeah, absolutely. But even in UB, I don’t have a car. I walk everywhere.

Enkhzul Orgodol: That’s great.

Christopher De Gruben: But people-

Enkhzul Orgodol: You must have a very good located apartment, then.

Christopher De Gruben: I live upstairs.

Enkhzul Orgodol: Oh, good for you.

Christopher De Gruben: So, for me, it’s very easy. But I think the Mongolian mentality or so, this is a transition from the horse to the car. And for many young Mongolians, having a car is a status symbol. It’s a sign of wealth, which is why I know a number of Mongolians who live with their parents, often in the living room, but they will buy a $50,000 car before they buy an apartment. You can buy an apartment for $50,000. But they will buy a car instead because it’s a status symbol. It’s something they’re proud of.

And of course, you have the winter conditions, you have public transport, you have also the realities of living here. But we feel that there’s an oversupply of apartments in the market. But no one is building parking garages. So, it’s a simple supply-and-demand game.

Enkhzul Orgodol: Or very few buildings-

Christopher De Gruben: Or very few buildings, yeah. And there’s always under supplied. There’s always 30 spaces for 60 apartments.

Enkhzul Orgodol: Besides the above-ground parking lots, do you think we do have the potential of building underground parking lots as well?

Christopher De Gruben: Yeah, you do. The problem is that it’s all more expensive. But, actually, UB has a lot of very good public spaces. So, you have the courtyard. So, behind here in the 40K (a district), you have other courtyards. You have Sükhbaatar Square. You have a lot of big, open spaces where you can build underground parking garages and leave a space on top so you can just rebuild the square on top of it. So, it doesn’t change anything.

So, imagine if Sükhbaatar Square was three levels of parking underground.It’d be very convenient. It’d be very easy. And it wouldn’t change Sükhbaatar Square. It would be exactly the same.

And this is what you’ve seen all over the world taking place. So, Chicago, there’s Millennium Park. All over the world, parks and public spaces have been transformed to underground car parks.

And so, it will happen in UB. It’s a question of time.

Enkhzul Orgodol: Have you mentioned this idea to anyone from the Ministry, for example

Christopher De Gruben: Yes.

Enkhzul Orgodol: You seem to have a very close connection with them

Christopher De Gruben: We talk often to the Minister and his party. The problem is there’s many agencies in Mongolia who deal with this sorts of things. So, from the chief architect’s office, to the MUB, to the Master Planning Department, to the Urban Design Institute. And so, getting everyone together, getting everyone in agreement. And then there’s a symbolic nature of a private parking space and the need for public space, like Sükhbaatar Square, then the security concerns being so close to Parliament, and so on.

So, there’s hurdles. But they can be breached. They can be resolved, that’s not the problem. The problem is finding someone who has the money and the resolve to make it happen. But we’re working with one developer at the moment who actually does want, interestingly, to build car-parking spaces to the south of Sükhbaatar Square and then connect it directly to Central Tower to Blue Sky Tower and to the Municipality through underground tunnels. Which means people could drive underneath and link directly into their office spaces without going outside.

Enkhzul Orgodol: So, that project is in discussion, is it?

Christopher De Gruben: At the moment, yes. So, we are doing the computation preparation. We’re looking at various investors to see if we could make it happen.

Enkhzul Orgodol: I really hope it will happen.

Christopher De Gruben: So do I.

Enkhzul Orgodol: Yeah. And all the best in that, and you.

Christopher De Gruben: Thank you.

Enkhzul Orgodol: Another greater impact investment opportunities lies in the suburban or ger districts of Ulaanbataar,I believe. Those who are not so familiar with UB ger districts, they’re basically districts where people live in Mongolian traditional housing, gers or yurts, and burn coals to cook and keep themselves warm. So, it’s not as exciting as it might sound, you know, ger district, yurt district because such ger districts are the main source of air pollution in Ulaanbaatar unfortunately.

But countries like the Philippines and India have solved some of their housing problems with impact investment and built large-scale, low-cost housing for their suburban population. As an expert, do you see opportunities for such project happening in UB to rebuild the suburbs?

Christopher De Gruben: Yes. There are many opportunities, but the challenges are huge. And UB has a very unique situation as compared to the Philippines and so on.

Enkhzul Orgodol: It’s cold?

Christopher De Gruben: The cold is not so much the issue.

Enkhzul Orgodol: Okay.

Christopher De Gruben: The one issue is the land rights. So, UB is maybe one of the only capital where the poorest people of the city are the land owners. In every other capital city in the world, or just about, is the richest people who are the land owners, and the poorest people are squatters. They have no land rights, no land tenure.

In UB, actually everyone in ger districts has a land right. So, they have rights of possessions, of ownership, or they have a free-hold right to the lands. And every Mongolian, as you know, has a free right to land as a birth right.

Enkhzul Orgodol: True.

Christopher De Gruben: Which means the ger districts are getting bigger, and bigger, and bigger, and bigger. Now, because of this, you have very low density. So, if you look at the low-income areas of Mumbai, of Manila, of Chinese cities and so on, they’re very dense. Lots of people sleeping on top of each other and living on top of each other. Right?

UB’s extremely spread out, very low density. Which means it’s impossible to provide urban infrastructure to those people. You can’t provide the buses, the heating, the water, the electricity and so on to such a low density for people who can’t afford it. Because the cost of doing so it huge.

Enkhzul Orgodol: Exactly.

Christopher De Gruben: You can provide this infrastructure in the U.S. suburban setting where the average home pays $15,000 a year in taxes. You can’t do it in UB where people pay no taxes. So, the cost of building that infrastructure would be in the billions of dollars. And the city just can’t do it.

And it’s not just the physical infrastructure, it’s also the schools, the hospitals, the buses, all those sorts of things. It’s too expensive to do. So, the solution is to densify. You need to bring people closer together, and then it’s affordable to to build infrastructure for those sub-centers.

In terms of providing affordable housing, so, I work on ADB and World Bank projects in the ger districts. And those two projects in particular that I’m working on at the moment for the ADB. One is ger development investment program that invest in infrastructure in the sub-centers of UB. So, we’re working on two sub-centers at the moment, Bayankhoshuu and Selbe. And the other one is affordable housing and urban renewal project, which we built human-centric affordable housing for residents of the ger districts.

Enkhzul Orgodol: What do mean by human-centric?

Christopher De Gruben: So, a lot of the affordable housing projects that have happened so far by GADIP, by GAP, by all of the state agencies, they build single-use high-rise towers, right?

Enkhzul Orgodol: Okay.

Christopher De Gruben: And this is a model that has been proven the world over not to work from a social perspective. People lose touch with their identity. You have a rise in vandalism, and so on. What works is something that’s called human-centric. So, it’s human-focused development. It’s about scale.

So, instead of building high-rise towers with lots of emptiness around it, what we’re trying to do is build mid-rise townhouses so people still have an attachment to man, they still have a garden, they still have low-rise cities. And so, you have-

Enkhzul Orgodol: Better school and a hospital.

Christopher De Gruben: That’s right. And you create communities. And you create meeting spaces or you create green spaces, and so on. So, it’s creating more a village feel rather than a megapolis feel.

Enkhzul Orgodol: Is it in the stage of conceptualization? Or-

Christopher De Gruben: No. So, we’re finishing the feasibility study of the affordable housing in March, April. And then it will go to the Parliament to be discussed. And hopefully we can start construction 2018.

Enkhzul Orgodol: Okay-

Christopher De Gruben: It all depends, once we’ve finished our mission, then it depends on the Mongolian Parliament and the ADB to push it through. Which can be very quick. It can also take a long time.

Enkhzul Orgodol: Yeah. Well, I hope the Mongolian Parliament will be looking into those kind of innovative solutions. Otherwise I mean, the people have been quite angry and upset with the social and environmental problems-

Christopher De Gruben: And it’s understandable. I mean, it’s a very difficult choice. I work a lot in the ger district. And people there realize that burning coal is bad for their families, it’s bad for everyone, but they have no choice. They need to heat themselves. So, it’s a very difficult situation.

Enkhzul Orgodol: But is someone who’s lived in Mongolia for a decade-

Christopher De Gruben: Yeah

Enkhzul Orgodol: -and also have been involved in different economy sectors of the country, which kind of opportunities do you see in the countryside in terms of building up more business-like environment there and at the same time, helping the gers sustainable livelihood.

Christopher De Gruben: Yeah. I mean, the two big of course are agriculture and tourism. Mongolia is extraordinarily beautiful, it’s one of the most beautiful countries in the world. The problem is how it markets itself. It’s too expensive for low-income tourists, and it’s too difficult. And you don’t have the infrastructure for the high-income tourists.

Say, if you look at African countries that also have sort of beautiful nature, and so on, they’ve marked themselves on very high-income tourism — so, Tanzania, Kenya, and so on — with extremely good luxury-tented camps. The whole glamping movement and so on.

And I think Mongolia needs to go into that direction. But in order to be able to do so, it needs to build infrastructure. A tourist who pays $2,000 a day, is not going to sit in a minivan going over bumpy roads for five hours a day. And so, there needs to be an infrastructure built on that

But there also is a huge market for the nomads to start welcoming tourists into their lifestyles and so on. And this is destination tourism. Is a huge opportunity that is not being exploited at the moment. There’s a few small companies that are trying to do it. And I think the Ministry of Tourism needs to be a better job of supporting those sorts of initiatives.

And then, agricultural business. I think the opportunity actually lies in letting Korean and Japanese companies come and do agricultural projects in Mongolia. There’s a common misconception in Mongolia that if you do longterm leasing of land, or even selling of land to Japanese, or Korean, or Chinese companies that mean you’re losing that land. And I think that’s nonsense because our land is still in Mongolia.

Enkhzul Orgodol: Exactly.

Christopher De Gruben: They can’t take it away back to Japan or Korea. And the Mongolian government is here to regulate. So, you can tax it, you can derive revenues from it, you can do all sorts of things.

The Japanese really need grazing lands. So do the Koreans because they have overpopulation, they have issues there. And it will come at no cost to Mongolia. And it would create jobs. It will create benefits. But importantly, it will create skill transfers, because they will employ Mongolians on their farms that those Mongolians would then get set at their own farms and become competitors.

And-

Enkhzul Orgodol: But however, do you see the relatively long, lengthy cold season in Mongolia, a problem in doing such kind of agriculture projects?

Christopher De Gruben: It used to be. No longer. Now that you have hydroponic agriculture, you have so many new types of innovative agriculture that you can do. It’s becoming less and less of a problem. And bear in mind, during the Soviet period, Mongolia was a net exporter of wheat to the Soviet Union. The Soviet Union was far bigger agriculturally than it is today. Today, we have 20% of agriculture we had at that time. Now, the Soviet Union agriculture wasn’t particularly sustainable or wasn’t particularly good quality. But there is a market for doing this. And bear in mind that the world over, people associate Mongolia with the steppes. If you ask anyone in the world what is Mongolia, they imagine the steppes.

And you have restaurants the world over that sell Mongolian beef. That’s not actually Mongolian, it’s from inner Mongolia. But there is a perception of good-quality beef. And I think there’s a niche market for Mongolia to go into very high-quality beef, like wagyu beef, or kobe beef, or something like that, that can then be sold over in Asia to Korean, Japanese, Chinese, Singaporeans, and so on.

Because the branding is already there. Now, it’s just a case of creating the product. And there’s a number of opportunities like this that I think Mongolia could actually do fairly easily.

Enkhzul Orgodol: Besides your real estate business, have you been involved or have you had deeper research on this kind of economic opportunities you just mentioned besides your real estate.

Christopher De Gruben: No. I mean, we really, really focus on real estate. Everything else often comes as a result of the real estate. Because if you’re looking at the urban areas, you also need to look at what drives economically and how the economy as a whole functions. So, I’m very interested in macro elements.

And we have advised sort of different agencies on opportunities in Mongolia. The problem is not so much the opportunity here. The problem is the size of the markets and the regulatory environment. Those are the two big issues that investors face.

So, the opportunities are there. And there are good Mongolians on the ground that can actually make them happen. The problem is simply the government often gets in the way and is very difficult to deal with Mongolian government for such a small market. There are other countries where the government is equally difficult to deal with. China is notoriously very, very difficult to deal with. But at least the market is much bigger.

Mongolia is a very limited market. And there’s three million people, of which only 1.5 live city, of which how many can afford any kind of product.

Enkhzul Orgodol: Due to exactly the reason you just said about the relatively small size, not relatively small size of the market, however relatively big land-

Christopher De Gruben: Land mass, yeah.

Enkhzul Orgodol: -and land mass, do you think Mongolia has more opportunities for becoming springboard to other countries like China or Japan and Korea, you just mentioned, is they’re trying to attack investors who would do business that targeted for Mongolians.

Christopher De Gruben: So, I think actually Mongolia, being such a large land mass in a geographic area that has so many high-density countries and so many countries that are growing in terms of economy, presents enormous opportunities. And Mongolia rightly or wrongly — I mean, there’s debates on both sides — is very much against letting foreigners in for a number of reasons.

Of course, the Chinese, there’s a fear of being invaded and becoming a Chinese country of sorts. And those fears are of course founded. But I think there’s a middle ground that can be found between the current xenophobia of we’re afraid of foreigners, so we’ll make life very difficult, to actually benefiting from the potential and investment that it brings. The land mass that you have here is an enormous godsend that Mongolia has. And beyond the mining, I think it is what’s going to prove the fortune of Mongolia over the longterm.

Of course, there’s huge mining opportunities in the country. But the land mass is also a big issue because it means everything is difficult and everything is far. UB is a city-state in effect. But if you want to go anywhere, if you want to create any kind of business for secondary cities, it is just so far, it’s extremely hard to do.

Enkhzul Orgodol: I’d like to ask you a couple of questions on your personal journey. Back in 2012, in your interview for a local newspaper, UB Post I believe, it’s exciting fun and the best possible business school in the world.

Christopher De Gruben: Yes.

Enkhzul Orgodol: I know the positivity, but can you still say so after five years?

Christopher De Gruben: It still is the best business school in the world because we’ve seen both the good times and the very bad times. And so, for example, for my business, it’s forced us to completely change, and adapt, and be flexible. And so, the business lessons you learn in Mongolia are very, very concrete. They’re very good. And they’re probably much more down to Earth than the experiences you will have in any other country.

The things I’ve learned in Mongolia is the power of relationships and the power of being practical, and being very pragmatic about what you do, and always looking at what can go wrong.

Enkhzul Orgodol: So, this type of scenario planning, you have to plan-

Christopher De Gruben: Yes, absolutely.

Enkhzul Orgodol: -for scenarios.

Christopher De Gruben: Absolutely.

Enkhzul Orgodol: What if this happens? What if that happens? Yeah, I think that sounds like a very good lesson for you, right?

Christopher De Gruben: Yeah, but at the same time, Mongolia is actually quite unique in the fact that it is virtually easy to start an adventure. If I was working in the U.K. or in most Asian countries, it’d be very difficult for us to do new product lines, new markets, and so on because there’d be so much regulation, there’d be so much red tape. And it’s such a competitive industry.

Here, if we have an idea, we can start on this idea next week and see if it works at relatively low cost. And if it doesn’t work, we can shelve it and try something else. And Mongolia’s quite unique in this. And that’s why you have such an entrepreneurial culture.

Mongolia, for me — I’ve traveled all over Asia — is very unique in how many entrepreneurs it has. Mongolians are by nature extremely entrepreneurial, which is a problem as well as a negative. It’s a problem for people like me because when we have good employees, they stay with us one year and two years and then they want to go and compete. And the dream of every Mongolian is to have their own business, I think. Or, that’s how I see it.

Enkhzul Orgodol: Partly true, I think

Christopher De Gruben: Yeah, and whereas if you go to China, if you go to Japan, if you go to Korea, the dream for them is to work for a company for the rest of their lives and to be a salary man, right? And so, Mongolians have this great entrepreneurial spirit where they want to try everything, they want to do everything, and so on.

Enkhzul Orgodol: What else do you think the government should do in the next few years? Because they just formed about half a year ago, and they I think are really trying hard to lift the economy up. How much do you think they will be able to accomplish here over the next few years?

Christopher De Gruben: Yeah, so the biggest problem of the government is — I mean, it’s a vicious circle. It’s a very different institution they’re in because what investors what is stability. The best way to prove stability is over time. You can’t prove stability over six months.

So, we’ll see in a year or two if the government is stable. The key thing for the current government is to maintain its promises and to stay on message. One of the key challenges from the previous government was that there were so many conflicting messages. So, constantly there were ministers, and members of Parliament, and so on that were saying certain things in the press. And they were all fighting amongst each other, and so there was no unity in the government.

Today, with MPP controlling the Parliament, controlling municipality and probably soon controlling the presidency, they will have all the tools necessary to have stability and to have a single message. And I think that’s what’s very important. For example, today, there’s a lot of uncertainty about will Mongolia be able to meet its March payment on the Chinggis Bonds. Will the IMF come in and so on? And even in the March payment, the Minister of Finance is saying one thing, the Parliament are saying another thing. And so, we need to have clarity in what is going on.

And in most other countries, you have a clear chain of command. And so, you have a spokesperson from the government who says where the government position is. Other ministers and parliament members are not really allowed to talk publicly about affairs of state. And I think this is something that needs to be slightly improved on Mongolia.

I’m actually quite impressed so far with the current government. They’ve inherited from a very, very difficult situation. It hasn’t crashed yet, which it’s a positive. It’s a good sign because we were heading towards a massive crash. And they’re trying their best to improve the situation while maintaining their political promises, which is not always so straightforward. So, we’ll see if they’re able to do it. I’m confident. I’m confident.

Enkhzul Orgodol: When you said five years ago that you came to Mongolia to build a career, do you think you’ve already reached that goal and what your needs and longterm goals in your business life. How are they related to Mongolia?

Christopher De Gruben: I’ve learned an enormous amount. Not just from a business perspective, but mostly from the marker perspective. So, we become valuers, we become planners, we become market research specialists. And we’ve realized that we have product, which actually, from an Asian-market perspective, are quite unique and very good.

Or capacity to integrate together the investment side the research side, the urban planning and evaluation, all together into one core team. It’s something that’s quite unique here. So, we think there’s a market for this in other Central Asian countries, as well as Northern Asian and so what we want to do is expand our business. Mongolia is a relatively small market, as I’ve mentioned before. And so, for us to keep growing, I think we have to grown outside of Mongolia. So, when we tame our base-

Enkhzul Orgodol: So, you want to duplicate your business in Mongolia and implemented elsewhere? Okay.

Christopher De Gruben: Yeah. We’ve set our base in Mongolia. But I think there’s a number of central Asian countries in particular that have gone through the same transition than Mongolia, and had the same problems that we can probably enter in and provide some good services. And it is those countries where the big companies don’t want to go into because they’re too complicated because they’re too expensive, and they’re too small of a market. Where we had a competitive advantage to be able to take our lessons from Mongolia, and go and apply to other countries.

Enkhzul Orgodol: Yeah, that’s sounds like a very good plan.

Christopher De Gruben: We’ll see if it happens, yeah.

Enkhzul Orgodol: Yeah. Which countries are you looking at, at the moment? Or it’s still in your mid-term plan-

Christopher De Gruben: So, it’s still mid-term. But we’re looking sort of at Tajikistan, Kazakhstan, those sorts of central Asian countries.

Enkhzul Orgodol: I see. Okay, Chris, very, very extremely interesting discussion. I think thank you very much and that-

Christopher De Gruben: A pleasure.

Enkhzul Orgodol: -I just want to briefly explain about the project-

Christopher De Gruben: Yeah.

Enkhzul Orgodol: -again to let the views and yourself as well. So, this project, Doing Business in Mongolia is a content strategy project which will produce four main outcomes in ebook, business guide book that will be mostly based on the kind of discussions we’re having from these 12 business leaders we’ve chosen. And also, of course, there’s YouTube videos that original media series we’re also going to launch a website on this project, Doing Business in Mongolia, so people care visit them any time, even after the videos is the e-book. And we’re also planning to organize a forum in the summer when the sun is up and the weather is warm for anyone who’s interested in that, explore more businesses opportunities in Mongolia. So, of course, if you are in Mongolia, please join us-

Christopher De Gruben: I’d love to.

Enkhzul Orgodol: – there in the forum. And I would, I would also like to encourage my leaders to sign up in the link, under the description in this video to receive the free copy of the Business Guide Book we’re providing. And we hope that you will be able to share some of the market insights with us with so that we can include some of that in your book.