Mongolia's tourism sector looks to its natural assets to secure its future

The tourism industry has taken on an increasingly central role in Mongolia in recent years. In 2013 the country saw more than 415,000 incoming visitors and a reported market turnover of $263m, which represented around 4% of GDP at the end of the year, according to data from the government and Internationale Tourismus-Börse (ITB) Berlin. Indeed, in 2015 Mongolia served as the partner country at ITB Berlin, the world’s largest travel and tourism conference, which is expected to boost figures further in the coming years. These moves are in line with the government’s ambitious short- and medium-term objectives, which include increasing international arrivals to 600,000 in 2015 and 1m by 2017.

A New Framework

These goals will be supported by a considerable reworking of Mongolia’s tourism regulatory framework, which was under way as of April 2015. Broadly, under the new legislation, the government plans to take on a more active role in the development of the tourism sector and to work to facilitate increased transparency and competitiveness in the private sector. “The Ministry of Environment, Green Development and Tourism (MEGDT) has been quite busy amending the tourism law,” B. Indraa, director of the governing board of the Mongolia National Tourism Organisation (MNTO), an industry association, told OBG. “While it remains somewhat unclear what fundamental changes these amendments will bring, most industry players are broadly optimistic about the future.”

Challenges

At the same time, many challenges remain, both for tour and hotel operators, the government and other relevant industry stakeholders. Like many other sector in Mongolia, the tourism industry sees a flurry of activity during the short, warm summer months, roughly June to August, when the sector pulls in the great majority of its revenues. With temperatures dropping to -40°C in some areas, including in the capital, Ulaanbaatar, most tourists stay away during the country’s winters. Another long-standing challenge for domestic tour operators is the lack of transport infrastructure. While a new international airport is expected to come on-line in the near future (see Transport chapter), the national road network simply does not reach many places, and is paved only in and around the capital and a handful of other semi-urban areas. Finally, in recent years in particular, many local operators have called for more active and comprehensive leadership from the MEGDT and other government entities.

The government, for its part, is working to address all of these issues in some respect, as are many private sector firms and organisations. For example, some tour operators have worked with local communities to organise winter tourism festivals in an effort to attract tourists during the off-season. Mongolia’s national transport networks, including the road and highway system, are currently in the midst of major improvements. This is largely as a result of support, both financial and otherwise, from a handful of international organisations, such as the World Bank and the Asian Development Bank, not to mention a number of the government’s foreign trade partners, including neighbours Russia and China, among others. Finally, the MEGDT’s upcoming reform agenda, which is set to be formally rolled out in late 2014 or early 2015, is expected to ratify the ministry’s role as the lead authority and player in the tourism sector. Together, these efforts are widely expected to have a long-term positive knock-on effect on tourism development in Mongolia.

Historical Development

Tourism has been a relatively small but important contributor to Mongolia’s economy since before the fall of communism in 1990. Indeed, during the Soviet era the state-owned firm Juulchin Tourism Corporation provided a wide variety of services for visitors from throughout the region, not to mention domestic tourists. In 1990 Juulchin was broken up into eight tour operators, in line with the far-reaching liberalisation policies put in place by the newly democratic government. The number of incoming visitors to Mongolia dropped considerably during this period, as former Soviet bloc countries undertook the challenging transition to liberal democracy and market-driven economic development. Beginning in 1995 the government introduced the first in a series of tourism-related regulations and linked development frameworks. The plan, known as the “Basic Guidelines for the Development of Tourism in Mongolia for the period of 1995-2005”, resulted in eased visa restrictions and, in 2000, the introduction of the comprehensive Tourism Law of Mongolia, which is still in place today. Additionally, in June 2014 the government allowed nationals from 42 countries to travel to the country visa-free for up to 30 day until the end of 2015.

The number of private tour operators in the country proliferated from the late 1990s onward. By the mid-2000s hundreds of firms were operating, both on a national level and as regional specialists of various types. The great majority of these were seasonal, with the majority shutting down for all or most of the winter season. This schedule, which remains in place today at many smaller firms, has had a negative long-term impact on sector employment.

Oversight

The MEGDT has been the government’s primary administrative body in the tourism sector since 2012, when the current government came to power. Prior to the establishment of the current ministry, tourism fell under the remit of the Ministry of Culture, Sports and Tourism, which was broken up in late 2014. This follows on a series of similar government restructuring efforts over the past decade, largely as a result of changes in government. “A lack of continuity in terms of development plans and even administrative bodies is a major challenge in many sectors here, not just tourism,” said the MNTO’s Indraa. “We are already looking at another potential change of government during the 2016 elections, which will likely result in further changes to the tourism framework and, importantly, funding.”

The MEGDT oversees a variety of subsidiary entities, including the Mongolian National Tourism Centre (MNTC), which has a mandate to implement the country’s national tourism policies and represent the tourism sector in foreign markets. The centre also serves as a key resource and liaison for local private operators, providing training and various other types of assistance. The MNTC works alongside and in conjunction with a network of regional tourism boards, which are headquartered in the capitals of Mongolia’s aimag (provinces). A considerable amount of the financing for foreign promotion of the country comes from the Mongolia Tourism Development Fund, which is managed by the MEGDT.

Outside the public sector, a wide variety of non-government organisations are involved in tourism marketing and development in Mongolia. Besides the MNTO, these include the Sustainable Tourism Development Centre, which works at a grassroots level with local communities; the Mongolian Tourism Association, which represents the private sector in interactions with the government; and a substantial number of smaller associations and societies, including the Mongolian Hotels Association, the Community Based Tourism Association, the Mongolia Tour Guides Association and the Mongolian Tourist Camps Association, among others.

Planning

In 2012 the MEGDT announced that it was in the early stages of developing a four-year, federal-level action plan for the tourism sector. Broadly, under the plan the ministry will work to attract new investment to the sector, both from within and outside Mongolia, and deploy financing across the domestic market. At the time of publication further details about the plan had yet to be released. Most local players expect the MEGDT to provide additional information about the action plan alongside the broader regulatory restructuring programme.

By the Numbers

According to government data published by ITB Berlin, in 2014 some 400,000 visitors entered Mongolia, down from 417,000 in 2013 and around 475,900 in 2012, though up significantly from a far lower number of arrivals in the early and even mid-2000s. In 2005, for example, just under 339,000 visitors entered the country, up from around 201,000 in 2003 and 137,500 in 2000. The tourism industry’s contribution to the economy at large has also grown substantially in recent years. In 2013, according to government data, the sector posted a market turnover of around $263m, which was equal to some 4% of GDP for the year.

According to figures from the World Travel and Tourism Council (WTTC), in 2014 Mongolia’s tourism sector brought in a total of MNT423.8bn ($254.28m), which, according to the organisation, was equal to 2.5% of GDP for the year. This represents a slight decline on 2012 from around MNT450bn ($270m) and a total GDP contribution of just over 3%. According to WTTC forecasts, meanwhile, the tourism industry’s direct contribution is expected to rise slightly to around MNT450bn ($270m) in 2014, which is equal to 2.3% of GDP for the year. It is important to note that the WTTC has a tendency to report broadly optimistic projections compared to many other international organisations.

The government, according to ITB Berlin, has announced plans to bring in 1m visitors by 2020, with hopes that the sector will then account for around 14% of GDP. As of 2015, most local players remained unconvinced that these targets were achievable.

Visitor Profile

While the number of tourists to Mongolia has undoubtedly increased in recent years, the available data about incoming visitors is widely acknowledged to be somewhat misleading. This is due primarily to the fact that visitors from China and Russia, which have accounted for more than 60% of incoming total visitors in recent years, generally enter the country to carry out business.

Indeed, many of the incoming visitors from China cross the border to trade and carry out other related business deals, often on a small scale. The great majority of these visitors stay in low-cost guesthouses and generally only stay for a short period of time. This segment of visitors falls completely outside of Mongolia’s tourism industry. With this in mind, a key component of the government’s upcoming restructuring of the tourism industry will likely involve revamping the state’s statistical methods for tallying incoming visitors.

Recreation & Leisure Tourism

The tourism sector is broadly organised into a handful of key segments. Leisure tourists account for between one-quarter and one-third of total incoming visitors, according to local estimates, though as previously mentioned reliable data on visitor intent is somewhat hard to come by in Mongolia. Traditionally, a majority of leisure visitors came into the country as part of a package tour offered by a local operator. However, in recent years many operators have seen a decline in the package segment and a subsequent rise in independent travellers, who prefer to book each component of their trip separately.

This shift is considered to be both a challenge and an opportunity for local tour operators. On the one hand, independent travellers generally spend around 35% less per day than package tourists, according to figures from the MNTC. On the other hand, the jump in independent tourists presents a variety of opportunities for local tour providers, many of which are in the process of developing new products and offerings on an à la carte basis.

Mongolia boasts a wide variety of sights and activities geared towards leisure tourists of all stripes. In addition to the steppe, which stretches for thousands of kilometres and is almost entirely devoid of human habitation, the country is also home to vast tracts of forest and mountains, as well as the Gobi desert in the south-east. “Mongolia’s natural tourism resources are simply enormous,” said D. Altanbagana, the executive director of Active Adventure Tours, a local tourism operator. “Consequently, we cater to many visitors who come specifically to spend time in nature and to take part in activities in nature.”

Indeed, over the past decade Mongolia has earned a reputation as a key destination for outdoor and adventure sports and other related activities, including trekking, climbing, fishing, hunting and birdwatching, among many other things. In addition, the government has been exploring other options, such as casinos. In February 2015 MPs in Parliament proposed the Law on Casino Bill with the aim of developing the sector and increasing the flow of foreign currencies. The legislation provides would provide new guidelines for issuing, registering and revoking casino licences, as well as clarify the state control mechanism for such activity.

Making Culture More Accessible

Mongolia’s unique cultural heritage, which incorporates various components of Buddhism, shamanism, Soviet history and various distinctive Central Asian nomadic traits, is also a major draw for many tourists. Over the past decade, in particular, tour operators in Mongolia have worked to improve the accessibility of much of this heritage, primarily by organising a series of new festivals in various far-flung parts of the country (see analysis).

Business Tourism

The business tourism segment has grown substantially since Mongolia’s mining boom in 2011, which resulted in a major uptick in the volume of foreign business visitors. Since then a number of conferences have taken place in the country, which has given rise to a nascent meetings, incentives, conventions and exhibitions (MICE) market. At present, however, this segment remains a relatively small component of the market as a whole.

Domestic Tourism

Other key potential growth areas include the domestic tourism market, which has grown slightly in the past few years, largely as a result of rising income levels and a burgeoning middle class in Ulaanbaatar. “Mongolians are travelling a lot right now,” said U. Batbayar, the managing director of the Battour Travel Agency and governing board member of the Mongolian National Tourism Organisation. “They are increasingly going abroad to East Asian cities like Tokyo, but they are also travelling a lot more within Mongolia. This can be attributed to rising incomes, but also to broader cultural changes.”

Outlook

The obstacles to continued growth in the tourism sector in Mongolia are numerous. The aforementioned brevity of the high season for tourism, the lack of high-quality national transport networks and the relatively limited number of flights connecting Ulaanbaatar to major international transit hubs around the world all represent significant hurdles to future development.

Similarly, many local tourism operators argue that despite the MEGDT’s recent efforts, the government has not done enough to help facilitate expansion in the industry. “One of the big issues here is that the government has not done enough to diversify away from mining income,” Batbayar told OBG. “Tourism used to account for as much as 8% of GDP, but now we are down slightly. They need to pay more attention to non-mining sectors.”

Despite these and other challenges, most local players agree that Mongolia has the potential to eventually become a sizeable and highly profitable tourist destination. The country’s many tourism assets bode well for growth, as does the government’s soon-to-be-released restructuring effort.

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The Report: Mongolia 2015

Tourism chapter from The Report: Mongolia 2015

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