Chapter 5
“Long ago American merchants had settled in that area.”
Early black and white photographs from the beginning of the 1900s give some indication of a United States commercial presence in Mongolia going back more than a century. Two of the more well-known American trading houses at the time were “Andersen and Meyer” and the “Mongolian Trading Company,” the latter based in the Inner Mongolian town of Kalgan but with branch offices in both Urga and the western town of Uliastai.
Indeed, one photo dating to 1918 shows a Mr. Holman, one of the more prominent American business executives of the period, posing outside a large ger decorated with wolf skins. He is standing near a sign that describes his trading business as an “American Joint Stock Company.” American silver dollars were legal currency throughout Mongolia at the time, along with Chinese silver ingots, and bank notes and coins from Russia and elsewhere.
Documents from the Mongolian National Archives provide tantalizing glimpses into other aspects of the early commercial relationship. For example, one document dated October 9, 1922, includes a request from an American citizen named Franche Menin to dig for gold. Another document, dated January 25, 1923, describes a possible conference on trade issues sponsored by British and American companies. Yet another document from the National Archives, this one dated to 1922, includes a query from the Mongolian Ministry of Foreign Affairs requesting information about the potential purchase of cotton from the United States to make military uniforms.
These early commercial ties played out in other ways as well. In the Mongolia Society’s published version of Frans Larson’s short, hand-written “memoir”—written late in life, long after his better-known first memoir, Duke of Mongolia (1930)––G. Ganbold’s introduction includes a fascinating and almost certainly apocryphal anecdote about “American Denj” (meaning “American hill” or “American terrace”), the place in Ulaanbaatar where many American businesses first established themselves during the early 1900s. “There remains from these years a name for a specific area in present-day Ulaanbaatar, in the eastern district—where I used to roam as a schoolboy—a place called ‘American Hill’,” Gandbold recalls, linking his childhood with the earlier business exploits of Larson and other entrepreneurs from the United States and elsewhere who sought business opportunities in Mongolia. Ganbold writes:
Though it was not the official name, it was widely used. It was explained to me by an old man that long ago American merchants had settled in that area.… [A]n American trader had asked for a piece of land as big as a cowhide to erect his warehouse. Since he asked for only a cowhide-sized plot of land, city authorities did not bother to refuse, because it seemed so small. When the permission was given, the American merchant sliced up his cowhide to make a huge rope, demarcating his newly given estate, which turned into a pretty big area.
It is not entirely certain if Larson—who had ties to both Sweden and the United States—ever set up shop in American Denj. However, he was certainly one of the most intriguing and colorful business characters of that period, standing out among his fellow expatriates for his love and knowledge of Mongolia. “Big business can be done successfully in Mongolia,” Larson claimed in Duke of Mongolia, “but the trader must be possessed of the tact of the diplomat and be of a character which makes him akin to the people of the plateau and able to understand the conditions there.” According to Larson, “a thorough knowledge of the language and a wide Mongolian friendship are the first requisites of success.”
Larson had high praise for the early Russian tea traders in Mongolia who, he wrote, did “extremely well,” noting, “They treated the people who freighted for them thoughtfully and generously.” He also recalled prospectors from both Russia and France visiting the northern regions of Mongolia in search of gold. While the engineers involved in subsequent projects largely came from Europe and the United States, most of the labor was Chinese because “digging great quantities of gold out of the earth did not appeal to the Mongol as a profitable way in which to spend his days.” Larson’s account highlights some of the concerns that still mark discussion about doing business in Mongolia today, including references to a lack of infrastructure and an uncertain and sometimes capricious business environment. Larson’s own business interests centered largely on wool, fur, and horses, and he claimed to have “exported more than two hundred thousand horses and a proportionate quantity of wool and furs” during the 35 years he worked in Mongolia.
Larson was one of a small number of foreign business executives and traders of that period to leave a written record behind. However, a few scattered details from other sources working out of American Denj are also available. For example, one American visitor in 1910 estimated that Mongolia exported 160,000 pounds of wool to the United States each year. By 1919, another American company was believed to be exporting $3 million in wool to the United States, while an estimate from 1921 speaks of “one million marmot skins” from Mongolia exported to the United States via Kalgan and Tianjin.
Another American company—one of a number with substantial ties to Mongolia at the time—apparently maintained seven “purchasing points” across “Outer Mongolia” from which to procure mutton. As for Anderson and Meyer, its early activity included the purchase and export of 3,000 to 4,000 race horses to China annually. Even in those years, rumors of Mongolian mineral wealth abounded, leading to much speculation and some modest investment in Mongolia’s gold and silver mining sector.
Pioneering merchants from the United States also played a role in the introduction of the automobile to Mongolia. As noted earlier, the first motor-powered vehicle ever to be driven in Mongolia almost certainly was a Model-T Ford imported by an American entrepreneur. During the World War I years (1914–18), American companies such as Meyer and Larson pioneered the first “taxi” routes between Urga in “Outer Mongolia” and Kalgan in “Inner Mongolia,” introducing vehicles manufactured by both Dodge and Ford to traverse the formidable Gobi on a regular basis.
These tough vehicles carried passengers as well as cargo, facilitating transport in the years before a railway line was constructed. According to former ambassador Joseph Lake, “In 1990 Mongolians still reminisced about the quality of the Dodge trucks from this period.” Eventually, firms from other nations entered the transport sector, offering tough competition to the Americans on the Gobi route that they had pioneered. However, by the mid-1920s it was political pressure rather than competition that caused the American commercial presence to at first diminish and then disappear entirely. By the late 1920s, commercial ties between the United States and Mongolia had been abandoned altogether, seemingly never to revive.
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The official opening of diplomatic ties between the United States and Mongolia in January 1987 did not immediately result in a revival of economic activity on any large scale. According to the Department of State Economic Fact Sheet prepared in January 1991 for President Ochirbat’s visit to the United States, in 1989 the United States exported products worth $30,000 to Mongolia and imported products valued at $1.6 million; and the following year, US exports to Mongolia were placed at $50,000, and US imports from Mongolia were estimated at $1.9 million. It is very likely that many of these imports to the United States were via Boris Shlomm’s Amicale, an American company that started operations in Mongolia during the Soviet era and largely specialized in the cashmere industry.
As these figures suggest, what little trade existed between the two countries was extremely modest, consisting almost entirely of cashmere wool and various animal by-products, virtually all of it in the form of Mongolian exports to the United States. At the time, Mongolia imported almost no American products. According to Ambassador Lake, the first American trade mission to Mongolia was sponsored by the Hong Kong American Chamber of Commerce and took place in the fall of 1990. Various investment and other economic agreements signed during the 1990s brought with them the expectation of a growing commercial relationship, including the Investment Incentive Agreement (September 29, 1990), the Agreement on Trade Relations (January 23, 1991), and the Reciprocal Investment Agreement (October 6, 1994). Realistically, such documents reflected aspirations more than reality in regard to any immediate growth in actual trade and investment figures. However, they did at least affirm the sense that, at some future point, a more vibrant commercial partnership might eventually be possible.
During the 1990s and into the early 2000s, a number of American business “pioneers” began to visit Mongolia in search of adventure as well as economic opportunity. They included Ed Nef, who launched Santis as one of Mongolia’s first English-language schools; Ed Story and Wallace Mays, who made early investments in Mongolia’s mineral sector; Pete Morrow, who for nearly a decade served as CEO of Khaan Bank; Jalsa Urubshurow, who launched Nomadic Expeditions as a high-end tourism venture; Lee Cashell, who focused on real estate; and John Karlsen, who was the catalyst for a dramatic expansion of Caterpillar in Mongolia. Two long-established Ulaanbaatar restaurants—Millie’s and Sacher’s Café—also have American connections, one founded by Millie Skoda, the other by Brigitte Cummings. Both women are American citizens, though in one case with ties to Ethiopia and in the other with links to Germany. For these and other early American business venturers, involvement in Mongolia sometimes became almost a “lifetime” commitment.
Given the importance of aid relations at the time, a number of the early members of the US business community working in Mongolia initially arrived to implement projects funded not only by USAID but also by various multilateral donors such as the World Bank, the Asian Development Bank, and various UN agencies. Still, whether measured in services or the value of trade, business ties between Mongolia and the United States remained at a low level, perhaps in part due to the geographic distance separating the two countries.
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By the late 1990s, quotas on foreign apparel exports to the United States briefly appeared to offer an avenue for a more robust trade relationship. The industry involved only modest start-up costs, encouraging investors from China and elsewhere to set up garment factories in Ulaanbaatar and Darkhan with the sole aim of exporting clothing to the United States.
The volume of these clothing exports increased markedly during the late 1990s and into the new millennium. However, a garment industry based solely on quotas proved unsustainable, especially after China’s accession to the World Trade Organization in 2001. By 2004, Mongolian exports to the United States—consisting mostly of apparel—peaked at nearly $240 million. After that, they fell dramatically, barely exceeding $50 million by 2008 and falling still further in the following years. In retrospect, the rapid rise—and almost as rapid plummet—in garment exports from Mongolia to the United States can be viewed as a “false dawn” that initially seemed promising but ultimately proved unsustainable. At some level, it also offered an early lesson in international competitiveness and the formidable challenges facing Mongolia in the international marketplace, most notably the high transportation costs and long production lead-times imposed by Mongolia’s remote location. Since the collapse of the apparel industry, Mongolia has gravitated toward a more specialized and, one hopes, more sustainable export garment “niche” largely involving higher value and higher-quality items, primarily related to cashmere and cashmere products, with yak and camel wool occasionally also entering into the mix. Indeed, despite pricing challenges, Mongolian cashmere producers such as Gobi, Buyan, and Altai are finding international markets not only in the United States but also in Korea, Japan, Europe, and elsewhere.
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Despite a very slow start throughout the 1990s and into the 2000s, exports from the United States to Mongolia began in 2010 to show every sign of increasing dramatically in the years ahead. The path to growth should also be much more sustainable, especially if Mongolia’s mining industry “takes off” as expected and is accompanied by a steady expansion in the number and types of downstream support industries. Mongolia’s efforts to develop new industrial approaches that add value to its mineral products should also offer significant opportunities to American businesses, especially those that provide the services, machinery, and other material that Mongolia will need as it builds up its own industrial sector. Looking back, the arrival of Wagner-Asia in 1996 as an all-American company with strong ties to Colorado may be regarded as one of the turning-points in US-Mongolian commercial relations, carrying with it not only the promise of high profile American name brands such as Caterpillar and Ford but also a long-term commitment to “growing” a business based on an overwhelmingly Mongolian workforce. In fact, Wagner-Asia’s growth over the last decade largely mirrors that of Mongolia’s. As an early entrant into the Mongolian marketplace that has stayed the course and emphasized its long-term commitment, it has reaped benefits based on its understanding of the broader Mongolian social and economic terrain.
Wagner-Asia’s commitment to training Mongolians in technical skills has won considerable praise, including its recruitment of young Mongolians skilled in math and science, even from remote provincial towns across the country. Once identified, these young Mongolian high school graduates are then trained through an impressive series of high-quality hands-on courses, turning them into skilled mechanics who will be in high demand during the coming years.
By 2010, Wagner-Asia was maintaining offices in Ulaanbaatar, Darkhan, and Khan Bogd in the south Gobi. While it has seen huge growth in its mining equipment division involving Caterpillar and other brands, it is also involved in Mongolia’s potentially large agricultural sector. More than 98 percent of the Wagner-Asia labor force, which grew from approximately 300 staff in 2009 to nearly 1,000 by 2012, is Mongolian.
Other US-based companies are increasing their presence in Mongolia. In the mining sector, some of the more familiar names include Fluor, which is involved in the copper and gold mine at Oya Tolgoi, and Peabody, which is competing to play a major role in the coal mine at Tavan Tolgoi. In reality, the growth in direct US investment in Mongolia through 2012 remained at somewhat disappointing levels, paling in comparison with the growth in exports. So far, it is much smaller than similar investments emanating from China and various “third neighbors” such as Australia and Canada. This could change in the years ahead, especially if American firms such as Peabody are selected to take on major mineral projects.
While both actual and potential US investment in Mongolia is most closely associated with the minerals sector, American business executives have displayed interest in other areas. For example, Eagle Television was launched as a media venture with missionary connections in the early 1990s at a time when Mongolia’s independent media were just developing. Although the US partners sold their interest in Eagle to Mongolian investors in 2011, their involvement over several years introduced Western-style approaches to media coverage and set new standards in television reportage and production, which other stations in Mongolia have sought to emulate with some success.
More recently, Bloomberg television launched business-oriented programming in Mongolia in July 2012, opening its studio in a spacious new office building overlooking Sukhbaatar Square and offering at least four hours of locally produced Mongolian-language television programming each day. Here again, the quality standards and production values of Bloomberg are likely to have a “ripple” effect, eventually leading to improvement in the economic and business coverage offered by other Mongolian media outlets.
American business executives, managers, and consultants have also been highly visible in other sectors, including the financial sector, where they have assumed key management roles in banks such as Khaan Bank and XacBank. In the hospitality and tourist industry Americans have made management contributions on various occasions to the Ramada, Genghis Khan, Bayangol, Terelj, and other hotels and invested in tourist companies such as Nomadic Expeditions. As the Mongolian economy continues to expand, one can expect opportunities for still more US involvement in Mongolia’s financial, legal, and service sectors in the years ahead.
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The opening of an official General Electric (GE) office in Ulaanbaatar in May 2011 represented yet another landmark in the continued growth of US-Mongolian business ties over a relatively short period. Viewing Mongolia as a growing market with considerable potential, GE focused in its initial stages on potential markets related to both energy and medical equipment.
One of GE’s first major contracts in Mongolia involved providing turbines for the 50 megawatt MCC-supported wind farm built by the Mongolian company Newcom at Salkhit mountain, not far from Ulaanbaatar. GE is also competing for major contracts in Mongolia’s transportation and power sectors, including the provision of train engines for Mongolian Railways and the supply of turbines for a public-private sector partnership aimed at building Ulaanbaatar Five, Mongolia’s first really significant new investment in power generation since the Soviet era.
US exports to Mongolia increased markedly following Mongolia’s recovery from the effects of the international financial crisis during 2007–08. For comparative purposes, it is worth recalling that total US exports to Mongolia in 2001 measured a paltry $12.1 million before rising to $66.3 million in 2002. After that, they remained “stuck” within the $20 to $30 million range for the next several years, from 2003 through 2007. The 2008 figure, rising to $57.2 million, seemed to offer some optimism about the future—a hope that was dashed in 2009 when US exports to Mongolia fell to around $40 million, as the entire world faced a serious economic downturn.
Responding to the challenges posed by the international financial crisis, President Obama early in his administration committed the United States to doubling its exports worldwide in the five years between 2009 and 2013. For Mongolia, the timing was propitious, given that Mongolia was already well on its way to economic recovery while also experiencing the first fruits of what could be an extended mining boom. In fact, US exports to Mongolia grew at an extraordinarily rapid pace from 2009 to 2010, increasing by 180 percent to more than $110 million. That pattern of dramatic growth continued into the following year. During the first half of 2011, US exports to Mongolia exceeded $160 million and, by the end of the year had exceeded $313 million. Put another way, in the case of Mongolia, President Obama’s five-year export target was easily met—in a single year.
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The US embassy in Ulaanbaatar actively promoted stronger business relations between the United States and Mongolia as early as 1991, starting with the arrival of Alaina Teplitz as the first embassy economics officer. Leah Camper—spouse of early Wagner-Asia representative Rodney Camper—served as the first commercial assistant within the US embassy starting in 1998.
Also in 1998, Brian DaRin—a former Peace Corps volunteer—wrote the embassy’s first business guide. In more recent years, the annual embassy-issued “Investment Guide to Mongolia,” posted on the embassy’s Internet site, provides an objective, candid, and sometimes hard-hitting perspective on both the positive and negative features of the Mongolian investment climate. While offering “sober optimism” about future business prospects in Mongolia for those considering investments, it also provides useful cautionary notes on the very real difficulties confronting the international business community, including lack of confidence in the sanctity of contracts, fears about expropriation, and concerns about growing corruption.
Leah Camper was followed as commercial specialist by two former Peace Corps volunteers, first Alison Croft and then Michael Richmond, who arrived in 2000 and remained in place the next 12 years and beyond. By and large, the embassy commercial office has been staffed by locally hired Americans who have years of prior experience in Mongolia and can offer important advice and “ground-truthing” about Mongolia’s business climate to prospective investors when they first arrive in Ulaanbaatar.
Commercial section activity out of the US embassy in Ulaanbaatar deals with networking and distributing relevant information. One especially effective program involves linking the Mongolian business community with US companies through attendance at trade shows, conferences, and other events. Important sectors such as mining, construction, and agriculture have figured prominently in the list of shows that Mongolian business executives now routinely attend across the United States.
The US Department of Commerce plays an active role in facilitating these trips. In recent years, approximately 500 Mongolians annually have regularly attended US-based trade shows, providing useful exposure to new products and strengthening US-Mongolian business ties still further. In addition, the Commerce Department has been organizing annual US-Mongolia business forums, which facilitate commercial opportunities between American and Mongolian businesses.
From time to time, the US embassy has encouraged the growth of organizations designed to promote broader commercial concerns. For example, the embassy supported the establishment of the American Business Group (ABG) in 1991, which later formed the basis for the American-Mongolian Business Council (AMBC). The AMBC, in turn, expanded to include a Canadian dimension, resulting in the North American-Mongolian Business Council (NAMBC). For many years, NAMBC has been headed by businessman Steve Saunders, who has been visiting Mongolia since 1994 and takes the lead in organizing annual NAMBC conferences in both Mongolia and North America. In 2011, a Mongolian-American Chamber of Commerce headed by former IRI country representative Jackson Cox was also established.
Steve Saunders, along with Pete Morrow, throughout his years at Khaan Bank, has promoted business ties in other ways, such as helping to establish the Business Council of Mongolia (BCM) in fall 2007, an organization with a reach that extends well beyond companies from Canada and the United States. The BCM has grown dramatically, its membership rising from 35 in 2007 to more than 240 Mongolian and international members by the fall of 2012. It is headed by Jim Dwyer, an American businessman who first arrived in Mongolia in May 2001 as part of a USAID-funded initiative to support the privatization of the Trade and Development Bank and Khaan Bank.
Outside work, Jim Dwyer played a lead role in founding the Giant Steppes of Jazz NGO, which sponsors an annual jazz festival each fall. That such a contribution would come from within the American business community seems especially appropriate, given that some Mongolians believe it was an American sales representative working for the Ford Motor Company who first introduced jazz to Mongolia during the early 1900s. According to the legend, which is still repeated in Ulaanbaatar to this day, the Ford representative also happened to play jazz piano—and sometimes entertained the Bogd Khan at his summer and winter parties when he visited Mongolia from China.
The growing Mongolian community in the United States plays a useful role in further strengthening business ties between the two countries. Having been exposed to American food products and various consumer goods, some entrepreneurial Mongolians simply load a container with goods purchased at discount stores in the United States such as Sam’s Club and ship them to Ulaanbaatar for wholesale or retail sale. Such initiative helps expose Mongolians to American products, which can expand markets still further. The impact of this practice can be seen in a variety of shops in Ulaanbaatar bearing the names of American cities and towns, such as Oakland, Seattle, and New Orleans—and, on occasion, a “Made in America” label painted red, white, and blue and displaying the Stars and Stripes.
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As Mongolia’s economic relations with the United States and other countries become increasingly based on commercial rather than development ties, opportunities for trade and investment between the United States and Mongolia should continue to expand. US government organizations such as the Overseas Private Investment Corporation (OPIC), Ex-Im Bank, and the Trade and Development Agency (TDA) can be expected to play an even more important role in facilitating that commercial relationship.
During President Elbegdorj’s visit to the United States in June 2011, he was accompanied by a large group of Mongolian business executives, most of whom met American counterparts in a conference sponsored by TDA in Washington, D.C. Beginning in 2002, TDA has financed several agreements with Mongolia related to aviation management and safety, including separate agreements with both Eznis and MIAT Mongolian Airlines.
More significantly, during the same visit President Elbegdorj, along with US Secretary of Commerce Gary Locke, witnessed at Blair House the signing of an agreement between MIAT and Boeing to move Mongolia’s national airline toward becoming an all-Boeing fleet. As a first step, the agreement provided for the purchase of three Boeing jets—two 737s and one 767—valued at $245 million. A Memorandum of Understanding (MOU) on trade and economic cooperation between the US Department of Commerce and the Mongolia Ministry of Foreign Affairs and Trade was also signed during this visit. At some point there could be direct flights between Ulaanbaatar and the west coast of America, although that day has not yet arrived.
Senior American officials involved in business relations and economic affairs are increasingly making their way to Mongolia. Assistant Secretary for Trade Promotion and Director General of the Foreign Commercial Service Suresh Kumar, for example, visited Ulaanbaatar in October 2011, meeting with government officials, journalists, and members of the American business community. Then in May 2012 Fred Hochberg, chairman of the Ex-Im Bank, paid a visit. During his stay, he signed a Memorandum of Understanding with Batjargal Bazarsuren, chairman of the Development Bank of Mongolia, aimed at promoting trade and investment between the two countries.
Despite these encouraging developments, there is a widespread belief in both the American business community and among those who follow Mongolia from a more political perspective that economic and commercial ties between the two countries are still not nearly as robust as they ought to be. Since 1990, the bigger story of Mongolia’s trade and investment ties with the rest of the world has been the significant growth in interaction between Mongolia and China, largely at the expense of Russia, which once dominated every aspect of Mongolia’s economy. By 2012, almost all of Mongolia’s exports were bought by China—and the largest share of its imports came from China. At the same time, Russia retained its market share of exports to Mongolia only in major commodities such as wheat and petroleum. While the United States in recent years has typically ranked second in terms of its share of exports to Mongolia, it lags far behind China; and in a typical year its performance only slightly exceeds that of other “third neighbors” such as South Korea and Japan.
Mongolian officials have on occasion expressed frustration about their inability to move forward with a Free Trade Agreement with the United States. For their part, American officials have voiced similar concern about a noticeable lack of progress on a transparency agreement aimed at ensuring a level playing field for commercial activity, whether involving local or foreign companies. From an American perspective, a transparency agreement would send a strong message about Mongolia’s willingness to promote a more open, consistent, and transparent business environment, one that aspires to world standards while also taking an aggressive stance against corruption.
As Mongolia’s economy continues its dramatic expansion, one hopes that the opportunities for US-Mongolian business and commercial ties will experience more rapid growth in the years ahead. Investments in the mining sector clearly attract special attention and garner most of the international headlines. Yet, over the long term, interest in other sectors such as livestock, agriculture, tourism, and real estate is also likely to increase. If Mongolia manages to successfully weather the challenges of a resource-rich economy, diversify its sources of economic growth, and ensure that the benefits of mining are widely shared, investment should expand in any number of other areas. Mongolia’s infrastructure requirements alone are massive, and US-based businesses, along with those from other countries, are likely to take a strong interest in participating in this expansion.