From June 2011 to September 2015, Chemonics International implemented a $14 million project called the Business Plus Initiative (BPI) funded by USAID. BPI was designed to improve and foster a business-friendly environment by creating channels between the private and public sectors, increasing private sector competiveness, improving efficiency, reducing costs of transaction for businesses, and increasing the general public's knowledge to increase transparency about business reforms to keep the government accountable.

Stakeholders

There are major internal (public and private) and external stakeholders in this project including Chemonics International, USAID, the Mongolian government, and private business owners and entrepreneurs in Mongolia.

Approach and Methodology

Due to an unstable political climate, the BPI team had to adapt to unexpected changes in the public sectors and stay up to date to come up with creative strategies and solutions. The BPI team believed that the private sector should have a voice in a variety of business reforms implemented by the public sector. As a result, BPI facilitated an ongoing publicprivate dialogue series to ensure that the government had input from business owners. BPI also encouraged public-private partnership by bringing in outside technical experts to help construct business reforms that adhere to international best practices.

Key Results

• 8 points increase in Ease of Doing Business Ranking
• 700 participants in 10 public-private dialogues
• 168 capacity building events (training, workshops, roundtables, study tours, and seminars)
• $20.5 million total savings to the private sector from reforms supported by BPI
• $4.1 million sales increase for 29 small and medium sized enterprises
• 8,953 total participants

Lessons Learned

• Facilitate and nurture long-term, mutually beneficial alliances among government counterparts, the private sector, and local
  organizations
• Empower local organizations as watchdogs and reform advocates by supporting capacity building and advocacy efforts
• Stimulate public demand for improved government services through educational and awareness campaigns
• Build trust and garner counterpart buy-in at all levels of government by requiring demonstrated commitment from key government
  agencies and counterparts

COUNTRY CONTEXT

After the sudden end of the Soviet Union in 1991, Mongolia was suddenly became independent and was forced to transition from a command to market economy over night. At the time of the abrupt transition, Mongolia did not have existing institutions to establish and foster an efficient market economy with rule of law and independent court systems. Weak institutions and underdeveloped laws and regulations presented to be huge barriers for this new democracy to enact reforms. Inefficiencies in laws and regulations created plenty of opportunities for corruption in Mongolia.

The time and cost to do business remained excessively high due to underdeveloped laws, lack of robust business regulations, weak institutional capacity to carry out reform and corruption. USAID recognized that BPI needed to support both the public and private sectors during the development and implementation process for new policies, regulations, and procedures to offset the internal political instability.

Despite BPI's show of support for both private and public sectors, Mongolia's political instability continued to be a challenge throughout the implementation of BPI. After a strong start in August 2012, the Reform Government's policies worsened the economic climate for foreign investors. A new foreign direct investment law, the revocation of hundreds of mining licenses, and stalled negotiations on mining rights of Turquoise Hill, and a sharp decline in commodity prices in the world market significantly damaged Mongolia's previously booming economic growth. In 2011, Mongolia had the fastest growing economy in the world at 17.3% annual growth. In the after math of bad policies and decline in commodity prices, Mongolia's economic growth declined to 7.8% in 2014. On December 2014, a new government was installed to tackle the economic and societal challenges that the Reform Government failed to resolve.

Throughout the four-year long project, the BPI team witnessed three changes in government, each with new agendas to move Mongolia forward. Despite the swift changes in leadership, BPI's agenda remained consistent: to ensure that business owners in the private sector had a voice in crafting business reforms in the public sector. BPI established and maintained robust relationships within Mongolia's ministries and agencies to ensure BPI's agenda had support within each government. However, with changing governments came changing support for different reforms set forth by BPI. The BPI had to practice diligence, patience, and coalition-building to make sure the BPI project stayed on task.

STAKEHOLDERS

Local Stakeholders

American Chamber of Commerce in Mongolia
Economic Journalism Club
Energy Regulatory Commission (ERC)
Financial Regulatory Commission
General Authority for State Inspections
General Authority for State Registration (GASR)
General Department of Taxation
Ministry of Construction and Urban Development
Mongolian National Chamber of Commerce and Industry
The Press Institute: Mongolia’s leading NGO promoting independent, fact-based journalism
Ulaanbaatar Electricity Distribution Network (UBDEN)
Small and Medium Sized Enterprises
Aspiring Entrepreneurs
Journalists

International Stakeholders

International Chamber of Commerce
USAID
Chemonics International
Foreign Investors

The Business Plus Initiative in Mongolia was funded by the U.S. Agency for International Development (USAID) and carried out by members of Chemonics International, based in Washington, D.C. Chemonics International is a private international development company that was contracted by USAID to implement BPI in Mongolia. The BPI team was made up of members from Chemonics International who travelled to Mongolia to carry out the project from June 2011 to September 2015. The BPI team worked closely with the Mongolian government and its various agencies (listed above under Local Stakeholders) to design and implement business reforms.

BPI strategically identified the biggest obstacles in starting a business in Mongolia and found local allies to create combative reforms to obstacles. BPI found the following to be the biggest obstacles to small and medium-sized business enterprises: starting a business, obtaining construction permits, and getting new electricity connections to business establishments. BPI continuously offered technical and adaptive assistance to empower local NGOs and institutions with the proper tools and guidance to enact business reforms. More importantly, BPI brought together private and public sector actors at the table to conduct numerous dialogues on how both sectors can work together to build constructive reforms.

PROBLEM

Due to Mongolia's short experience as a democracy, the lack of robust institutions and laws made it costly and timely for an entrepreneur to register a business, gain necessary permits, and get new electricity connections for their new business.

Starting a Business: Main Obstacles

   • Multiple steps for registering a new business. This initial step included opening bank accounts, duplicate registrations at tax and social
     security offices, and making a seal. Each part of the process took at least one full day and added to costs.
   • Time-consuming, inefficient internal process within the registration agency. The internal review process at the registration office
     required three individuals at different levels - the registrar, senior registrar, and department head to approve each application. Often
     times those who offered a bribe got through this process quicker.
   • Arbitrary interpretation of existing laws. The 2003 Legal Entity Registration Law required an application form with five supporting
     documents and five days to register legal entities. The law was ambiguous and poorly worded, which allowed individual registrars to
     interpret it differently and resulted in inconsistencies.
   • Absence of online registration system. Applicants could only register their businesses in person at different offices, requiring multiple
     trips and sometimes at great expense for those who do not have the means to afford the trip.

Starting a Business: BPI Solutions

   • Streamlining registration procedures. BPI simplified the process, such as not asking citizens for information the government already
     has. As a result, the time and cost of registering a business has been significantly reduced.
   • Drafting new law on legal entity registration to reduce steps in registration. BPI provided legal and technical assistance to GASR, the
     Ministry of Justice, and the Parliament Standing Committee on Legal Affairs to create a new legal entity registration law. This new law
     requires only one visit to registration and other offices by applicants, eliminates the prerequisite to open bank accounts, and now
     legally recognizes electronic registration certificates.

Starting a Business: Key Results

   • Decrease in registration steps. From 7 to 5 steps.
   • Decrease in the number days spent registering. From 12 to 11.
   • Decrease in cost of starting a business per capita income. From 2.4% to 1.2%.

Obtaining Construction Permits: Major Obstacles

   • Inefficient approval process. The approval process required applicants to get almost 170 signatures to start the approval process. This
     created opportunities for corruption for people who did not want to go through the lengthy process.
   • No risk-based construction permitting process. Permit requirements in Mongolia were the same for all types of construction activities.
     Some projects present more risks and need to have that weighted in accordance to international best practices. Without risk-based
     categories for construction activities, Mongolia’s construction sector is inefficient and poorly supervised.
   • Inconsistent, arbitrary processes. Lack of clarity in the 2008 Construction Law lead to multiple interpretations and duplication of
     requirements. As a result, applicants have to visit the same agencies and departments multiple times for approvals.

Obtaining Construction Permits: BPI Solutions

BPI worked in tandem with the Cabinet Secretariat, the government’s Reform Working Group and the private sector in finding a solution for attaining construction permits efficiently. BPI provided specialized technical assistance, organized and facilitated study tours for government officials to learn from international best practices, supported legal drafting, and facilitated creation of a one-stop-shop for municipal services, including construction permits in Ulaanbaatar.

   • Improving the legal and regulatory framework. BPI took members of the government's Reform Working Group to the Republic of
     Georgia to show how to transition from a Soviet-era construction permit process to one that aligns with international best practices.
   • One-stop-shop. An OSS is place and system where an entrepreneur can get a permit from one place. BPI brought in OSS experts from
     Georgia to establish an OSS in Ulaanbaatar to make the construction permit approval process faster and clearer for aspiring business
     owners.

Obtaining Construction Permits: Key Results

   • Decrease in number of procedures. From 21 to 16.
   • Decrease in number of days spent trying to obtain a permit. From 216 to 137 days.
   • Decrease in in costs associated with obtaining a permit. From 33.4% of warehouse value to 0%.

Getting Electricity: Main Obstacles

Mongolia has not invested in electricity expansion in Ulaanbaatar since the Soviet-era. As more and more nomads abandon the nomadic lifestyle and pour into the capital in search for work and opportunities to start a business, Ulaanbaatar’s Electricity Distribution Network (UBEDN) cannot keep up the pace in electricity demand even at full capacity. Therefore, electricity in all locations where people want to start new businesses is not guaranteed. This obstacle is multiplied by a complicated regulatory framework, lack of interagency coordination, and high connection costs.

   • Complicated connection procedures. It took 8 procedures and 126 days to obtain a new electricity connection. Private sector
     developers had to endure a lengthy process of confusion, inefficiency, and corruption. Lack of coordination among various public
     organizations added additional costs and time to the approval process.
   • Lack of public information. The absence of public information on the locations with access to the grid forced business developers into
     a lengthy and costly application process, without even knowing whether their proposed location has electricity or not. As a result,
     there have been instances where a building is erect only to find out electricity access is unavailable.

Getting Electricity: BPI Solutions

Since late 2012, BPI worked with the Government Reform Working Group, led by the Cabinet Secretariat with representation from the Ministry of Energy and UBEDN, to improve the process for getting an electricity connection. BPI and the working group organized public-private dialogues to find solutions for the current inefficiencies in te process. As a result of the dialogues, a new protocol was made for the UBEDN by the Energy Regulatory Commission (ERC) to reduce the time and cost required for firms to get new electricity connections in Mongolia. This new protocol included making available to the public the city's electricity grid locations. Now aspiring business developers can go online to see if their proposed location for their enterprises would have access to electricity or not. This available public information prevents people from getting tangled in an unnecessary application process.

Getting Electricity: Key Results

   • Fewer procedures. On January 23, 2013, the ERC approved a new protocol that reduced the number of procedures to obtain new
     electricity connections. This saves time and money for business developers.
   • Reduced time and increased predictability. UBEDN now provides public information about where new electricity connections are
     possible. This gives more power to business developers over where they want to start a new business.
   • Reduced cost. The cost decreased by MNT 2,149,000 or $1,090.

LESSONS LEARNED

Facilitate and nurture long-term, mutually beneficial alliances among government counterparts, the private sector, and local organizations. Sharing resources, networks, and knowledge benefits all parties. Identifying individual champions within each stakeholder group helped to facilitate cooperation for reforms. For example, despite the rapid change in government leadership, BPI continued to host public-private sector roundtable dialogues that eventually led to constructive business reforms. BPI's positive reputation and continuous effort earned the trust of rotating  bureaucrats in multiple government agencies. As a result, BPI and it allies in government, private sector, and local organizations were able to push their agenda forward and create deliverables for the business community.

Empower local organizations as watchdogs and reform advocates by supporting capacity building and advocacy efforts. One of BPI's side projects was to engage and empower local organizations to act as a watchdog and keep the government accountable for its actions. One such local organization was The Press Institute, Mongolia’s leading NGO promoting independent, fact-based journalism. BPI trained local reporters on how to ask questions and familiarized the reporters on economic and business policies in Mongolia. Now the reporters are qualified to ask targeted questions and are aware of the responsibilities of the government on the topic of business reforms. These reporters now act as a watchdog to make sure the government carries out the reforms.

Stimulate public demand for improved government services through educational and awareness campaigns. Making the public aware of what the government is doing in business will engage the people into wanting to hold the government responsible for its actions. Much like the reporters, the public can demand its democratically elected government to meet their needs. For the citizens to make sure the government does their job, they need to be aware of what they need to demand first.

Build trust and garner counterpart buy-in at all levels of government by requiring demonstrated commitment from key government agencies and counterparts. Certain aspects of BPI's initiatives failed when any part of all the stakeholders failed to commit. For example, in the effort to reform online company registration, while commitment was expressed at the executive level, it was not expressed at the registration agency, so the project was unable to implement the online system within the project timeline. However, BPI learned that supporting reforms in addition to  international pressures increased the chances of government commitment and successful completion of the project.