The annual Mongolia Investment Summit was held in Hong Kong last week. The summit, which was hosted by the Four Seasons hotel for the third time, brought together about 350 delegates representing 230 organizations from 15 countries. One third of the total attendees were investors. Delegates from companies that are doing business in Mongolia delivered speeches and set up their exhibition stands outside the conference hall to present and promote their projects. The closing banquet of the summit included a great music performance by the talented duo of violinist O.Baigali and pianist B.Oyu, both of whom had been invited from Ulaanbaatar.
Our government representatives, namely A.Gansukh, the Minister of Road and Transportation, G.Tsogtsaikhan, State Secretary of Ministry of Foreign Affairs, S.Javkhlanbaatar, Director General of Foreign Investment Regulations and Registration Department, Ministry of Economic Development, Kh.Amarjargal of the Ministry of Mining and L.Duursakh of Ministry of Industry and Agriculture, participated in the summit with great enthusiasm. They were emphasizing that Mongolia has improved its legal environment, passed the new investment law, and developed clearer business rules. The idea of “Win-win with Mongolia” was echoed by those who represented the government at the Mongolia Investment Summit 2013. It was unusual that the conference was opened with an interview between A.Gansukh, the Minister of Road and Transportation, and Mia Saini, a well-known reporter for Bloomberg Television.
Cautiously optimistic expectation
Mongolian state-owned companies were represented by O.Sainbuyan of Erdenes Mongolia and Ya.Batsuuri, CEO Erdenes Tavan Tolgoi. MrBatsuuri, gave a speech about the progress of their project. Everyone was expecting Craig Kinnell, the newly appointed CEO of OyuTolgoi LLC, to provide information about what was going on with the project financing and when the underground mine development would start. However, he stated that he did not have the answer to those questions and talked more about commitment to safety in mining. Before finishing his speech and leaving the summit, he said that “Speed is not the measure of success. Success is judged by producing a better and stronger Oyu Tolgoi, built on a trusting partnership that will stand the test of time.”
Attending his second Mongolia Investment Summit, N.Zoljargal, Governor of Mongolbank (Central Bank of Mongolia), delivered a speech to the delegates and gave an interview to the Wall Street Journal. The message he relayed gave cautiously optimistic expectations about Mongolia’s investment environment to international investors. He said that Mongolia’s economy this year would grow slightly more than 11 percent, while the economic growth for next year is expected to come close to the rate of 2011 (17 percent). Zoljargal said that he was confident that the economy would see recovery in 2013, facilitated by the revised investment law, the new securities law, increased stability and a 4 billion USD expected to come from the OyuTolgoi project.
Investors at the summit noted that the government involvement was expanding in Mongolia and there were more state-owned companies than before. They claimed that there was less room for the private sector to grow while developments banks such as FMO and KfW, who only invest in private companies, were facing more difficulties. The investors also said that Mongolians always talked about massive projects with very slow progress that the projects were left uncompleted and passed on from election to election. As examples, they mentioned the Thermal Power Plant No.5 and the two railways connecting Tavan Tolgoi mine and Nariin Sukhait with the Chinese border. The railway project was started by the private sector but suspended by the government. The investors noted that Mongolia lost a lot of time when the country should have already built these railways and started shipping coal. The validity of their statement was proven the following day when Moody’s Investor Service downgraded Mongolia Mining Corp’s rating to Caa2, which indicates high credit risk that halts investment.
Organic products from Mongolia
It should be noted that non-mining projects were under the spotlight as well. The delegates at the summit discussed that it was probable that businesses such as tourism, exporting agricultural products and trading fixed assets, including buildings for housing and other purposes, could be highly profitable.
L.Duursakh, spokesperson for the Ministry of Industry and Agriculture stated that Mongolia was trying to process its meat, milk and cashmere to export more value-added products. Mongolia now has 41 million livestock worth 7.15 billion USD at current market rates. Although our country currently processes only 10 percent of animal products, this industry has the potential to become worth 88 billion USD with the right investment.
On the following day of the summit’s conclusion, a half-page interview with L.Duursakh by journalist Robertson was published in “South Morning China Post”, a newspaper, accompanied by a photo of grazing sheep. The interview told its readers in Southeast Asia that Mongolian government was pursuing a policy to introduce brand animal products including meat and milk to the international market. It also said that Mongolia has one million square kilometers of land available for agricultural use, and there are vast opportunities for investment.
Times are always changing
It is said that times are always changing. Koppa, President of Trade and Development Bank, said that Mongolia would need 55-84 billion USD in 2014-2018 for mining extraction and processing, building infrastructure, and making social investment. It was estimated that one third of the needed capital would come from foreign investment, 28 billion from domestic sources, 6 billion from bonds, 13 billion from foreign capital markets, 14 billion from commercial banks, and 2 billion from donor organizations and other sources. If you look at their estimate for 2013 that was released three years ago, you will know that their prediction can be pretty accurate.
In any case, half of the total capital needed for the development of Mongolia will be from foreign sources. The important thing is not just bringing foreign investment, but proper and wise spending to form foundations for an innovation economy, and create internationally competitive products and service in a specific industry.
However, all of these tasks have to be done by the private sector. Although some things might have been already initiated by the government, shares of state-owned companies should be sold to the public on the stock exchange and these companies should be transformed into companies with good corporate governance. Let us once again remember Chile’s development model, where they wisely utilized their natural resources and achieved rapid development by accomplishing the tasks mentioned above.
A foreign investor at the summit noted that Mongolia lacks trust more than it lacks capital. He said, “Trust comes on foot but leaves on horseback.” Some participants also stressed that it would be a huge step towards establishing trust with foreign investors if Mongolia manages to implement what President Elbegdorj recently stated in his speech delivered at the “From a big government to a small government” conference.
Let us hope that the time will come soon when everyone seeks to invest in Mongolia rather than Mongolia desperately making efforts to attract investment.
Hong Kong – Ulaanbaatar