FDI ENVIRONMENT IN

MONGOLIA

Jim Dwyer

Executive Director

Business Council of Mongolia

CAMCA Regional Forum

Ulaanbaatar, Mongolia

20 June, 2015

INVEST in

MONGOLIA

Content

INVESTMENT PERFORMANCE

REASONS FOR DOWNTURN

POLICY ACTIONS

FDI into of Mongolia has been decreasing sharply

0.32 0.37 0.50 0.71 0.80

1.03

4.99

4.40

2.29

0.57

15.85% 36.23% 41.80%

13.01% 28.06%

386.36%

-11.82%

-47.95% -75.20%

(2.00)

(1.00)

-

1.00

2.00

3.00

4.00

5.00

6.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014.11.31

bill

ion

USD

FDI Percentage

/in billion USD/

Registered foreign invested companies /by number of companies/

Export of coal (million USD) Export price of coal

Reason 1: • Main export commodity price dropped

2011.01 2015.02

Coal 141.94$ 65.76$

Metals 245.48$ 137.27$

Copper 9533.2$ 5729$

Iron Ore 179.63$ 62.69$

Reason 2:

• Phase 1 of OT Project has completed

Investment Amount:

7.1 billion USD

OT investment has been the main reason for the rapid growth of FDI in 2011-2012

• 40 companies listed in International stock exchanges

Reason 3:

Strategic Entities Foreign Investment Law /2012/

Long Name Law /2009/

Presidential moratorium

on new exploration licenses /2010/

Government Changes

Corruption Issues /in 2013 106 exploration

licenses held by foreign and local investors were revoked as a result of a

court case/

Arbitration cases

Court cases / Imprison cases

Tax disputes

Unexpected Changes of Regulations

Negative messages Unfavorable attitudes

• Uncertainty

EASE OF DOING BUSINESS IN MONGOLIA

According to the 2015 Doing Business report by the World Bank, Mongolia is ranked 72nd place out of 189 Economies

DB 2015 Rank

8

173

142

90

84

74

61

42

30

24

17

Trading Across Borders

Getting Electricity

Resonlving Insolvency

Paying Taxes

Dealing with Construction Permits

Getting Credit

Starting a Business

Registreing Property

Enforcing Contracts

Protecting Minority Investors

Source: MIGA-EIU Political Risk Survey 2013

7

13

24

31

33

43

45

58

War

Terrorism

Expropriation

NHFO

Civil disturbance

T&C restrictions

Breach of contract

Adverse regulatory changes

Types of political risk of most concern to investors in developing economies in

next 3 years /percent/

INTERNATIONAL SURVEYS

Key Findings of the WB and IFC survey in Mongolia /provisional

report/

The main investor concerns are caused by the certain government organizations:

– Lack of Transparency and Arbitrary Government Action

– Expropriation

– Discrimination

– Breach of Contract

Even the investment is adequately protected in legal documents, investors do not feel the reliable protection.

High degree of dissatisfaction to resolve investors grievances.

Scenarios to 2021 INVESTMENT POLICY REVIEW /April 2014, UNCTAD/

Recommendations

2

1

• Resource curse and macroeconomic instability • Mining development hampered by national and international political

and economic difficulties • Investment in infrastructure constrained

• Mining revenues are put to productive use • Macroeconomic stability attained • Economy diversifies, infrastructure improves • Sustainable and inclusive development

1

• New objectives and tools of a comprehensive FDI strategy

2

• Regulatory and institutional reforms for foreign and local private sector development

3

• Programmes for achieving diversification through FDI and other activities of foreign companies

Foreign Investment Law (FIL)

Remove the pre-establishment screening of FDI

Abolish the need for investment certificates

Replace the minimum deposit requirement

Improve the methodology for the collection of FDI

Regulation of Foreign Investment in entities operating in strategic sectors (SEFIL)

Replace the comprehensive pre-establishment screening with a proper national security test

Mongolia’s Investment Promotion Agency (IPA)

Establish an independent, public sector-funded and private sector-oriented agency Remove all regulatory functions, including screening and registration and assign proper investment promotion and facilitation functions Staff the agency with professional and experienced personnel Provide the IPA with secure and adequate financial resources

1. New objectives and tools of a comprehensive FDI strategy

POLICY ACTIONS

• Sector diversification

• Geographical diversification

• Source country diversification

Managing stakeholders interests

More favorable condition

• Synergy between government institutions

• Capacity building programme

• Social program to promote a positive impact of FDI

Diversification

12

Protection

• One stop online services

• Aftercare services

• Grievance management mechanism

• Facilitate procedural barriers

• Incentives

Financial Incentives

Fiscal Incentives

Regulatory Incentives

Expected investment from mega projects and PPP

projects exceeds 18bln USD

OT II Phase

Investment: 5bln USD

Investment Agreement

TT

Investment: 4bln USD

Investment Agreement is under negotiation

TTPP

Investment: 1bln USD

Investment Agreement

Public-Private Partnership Projects

Total Investment amount : ~7bln USD

The Government has signed 17 PPP agreements

• “Telmen power plant” project • “Altanbulag-Ulaanbaatar-Zamyn-Uud highway” project • “Nariinsukhait – Shiveehuren” road project • “Establishment of the mining and metal processing complex” project

• “Tuul-Songino power plant” project •“Tavantolgoi-Khanbogd-Hangi” road project • 9 road projects with total length of 1167.6 km • Projects for construction of 72 kindergarden and school complexes

CHP5

Investment: 1.2 bln USD

Concession Agreement

Thank you for your attention

INVEST in

MONGOLIA

Invest Mongolia Agency

Web: www.investmongolia.com

Phone: +976-11-320706, 310599

Email: info@investmongolia.com

The Business Council of Mongolia

Web: www.bcmongolia.org

Phone: +976-11-317027; 70114442

Email: info@bcmongolia.org