28 MONGOLIA'S INFORMAL SECTOR - Appendix A: Micro-studies of Informality

# Appendix A. Micro-studies of Informality in Mongolia

70. This appendix will discuss in detail two sectors in which informals play a large role, distribution and transportation. The purpose is to illustrate how micro-entrepreneurs have come to prominence in these sectors, and how organizational structures and interrelationships with the formal sector have evolved to fit the needs imposed by the market and by fornal sector institutions.

## **Informal Distribution**

71. Casual observation suggests that the distribution sector of Mongolia's economy is one in which informal activity is thriving. Throughout the entire stream of distribution services, from international traders to wholesale trading at the "black market," to supplying the _aimags,_ to retail distribution through kiosks, much of the value added at each stage comes from the informal sector. The pages that follow will provide an introduction to some of these informal activities. Particular emphasis will be given to kiosks, 245 of which were surveyed for the purposes of this study.

### Bringing **the Goods to the Consumers: Kiosks**

72. In the last four years, kiosks have popped up all over the settled areas of Mongolia, seemingly overnight, to serve local residents with a convenient place to buy candy, soft-drinks, cigarettes, biscuits, and other consumer goods and to provide their entrepreneurial owners with a source of income. Mongolians know them as TUTs, (rhyming with "boots") an acronym for "fast-service point." Non-existent before 1992, they have quickly grown to become a major source of retail distribution for Ulaanbaatar, their numbers rapidly overtaking those of retail shops in every district of the city. (See Figure 6.) 73. Establishing a kiosk is not bureaucratically cumbersome, but neither is it transparent. The first step in obtaining permission to establish a kiosk in Ulaanbaatar is to visit the _duureg_ and submit a written request to set up a kiosk. The request must be accompanied by a stamped statement from the chairman of the local _horoo_ (a sub-unit of a _duureg)_ stating that the person wishing to establish a kiosk needs the income a kiosk would provide.<sup>75</sup> After paying a visit to the family to confirm that they are poor and in need of income, the local official makes a recommendation and the _duureg_ governor makes the final decision whether to approve the application. If it is approved, the local official then seeks out a suitable piece of land to establish the kiosk.

74. Kiosks are not entirely unregulated or untaxed. They are sensibly obligated to maintain valid licenses, to keep the area clean, and to refrain from selling alcohol, expired food products, or certain tobacco products. They must be established a safe distance from toilets and garbage receptacles. Before commencing operations, a kiosk owner must pass a medical examination, and present a certificate that they passed. Only kiosks with electricity and water are permitted to <!-- Start of picture text --> Kiosks and Retail Shops<br>in Ulaanbaatar<br>2,500<br>1,500<br>0<br>0<br>I shops<br>19<br><!-- End of picture text -->

**Figure 6** _Source:_ Ulaanbaatar City Administration