Ambassador, D-r. (PhD) Batbayar Tsedendamba (Mongolia) Mongolias Economy in 2016-2019: Opportunities and Challenges / SCO Shanghai Cooperation Organization

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Mongolias Economy in 2016-2019: Opportunities and Challenges
26.04.2019 11:10 Ambassador, D-r. (PhD) Batbayar Tsedendamba (Mongolia)

For the last three years, Mongolia has undergone some significant political changes. In June of 2016, the Mongolian Peoples’ Party (MPP) has won the absolute majority in the parliamentary election. Meanwhile, the MPP has decided to modify the Government and continue the policies with new approaches, as such the current Government of Mongolia was established in October 2017.

After the Parliamentary elections of 2016, the ruling party was in a challenging situation: the budget deficit reached 4.3 trillion tugriks (Mongolian currency), which comprised 18 percent of the GDP. There was accumulated debt, and lack of financial discipline at all levels. One of the first priorities was to take austerity measures and find extra financial sources and look for international creditors and institutions.

Thanks to the negotiations and assistance of our partners, Mongolia was able to start the IMF’s “Extended Fund Facility” program. As a result of two year’s efforts the economy is being stabilized: the Government is making the repayments of the “Chingis Bond” worth of 500 mln. USD – at an agreed and targeted time frame. This repayment proved to domestic and international investors and a financial market that Mongolia can fulfill its international obligations.

The IMF has concluded, in the sixth review of the program, that the Mongolian performance is satisfactory regarding key macro-economic quantitative targets and that the country’s economy was recovering.

In my today’s presentation I would like to talk about three issues: first, Macroeconomic stability, second, favorable investment environment, especially highlighting some successfully implemented projects in mining sector, thirdly, about further opportunities and challenges.

First, in 2018, the economy grew 6.9%. The Government of Mongolia made efforts on tightening budgetary expenditure and conducted active cooperation with the international financial institutions. In 2018, overall trade turnover increased by 22.3 percent compared to the previous year, reaching 12.9 billion USD, largely thanks to the recovery of the mineral prices. We are also seeing positive tendencies in our budget revenue, foreign currency reserve and inflation rate.

 Export volumes: Minerals still account for 86.6 percent of the total export, among them export of coal reached 35 million tonnes for amount of 2.8 bln USD, export of copper concentrates reached 1.4 million tonnes for amount of 2 bln USD.

Foreign direct investment has reached USD 2.47 billion, an increase by 18 percent compared to the previous year, indicates that investors’ confidence is being restored. The foreign currency reserves of Mongol Bank have doubled, reaching 3.5 bn USD by the end of 2018.

Secondly, Investment environment: stable legal framework and favorable tax incentives were established.

To reverse the recent drop in FDI and reinvigorate Mongolia’s status as one of the frontier markets for investment opportunities, Parliament of Mongolia passed an Investment Law (2013), which:

  • Makes no distinction between domestic and foreign private investors;
  • Provides investors five to 22 years of "stability" on the 4 main categories of taxes;
  • No approval required to enter into market and buy a local company
  • Fast incorporation process
  • Tax and non-tax incentives to investors
  • Investment protection Council (IPC) under Cabinet Secretariat

Third issue: Further opportunities and challenges

1.STRATEGIC LOCATION: Some people may argue that Mongolia has a small market of around 3.2 million people. My response to them is simple. We are located in the hub of 1.5-2 billion people. I mean our two neighbors, China and Russia. They are the largest markets every investor wants to enter. Japan and South Korea are also well connected with Mongolia via everyday passenger and cargo flights. In other words, we are not landlocked but rather a market linking country. Main advantages are:

         -Strategic location

         -Attractive tax policy

         -Resource rich

         -Plenty of renewable energy

         -Investment opportunities in mining

2. Mongolia has started major infrastructure development. The main focus is on the development of transport and transit infrastructure. We are developing 5 transit corridors to better connect to our immediate and other partners and implementing large-scale projects to that end, namely:

a. A new railway network that will transport goods to North East Asian economies along with the current Trans-Mongolia railway.

b. A new road network connecting Mongolia’s northern border point to the south.

c. Gas pipeline (currently at the conceptual level).

d. Oil pipeline (currently at the conceptual level).

e. Electricity transmission level (currently at the conceptual level).

With these transit corridors implemented, Mongolia can become a bridge connecting Europe and Asia and the shortest destination to either of them.

3. Mongolia is rich in mineral resources such as coal, copper, iron ore, uranium and others. We now have a large mineral resource base for increased exports and industrial development.

Main mineral resources

Approved reserves (2018)

Copper (thousand tons)

83,807

Coal (million tons)

18,473

Gold (tons)

2,402

Zinc (thousand tons)

1,740

Iron ore (million tons)

1,047

Uranium (thousand tons)

47,9

Rare earths (thousand tons)

3,768

Conventional crude oil (million barrel)

2,438

 

The two deposits that have captured global attention are Oyu Tolgoi, the world’s largest new source of copper, and Tavan Tolgoi, one of the world’s biggest coking coal deposits. We are working together with Rio Tinto on Oyu Tolgoi.

Challenges and Risks:   Mongolia is now at a crucial turning point. Its future prosperity is affected by a range of highly uncertain drivers, such as the reliability of foreign investments and fluctuating commodity prices. It faces unprecedented opportunities for economic development, but also substantial risks. 

Our priority now is to maintain high growth rates and use them to develop a diversified economy that creates value locally. This is potentially within our reach as we have started major infrastructure and industrial development while continuing our major mining projects, such as the development of the world’s largest new source of copper Oyu Tolgoi and one of the world’s largest coking coal deposits Tavan Tolgoi.

However, the Government is well aware of the risks associated with economy’s vulnerability to price fluctuations of export commodities and the dependence on mining. Thus, we are attaching great significance to diversification of the economy and are working towards developing agriculture, food, and light industry and tourism sectors as new economic pillars.

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