Mountainous Mongolia eyes e-commerce to diversify its economy

Mongolia is looking to e-commerce to help overcome geographical challenges and diversify its economy, which relies heavily on mining – mainly of copper, coal, iron ores and gold.

The mountainous, landlocked nation is one of the world’s most sparsely populated. Mongolia’s remoteness, combined with its rugged terrain can make traditional trade and economic activities challenging.

“The digital way opens up a whole new facet for all aspects of economic diversification and especially trade,” said Tapan Mishra, the UN Resident Coordinator in Mongolia.

“It is extremely important for Mongolia to leverage its trade potential by being eTrade ready,” Mr. Tapan said.

UNCTAD has worked closely with the government on an eTrade Readiness Assessment of the country.

Published on 8 June, it provides insight on the progress that the Eastern Asian nation has made in laying the groundwork for a strong e-commerce ecosystem and offers a road map of action to overcome remaining challenges.

“The assessment makes a series of policy recommendations, which, if effectively implemented, will help Mongolia move away from its commodity-based economy and accelerate its digital transformation,” Shamika N. Sirimanne, director of UNCTAD’s technology and logistics division, said at the assessment’s launch in Ulaanbaatar.

More connected and tech-savvy

Mongolia has made progress in areas that bode well for its e-commerce ambitions. The country has strengthened its ICT infrastructure, especially in urban areas, and increased internet connectivity.

According to data from the International Telecommunication Union, mobile broadband subscriptions in the country rose from 80 to 116 per 100 people between 2017 and 2021. And over 70% of subscribers have access to 4G/LTE networks.

During the same period, the share of Mongolians aged 15 years or older shopping online grew from 7% to 42% – the highest growth among landlocked developing countries and one of the highest in the world, according to World Bank data.

The country has also seen digital literacy increase among its youth. Half of its young men and women now possess general ICT skills, according to the UN Children’s Fund (UNICEF).

The assessment also highlights that domestic digital payments, such as e-banking, mobile banking, electronic wallets and QR code payments, are now widely used for domestic purchases.

Urban-rural divides and logistics challenges

Although Mongolia has made progress in many key areas, challenges remain, especially the urban-rural divides – both physical and digital.

People in rural regions in the country still have limited access to reliable ICT infrastructure and to an internet connection. And access to affordable financial services remains limited for some segments of the population.

Mongolia's vast and sparsely populated landscape also presents logistical challenges for e-commerce.

Many of the country’s roads are unpaved and there is no unified system for addresses. These factors, combined with limited transportation networks and harsh weather conditions, make deliveries difficult and costly.

Limited finance and cross-border payments

While the COVID-19 pandemic accelerated the use of electronic payments for domestic purchases in Mongolia, cross-border digital payment options are few and fees remain high.

Another challenge is limited access to financing for digital and technological startups. They rely mainly on self-funding, personal loans and government support in the form of grants and tax relief.

Other financing options, such as crowdfunding and venture capital, are sparse and not yet regulated.

Although Mongolia has various laws related to e-commerce, the assessment highlights the need to strengthen its legal framework to protect consumers online and address concerns related to online fraud and data privacy.

A key milestone

UNCTAD’s eTrade Readiness Assessment marks a key milestone in Mongolia´s digital journey and lays the foundation for a national e-commerce strategy.

“By offering an analysis of Mongolia’s e-commerce ecosystem and charting a roadmap for its further growth, the eTrade Readiness Assessment is one of the catalytic forces for Mongolia to rapidly develop e-commerce,” the country’s foreign affairs minister, Battsetseg Batmunkh, said at the report’s launch.

Also speaking at the event, Mendbayar Tseveen, the co-founder of Shoppy.mn, one of Mongolia’s biggest online marketplaces, highlighted the power of e-commerce to open new doors for Mongolian businesses.

“E-commerce connects Mongolian and international businesses and empowers domestic retail businesses to harness their full potential,” Mr. Tseveen said.

The assessment calls on government ministries and agencies, e-commerce companies, academia and development partners to join forces in implementing the recommendations. They cut across sectors and require concerted efforts from the public and private sectors.

UNCTAD will support the country in implementing the recommendations.

The organization is committed to mobilizing further support from eTrade for all and development partners to leverage the power of the country’s growing digital economy and build a bright digital future for all Mongolians.

The eTrade Readiness Assessment of Mongolia was developed with the support of the Republic of Korea, the European Bank for Reconstruction and Development and Switzerland.