Almost a byword for remote landscapes, Mongolia exerts a strong pull on the adventurous traveller, and its unique offerings are being discovered by a new generation of visitors. The industry has a small but expanding base of business and backpacker tourists coming to explore and develop its economic potential, while the country looks to strengthen its leisure segment.
Tourism has blossomed in recent years under a laissez-faire regime, with the private sector increasingly investing in the running of developing facilities, events and marketing. Now efforts are being made to strengthen cooperation between domestic firms, international partners and the government to ensure the sector’s immense potential is realised in a sustainable way. Along with developing new facilities, a main priority is boosting visitor expenditures, which are currently constrained by the limited product on offer.
PAST, PRESENT & FUTURE: The modern tourism industry was launched in 1954, with the establishment of Juulchin, the previously national tourism company. For many years, tourism was limited, consisting of domestic travel and visitors mainly from the countries of the former Soviet Union. However, in more recent years there has been a blossoming of private tourism companies. As of December 2011, tourism enterprises included 257 tourist camps, 360 hotels and 655 tour operators, according to statistics provided by the Mongolia National Tourism Organisation.
Leisure travel is largely based on the country’s unspoiled natural beauty and wide range of landscapes, though cultural attractions feature as well. Among the country’s most popular attractions are the Naadam festival of traditional sports held in July, the Gobi Desert, Lake Khovsgol, Erdene Zuu Monastery, and Altai Tavan Bogd and Terelj National Parks.
CONTRIBUTION: Tourism has become an important contributor to GDP and employment, particularly in the countryside. Nonetheless, there is a widespread feeling in the industry that Mongolia has not capitalised on its tourism potential as much as it could, given its unique qualities and international interest in the country. In the past the sector competed with animal husbandry for natural and human resources, while more recently it has faced competition from the mining sector for attention, public resources and personnel.
But momentum is building – particularly in the private sector – for the country to develop its tourism strategy, better promote itself and enhance its product offerings (see analysis). “The potential for tourism is tremendous, and it could have a really positive impact on society, while creating a lot of positive multipliers across the economy,” said Stephen Kreppel, the director of the National Marketing Coordination Office at the Mongolian National Chamber of Commerce and Industry (MNCCI). “Tourism can support the non-mining economy, rural people and herders.”
COUNTING THEM IN: Some 457,514 inbound tourists arrived in 2011, according to data from the Mongolia National Tourism Centre. China accounted for 198,191 (43.3%) of these visitors, followed by Russia with 102,733 (22.5%). The top five was rounded out by South Korea (9.6%), the US (3.3%) and Japan (3.3%).
It is worth approaching these figures with several caveats in mind. Many arrivals, particularly those from China and Russia, are likely to have been shuttle traders who are not strictly business or leisure tourists, said Kreppel. He estimated that around 90,000 bona fide leisure tourists visit Mongolia each year.
“Many of the Koreans, Chinese and Russians working in the country arrive on tourist visas, exaggerating the number of leisure visitors from these countries,” said J. Batbold, the owner and president of Selena Travel Group. “The US, Europe and Japan are the major markets in reality.” According to the Ministry of Nature, Environment and Tourism (MNET), the leading source of inbound tourists is South Korea, followed by Japan, the US, Germany and France.
Nonetheless, many shuttle traders still use Mongolian tourist services, such as transportation, hotels and restaurants, and thus are an important part of the broader industry that should not be discounted. Furthermore, the business tourism sector is substantial, with investment growing. Employees of overseas firms involved in mining in particular – but also in export-import, financial services and others – provide much business for the hotel, restaurant and catering segment, internal airlines and some tourist sites.
BUILDING BUSINESS: The MNET estimates that in 2010 some 350,000 foreign visitors spent between three and seven days in the country, a figure likely to include many shuttle traders, as well as tourists passing through the country on the Trans-Mongolian Railway. The train takes more than 24 hours to pass through Mongolia, though many tourists generally break the journey at Ulaanbaatar in order to see the capital. As well as train travellers, Mongolia could also help stimulate the growth of its leisure tourism segment by encouraging business visitors to spend some holiday time as tourists in the country.
GROWTH INDUSTRY: The World Travel and Tourism Council (WTTC), an organisation that promotes the industry worldwide, forecasts that the travel and tourism sector will directly contribute MNT328.6bn ($256.3m) to GDP in 2011, accounting for 3.9% of the total. The WTTC defines “direct contribution” as the “economic activity generated by hotels, travel agents, airlines and other passenger transportation services (excluding commuter services)” but also activities in businesses supported by tourists, like restaurants.
The WTTC considers a more accurate estimate of the importance of tourism to an economy to be the “total contribution” – direct, indirect and induced. This includes investment by travel and tourism operators, government expenditure on the sector and broader spending in resort areas, and domestic purchases of goods and services by companies, such as IT equipment for travel firms. By this definition, the WTTC estimates the impact of tourism on the economy in 2011 to be MNT759.5bn ($592.4m), or 9% of GDP – more than twice the direct contribution.
This makes the tourism sector relatively moderate by international standards. The global average for direct industry contribution to GDP is 5.12%, and for overall economic impact, 13.87%. Given Mongolia’s huge appeal as a destination, and the investment being made in the sector, the potential for future growth looks to be substantial.
Indeed, the WTTC calculates that 2011 will be a year of strong growth, with the direct industry GDP rising 11.5% after inflation, and economic impact by 23.1%. The tourism and travel sector employs 39,000 people, accounting for 3.3% of employment, according to the WTTC, though it is believed that all in all it directly and indirectly supports 93,000 jobs, approximately 7.8% of the total.
The WTTC is very upbeat about the industry’s longer-term growth outlook. It estimates that tourism will rise by 5.8% per year to reach a GDP contribution of MNT579.2bn ($451.78m) by 2021. The sector’s broader economic impact is expected to rise 5% per year to MNT1.23trn ($959.4m) in 2021.
The Council forecasts that international tourist arrivals (those who spend at least one night in the country) will reach 479,000 in 2011, and grow by an average 4.3% per year to reach 726,000 in 2021. Capital investment in the sector is expected to reach MNT351.4bn ($274.09m) in 2011, 8.7% of the total, and is forecast to grow at 5.7% per year over the next decade to reach MNT609.1bn ($475.09m) in 2021.
DOMESTIC: The internal tourism market is also growing. The WTTC estimates 32.9% of direct industry GDP is generated by domestic spending, totalling MNT209.7bn ($163.57m) in 2011 and is likely to rise to MNT469.3bn ($366.05m) by 2021. “We are seeing more Mongolians travelling in their own country,” said B. Indraa, the director of the governing board of the Mongolia National Tourism Organisation.
While some Mongolians travel mostly to visit families, many flock to natural and cultural attractions. Sites linked with Chinggis (Genghis) Khan are particularly popular, including Kharkhorin (Karakorum) and the Chinggis Khan statue and museum at Tsonjin Boldog. Indraa points out that promoting domestic tourism can help counteract seasonal factors, as foreign tourists tend to avoid the harsh winters.
BUSINESS & MICE: Business visitors are an integral part of the industry. Estimates vary as to the proportion of visitors and revenue related to business. The WTTC calculates that business travel spending accounted for 34.1% of direct sector GDP in 2011, or MNT217bn ($169.26m). However, as more than half the foreign visitors – including shuttle traders and short-term migrant workers – who come to Mongolia are likely to be arriving on business, this may in reality be a conservative figure.
With current high levels of foreign direct investment (FDI) in the country, there is a steady flow of business travellers to Ulaanbaatar, as well as to the mining centres. The top hotels in the capital, such as the Kempinski, tend to be business-oriented and many primarily serve business visitors (see analysis).
Sven Fritzsche, the former general manager of the Kempinski, told OBG he expects business tourism to grow more slowly than the leisure segment once FDI deals are finalised and projects are handed to in-country staff. He also sees potential in serviced apartments for foreign staff working in the country for months at a time – a segment that is underdeveloped.
Mongolia also has a small but significant meetings, incentives, conferences and events (MICE) sector. This has primarily served the mining industry and investors, with annual events such as Coal Mongolia, Discover Mongolia and the Mongolia Economic Forum.
Mongolia’s growing presence on the world stage has brought other events. In October 2011 the Socialist International Asia-Pacific Committee, which includes some of the world’s leading political parties, was held in Ulaanbaatar for the second time, bringing delegates from countries as far away as Italy and Australia.
CHALLENGES & NICHES: There are obvious barriers to Mongolia’s development as a MICE centre, such as limited and costly connections to the country from around the world, the high price of visas for most international arrivals, a shortage of top-end hotel rooms and long travelling times outside the capital. Conference facilities are not as well developed as in many other Asian countries as there is no convention centre to host large-scale events. Nonetheless, Mongolia does play host to a number of domestic events, while local and foreign companies operating in the country could provide a market for the MICE sector.
MNCCI’s Kreppel asserts there is considerable potential to develop a niche MICE sector for companies looking for remote retreats for staff get-togethers with a difference. The better ger camps offering activities such as horseback riding, kayaking and hiking could be adapted to this, as could Buddhist-oriented retreats.
A. Sundui, the executive director of Juulchin Tourism Corporation, told OBG that it is one of several domestic operators examining the options for MICE development. The firm could conceivably use its experience of official visits and its links with hotels and other facilities across the country to develop its MICE offerings, while a leisure and entertainment complex being proposed by the company could also include conference and event facilities. “The real challenge is how to improve the quality of services offered in our tourism industry – in hotels, tour operators and other establishments,” S. Nergui, the president of Juulchin World Tours, told OBG in an interview.
ORKHON VALLEY: The Mongolian government has highlighted the development of tourist infrastructure in Kharkhorin Soum of Ovorkhangai Aimag as a priority, and is actively seeking public-private partnerships (PPPs) to do so. In 2010 it launched an ambitious four-year project that would see approximately $500m invested in the area, including some $350m in building and construction and $148m in infrastructure on top of a $2m pre-feasibility study.
The small modern town of Kharkhorin is home to Erdene Zuu, Mongolia’s oldest Buddhist monastery, which lies next to the site of the first Mongol capital, known as Karakorum in English. While little remains of Karakorum, the site is of great historical and cultural importance. Erdene Zuu, which stands on the site of Ogedei’s palace and was partly built with materials from the city’s ruins, is one of the foremost cultural and architectural attractions in Mongolia.
Official statistics suggest that 70% of tourists visit Kharkhorin to experience Mongolian culture and to learn about the history of the Mongolian Empire. But research suggests that not all are satisfied with their experience, partly due to the lack of much remaining of Karakorum itself. As a result, the MNET aims to develop an international-standard tourism centre with infrastructure and excellent accommodation, as well as sites to showcase the region’s history and culture.
Kharkhorin is the gateway to the Orkhon Valley, recognised by UNESCO as a World Heritage Site. Within easy reach of the town are ancient Turkic monuments and the Tovkhon Monastery, as well as the natural beauty of the valley itself and the Khangai Mountains which surround it.
The town is linked to Ulaanbaatar by a paved road, which is a five- to six-hour journey, but otherwise infrastructure is limited, with no quality hotels and only an airstrip. The Mongolian government aims to bring in investors to develop accommodation and a proper airport, as well as new sightseeing facilities.
SUSTAINABLE TOURISM: The ecotourism and sustainable tourism segment is one of the most dynamic parts of the industry. Mongolia’s huge tracts of unspoiled landscapes and its uniquely preserved nomadic culture make it particularly suited to ecotourism. Low-impact, community-based tourism initiatives also fit neatly with the country’s emerging tourism strategy, which seeks to promote activities that support local people and economic and societal development without damaging the environment or degrading the unique aspects of local culture.
DEVELOPMENT COUNCIL: The number of sustainable tourism enterprises has risen in recent years as Mongolian and foreign entrepreneurs have looked to tap into this high-value and high-return niche.
Many of them have come together to form the Sustainable Tourism Development Centre (STDC), which seeks to be the voice of the tourism industry, as well as a know-how centre to support the growth of sustainable enterprises. In practical terms, this means working with tour operators to enhance sustainability, profitability and efficiency through workshops, consultancy and lobbying. The STDC also works with international projects funded by organisations such as the UNDP and World Bank.
The STDC is working directly with the government to strengthen the legal framework around the tourism sector in order to promote sustainability, and to increase capacity at the local and municipal levels. “We see a Mongolian tourism sector that is high value, sustainable through the value chain and linked with overall development,” said D. Gantemur, the chairman of the STDC and an advisor to the prime minister. “It must preserve and promote national identity.”
CHALLENGES: While the sector undoubtedly has great potential, there are significant challenges that can hinder development. These include limited international connectivity (see analysis), a shortage of trained and experienced staff, and the industry’s seasonality, with tourism difficult to attract in winter.
Human resource issues are a common complaint. The sector is relatively young by international standards, and the competitive free market is even newer. While there is a healthy level of competition between operators, finding and retaining staff is a constant challenge. Many of the best and brightest, and those with the language skills required for tourism work, are recruited into the mining sector in which salaries are generally higher. Mongolia has a number of universities that offer tourism and leisure courses, but not all offer the quality training international tourism operators are seeking.
There is less Mongolia can do about its bitterly cold winters (temperatures can sink to -40°C), which see the number of foreign leisure tourist arrivals slow. Many operators speak of a tourist season only three or four months long – from May to September. Perceptions are changing, however, and the public and private sectors are now working together to bring more visitors in the shoulder season and winter through promotions and events.
“The peak tourism season is the summer, as winters are too cold and the tourism market comes to a near-shutdown,” T. Chuluunkhuu, the director of Air Trans, a Mongolian air-ticketing agency, explained to OBG. “The tour operators have only three to four months of operational time. Mongolia needs to invest and attract additional capital to develop and promote winter tourism, and the government must prioritise developments to improve winter tourism capabilities.”
T. Narantuya, an MNET official, said in an April 2011 statement that Mongolia was working to overcome the strong seasonality of tourism in the country, including through the promotion of winter festivals.
“In order to expand our tourism scope to attract more tourists, we are keen to intensify winter tourism in the country,” she said. “Winter attractions include the Thousand Camel Festival which is held in mid-February, the Eagle Festival, which is being held twice each year, and the Ice Festival, which is being held every February at Khovsgol Lake.”
Indraa also cites the Ice Festival as a success story. It was pioneered by local tourism operators. The event includes skating and wrestling competitions on a frozen lake and allows visitors the opportunity to meet the Tsaatan, or the “reindeer people”, one of Mongolia’s most fascinating ethnic minorities.
OUTLOOK: The tourism sector has thrived in recent years in a progressively liberal business environment. Private companies have multiplied and taken the lead in all aspects of tourism development. The coming years could see Mongolian tourism move up a gear and confront the current lack of standards to grow and realise its full potential.
There is a growing consensus that the country needs to strengthen its promotion and branding, as well as its international connectivity and internal capacity in order to continue to move forward. While competition will help increase standards, a degree of coordination and cooperation between stakeholders, the government and PPP investment will be a welcome addition to the industry and increase development efforts, thereby helping to improve overall growth.