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Japanese telecom KDDI enjoys growth in crisis-battered Mongolia

Country's young population shrugs off IMF bailout and snaps up smartphones

A Mongolian performer, right, takes a selfie with her smartphone before a shortened version of a Naadam festival, a traditional Mongolian cultural and sporting event in Ulaanbaatar, Mongolia.

TOKYO -- Mongolia's economic crisis of of the past two years has proved one thing: smartphones sell even during a downturn.

The East Asian country has few industries other than farming and mining, but it already has mobile phone subscribers in excess of its population of 3 million. The growth continued even during the fiscal crunch that had reduced the country's growth rate to just 1.2% in 2016.

One of the major beneficiaries of that popularity has been Japan's KDDI, the largest mobile phone operator in Mongolia via its MobiCom subsidiary.

MobiCom has a 40% market share in the country and is now looking to expand the services it offers its smartphone subscribers to areas such as micro lending and mobile payment.

"Mobile services have expanded in Mongolia even during the difficult economic period," said MobiCom CEO Tatsuya Hamada on Friday. "They are likely to grow faster as the economy is expected to pick up in 2018-19. The growth will also be aided by the country's relatively young population." The average age of Mongolians is 27, compared with 46 for Japanese.

Least densely populated country

Nearly four times as big as Japan in size but only ranked No. 140 in terms of population, Mongolia is the world's least densely populated country. Laying land lines across the country is simply unpractical. For nomads and other Mongolians, mobile phones are the answer.

Fixed-line subscribers in Mongolia totaled just 257,000 in 2016, less than 8% of the number for mobile subscribers.

Also, Mongolians are open to new technology, despite a much lower level of economic development -- Mongolia's average income is $3,700, less than one-tenth of Japan's, according to the International Monetary Fund.

Tatsuya Hamada, CEO of Mongolian mobile carrier MobiCom, a subsidiary of Japan's KDDI, speaks to the Nikkei Asian Review on Friday.

"Mobile phone services in Mongolia are just four to five years behind Japan's," Hamada said.

MobiCom is using its strong presence in the country to offer fintech services to its subscribers. For instance, the company is considering allowing subscribers to borrow a small sum, around $50-$100, on a smartphone -- a service that could be helpful for people who don't have ready access to bank branches. MobiCom is also thinking about a mobile payment system based on the quick response, or QR, code, similar to the one popularized in China by Alibaba Group Holding affiliate Alipay.

Mobile payment is already the rage in China, and "it could catch on in Mongolia as well," Hamada said. His goal is to allow nomads to watch youtube or talk on the video phone while being on the horseback, safely.

Economy on the mend

Mongolia's economy is expected to grow more than 4% this year, up from 1.2% in 2016, said Lkhagvasuren Byadran, deputy governor of the Bank of Mongolia, the state central bank.

The country is rich in natural resources, but its excessive reliance on the export of minerals such as coal, iron ore and copper has left it vulnerable to the boom-and-bust cycles of the commodities market.

From 2011 to 2013, the country achieved double-digit growth rates, as foreign investment poured in. But as soon as the commodity "supercycle" ended with a slowdown of the Chinese economy, foreign investment dried up, leaving the country with external debt 132% of its gross domestic product.

The government responded to this by increasing fiscal spending, especially around the time of last year's general election, but the economy barely grew more than 1%. The fiscal deficit doubled to 17% of GDP in 2016, pushing up the government debt -- much of it denominated in dollars -- to 70% from 55% of GDP. As the Mongolian currency togrog plummeted, the country found itself in a bind.

In May, the IMF stepped in to bail out Mongolia in concert with the World Bank, the Asian Development Bank and other donors, most notably Japan. Together, they provided the country with an aid package worth $5.5 billion -- almost equivalent to 60% of Mongolia's economy.

Under the IMF's oversight, Mongolia's economy is beginning to regain its footing, with the global economic recovery also helping. But the IMF says it is too early for the country to drop its guard.

Neil Saker, the IMF's representative in Mongolia, says the pickup in demand for Mongolian coal is partly due to China's recent decision to stop production at some of its polluting coal mines and also to stop buying coal from North Korea under the U.N.'s economic sanctions program. "It was a lucky break" for Mongolia," he said in a symposium in Tokyo Friday.

But it will take years for Mongolia to diversify its economy into sectors such as tourism and transport, reform its banking sector, bring inflation firmly under control, and finally break the boom-bust cycle, Saker said.

"The economy is recovering ... But I wouldn't say I would get too excited by the resumption of growth," he stressed. "A lot of work needs to be done to make sure the recovery will be permanent."

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