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04/10/2014

Five Reasons to Consider Mongolia As Your Top Investment Destination


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It's the second fastest growing economy in the world: Strong economic growth is expected for the mineral resource–rich Mongolia, with rising mining output from world-class mining projects such as Oyu Tolgoi—a copper and gold mining operation, where Rio-tinto owns 66% and the government owns 33%. This project is expected to contribute 1/3 of Mongolia GDP alone. The Economist Intelligence Unit has projected that Mongolia will be the second-fastest growing economy in the world in 2014 with gross domestic product rising 15.3% thanks to the first full year of operations of Oyu Tolgoi. And, though IMF predicts that growth will slow down to 9.5% (owing to a slow-down in China, the main export destination for Mongolian minerals), the economic growth is high even by regional, let alone international, standards.

New investment law encourages Foreign Direct Investments (FDIs): Mongolia endorsed a new foreign investment law, which expects to significantly improve the investment environment by removing a 2012 restriction that requires government approval for foreign private companies' investments in "strategic sectors," including mining. The investment law includes a chapter on Investors' Guarantees, protection against expropriation, the right to repatriate profits ,and freedom to choose a dispute resolution forum. In addition, the new law ensures a stable investment environment through stabilization of four main taxes (corporate income tax, customs duty, VAT, and royalty in mining) depending on the investment size and location of the investment—with rural area investments enjoying further benefits. To prevent from the political unstable behavior, similar to 2012, when an unexpected introduction of restrictions for investments in strategic sectors has halted the FDIs into the country, this law can only be changed if 2/3 of the Parliament members agree to make changes.

It's gone from bigger government to smart government: Mongolian President Tsakhiagiin Elbegdorj, who was re-elected for the second four-year term, is committed to leaving a legacy of supporting investments through enhancing transparency at "all levels of government," limiting types of investments the government can make, and reforming property and contract rights. Mongolia already ranks high in protection of investors (#22) and enforcing contracts (#30) relative according to the World Bank /IFCs Doing Business report, 2014 which ranks 188 countries across the globe.

Wining partnership for the Mongolian Stock Exchange: Mongolian stock exchange has successfully implemented the “Millenium IT” system used in over 30 stock exchanges under a 3-year “Master Service Agreement" with London Stock Exchange Group. The country has ambitions of having a dual-listing of its companies in both London and Ulaanbaatar. A separate measure establishes a framework for custodial banks and nominee shareholding to facilitate foreign institutional investment.

Demographic dividend: With over 60 percent of the population below 35 years old, Mongolia is one of the few countries in Asia which may benefit from demographic growth. This growth of a working-age population that has fewer dependent children and elderly to support is known as the ‘demographic dividend’ because it provides a window of opportunity to build human capital. More and more experienced Mongolians who have studied, lived, and worked abroad are returning into the country. This is a clear sign of optimism into the economic future of the country.

Learn more about investing in Mongolia at NYSSA's "Investing in Mongolia Conference" April 24, 2014. Click here to register.

–Golomt Bank, Investment Banking Department


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