Mongolia’s financial system is closely reliant on its mining sector, which contributes considerably to its GDP and exports. On the other hand, the federal government is actively operating against diversifying the financial system and attracting overseas funding in different sectors. Consequently, there are a number of promising industries and primary traits that companies and buyers can discover along with the mining sector. On this regard, we provide insights into those alternatives that will help you make knowledgeable choices.
Mongolia is wealthy in herbal assets and has traditionally attracted vital overseas funding in its mining sector. Consistent with knowledge from the International Financial institution, the mining sector accounted for about 22 p.c of Mongolia’s GDP in 2021, and over a staggering 80 p.c of the rustic’s exports. Thus, the significance of mining to the Mongolian financial system can’t be overstated, as it’s been a key motive force of financial expansion.
On the other hand, this heavy reliance at the mining sector has additionally made the rustic liable to fluctuations in international commodity costs, as noticed throughout the new downturn within the international mining trade itself. In keeping with this vulnerability, the Mongolian govt has been operating to diversify its financial system and draw in overseas funding in different sectors, together with agriculture, tourism, and renewable power.
Regardless of those efforts, the mining trade nonetheless stays the most important contributor to the Mongolian financial system. The rustic is house to a number of large-scale mining operations, together with the Oyu Tolgoi copper and gold mine, which is collectively owned via the Mongolian govt and international mining large Rio Tinto. The mining trade has additionally attracted investments from different primary avid gamers international, together with Chinese language, Canadian, and Ecu ones.
In April 2022, the federal government introduced its so-called Revival Technique which incorporates furture plans (Imaginative and prescient 2050) that specialize in a revamp of six spaces that want “restoration”: port, power, commercial, city and rural, inexperienced expansion, and State productiveness.
On this article, we will be able to speak about the mining sector in Mongolia, together with its present state and long term possibilities. We will be able to additionally discover the top-five industries and buyers within the nation, with an emphasis on diversification in overseas direct funding (FDI).
Mongolia’s mining sector at a look
Mongolia has been recognized via the World Financial Fund (IMF) as one of the crucial 29 growing international locations which are wealthy in herbal assets, and the exploration of coal and copper deposits is producing a vital quantity of additional income. Mongolia basically mines coal, copper, and gold.
There are more than a few gold mines located roughly 110 kilometers north of Ulaanbaatar, such because the Boroo Gold Mine and Gatsuurt Gold Mine. Moreover, the Khotgor Coal Mine, an open-pit coal mining web site, can also be discovered about 120 kilometers west of Ulaangom. Moreover, there are vital mining initiatives within the south of Mongolia, in particular within the Ömnögovi Province, together with the Tavan Tolgoi coal mine and the Oyu Tolgoi copper mine.
The mining trade is a the most important side of Mongolia’s financial system and a vital contributor to its expansion, comprising 21.6 p.c of the country’s GDP, 57 p.c of total commercial manufacturing, and 42 p.c of overall investments in 2020.
Mongolia’s mining output principally revolves round copper, gold, coal, and iron, and used to be chargeable for 26 p.c of the rustic’s funds income in 2020. Even supposing Mongolia additionally has a small oil and fuel trade, those assets have no longer been adequately exploited. The typical mining manufacturing in Mongolia between 2010 and 2023 used to be 16.09 p.c, with a top of 161.00 p.c in April 2021 and the bottom document of -39.60 p.c in March 2022.
Regardless of the most obvious financial demanding situations that arose attributable to the COVID-19 pandemic, mavens are expecting that Mongolia’s financial outlook stays favorable because of the emerging call for for coal and copper from China and larger mining operations. The rustic has a wealth of untapped herbal assets and has established a Sovereign Wealth Fund (SWF) to control rising revenues from mining exports. Mongolia plans to speculate over US$392 million right into a Long run Heritage Fund once a year as a part of its total financial expansion technique.
Best buyers in Mongolia’s mining sector
Whilst it must be famous that whilst Chinese language funding is very important in Mongolia’s mining sector, it’s not the one investor. Mongolia has been in search of to diversify its resources of funding to scale back its dependence on China.
The Mongolian govt has additionally been actively selling overseas funding in different sectors, comparable to tourism and agriculture.
Japan
Japan is without doubt one of the biggest buyers in Mongolia, with a vital presence within the mining sector. Jap corporations, comparable to Sumitomo Steel Mining and Mitsui & Co, had been concerned within the construction of copper and gold mines within the nation. Those corporations have invested billions of greenbacks in Mongolia’s mining trade, contributing to the field’s expansion and developing activity alternatives for locals.
But even so mining, Jap buyers have additionally been serious about different sectors of the financial system. In 2011, Japan and Mongolia signed a memorandum of cooperation within the box of power, then up to date in 2015 and 2018, with the purpose to advertise the improvement of renewable power in Mongolia. Jap buyers have additionally been lively in infrastructure construction, in particular within the transportation sector.
South Korea
South Korea has been making an investment in Mongolia’s mining sector, in addition to in infrastructure construction. Korean corporations, comparable to SK Telecom and LG, had been concerned within the construction of Mongolia’s 5G community and the development of a gas-fired energy plant in Ulaanbaatar.
South Korea has additionally been concerned within the construction of the Oyu Tolgoi copper-gold mine, one of the crucial biggest mining initiatives in Mongolia. South Korean banks, together with Kookmin Financial institution and Woori Financial institution, have supplied financing for the undertaking.
The Ecu Union
The Ecu Union has supplied construction help to Mongolia, and it has additionally invested within the nation’s mining sector. The EU has been serious about initiatives to give a boost to the regulatory atmosphere and governance within the mining trade, in addition to in infrastructure construction.
In 2019, the EU introduced a brand new program to make stronger sustainable mining in Mongolia. This system targets to advertise accountable mining practices, give a boost to the regulatory atmosphere, and make stronger the improvement of native communities suffering from mining actions.
United States
The US has invested in Mongolia’s mining sector, in particular within the construction of coal mines. Peabody Power, one of the crucial international’s biggest coal corporations, has been concerned within the construction of the Tavan Tolgoi coal mine in Mongolia. The USA has additionally supplied help in different spaces, comparable to training and public well being.
In 2020, america govt introduced a US$350 million financing bundle to make stronger infrastructure construction in Mongolia. The bundle contains investment for the development of a brand new airport in Khushig Valley, which is predicted to spice up tourism and business within the area.
Canada
Canada has invested in Mongolia’s mining sector, in particular within the construction of the Oyu Tolgoi copper-gold mine. Canadian corporations, comparable to Turquoise Hill Assets and Rio Tinto, had been concerned within the construction of the mine, which is predicted to supply greater than 500,000 lots of copper according to 12 months.
But even so mining, Canadian buyers have additionally been serious about different sectors of the financial system. In 2017, Canada and Mongolia signed a memorandum of working out to advertise cooperation within the fields of agriculture, power, and mining.
New traits and alternatives for overseas buyers in Mongolia’s mining sector
Move inexperienced and virtual
To scale back the environmental have an effect on of mining operations, Mongolian mining corporations are more and more bearing in mind inexperienced and virtual answers. This contains imposing measures to give a boost to power potency, cut back carbon emissions, and undertake waste control answers. The rustic’s biggest mining undertaking, Oyu Tolgoi, controlled via Rio Tinto, has dedicated to decarbonizing its operations, which would require the adoption of inexperienced and virtual answers.
Mineral exploration
As mineral exploration actions are anticipated to extend in Mongolia, there can be a rising call for for products and services associated with geological exploration, drilling, and different similar actions. This call for creates a possibility for firms that specialize in mineral exploration applied sciences. Moreover, there’s a want for sustainable mine closure answers, as all the lifestyles cycle of mines is now thought to be an integral a part of all mining operations.
Development of mining websites
Mining corporations in Mongolia also are in search of to give a boost to productiveness and potency on mine websites whilst lowering prices. Canadian mining provider and provider corporations have alternatives to supply answers for mining web site productiveness. Moreover, there’s a want for capability development and coaching of native workers, which gifts alternatives for firms that specialize in protection coaching and capability development.
The regulatory atmosphere and govt insurance policies
The Mongolian govt has applied insurance policies to inspire overseas funding within the nation’s financial system. The federal government has handed a number of regulations and laws to give a boost to transparency and governance within the mining trade, such because the amended 2017 Minerals Legislation and the ‘Imaginative and prescient 2050’ Lengthy-Time period Building Coverage
The federal government has additionally taken vital steps to safeguard and advance the rustic’s growing mining sector. The China-Mongolia-Russia Financial Hall (CMREC) is an initiative geared toward selling business between Mongolia and its neighbors and adorning infrastructure connectivity and regional financial integration. When finished, the CMREC will position Mongolia as a the most important hyperlink in newly bolstered business networks between the East and West, introducing new export routes and lowering freight instances. The Mongolian govt has additionally invested within the enlargement of railways and the development of greater than 6,000 kilometers of roads.
Consistent with the 2022 International Funding Record from the United International locations Convention on Business and Building, Mongolia gained greater than US$2.6 billion of FDI in 2021, a notable build up from the former 12 months.
Different promising sectors in Mongolia’s financial system
Regardless of experiencing a 4.4 p.c decline in expansion because of the have an effect on of the COVID-19 pandemic, Mongolia’s financial system regained momentum within the following two years, attaining a 2.2 p.c expansion in 2022. Mavens estimate the rustic will acquire a 4.5 p.c expansion via the tip of 2023.
But even so the mining sector, Mongolia’s financial system additionally is dependent upon promising sectors, comparable to agriculture, development, products and services, and production.
Agriculture
The agriculture sector in Mongolia is a the most important contributor to the rustic’s financial system, accounting for round 10 p.c of its GDP and offering employment for just about a 3rd of the inhabitants. Regardless of having huge tracts of fertile land and considerable water assets, the field faces vital demanding situations comparable to restricted marketplace get entry to, local weather exchange, and inadequate infrastructure. On the other hand, the federal government has offered more than a few insurance policies to inspire the field’s expansion, together with subsidies and credit score for farmers and investments in irrigation techniques.
Farm animals farming dominates the field, making up round 90 p.c of its overall output. Mongolia has one of the crucial biggest farm animals populations globally, with over 66 million farm animals, and is famend for its conventional nomadic herding practices nonetheless prevalent in rural spaces.
Development
Mongolia’s development sector has been all of a sudden rising in line with the call for for infrastructure and housing construction. In 2021, the dimensions of the development marketplace in Mongolia used to be assessed at US$2.2 billion. It’s predicted to enjoy an Moderate Annual Enlargement Price (AAGR) of over 4 p.c between the years 2023 to 2026.
As well as, the federal government has applied a number of insurance policies to inspire the expansion of the field, comparable to the rustic’s Funding Legislation, which supplies tax incentives for development initiatives.
Services and products
The provider sector in Mongolia is rather small, accounting for about 20 p.c of the GDP. On the other hand, it’s been rising lately, with the federal government figuring out tourism as a possible expansion house for the field.
Mongolia’s distinctive tradition and herbal landscapes be offering vital alternatives for tourism construction. Consistent with the International Commute and Tourism Council, the Mongolian tourism sector’s direct contribution to GDP has grown via 5.5 p.c according to 12 months till 2029.
Production
The producing sector in Mongolia is rather small, accounting for about 5 p.c of the GDP. In 2021, the rustic’s production output noticed a upward thrust of five.25 p.c in comparison to the former 12 months, attaining a complete of US$1.09 billion.
Diversification of FDI in Mongolia
The diversification of FDI is a vital part of Mongolia’s long-term financial technique. Diversifying the resources and varieties of FDI will assist the rustic reach sustainable expansion and cut back its reliance at the mining sector, which these days accounts for a good portion of FDI.
Diversifying FDI resources and sectors is the most important for Mongolia’s financial expansion and steadiness. The over-reliance at the mining sector has made the rustic liable to exterior shocks, comparable to fluctuations in commodity costs and the COVID-19 pandemic. Diversification would scale back the danger of financial instability and make sure that Mongolia is best in a position to climate financial downturns.
Additionally, diversifying FDI would permit Mongolia to leverage its different strengths and aggressive benefits. As an example, Mongolia has considerable renewable power assets, huge agricultural land, and a wealthy cultural heritage that might draw in funding within the tourism trade.
The present state of FDI in Mongolia
Mongolia has been a success in attracting FDI lately, with FDI inflows attaining a document top of USD 2.3 billion in 2019. The mining sector remains to be the main recipient of FDI, accounting for over 80 p.c of the whole FDI in 2020. China is the most important investor in Mongolia, adopted via Canada, Russia, and america.
The focus of FDI within the mining sector has resulted in a vital have an effect on at the nation’s financial system, with the mining trade accounting for 22 p.c of Mongolia’s GDP in 2021. The mining sector’s reliance on a couple of key commodities, comparable to coal and copper, additionally poses dangers to the rustic’s financial steadiness in the end.
Moreover, the COVID-19 pandemic has had a critical have an effect on on Mongolia’s financial system, with FDI inflows losing via 41 p.c in 2020 in comparison to the former 12 months. The decline in FDI has highlighted the desire for Mongolia to diversify its FDI resources and sectors to mitigate the consequences of exterior shocks at the financial system.
Sectors with possible for FDI
Mongolia has a number of sectors as opposed to mining that experience the opportunity of attracting FDI. Those sectors come with agriculture, tourism, and renewable power.
Agriculture is a vital sector for Mongolia, contributing round 14 p.c to the rustic’s GDP. Mongolia has huge tracts of fertile land and a really perfect local weather for farm animals and crop manufacturing, making it a phenomenal vacation spot for funding in agriculture.
Tourism is some other sector with super possible for FDI. As much as 2019, tourism performed a vital function in boosting Mongolia’s financial system, representing 7.2 p.c of its GDP, 6.8 p.c of its overall exports, and seven.6 p.c of its overall employment, making it probably the most wealthy 12 months on this trade. On the other hand, in 2020, the COVID-19 pandemic led to tourism to say no dramatically.
Mongolia has a novel cultural heritage and shocking herbal landscapes, making it a well-liked vacation spot for eco-tourism, journey tourism, and cultural tourism. The federal government has been making an investment in growing infrastructure and selling the field, developing alternatives for overseas buyers.
Renewable power holds vital possible for FDI as smartly. Mongolia has considerable wind, sun, and geothermal assets which may be harnessed to fulfill the rustic’s power wishes or even exported to neighboring international locations. The federal government has offered insurance policies and incentives to draw funding in renewable power, developing a positive atmosphere for overseas buyers.
Govt efforts to draw diverse funding
The Mongolian govt has applied a number of insurance policies and tasks to advertise the diversification of FDI and draw in funding in sectors as opposed to mining. Those insurance policies come with tax incentives, funding promotion, and the established order of particular financial zones.
Tax incentives are one of the crucial efficient techniques to draw FDI. The Mongolian govt has offered tax exemptions and discounts for buyers in precedence sectors comparable to agriculture, renewable power, and tourism. The federal government has additionally diminished the company source of revenue tax price from 25 p.c to ten p.c for small and medium-sized enterprises (SMEs) running within the non-mining sector.
Funding promotion is some other technique utilized by the federal government to draw FDI. The federal government has established the Funding Company of Mongolia to advertise funding alternatives within the nation and supply make stronger and steering to buyers. The federal government has additionally participated in world funding boards and roadshows to show off funding alternatives in Mongolia.
The federal government has additionally established particular financial zones (SEZs) to advertise funding in particular sectors. For instance, the Sainshand Commercial Park is a different financial zone fascinated about growing renewable power, mild trade, and logistics.
Regardless of those insurance policies, diversification of FDI stays a problem for Mongolia. The mining sector continues to dominate FDI inflows, and the non-mining sectors face a number of demanding situations, comparable to insufficient infrastructure, loss of professional exertions, and restricted get entry to to financing.
Conclusion
In abstract, Mongolia’s financial system and mining sector cling immense possible for buyers having a look to leverage the rustic’s considerable mineral assets and all of a sudden rising financial system. Even supposing there are some hindrances, comparable to political instability and infrastructure boundaries, the federal government’s determination to encouraging overseas funding and adorning the funding atmosphere, mixed with the country’s abundant herbal assets and strategic place, make it an interesting funding vacation spot.
About Us
China Briefing is written and produced via Dezan Shira & Friends. The apply assists overseas buyers into China and has performed so since 1992 thru places of work in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please touch the company for help in China at china@dezshira.com.
Dezan Shira & Friends has places of work in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, along with our business analysis amenities alongside the Belt & Street Initiative. We even have spouse companies aiding overseas buyers in The Philippines, Malaysia, Thailand, Bangladesh.
