The Asian Development Bank has approved a $30m loan to develop the Zamyn-Uud free zone, located at Mongolia’s busiest border crossing with China.

Upon completion in 2025, it is hoped the zone will help facilitate cross-border economic activity and encourage involvement in international supply chains.

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The Zamyn-Uud free zone is one of three free zones in Mongolia set up in 2004. The zone had a management team and basic infrastructure before the ADB became involved, but has struggled to attract business activity.

The ADB cites a number of constraints to the zone’s development, including an unfeasible masterplan and incomplete infrastructure. The $30m loan – which was approved on June 18 – is intended to remedy some of these issues.

Dorothea Lazaro, a regional cooperation specialist at the ADB, told fDi: “The new masterplan will take into consideration a more realistic market demand and incorporate a phased approach,” replacing an “ambitious” 900-hectare project with a 300-hectare phase-1.

The loan will be used to finance hard and soft infrastructure within phase-1, extending road, water, and power networks and finance the development of sustainable business strategies and management capacity-building.

Cross-border cooperation

The zone will also form part of a wider cross-border economic cooperation area; China is in the process of developing a similar zone across the border in Erenhot, China. While the two zones will remain independently-run, a new customs gateway complex at the entrance to the Mongolian zone will eliminate border controls between them, and a coordination council will be set up to develop common procedures.

Investors have shown interest in sectors such as duty-free retail, textile trading, food production, fuel and logistics services and final-processing activities such as packaging and storage, Ms Lazaro said.

Overall, 58 investors have been granted lease agreements, with 40 of them committed to setting up shop in the zone, according to ADB figures.

As a result, despite the project’s focus on strengthening Zamyn-Uud’s role as a border crossing, it also hopes to facilitate Mongolia’s integration into shifting international supply chains. The ultimate goal is to move “beyond the current exports of raw materials… as well as expanding beyond the main trading partner, which is currently China,” Ms Lazaro said.

The project forms part of the ADB’s wider central Asia regional economic cooperation programme, which has mobilised $38.6bn to develop infrastructure and trade along several economic corridors in Central Asia, including strengthening transport links and facilitating trade between Russia, Mongolia, and China.