Business confidence plunges as COVID-19 rages on
Confidence of Mongolian business operators has dropped drastically, according to a recent study. This week, the Mongolian National Chamber of Commerce and Industry revealed their Business Confidence Index (BCI) 2020 report and the results indicate the fragile state of Mongolian businesses...
Confidence of Mongolian business operators has dropped drastically, according to a recent study. This week, the Mongolian National Chamber of Commerce and Industry revealed their Business Confidence Index (BCI) 2020 report and the results indicate the fragile state of Mongolian businesses. The index score of -0.28 points shows that confidence among business runners is lower than average. The index defines the confidence level between +1 and -1 point, with 0 marking an average level of confidence by businesses.
In three out of nine years assessed, the Mongolian BCI points were above average -- 2012, 2018 and 2019. The highest point Mongolia managed to score was +0.15.
This tells us two points. First, we can assume that Mongolia’s BCI is often average. In the last nine years, the BCI points ranged between -0.37 and +0.15. In terms of the score achieved, Mongolian BCI index score swang by 52 points in the last nine years the study was conducted, remaining close to the average point. Secondly, the report shows that Mongolia’s BCI was higher in the years with economic growth.
In 2012, the Mongolian economy grew by 12.5 percent. A year later, export commodity prices dropped drastically in world market and it marked a huge damage to Mongolia’s economy. The economy crisis partially brought on by low commodity prices continued until 2016 and Mongolia managed to recover from it just before the COVID-19 pandemic.
As we can see from previous reports, Mongolia’s lowest score was -0.37. That was the year the Mongolian economy froze and shrank in some quarters. It basically means that the business sector was passive in that year. Economic crisis and passiveness of the business sector have a negative effect on the index score. We can’t avoid a drop of BCI points as businesses are at a standstill and demand and consumption decrease. In 2019, Mongolia scored +0.06 BCI points. However, in 2020, the index point reached -0.28, which means it’s lowered by 34 points. The reason behind it is pretty obvious.
The pandemic hit Mongolia last year as local transmission of the deadly decease emerged. This forced Mongolia into a full-scale lockdown, with businesses forced to stop operations completely. After the first locally transmitted case was registered in Mongolia in November 2020, the government took some severe measures that forced businesses to experience complete stoppage for long periods of time. In addition, border closures reduced economy activity to a dismal level. The policy to protect public health backfired, causing an economic crisis. That’s why the economic crisis we are experiencing right now is being called “health-economic crisis”. The Mongolian economy shrank by 5.3 percent compared to last year’s final statistic. We can assume that confidence of businesses that they will resume operation profitably dropped drastically because of the shrinkage.
President of the Mongolian National Chamber of Commerce and Industry O.Amartuvshin noted, “The only economy sector that saw growth was the information technology sector. The activity of other sectors were interrupted due to lockdown and their income decreased by large amounts.”
According some researches, changes in the business environment received -0.43 point while business activities received -0.42 point, which are extremely worrisome “grades”. Of course, the lockdown to prevent the outbreak of COVID-19 in Mongolia can affect the business environment in a huge way. It is therefore unsurprising to see negative index points since business activity was forced into a standstill, reducing income, leading to unemployment and closures.
Businesses cannot operate without income. Lack of confidence among the biggest sectors of the economy – construction, agriculture and service – is the main reason for the poor index score. Service and construction sectors gave the lowest score in business environment changes. The representatives of construction explained that sales decreased while the cost of building materials rose sharply. On the other hand, service providers claimed that demand in the market shrank.
Due to lockdown, the income of the people decreased drastically as well. With low to no income, people have been forced into an austerity mode of living. This has led to a plunge in demand. The other reason is that people are avoiding public places to prevent risks of infection.
According to results of business activity value, construction and industrial sectors gave the lowest point. They attribute lack of investment in their sectors. The other reason is lack of demand, according to representatives of the sectors. The results of study are based on investment environment. The investment environment of the main economic sectors scored close to 0, or average. However, agriculture investment environment point was -0.14, which was the lowest. Besides this, the Business Environment Index is calculated based on the level inflation, unemployment and poverty caused by socioeconomic reasons. Business operators concluded that inflation and unemployment was “normal” in the country in 2020.
However, businesses that poverty level was worse compared to previous years, expecting it get worse in the future.
It was tough decision for the government to choose between uncontrolled pandemic outbreak and an economic crisis. They chose economic crisis and it was foreseen by many politicians and economic experts. It was almost inevitable that COVID-19 would break out in Mongolia eventually. The issue is that Mongolia had plenty of time to prepare for this situation and make contingencies when there weren’t any locally transmitted cases.
Economists were urging preparation and solutions at the time, but the government was too busy applauding itself for having avoided the disease. Mongolia spent a lot of time prematurely stopping businesses when there was only imported cases, which were quarantined off at the time. If the unnecessary restriction didn’t take place, Mongolia would have been in a slightly better situation. What has happened cannot be taken back and the higher-ups are not likely to take responsibility for their wrongdoings in the present situation. The pandemic will continue to rage on, and businesses confidence will likely take another dip this year. It’s too early to make conclusions about the effectiveness of response, but the government has failed us before by not adequately preparing for a disease outbreak that gave the country 11 months of prior warning.
...Mongolia spent a lot of time prematurely stopping businesses when there was only imported cases, which were quarantined off at the time...