Tight times for Mongolias retail sector

In Mongolian

A cooling economy, persistently high inflation and tighter credit regulations will maintain pressure on Mongolias retail sector throughout 2015, though demand for shop space in certain segments remains strong.

In its latest update on the Mongolian economy, the World Bank said double-digit inflation and the high current account deficit had affected domestic demand, adding momentum to the pressures on the economy. Without a strong rebound in foreign investment, pressure on the balance of payments will increase vulnerabilities and continue to dampen economic growth next year. Domestic demand will continue to be under pressure, particularly affecting the non-mining sector, the bank said at the end of 2014.

The non-mining segment of the economy was dragged down by weakness in the construction and wholesale/retail sectors last year, with these pressures set to continue. According to the World Bank, the wholesale/retail segment contracted 6.8% in the first nine months of 2014, having experienced a similar rate of negative growth in the same period a year earlier.

As growth in the sector has slowed, there has been a near threefold increase in the level of non-performing and past-due-date loans, which were valued at MNT227bn ($113.5m) at the end of October, accounting for 21.6% of problematic loans across the economy.

Retailers are likely to be affected by tighter lending requirements and higher interest rates introduced by the Bank of Mongolia (BoM) in 2014, which led to a slowdown in private sector credit growth to 22% in October, down from more than 53% a year earlier.

Despite a weaker performance in 2014, new investments are still being rolled out. In mid-December, property management and development firm Mongolian Growth Group (MGG) opened the first stage of the Tuguldur Centre, an 80-year-old building which has been renovated to accommodate a new retail complex in Ulaanbaatar, close to the capitals business hub. The property is 99% leased, according to MGG, with strong interest in its second stage.

In a statement issued to investors at the beginning of 2015, Harris Kupperman, MGGs chairman and CEO, said the company had at least one other retail development in the pipeline, targeting the same market as the Tuguldur Centre. This suggests that prime retail space remains in strong demand in the city centre, despite the economic slowdown.

Local retailers are also looking to increase their profile in secondary urban centres away from the capital, tapping into a growing affluence brought about by higher employment levels and earning power stemming from the development of the mining and industrial sectors in more remote areas. While Ulaanbaatar remains the main population and economic hub, cities in the north and east are expanding, offering retail opportunities.

This expansion was given added impetus in late December when the European Bank for Reconstruction and Development (EBRD) announced it was extending a MNT23.3bn ($11.63m) loan facility to retailer Nomintav Trade. The company, part of the Nomin Group, specialises in fast-moving consumer goods, apparel and consumer electronics. The funds will be used to support development of six new outlets in various regions, as well as in Ulaanbaatar itself, where it already has a significant presence.

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Tight times for Mongolias retail sector