2023.07.20
The Mongolia Economic Forum 2023 with the aim of attracting foreign investment and tourists was held with the slogan “Welcome to Mongolia” at the government palace and Chinggis Khaan museum right before Naadam. Here is a summary and expected outcomes of the two-day event, in which 2200 foreign and local participants attended.
There are three ways to finance economic growth, namely self-financing, loan or foreign investment. Mongolia having more expenditure than income means there is very little capital or savings while loans are also out of the picture due to the legal limit that was already reached. This leaves only one option, foreign investment. Moreover, Mongolia set a goal to welcome a large number of tourists (1 million in 2023). There is a lot to do to attract foreign capital.
Foreign investment from the government’s perspective:
Foreign investment has totaled 40 billion US dollars in the 33 years since Mongolia began transitioning to a democracy and market economy in 1990. 5 billion dollars were invested in the first 20 years, followed by 35 billion post-2010. Mining and extraction industries account for three-quarters of foreign investment, while commerce and services account for 11 percent.
At the forum, the government representatives presented the steps it is taking to enhance the investment and business environment. The Ministry of Economy and Development has revised the draft for Law on Investment. The draft elaborates on investment support, protection of investor rights and legal interests, and concrete government support.
For some sectors, it will also be possible to eliminate investment restrictions and clauses in the law, and investors will be able to resolve disputes through international arbitration.
In addition, the price gap between the legal entity registration period and payment of stamp duty for domestic and foreign-invested enterprises will be leveled. The time period for land lease will be clarified, and the bureaucratic steps required to obtain visas and residence permits will be simplified.
Tax and non-tax incentives, stabilization of the investment environment, and regulations keeping the conditions for investments exceeding 500 billion tugriks stable will remain in place. The number of overlapping inspections by the environment, land, tax authority, provincial, and general authorities, will be reduced to only two joint inspections annually.
The Parliament Chairman G.Zandanshatar stated at the forum that the 2019 amendment to the constitution dictates the development policy for the country to be stable and sustainable, and undertook legal reforms for creating stability in investment environment.
However, the Mongolian court’s lack of ability to enforce laws and regulations, especially when there are good regulations in place was a missing discussion at the forum. Also, for attracting foreign investment, the national currency has to be stable on top of the laws and regulations of the country.
Foreign investors’ perspective:
Of the 500 foreign delegates at the forum, one-third was affiliated with RioTinto. The investor for Oyutolgoi project, which is the second biggest mining corporation in the world with 55 thousand employees and a history of 150 years, worth 100 billion dollars had all of its board members and executive management team. Moreover, the RioTinto shareholders, 45 leading financial enterprises financing their projects in 35 countries as well as major international press delegation were present at the forum.
Dominic Barton, the chairman of the board at RioTinto said that OT will have the fourth largest production of copper in the world by 2030. So far, 15 billion dollars were invested. Under the depth of 1500 meter, an ore as big as Manhattan is being mined using block technology. Ninety percent of the 20 thousand employees are Mongolian and the domestic procurement amounts to 5.1 billion dollars each year. RioTinto will make contributions as a proactive, responsible company since the roadmap for working in Mongolia is clear and there is full potential to create diversified stable economy. He also added that it does not have to be only the mining sector. Recently, they decided to cooperate with the government in projects of renewable energy and irrigating the gobi desert.
Olivier Toumer, a representative from Orano, a French company looking to sign an agreement to invest in the uranium sector of Mongolia, said that the production of the yellow powder requires sulfuric acid. The copper process plant produces a lot of sulfuric acid as byproduct, which will create a new link between the sectors.
In any case, major projects are about to be implemented in Mongolia.
Diversifying the economy
In terms of diversifying the economy, attracting investment in sectors with abundant raw material resources, excluding mining, such as tourism and agriculture was discussed at the forum. Furthermore, the use of solar and wind renewable energy, the production of steel and copper, oil refineries, the establishment of agricultural special zones, and the construction of leather and meat factories were discussed.
In free zones such as Khushig Valley, it is also feasible to run services such as trade, entertainment, logistics, etc. According to the law on the free zone; customs, employment, and taxation will be subject to special regulations.
The government has strengthened the capacity of border ports significantly in the last two years. Soon, it will be possible to transport greater amount of goods with lower transport costs when the Khangi-Mandal and Gashuunsukhait-Gantsmod ports are connected to increase export capacity. Another achievement towards laying the base infrastructure for business is the fact that all provinces are connected by paved road.
Joining the Asia Pacific Trade Agreement will enable Mongolia to export 11 thousand types of goods in the region with tariff concession while the special incentive arrangement GSP+ will also allow 7200 types of goods to be exported to the EU with tariff concessions, creating a favorable international trade condition and helping Mongolia expand its export markets. Additionally, by signing the Economic Partnership Agreement with Japan, 5700 types of goods will be exported in the same way.
At the forum, around 400 individuals held comprehensive discussions on the topics of development policy, economy and sustainable development, new future-new opportunity, and urban development, resulting in concrete ideas and recommendations.
This economic forum has been the biggest promotion of Mongolia so far, with the highest number of participants in its history.
Translated by Munkh-Erdene Davaajav
2023.07.20